Monday, May 17, 2004

Everything is a Bubble

by Asim Jalis

1. The dotcom bubble is considered something bad. Bubbles are "bad". They are built on false promises. Some people suspect the current inflation of real estate prices might be a bubble. There is "good" solid sustainable growth and then there are bubbles which are "bad" and unsustainable. 2. But what if everything is a bubble. Clearly civilization is a kind of a bubble. We consume our natural resources. As civilization and free markets expand our energy demands will outstrip our supply. The unsustainability of the bubble will be exposed and it will collapse. 3. McDonalds is experiencing shrinking market share and falling profits. Despite their deals on big macs and cheeseburgers people don't want to eat there. If McD collapses and goes out of business it could be considered a bubble. 4. The value of McD stock derives its value from the premise that each year more people will eat cheap fast food. As the market for fat food becomes saturated McD is no longer able to grow and begins to shrink. 5. Most corps require exponential growth to sustain positive stock returns. Stocks are a kind of a crude pyramid scheme. Each investor puts his money down in the hope that the company will grow and entice other investors to replace his investment. When a corp saturates its market the bubble becomes unsustainable, the promise become hollow, and it pops. 6. In fact people are bubbles. They pop at around 70.