How a Bubble Gives Us a Glimpse into the Future

Bubbles in any market have a horribly negative connotation. Both the evil-doers that inflate the bubble with their irrational actions and those who suffer from it are documented endlessly once the bubble pops – but what is often overlooked is the glimpse into the future & the lessons that could be learned, offered by the bubble experience.

Let’s explore this thought. The tech bubble, for all of its bad points, did point to where we are now. Remember how they laid too much fiber for the capacity at the time? How all that available pipeline would never be used after the crash? Well guess what? Here we are 8 years later, and Akamai Technologies in Cambridge, MA is making a killing rerouting internet traffic to avoid bottlenecks. Apparently, we need more capacity!

Along these same lines, we can learn from a potential commodities bubble. Now whether or not we are in a bubble, temporarily, I’m not sure. But there is a chance that we will have a in the commodities bull market, which may correspond with a general correction economic slowdown. What will we do when that happens?

Will we forget the scare of high commodity prices, or will we use the break to move more quickly to alternatives, especially in energy? Just as the tech bubble hinted at future technology needs and demands, I think a commodities bubble can give us a glimpse into the future where raw materials costs run high, inflation is rampant, and growth slows or stops.

Either we learn from this run up, and make smart choices when (if?) the market relaxes, or we discover, 5 years from now, that the inflation predicted by the commodities super run-up in 2007-08, was accurate, and that we are all in a world of serious hurt that we can not fix.

I hope we learn from this “bubble.”

Editor’s note: as an aside, but corollary to bubble pyschology,¬† Suze Orman recently changed her belief in index funds to more actively managing a portfolio – see the article HERE. Riding indices post bubble may not be a good idea according to Suze

Chris Grande

6.17.08

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