The World's Biggest Bubbles

We recently discussed (see here) Alberto Gallo’s (portfolio manager of Algebris Macro Credit Fund) shot at the $64,000 (more like trillion) question in his report “The Central Bank Bubble: How Will It Burst?”.

As we said at the time, one of our favourite parts of the report was “The Money Tree” infographic which explains how QE has benefited a plethora of investment strategies and created the bubble to end all bubbles.

Having outlined four scenarios which could prick the central bank bubble, Gallo has done some further work in which he identifies what he thinks are the fourteen largest bubbles in the world today. Helpfully, he also ranks them. From the Financial Sense website.

Many economists believe that it’s impossible to recognize bubbles before they pop. However, Alberto Gallo of Algebris Investments has compiled a list of the largest potential bubbles around the world today, ranked by degree of risk based on size, duration, percent appreciation, valuations, and the types of irrational behavior driving them higher. Financial Sense spoke with him…to discuss his research, the areas he believes are highest at risk, and how he's approaching the current investment environment…Right now, the risk is high in a variety of assets around the world. “We’re in a world where most assets are overvalued,” Gallo said, which means “in a world where almost everything looks like a bubble, the definition of a bubble has to be changed.”

Besides valuation, Gallo lists another ten characteristics which are “typically present” in today’s bubbles. These are:

This time is different
Fear of missing out
Sky is the limit
Flipping
No credit, no problem
Buy the dip
Borrow while you can
Bidding wars
The trend is your friend
Financial engineering

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