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Expecting the price of something to rise in the future is not the definition of a bubble. When people were selling houses in Detroit at the bottom of the housi

Expecting the price of something to rise in the future is not the definition of a bubble. When people were selling houses in Detroit at the bottom of the housing crisis for $1000, the people buying them were expecting the value to rise in the future. It's almost like profiting off of fear not greed.

nostrademons 7y ago
Expecting the price to rise when you know the underlying fundamentals don't support that price is the definition of a bubble. People buying houses in Detroit have an investment thesis that there will still be people living in Detroit and they will still need houses, and even more broadly, that there will be more people needing more houses than there were at the bottom of the housing crisis. They may be right or wrong, but there's still a thesis based on fundamentals. People buying unbuilt houses in the middle of the Everglades [1] because they heard of prices doubling or tripling within a year is speculation, and many of those areas still have not regained the value that investors paid for them, almost 100 years later, and probably never will. [1] http://www.thebubblebubble.com/florida-property-bubble/ http://www.thebubblebubble.com/florida-property-bubble/
- Atheros 7y ago
  That's not what's happening with bonds. The underlying fundamentals do support a higher price if interest rates go down. The price would then stay there until interest rates rise. In all of these cases the market price is fully rational and fully supported.
- unreal37 7y ago
  The bond market, where trillions are traded by sophisticated investors, is by definition efficient. If the price of something is higher than the "fundamentals support", that price will adjust because there are literally billions being traded every hour. You could say that the price of land in the Everglades is set because of unsophisticated investors, with relatively little money at stake. They can't be compared.
waqf 7y ago
GP didn't say that a bubble is expecting the price of something to rise, they said that a bubble is expecting the price of something with negative fundamental returns to rise.

nostrademons 7y ago

Expecting the price to rise when you know the underlying fundamentals don't support that price is the definition of a bubble. People buying houses in Detroit have an investment thesis that there will still be people living in Detroit and they will still need houses, and even more broadly, that there will be more people needing more houses than there were at the bottom of the housing crisis. They may be right or wrong, but there's still a thesis based on fundamentals. People buying unbuilt houses in the middle of the Everglades [1] because they heard of prices doubling or tripling within a year is speculation, and many of those areas still have not regained the value that investors paid for them, almost 100 years later, and probably never will. [1] http://www.thebubblebubble.com/florida-property-bubble/ http://www.thebubblebubble.com/florida-property-bubble/

Atheros 7y ago
That's not what's happening with bonds. The underlying fundamentals do support a higher price if interest rates go down. The price would then stay there until interest rates rise. In all of these cases the market price is fully rational and fully supported.
unreal37 7y ago
The bond market, where trillions are traded by sophisticated investors, is by definition efficient. If the price of something is higher than the "fundamentals support", that price will adjust because there are literally billions being traded every hour. You could say that the price of land in the Everglades is set because of unsophisticated investors, with relatively little money at stake. They can't be compared.

waqf 7y ago

GP didn't say that a bubble is expecting the price of something to rise, they said that a bubble is expecting the price of something with negative fundamental returns to rise.