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Bubbles Galore in 2011

Was going to intro this piece with the Don Ho classic….but these bubbles aren’t TINY….

Welcome to the year of the bubble.

It may seem an odd assertion at a time when many key economies are in, or on the verge of, recession. Yet near-zero interest rates in Washington, Tokyo and Frankfurt have a way of wreaking havoc with markets and human psychology. It’s not a reach to say we have a bubble in bubbles.

The forces that will make for an interesting 2011 go beyond monetary policies. A variety of market-shaking bubbles might inflate before our eyes — some in asset markets, others in flawed perceptions. Here are eight.

No. 1. Hot money. It’s terrific that the MSCI AC Asia Pacific Index jumped 14 percent last year, far outpacing MSCI’s broader indexes. It would be better, though, if the gains had more to do with fundamentals and less with ultra-low rates.

The Bank of Japan’s largess has long seeped overseas to boost stock, bond and property prices near and far. The so- called yen-carry trade — borrowing cheaply in yen and using the funds for riskier bets overseas — was the forerunner of a similar dollar trade. Federal Reserve policies sent tidal waves of liquidity toward Asia in 2010. It could reach disastrous proportions, leaving a trail of ruin in its wake.

http://www.bloomberg…liam-pesek.html

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