|The next market bubbles: Food and farm land|
By 2010, US farm prices fell only 5 per cent from their 2008 peak, compared with 37 per cent for home prices.
Robert Shiller Last Modified: 26 Mar 2011 13:57
|Speculative investment has been pouring into farmland in the US and beyond [GALLO/GETTY]|
People frequently ask me, as someone who has written on market speculation, where the next big speculative bubble is likely to be. Will it be in housing again? Will it be in the stock market?
I do not know, though I have some hunches. It is impossible for anyone to predict bubbles accurately. In my view, bubbles are social epidemics, fostered by a sort of interpersonal contagion.
A bubble forms when the contagion rate goes up for ideas that support a bubble. But contagion rates depend on patterns of thinking, which are difficult to judge.
Big speculative bubbles are rare events. Little bubbles, in the price of, say, individual stocks, happen all the time, and do not qualify as an answer to the question.
And, because big bubbles last for many years, predicting them means predicting many years in the future, which is a bit like predicting who will be running the government two elections from now.
But some places appear a little more likely than others to give rise to bubbles. The stock market is the first logical place to look, as it is a highly leveraged investment – and has a history of bubbles.
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