◼ FINANCE Bloomberg Businessweek September 23, 2019
27‘could be the day.’ And there’s always a tomorrow.”
Furthermore, the world has, in Dow’s words, “disas-
ter myopia.” With the business cycle increasingly
being driven by financial markets and with the cri-
sis of 2008 still seared into people’s minds, a bubble
is the easiest, most vivid metaphor to use.
Helene Meisler, a stock market columnist who’s
been active in the market for four decades, offers a
similar explanation for the current obsession with
bubbles: “I have often thought that we are all prod-
ucts of when we ‘grew up’ in the market. So, for
example, folks who grew up in the ’70s are always
looking for inflation. Those who grew up in the ’80s
are always on alert for a crash.”
When I ask McNamara what prompted him to
play along with the joke about a portfolio of bubble
positions, he tells me, “As someone who works in
markets, I’ve learnt the hard way that an awful lot
of the time when the market is pricing something
seemingly strangely, either a) the market is right or
b) even when the market is wrong, it’s really hard
to profitably take the other side.”
He also sees a very heavy moralistic element
to the bubble callers—its no fun to watch sinners
enjoying themselves. And there’s a reason the
gloomy chorus keeps getting louder as the finan-
cial crisis fades further into the past. Bubble talk,
says McNamara, is “especially common in the (non-
tiny) group of people who got ’08 right, but then got
hosed in ’09 because they were waiting for the other
shoe to drop in the form of mass defaults, depres-
sion, and hyperinflation.” In the view of those peo-
ple, the high asset valuations of today can only
be sustained because the market is rigged by the
Federal Reserve and other central banks.
McNamara’s comment about the temptation
to call something a bubble just because the mar-
ket is pricing it strangely brings us perfectly to
today and the world of negative interest rates and
bond yields. The concept of loaning money and
getting paid back less just feels wrong. It hurts the
head. Since bond yields fall when prices rise, neg-
ative rates mean people are payinga lotfor bonds.
So is the bubble for real this time? The problem,
according to Dow, is that for as much as bonds have
rallied, you don’t see many people buying them to
get rich (like they’ve done with stocks, houses, and
Bitcoin). There’s not much of a bond FOMO trade.
Now, I have to admit when asked to do this piece,
I was nervous. I didn’t want it to be about the folly
of endless bubble warnings—and then the next day
it all blows up, and I look like the economist Irving
Fisher who proclaimed in mid-October 1929 that
stocks would remain permanently high. The Great
Crash started about a week later.
So this isn’t to say that there aren’t risks. William
Cohan recently wrote a piece for the New York Times
arguing that there’s a gigantic debt bubble and that
the Fed urgently needs to hike rates to prick it before
it gets further out of hand. He likened the current
situations to mortgages before the financial crisis.
Yet it isn’t clear that “bubble” is the most useful
term here. Srinivas Thiruvadanthai, a strategist at
the Jerome Levy Forecasting Center, says the risks
are real but the description is wrong: “Is there an
unsustainable increase in leverage? Yes. Why not
say it that way?” His definition of a bubble is sim-
ple. It occurs when people are “buying an asset
purely on expectations of rising prices and where
the potential for price appreciation is several fold.”
Because bonds have a fixed end point and a more-
or-less predictable return if you hold them to matu-
rity, it’s hard for them to generate the same bubble
dynamics you see with Bitcoin or internet stocks.
Of course, it’s probably a lost cause to get peo-
ple to stop using the word “bubble” every time they
see prices going up. Bubbles are undeniably fas-
cinating. My personal favorite is the Florida land
boom of the 1920s, which got so out of hand that
the railways clogged. Maybe just having a favorite
bubble is part of the problem. People love to say,
“Those who do not learn history are doomed to
repeat it.” But another relevant truth for investors
is, “Those who learn their history are doomed to
think it’s repeating.”�Joe Weisenthal● An Atlanta startup proposes an old solution
to the new housing crisisThe Return of
Rooming Houses
Rentals with single-room occupancies, once a
staple of urban housing, were largely zoned out of
U.S. cities decades ago. An Atlanta startup called
PadSplit thinks they’re ready for a comeback: The
company is helping landlords turn rental proper-
ties into pay-by-the-week rooming houses. They
already manage more than 400 rooms, mostly
in lower- and middle-income neighborhoods of
single-family homes.THE BOTTOM LINE It’s not always easy to understand why assets
get expensive, but that doesn’t mean that every risk in the market
counts as a bubble.“Those who
grew up in
the ’80s are
always on alert
for a crash”