The Next Bubble

Bubbles are bad. We just worked through a tech stock bubble, a commodities bubble and a housing bubble. All bad.

The most likely scenario for the U.S. economy is a recession that is deeper and longer than almost anyone was expecting 12 months ago. Interest rates are already frighteningly low. If in fact we do get the big bad version of recession, interest rates will probably stay at uber low levels for the next 4 - 8 quarters. For certain, we won't see higher rates until the banks are running like Swiss clocks or there is definite proof of inflation.

Over the next few months, some companies, hedge funds and consumers will regain their footing, and some new funds will be formed. Let's assume that by this time the banking system has normalized somewhat and banks are lending again.

Very low cost of capital + adequate access to capital = investment (sometimes including leverage, chasing returns and momentum investing).

Said another way, the money not satisfied with 2 - 6% returns is going to go somewhere. The easiest way to make a big pile of money in the next decade may be to identify where the next bubble is going to be, and get in early.

It doesn't even matter if it isn't a fantastic or well-grounded idea. The concept that house prices would never go down in value again sold like hot cakes 5 years ago. Oil at $200/barrel? Done. They aren't making any more of it.

Pick your poison - health care, alternative energy, growth stocks (again?). Actually, you can wait. After the market bottoms, the small cap growth and emerging growth investors will find it for you and announce it boldly on CNBC. Don't ask yourself whether you believe it, ask yourself whether others can get behind it. Momentum's strength comes from numbers and can grow exponentially at some points on the curve.

Get in line, get involved but remember to sell when everybody agrees that it is going to last forever.