The Biggest Bubble of the Last Decade

We've been through a decade of boom and bust cycles. It started with the dot-com bubble in 2000, followed by the housing bubble in 2006. Today, we're enjoying record booms in gold and Treasury bonds that won't last forever. The question is, when they will turn, and how steep their eventual declines will be.

Two weeks ago, I asked Joseph Dear, chief investment officer of CalPERS, the largest retirement fund in the country, a simple question: Between the Nasdaq in 2000, housing in 2006, gold today, or a 30-year Treasury bond today, which is (or was) the worst investment? Here's what h had to say (transcript follows).

Morgan Housel: NASDAQ in 2000, real estate in 2006, a 30-year Treasury today or gold; which is the worst investment?

Joseph Dear U.S. Treasuries.

Morgan Housel: How come?

Joseph Dear: Because interest rates are going to reverse. And even if the United States is successful in getting its fiscal house in order, there's going to be pressure there, and long rates are going to rise. And so a holder of a long duration portfolio is going to suffer. Gold is; there's emotion around that, so enough people are emotional about it that [it will] keep a lot of its value. We don't have an allocation to gold.

The other things, you pick things at their peak, so now NASDAQ was at 5,000-something in 2000. Now it's back to 3,500, so you haven't come all the way back, but you're still in business. And real estate is coming back. The United States will always be around; it will never default, but it may pay in highly depreciated dollars, so the thing I worry about in that space is what's inflation going to do, what's high inflation going to do to a portfolio, and how do you protect yourself against that?

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