That's what a bubble means

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That's what a bubble means

Postby Vaniver » Thu Oct 07, 2010 12:53 pm UTC

Reporters make me sad.

Billionaire financier George Soros, echoing comments from investment guru Warren Buffett, last month described gold as the "ultimate bubble" because it is costly to dig up and has no real value except its market price.

But a rising price for the precious metal has in itself generated more and more demand from investors looking for a way to hedge against a fresh recession.
Emphasis mine. But? That's exactly what a bubble is- a rise in price attracts people solely because the price is rising, which creates a bubble.

At least the article has three people recommending against gold- but when I see lines like that right next to each other I just have to point it out.
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Re: That's what a bubble means

Postby The Reaper » Thu Oct 07, 2010 12:57 pm UTC

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Re: That's what a bubble means

Postby Griffin » Thu Oct 07, 2010 1:37 pm UTC

I wonder how long it will be before this bubble collapses...

Why are investors so intent on making bubbles lately? I was actually wondering what the next one was going to be. Have we had a year where we haven't been building a bubble or collapsing one since '95?
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Re: That's what a bubble means

Postby Zamfir » Thu Oct 07, 2010 1:39 pm UTC

In the end money itself is the ultimate bubble, and gold only a reflection of that.

It is useful to have at least one exchange and hoarding medium. Such a medium, whatever it is, doesn't need any reason to be valuable outside the expectation that others in the future will consider it valuable too. So it is useful for society to blow at least one bubble, and use that bubble as money.

Historically, shiny metals have been that one bubble. For so long, that it is now completely ingrained in everyone on this planet: gold is valuable. Which of course makes it a prime candidate to become money again. It might take a long time of other money, centuries probably, before this effect disappears.

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Re: That's what a bubble means

Postby SlyReaper » Thu Oct 07, 2010 1:47 pm UTC

Griffin wrote:Why are investors so intent on making bubbles lately?


Not just lately, it's been happening for as long as we've had currency. It's completely rational to buy a commodity if you see its value rising, because you can make a profit by selling it later. The act of buying it increases its value further in a kind of positive feedback cycle, thus creating a bubble.

/captain obvious to the rescue
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Re: That's what a bubble means

Postby Xeio » Thu Oct 07, 2010 1:48 pm UTC

Which sucks, because we could be using gold for useful things, like as conductors, if it wasn't so expensive. Why can't we pick something useless for money, like, say, pieces of cotton paper dyed to be very specifically identifiable?

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Re: That's what a bubble means

Postby broken_escalator » Thu Oct 07, 2010 1:54 pm UTC

Paper money? I dare say, how absurd.

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Re: That's what a bubble means

Postby SlyReaper » Thu Oct 07, 2010 1:55 pm UTC

It'll never catch on.
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Re: That's what a bubble means

Postby Cleverbeans » Thu Oct 07, 2010 1:57 pm UTC

Personally I'm investing in World of Warcraft gold as a hedge, that way when the alchemists find a way to turn lead into real gold I'll have safely protected my accumulated wealth.
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Re: That's what a bubble means

Postby bigglesworth » Thu Oct 07, 2010 1:59 pm UTC

QUICK BUY COWRIE SHELLS
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Re: That's what a bubble means

Postby SlyReaper » Thu Oct 07, 2010 2:00 pm UTC

Cleverbeans wrote:Personally I'm investing in World of Warcraft gold as a hedge, that way when the alchemists find a way to turn lead into real gold I'll have safely protected my accumulated wealth.


Just think how valuable lead will be when that happens. Lead is where the smart money is, you mark my words.
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Re: That's what a bubble means

Postby Kulantan » Thu Oct 07, 2010 2:02 pm UTC

I've put my money into the tulip business. I mean, it can't go wrong a second time. I'm sure they learned from their mistakes the first time around.
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Re: That's what a bubble means

Postby Zamfir » Thu Oct 07, 2010 2:04 pm UTC

Xeio wrote:Which sucks, because we could be using gold for useful things, like as conductors, if it wasn't so expensive. Why can't we pick something useless for money, like, say, pieces of cotton paper dyed to be very specifically identifiable?

At this moment, gold isn't valuable because it is money, but because it might be money again in the future. Don't forget, the last gold standard was only 40 years ago.

China used a paper fiat money system in the 12th and 13 century, but in the end of the Yuan and early Ming people the system collapsed a few times, and people switched to silver. There are decent odds that this happens to our system too, somewhere in the next centuries. Gold is the likely candidate to form the basis for a new currency then.

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Re: That's what a bubble means

Postby BlackSails » Thu Oct 07, 2010 2:13 pm UTC

EVERYTHING only has value because we give it value. Gold is something that has had great value for thousands of years, and I dont really see that changing any time soon. The gold you buy today will be valuable in 50 years. Can you say the same about your laptop?

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Re: That's what a bubble means

Postby Zamfir » Thu Oct 07, 2010 2:17 pm UTC

Kulantan wrote:I've put my money into the tulip business. I mean, it can't go wrong a second time. I'm sure they learned from their mistakes the first time around.

That's actually completely true. There is nothing bubbly about the tulip bulb business.

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Re: That's what a bubble means

Postby Princess Marzipan » Thu Oct 07, 2010 2:50 pm UTC

Zamfir wrote:
Kulantan wrote:I've put my money into the tulip business. I mean, it can't go wrong a second time. I'm sure they learned from their mistakes the first time around.

That's actually completely true. There is nothing bubbly about the tulip bulb business.
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Re: That's what a bubble means

Postby bigglesworth » Thu Oct 07, 2010 2:57 pm UTC

Princess Marzipan wrote:threatened to collapse world economy before.
Tulips are Russian TV villains now?
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Re: That's what a bubble means

Postby savanik » Thu Oct 07, 2010 2:58 pm UTC

Gold's valuable because it's rare and useful. Any good which shares these two characteristics will be sought after. But yeah. It's also real bubbly right now. It's going to be... impressive... when that pops. Since people view gold as 'a stable store of value', I wonder what they'll think when it abruptly loses 30-40% of value in a few days?

My bet is on, 'The sky is falling'.
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Re: That's what a bubble means

Postby bigglesworth » Thu Oct 07, 2010 3:02 pm UTC

Gold's main advantage is that it is difficult to destroy by accident, I thought.
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Re: That's what a bubble means

Postby Endless Mike » Thu Oct 07, 2010 3:53 pm UTC

Xeio wrote:Which sucks, because we could be using gold for useful things, like as conductors, if it wasn't so expensive.

Seriously. I kind of hate it when people try to suggest that gold has no use other than looking pretty.

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Re: That's what a bubble means

Postby CorruptUser » Thu Oct 07, 2010 4:06 pm UTC

Personally, I have an account earning 100,000,000% interest in Zimbabwean dollars.

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Re: That's what a bubble means

Postby jestingrabbit » Thu Oct 07, 2010 4:08 pm UTC

SlyReaper wrote:
Griffin wrote:Why are investors so intent on making bubbles lately?


Not just lately, it's been happening for as long as we've had currency exchanges.


That's true, but there has been a pretty significant increase in frequency lately. It was the case for several hundred years that you'd get a bubble every 50 years or so. The last two big ones have been separated by a decade. I think it might be because the baby boomers have retired, and all their superannuation capital is now floating around trying to make money, and their productive capacity is leaving the economy at the same time. That's not a good combination: you need actual economic productivity to make money off, or its just a bubble.
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Re: That's what a bubble means

Postby Zamfir » Thu Oct 07, 2010 4:37 pm UTC

jestingrabbit wrote:
SlyReaper wrote:
Griffin wrote:Why are investors so intent on making bubbles lately?


Not just lately, it's been happening for as long as we've had currency exchanges.


That's true, but there has been a pretty significant increase in frequency latoely. It was the case for several hundred years that you'd get a bubble every 50 years or so. The last two big ones have been separated by a decade. I think it might be because the baby boomers have retired, and all their superannuation capital is now floating around trying to make money, and their productive capacity is leaving the economy at the same time. That's not a good combination: you need actual economic productivity to make money off, or its just a bubble.


There seems to be truth in that: if you ask who paid, in the end, for most finacial weirdness, the answer is more often than not a pension fund looking for a few points extra.

But it can only be half of the answer. It still leaves the question why people buy into bubbles, instead of accepting that the risk-free rate of return is low if there is lots of savings around. 'they are stupid' is a bit too cute as answer, I think.

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Re: That's what a bubble means

Postby Eowiel » Thu Oct 07, 2010 4:50 pm UTC

savanik wrote:Gold's valuable because it's rare and useful. Any good which shares these two characteristics will be sought after. But yeah. It's also real bubbly right now. It's going to be... impressive... when that pops. Since people view gold as 'a stable store of value', I wonder what they'll think when it abruptly loses 30-40% of value in a few days?

My bet is on, 'The sky is falling'.

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Re: That's what a bubble means

Postby bigglesworth » Thu Oct 07, 2010 4:54 pm UTC

Zamfir wrote:But it can only be half of the answer. It still leaves the question why people buy into bubbles, instead of accepting that the risk-free rate of return is low if there is lots of savings around. 'they are stupid' is a bit too cute as answer, I think.
'They are greedy' is even more cute, but it's what I thought of first.
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Re: That's what a bubble means

Postby SlyReaper » Thu Oct 07, 2010 4:58 pm UTC

bigglesworth wrote:
Zamfir wrote:But it can only be half of the answer. It still leaves the question why people buy into bubbles, instead of accepting that the risk-free rate of return is low if there is lots of savings around. 'they are stupid' is a bit too cute as answer, I think.
'They are greedy' is even more cute, but it's what I thought of first.

The answer is because it is rational behaviour. If you see a commodity and it's dvalue/dtime is positive, it makes sense to buy some of it, wait a while, then sell it later. Odds are good that it'll make you a profit as long as you don't wait so long that the bubble bursts before you sell.
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Re: That's what a bubble means

Postby Shivahn » Thu Oct 07, 2010 5:37 pm UTC

Endless Mike wrote:
Xeio wrote:Which sucks, because we could be using gold for useful things, like as conductors, if it wasn't so expensive.

Seriously. I kind of hate it when people try to suggest that gold has no use other than looking pretty.

Looking pretty is kinda useful.

I mean, gold jewelry is far better than gold ingots, in terms of being used.

Unless you're like, building a house out of them I guess.

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Re: That's what a bubble means

Postby Endless Mike » Thu Oct 07, 2010 5:42 pm UTC

Shivahn wrote:
Endless Mike wrote:
Xeio wrote:Which sucks, because we could be using gold for useful things, like as conductors, if it wasn't so expensive.

Seriously. I kind of hate it when people try to suggest that gold has no use other than looking pretty.

Looking pretty is kinda useful.

I mean, gold jewelry is far better than gold ingots, in terms of being used.

Unless you're like, building a house out of them I guess.

I dunno. A gold ingot makes a far better weapon than an earring.

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Re: That's what a bubble means

Postby ++$_ » Thu Oct 07, 2010 5:47 pm UTC

Endless Mike wrote:I dunno. A gold ingot makes a far better weapon than an earring.
Nah, it's too hard to stuff it into the barrel.

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Re: That's what a bubble means

Postby michaelyw » Thu Oct 07, 2010 6:01 pm UTC

This is why I'm investing in Beanie Babies, collectible cards, tulips, and all the collectibles sold by the Franklin Mint.

Gold is for suckers.

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Re: That's what a bubble means

Postby Anubis » Thu Oct 07, 2010 6:17 pm UTC

SlyReaper wrote:
bigglesworth wrote:
Zamfir wrote:But it can only be half of the answer. It still leaves the question why people buy into bubbles, instead of accepting that the risk-free rate of return is low if there is lots of savings around. 'they are stupid' is a bit too cute as answer, I think.
'They are greedy' is even more cute, but it's what I thought of first.

The answer is because it is rational behaviour. If you see a commodity and it's dvalue/dtime is positive, it makes sense to buy some of it, wait a while, then sell it later. Odds are good that it'll make you a profit as long as you don't wait so long that the bubble bursts before you sell.


The problem is that virtually everyone overestimates their ability to time the markets.

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Re: That's what a bubble means

Postby Shivahn » Thu Oct 07, 2010 6:22 pm UTC

Endless Mike wrote:I dunno. A gold ingot makes a far better weapon than an earring.


That's true. But you can find good replacements (even better ones) for weapons than gold.

As far as I know, there's no fake metal that's quite like gold.

Of course, I'm basically playing devil's advocate. I tend to think gold looks gaudy. Silver's where it's at.

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Re: That's what a bubble means

Postby SlyReaper » Thu Oct 07, 2010 6:39 pm UTC

Anubis wrote:
SlyReaper wrote:
bigglesworth wrote:
Zamfir wrote:But it can only be half of the answer. It still leaves the question why people buy into bubbles, instead of accepting that the risk-free rate of return is low if there is lots of savings around. 'they are stupid' is a bit too cute as answer, I think.
'They are greedy' is even more cute, but it's what I thought of first.

The answer is because it is rational behaviour. If you see a commodity and it's dvalue/dtime is positive, it makes sense to buy some of it, wait a while, then sell it later. Odds are good that it'll make you a profit as long as you don't wait so long that the bubble bursts before you sell.


The problem is that virtually everyone overestimates their ability to time the markets.


No, the people who lose out are the ones who overestimate their ability. The bubble collapses when a significant number of investors in product X decide to cash in at the same time. Those investors win big time. Those who are late to the party lose everything. Their money now belongs to the ones who were quick off the mark.
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Re: That's what a bubble means

Postby CorruptUser » Thu Oct 07, 2010 8:08 pm UTC

SlyReaper wrote:No, the people who lose out are the ones who overestimate their ability. The bubble collapses when a significant number of investors in product X decide to cash in at the same time. Those investors win big time. Those who are late to the party lose everything. Their money now belongs to the ones who were quick off the mark.


But the end result is that the people who win merely take from the people who lose; a zero sum game. Actually, worse than a zero-sum game, because the end result diverts investment from, well, investment, and stifles the economy.

At least with more normal economic activity, when you "win" it's because you produced the most. If an entertainer (e.g., musician, professional athlete) provides entertainment that 10 million people are willing to pay $20 for, then that entertainer has produced 200 million dollars of entertainment and has a right to more money than the doctor who provides 100 surgeries that people will pay $5,000 for.

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Re: That's what a bubble means

Postby frezik » Thu Oct 07, 2010 9:10 pm UTC

Endless Mike wrote:
Xeio wrote:Which sucks, because we could be using gold for useful things, like as conductors, if it wasn't so expensive.

Seriously. I kind of hate it when people try to suggest that gold has no use other than looking pretty.


For what? It's useful as a very thin coating on electrical conductors to prevent oxidation. As a conductor, silver has a lower ohms/meter, and plain copper isn't far behind. If you spent money on an all-gold A/V cable, you wasted your money.

If gold actually is useful, why should we encourage people to hoard it instead of using it? If it's not useful, why does anyone care enough to hoard it?
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Re: That's what a bubble means

Postby Endless Mike » Thu Oct 07, 2010 9:15 pm UTC

So you agree that it has genuine uses.

Diamonds have all sorts of uses but we hoard those, as well.

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Re: That's what a bubble means

Postby Xeio » Thu Oct 07, 2010 9:27 pm UTC

Endless Mike wrote:So you agree that it has genuine uses.

Diamonds have all sorts of uses but we hoard those, as well.
Go go synthetic diamonds! Though I'd like to see if the semiconductor use of diamond actually pans out...

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Re: That's what a bubble means

Postby BlackSails » Thu Oct 07, 2010 9:39 pm UTC

Endless Mike wrote:
Diamonds have all sorts of uses but we hoard those, as well.


The supply of diamonds is also artificially scarce, as opposed to gold which is actually scarce.

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Re: That's what a bubble means

Postby frezik » Thu Oct 07, 2010 10:36 pm UTC

Endless Mike wrote:So you agree that it has genuine uses.

Diamonds have all sorts of uses but we hoard those, as well.


Gold a a genuine use in very small quantities, and those uses only existed in the last few decades. Why has it been so sought after for most of the history of human civilization?

Artificial diamonds have more than covered the demand in the industrial sector. When you're running a business, you're less likely to buy into DeBeer's marketing excrement.
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Re: That's what a bubble means

Postby BlackSails » Thu Oct 07, 2010 11:03 pm UTC

frezik wrote:
Gold a a genuine use in very small quantities, and those uses only existed in the last few decades. Why has it been so sought after for most of the history of human civilization?


Looking pretty is a perfectly legitimate use. Or is there also a bubble for Monet paintings?


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