The Bubble to Rule All Bubbles

There's a bubble inflating right now. You can go ahead and rack your brain trying to figure out what it is, but I'm almost certain you'll be wrong. Ready?

We are currently experiencing a bubble in bubble predictions.

After the stock market bubble in 2000 that crushed tech-happy investors, the more recent finance and housing bubble, and the even more recent 2008 oil bubble, pundits and experts are looking everywhere for the next bubble set to pop. After all, when you are on the front end of calling a bubble you become famous even if you never really get anything else particularly right. Just look at Nouriel Roubini and Meredith Whitney.

Bubble are being called in China, gold, commodities in general, bonds, alternative energy, rare earths, farmland, social networking, stocks in general, heck JPMorgan Chase even said that with the release of Apple's (Nasdaq: AAPL  ) iPad 2 there could be a bubble in tablets.

Obviously everybody is nuts. But hey, I can't let them have all of the fun, right? So I figured I'd add a few bubbles of my own to the list.

1. Bubble predictions
The boy that cried wolf has nothing on today's media. This bubble will pop and Robert Shiller will have think of something else to write about. Everyone will forget about what it means to have a massive asset bubble and then, of course, we'll have a gargantuan asset bubble that will knock everyone back on their ... um, assets.

2. Justin Bieber
I can't tell you how many times I've referenced Justin Bieber in my articles, and I write about finance. He sings like an angelic nightingale, has boyish good looks that could melt a unicorn's heart, and somehow convinced Ludacris to be featured in a song about preteen puppy love. But the dream never lasts. I just hope he's set aside plenty of money for therapy.

3. China small-cap short sellers
Have an art-school student whip you up a logo, mash two words with gravitas together ("Verity Quest"), throw up a blog that questions the profitability of a small-cap Chinese company, and you too could be profiting from the environment of abject fear in that murky corner of the market. Granted companies like Rino International and China MediaExpress (Nasdaq: CCME  ) have shown that all may not be well with all of these companies, but attacks against others, including Advanced Battery Technology (Nasdaq: ABAT  ) and Yongye International (Nasdaq: YONG  ) have been a bit more questionable.

4. Cupcakes
Every time I open my Flixster app I'm asked if I love cupcakes. I don't love cupcakes. I hate cupcakes. And yet there are still specialty cupcake shops everywhere. At the end of last year, I highlighted a prediction that 2011 would be the year that pie came back. I'm still waiting.

5. Russell Brand
I'm going to be very early on this call, but ever since playing the wacky musician in Forgetting Sarah Marshall Brand is suddenly everywhere. I don't mind for now -- I still think he's good for a few chuckles. But it's going to get old -- fast. With one character in his repertoire this is a bubble begging for a pin.

6. Dividends
Of all of the financial bubbles that people could be possibly talking about I'm actually pretty surprised that I haven't seen anybody in the media (besides yours truly) talking about a bubble in dividend stocks. To be sure, a "traditional" bubble is tough for dividend stocks since yields go down as prices go up, but investors' rabid interest in anything with significant yield isn't going to last. Let the economy recover a bit more and the stock market continue to run and investors will be falling over themselves to trade in shares of CenturyLink (NYSE: CTL  ) and its 7% payout for some growth stock with a price-to-earnings ratio of 87.

Apple is a Motley Fool Stock Advisor selection. Yongye International is a Motley Fool Global Gains pick. The Fool has written puts on Apple. Motley Fool Options has recommended a bull call spread position on Apple. The Fool owns shares of Apple, JPMorgan Chase &, and Yongye International. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Matt Koppenheffer does not have a financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or on his RSS feed. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.


Read/Post Comments (31) | Recommend This Article (32)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 08, 2011, at 11:22 AM, goldminingXpert wrote:

    Chinese small caps are going down because they are fraudulent, not because there is a "bubble".

  • Report this Comment On April 08, 2011, at 11:34 AM, jbsbf54663 wrote:

    "Bezek", get a life.

  • Report this Comment On April 08, 2011, at 11:47 AM, EriKarju wrote:

    Bezek,

    what is your expertise in China? And BTW - where did you get Yongye's SAIC report you mentioned in your comments in defense your article. How come your forgot to put that piece of information in your article. Smart man should understand that the tact of SEC filings matching China SAIC filings is quite important for company's reputation. Not very professional to exclude facts that are contrary to your thesis - some would call it lying, some would call it misleading.

  • Report this Comment On April 08, 2011, at 11:52 AM, MAURIZIO400 wrote:

    someone cannot resist the attraction of the spotlight, they'll do or say anythin that gets them attention. just like moths to the lamp...you know how it ends.

  • Report this Comment On April 08, 2011, at 11:57 AM, MAURIZIO400 wrote:

    by the way, it's better to ignore them, arguin just give them importance that's not due, just undeservedly feeds theyr ego...turn your back and busy yourself with the important things of life, they'll scream themselves hoarse and the there will be quiete.

  • Report this Comment On April 08, 2011, at 12:05 PM, rfaramir wrote:

    "Cupcakes"

    They are to pie what iPods are to boom boxes. That's not a bubble, it's fundamental improvement provided by the innovators of the free market.

  • Report this Comment On April 08, 2011, at 12:30 PM, Henry3Dogg wrote:

    There is one hellova bubble in tin-pot analysis.

  • Report this Comment On April 08, 2011, at 1:41 PM, TMFKopp wrote:

    @rfaramir

    Say it ain't so! Pie and coffee is a timeless combo! I'm holding out. Or, better yet, when my Verity Quest short-selling career doesn't pan out, maybe I'll start a chain of hip pie stores...

    Matt

  • Report this Comment On April 08, 2011, at 1:47 PM, TMFKopp wrote:

    @goldminingXpert

    "Chinese small caps are going down because they are fraudulent, not because there is a "bubble"."

    If you want to be taken seriously, you should probably avoid overly-broad comments like this. Unless, of course, you really think that *all* Chinese small caps are fraudulent.

    Obviously, there appear to be some that are fraudulent. But there is a definite sharks-with-blood thing going on right now in this corner of the market with unknown short sellers.

    Matt

  • Report this Comment On April 08, 2011, at 2:44 PM, jmbring wrote:

    Matt,

    you really hate cupcakes?!?!

    really?

    even chocolate ones?

    :^)

    mark

  • Report this Comment On April 08, 2011, at 3:19 PM, TMFKopp wrote:

    @jmbring

    Strangely enough I've just never been a huge fan. Don't get me wrong, I'll eat a cupcake on occasion, but I have zero interest in visiting a specialty cupcake shop. Plus, it's like a song on the radio -- the first few times you hear it you may bop along to it, but after the 1,000th spin you want to smash your dash with a brick.

    Now pie.... that's a classic you just can't get enough of... like Bon Jovi's "Livin' on a Prayer" :)

    Matt

  • Report this Comment On April 08, 2011, at 4:51 PM, TMFBreakerOrion wrote:

    One Bubble to rule them all,

    One Bubble to find them,

    One Bubble to bring them all

    and in the darkness bind them

    In the Land of Finance where the Shadows lie

  • Report this Comment On April 08, 2011, at 5:04 PM, Subgenus wrote:

    It's not cupcakes so much as it's their recently acquired "hot stuff" attitude. They were much easier to stomach <<a groan for the bad pun>> when their wildest nights consisted of funfetti and rainbow chip frosting.

    But then one day, cupcake picked its head up, looked around the glass case and said, "Red Velvet? I can do that..." and then proceeded down the path of that geek who suddenly learned to dress and fix their hair, and then started hooking up with everyone they could to make up for lost time.

    I like cupcakes, I just prefer them to be humble...and geeky.

  • Report this Comment On April 08, 2011, at 5:41 PM, goldminingXpert wrote:

    I started writing about Yong in the 7s. It is now in the 4s. Stone the messenger -- it won't get you your money back.

  • Report this Comment On April 08, 2011, at 7:41 PM, goldminingXpert wrote:

    To the author of this article:

    I laid out a compelling case that something was wrong at Yongye up in the 7s. Today Roth Capital came out and confirmed that their channel checks show that something is off at Yongye. I told you all the numbers didn't make sense, and now Roth, who is known for being a permabull on China stocks, agrees with me.

    The sad bubble here is in Americans willing to "visit" companies in China, see a Potemkin Village, declare a company legit, and then not do any further analysis when valid questions are raised about the company.

  • Report this Comment On April 09, 2011, at 3:39 AM, padparadsha wrote:

    @goldminingXpert

    Why is the fact Roth Capital downgraded the stock important to your case ? Do you think their advice is worth anything and if so, why do we get it for free ? If following Roth Capital's advice is a good idea now it surely must have been an awful idea before right ?

    I own Yongye stock, on what do you base your fraud claims ?

  • Report this Comment On April 09, 2011, at 12:02 PM, goldminingXpert wrote:

    I didn't claim fraud. I said the numbers don't add up. Small but important difference.

    Roth visited YONG's operation and found the product isn't selling that well. This confirms my concerns about their distribution model and their lack of sales & support staff.

    Back to the original post, close to every single Chinese RTO I've written about (CCME, CAGC, YONG, FUQI, AUTC) has either spectacularly blown up, or is in the process of doing so. I have not found a single legitimate Chinese RTO. Does one exist? Probably. Have I found one? No. The structure is perfectly designed to spawn massive fraud.

  • Report this Comment On April 09, 2011, at 12:16 PM, DavesHere wrote:

    The Lybian rebels have been complaining that the coalition is not bombing in the right way and in the right places. The first logical thought is that they want a war built to spec. The second logical is that we are watching the beginning of a rebellion bubble.

  • Report this Comment On April 09, 2011, at 12:27 PM, NOTvuffett wrote:

    For what it's worth (0), I hate cupcakes too, lol.

  • Report this Comment On April 09, 2011, at 10:26 PM, shoemaker17 wrote:

    I got a bubble for you. Major League Baseball(I can think of a few other pro sports as well). These guys get paid WAY too much, a lot of teams are going through financial problems, and look at all those empty seats!!! Now the Yankees are a helluva brand, but there are a ton of "little sisters of the poor" teams that exist only to lose to the big money makers. Might as well rename the teams the Washington Generals.

  • Report this Comment On April 09, 2011, at 10:44 PM, goalie37 wrote:

    Since price and yield are inverse, a bubble in dividend stocks would be the most easily spotted.

    There is a reason for the frequency of bubbles over the last decade. We now have hedge funds and 'too big to fail' banks that are large enough to create them. A few of them are even smart enough to short those same assets on the way down.

  • Report this Comment On April 11, 2011, at 12:41 PM, KathrynsConvos wrote:

    Matt is there a way to subscribe via RSS to just your column? thx

  • Report this Comment On April 11, 2011, at 1:34 PM, TMFKopp wrote:

    @KathrynsConvos

    In fact there is! Here's the link:

    http://www.fool.com/feeds/authorheadlines.aspx?author=1496&a...

    Fool on!

    Matt

  • Report this Comment On April 11, 2011, at 2:09 PM, hbofbyu wrote:

    I don't know what the next bubble will be but I guarantee Goldman Sachs will know before any of us.

  • Report this Comment On April 12, 2011, at 1:33 AM, lora66 wrote:

    Variant View is nothing but a fraud and a coward.

    Don’t believe one-sided reports of short bodies and miss opportunities, we advise you to come to China and to make an investigation by yourself. We sincerely invite you to visit our plants in China. All of the staff of ABAT is waiting for your arrival.

  • Report this Comment On April 12, 2011, at 4:32 PM, Thaeger wrote:

    I love cupcake tops, though I'm ambivalent to the rest of them. Also...

    My guess is a tuition bubble. The loans are government-backed, and thus 100% risk free for the lender. Being bankruptcy proof---with several options to help lenders collect--they're essentially every sleazy financial institution's wet dream, particularly after this foreclosure mess. And with an increasing number of for-profit colleges springing up...

    "...The pattern of college debt, with a simultaneous freeing up of costs and lending to meet those costs is strapping a burden to some of our most vulnerable workers: those who have recently graduated and must find a job with zero experience and a debt hanging over their heads. This goes hand in hand with the growing market share of for-profit colleges, which offer the "enticing" combination of sky-high tuition rates, questionable results, predatory recruiting practices, and low bars for admission..."

    http://www.gnomanomics.com/2011/04/tuition-bubble.html

    Given the record unemployment and whatnot, you'd think that something would be ready to break. I mean, what impact would there be if the government loan guarantees changed significantly or went away? A possible educational credit crunch that hurts even the good assets, err, schools?

    Probably not, but I'm just surprised I'd never considered it from the investment perspective before.

  • Report this Comment On April 12, 2011, at 11:01 PM, lwbaum wrote:

    I haven't been following the news about frauds among small Chinese company stocks, but in general it's healthy that short-sellers are investigating them. We need investigative journalism to keep government straight, and the same goes for businesses.

    I live in Hong Kong and invest in small companies listed in Hong Kong's market. In general, they are cheap, pay high dividends, and are growing. I have done very well by investing in them. My impression is that the amount of fraud is similar to that in US companies. But some mainland-based Chinese companies that had IPOs here about 5-10 years ago turned out to be frauds, and others didn't (or just haven't been exposed as frauds yet). It's better to find the truth sooner than later, isn't it?

  • Report this Comment On April 12, 2011, at 11:25 PM, Ellencao wrote:

    What is the next step then after CCME being delisted? Is that means the stock we have now are just garbage?

  • Report this Comment On April 14, 2011, at 5:16 AM, Netteligent09 wrote:

    Housing is not a buble until it burst. You have not seen the worst yet. Housing correction is healthy and good for our economy to move forward.

    Until then, we keep dragging on and on. Banks cannot hold on to its excessive inventory forever. The longer the more we suffer.

    Once housing bubble bursts, make sure it never happen again.

  • Report this Comment On April 14, 2011, at 5:54 AM, dcflipflop wrote:

    Ditto the tuition (at least among private universities) and MLB salary bubbles. When a pitcher makes $8 million a year and can barely throw a strike, something is wrong.

    I also think we had a bubble in corporate employment. Since the debt crisis, we keep hearing that companies are doing more with less, meaning they (supposedly) had more employees than they needed prior to the bubble bursting. However the flip side of that is that employees who still have a job work their butts off for about the same pay they had before all those job losses. As someone currently working their butt off, I kind of hope this pendulum swings back a little ways. :-|

  • Report this Comment On June 06, 2011, at 10:04 AM, TMFWizard wrote:

    "Russell Brand"

    I love your stuff Matt, but I'm going to happily take the other side of this one. Sure, "Arthur" was a bomb and rightfully so, but the rewatchability factor on "Get Him To The Greek" is very high and the music is surprisingly catchy.

    Go to iTunes and listen to "Furry Walls" and you'll know what I mean.

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