This year, "bubble" headlines are everywhere you look...
- "Has the online e-commerce bubble burst post-COVID?" writes Tech Digest.
- "Buy now, pay later is not a boom, it's a bubble" says CNBC.
- "Housing bubble 2.0?" asks Fortune.
- "Is the Instagram bubble finally about to burst?" frets the Evening Standard.
If you believe the mainstream financial media, just about every investable asset is in a bubble. And they're all either inflating too fast... or almost ready to burst.
There are bubbles in renewable energy, space technology, and streaming services... in growth stocks and value stocks... in bitcoin and non-fungible tokens. America's housing market is in a bubble. And so is Canada's... not to mention the U.K.'s.
But the market isn't that simple.
Sure, assets rise and fall. But despite what you're hearing, bubbles aren't everywhere you look. And the media companies that are saying so have other motives.
I know because one true bubble recently went bust. And almost no one's talking about it...
Bubbles form and pop in a predictable pattern...
- Investors get excited about an asset and buy. Prices rise.
- Other folks fear missing out, so they buy too. Prices rise even higher.
- Folks throw caution to the wind and buy at any price.
- The smart investors see the writing on the wall. They take profits, and the price of the asset falls.
- Other investors get spooked. They sell like mad, trying to get out before prices fall further.
- The earlier gains are erased, and most importantly, the bubble does not reinflate.
It's a cycle that goes back to the earliest days of investing. But the "bubble" label is wildly overused in today's financial press. And it's starting to pollute consumer sentiment.
We can use Google Trends data to see this. This data shows how much Google users are searching for a keyword in a given time frame. Take a look at their interest in the word "bubble"...
Based on search history, people were more concerned about bubbles at the start of this year than at any point in the last decade. And even though those levels have dropped recently, worries are still historically elevated.
A bubble isn't just when an asset rises quickly, though. It's a full round trip in the price of something that didn't have much value to begin with.
We have a prime example today. It's a bubble that recently burst in a distant corner of the market. Yet no one seems to care...
I'm talking about metaverse real estate.
You've probably heard of the metaverse by now. It's an immersive virtual reality that promises to replace the Internet with a utopian 3D world... And major companies are betting big on it. McKinsey predicts we'll see $5 trillion in metaverse spending by 2030.
Although the metaverse hasn't realized its full potential yet, you can access it on many platforms today. Here's one I jumped into just now, called "Voxels"...
You'll notice that this environment is divided into "plots." Well, these plots are available for purchase.
In theory, you could own "land" in a home-away-from-reality... or even become a virtual landlord, leasing your plot to another user or corporate entity.
But if you bought into this market, you probably shouldn't have...
On August 3, tech journal The Information charted the outcome for virtual real estate investors. And while you've probably never heard about it, the price action shows a classic asset bubble. Take a look...
The average price of virtual real estate made a full round trip. So did monthly trading volumes... which soared from zero to more than $200 million in less than a year, before the ultimate crash.
Today, virtual real estate's value is still hypothetical. So it's no surprise that its surge was driven by pure bubble behavior – greed and the fear of missing out.
Now, again, this is the exact narrative the finance media is so obsessed with. But aside from some tech reporting, the metaverse real estate bubble – and subsequent bust – didn't grab much attention...
The reason is that the financial press isn't interested in keeping you informed. It wants to drive your fear (and get your clicks).
So instead of finding the real stories, the media harps on so-called "bubbles" in the same old assets again and again. It's doing it to send another message: If you invest independently, you are going to lose your money.
Don't believe that fear. Investing is still the best way to build wealth in the long term. And you can do it yourself...
If you invest wisely and keep your money in good companies, you can avoid the real bubbles – and earn solid returns.
Sean Michael Cummings
We're nowhere near the euphoria of a stock bubble today. Investors are still worried, even as stocks turn higher. It may not be a firm buy signal yet – but it could mean the worst of this bear market is behind us... Learn more here: This Is What Capitulation Feels Like.
"If you're waiting for a crash to buy a house, there's a good chance you'll be waiting forever," Sean writes. The frothy U.S. housing market has cooled recently... But falling demand is only part of the economic picture. Find out why we'll likely see higher prices ahead right here.