- Stock market bubbles are GOOD…
- The ultimate bubble…
- Revealed: The Rich’s Income Strategy That Stood The Test Of Time
Dear Reader,
Long live the stock market bubble!
For the bubble is but a camouflaged blessing… for which we all must express gratitude.
Market commentator Mark Hulbert, he of the eponymous Hulbert Ratings:
- Stock-market bubbles serve a valuable economic purpose, even though investors lose lots of money when they burst.
- In other words, what may be irrational behavior at the individual investor level may be rational at the macroeconomic level.
- That is the provocative finding of an academic study titled “Two Centuries of Innovations and Stock Market Bubbles”…
The Case for Bubbles
Could it be true? Here is the rock of the virtuous bubble theory:
- The study’s authors found that stock-market bubbles give startups access to much cheaper and more plentiful equity capital than they would otherwise have, which in turn enables the industry to engage in the trial and error essential to technological innovation.
- Without bubbles, in other words, there would be less risk-taking and innovation.
I imagine the theory has something in it.
“There were no bubbles in the Soviet Union,” as snickered old Alan Greenspan, former Federal Reserve Chairman.
Yet — I would remind the Maestro — Soviet bubbles could not even form.
That is because the Soviet Union did not feature a stock market.
Perhaps a bubble in space exploration might have taken shape following Sputnik?
A bubble in anti-nuclear radiation medicines following Chernobyl?
A bubble in anti-aging technologies developed to extend the lives of its ancient premiers?
I do not know.
But to proceed…
Bubbles 73% of the Time
The authors of this investigation interrogated the historical record, 1825-2000.
They lowered their fingers upon 51 substantial innovations introduced therein.
They further “test[ed] for bubbles in the stock prices of parent firms subsequent to the commercialization of these innovations.”
In 73% of the cases examined, the authors claim, they detected bubbles.
These include bubbles in the railroad… in the telegraph… in the automobile… in the radio… in the airplane… in the personal computer… in the microwave oven… and in the Internet industries.
The world is that much improved because of them.
Investigators located no evidence of bubbles surrounding 14 additional innovations — including the color television and electronic watch.
I do not know if the inquiry’s authors detected bubble formation surrounding the inventions of dynamite (1867), the Maxim gun (1884) or the atom bomb (1945).
Yet what other inventions have bettered the human condition than these?
It is inconceivable to this observer that stock market bubbles did not attend their blessed development.
The Mother of All Bubbles
Meantime, my spies have whispered into my ear — hesitantly, guardedly — that the Central Intelligence Agency has acquired the technological means to inflict enemies of the United States with rapidly spreading cancers.
What is more, that the spy agency has already implemented this technology upon human subjects.
I am eager to invest in the parent firm that developed this infinitely useful technology.
Thus I requested of my men the identity of that firm. Alas, they simply shook their heads.
“I don’t know,” they said in unison, disappointment registering in their voices.
Yet imagine the profit potential for its early investors!
They would amass immense fortunes dwarfing the present fortunes of early Bitcoin investors.
What is more, it is nearly inconceivable that this bubble would ever burst… such would be the demand for the product.
Infinite Demand
Why shoot or stab a dreaded enemy when you can simply get a rapidly spreading cancer into him?
How would the police ever know?
The coroner would simply report the deceased succumbed to a rapidly spreading cancer.
Thus I demand this technology be made publicly available at once.
A bubble on the scale of Jupiter will immediately develop around it.
I alone can think of six individuals — no, seven; I must add an eighth — who are excellent candidates for this technology.
And I am merely one person! Multiply my lone example by millions and millions and you get an idea of the profit potential.
Yet I have indulged in fantasy long enough. Let us then return to the study under consideration.
What if This Study Encourages the Fed?
One particular conclusion of the study grips me in fear.
That is because the study itself… advertently or inadvertently… represents an endorsement of the Federal Reserve.
That is because the Federal Reserve is a serial inflator of stock market bubbles.
Normally a criticism, the central bank can now claim it as a virtue.
“Look,” they might say, “without all those bubbles we helped create, innovation would have stagnated. We’ve greatly improved the economy through our bubble-blowing.”
Mr. Hulbert:
- One of the more important policy implications is that the… Federal Reserve should not try to discourage bubbles from forming…
- The aftermath of a bubble bursting can be painful, particularly for those who invested at or near the top, as well as the many others who suffer the collateral damage of that bursting. But… supported by this study… this turmoil is worth it because of the technological innovation it helps to fund. The alternative would be slower economic growth over the long run.
Thus the Federal Reserve might believe stock market bubbles are its gifts to us.
The words of Mr. C.S. Lewis spring immediately to mind:
- Those who torment us for our own good will torment us without end for they do so with the approval of their own conscience.
Think of the Greater Good
Thus you must abandon all concern, all fear, of stock market bubbles.
Might they clean you out upon their bursting?
Might they claim the very shirt upon your back?
Well friend, they might.
Yet with the aloes comes the honey.
As you languish in the gutter, destitute and despairing, you must place your impoverishment in its proper context… and rejoice:
The world is better for it.
Brian Maher
for Freedom Financial News
