Thursday, February 14, 2008

The next bubble?

Eric Janszen writes in Harpers this month about how western economies are now addicted to bubbles, to the unrealistic inflation of one market sector after another and then moving on to the next one after the fictitious profits die and go to money heaven.

Before the current sub-prime housing meltdown of course, there was the bizarre overvaluing of internet businesses with no idea how to translate internet clicks into actual cash and all you had to do to collect on an absurd payday was to hold an IPO for a company with .com in its name.

I can't be too smug because I was working for one when the internet bubble popped. I remember co-workers that were incredulous that I wasn't investing half my salary on the weeks latest IPOs. By the end, the Vice President was driving a cab to feed his family and sleeping in his office. I managed to get fired and collect severance before the whole thing imploded completely.

Janszen thinks he's identified the next bubble floating to the surface in the alternative energy field. He makes a compelling case and ethanol in particular is unambiguously a huge boondoggle. The question is if enough funds can make it to the kind of green power and infrastructure investments that are necessary without sinking the whole field by going to the irrational exuberance place.

Al Gore uses the sub-prime mess to make a very different point
about the potential economic true cost landmines of carbon heavy investments waiting to go off in people's portfolios.
"You need to really scrub your investment portfolios, because I guarantee you — as my longtime good redneck friends in Tennessee say, I guarandamntee you — that if you really take a fine-tooth comb and go through your portfolios, many of you are going to find them chock-full of subprime carbon assets," the former vice president said.

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