How to Spot an Asset Bubble, By Bear Stearns

This summation on Prudentbear.com of a Bear Stearns’ piece shows you why we are currently in a housing bubble.

“Pre-Bubble Environment
• Easy Money – After years of “ample financial liquidity,” money supply growth starts to slow about three years before the peak of the bubble.
• Strong Economic Growth – Bear Stearns found that nonresidential building activity was a great proxy for economic activity and usually peaks two-years before the bubble peaks.
• Prosperity – It should not be surprising that personal wealth accelerates during an asset bubble and peaks when the asset bubble peaks.
• Pricing Pressures Build – Inflation starts rising three years before the peak.”


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