The Opposite of a Bubble

"In current markets," says John Kay, "what we need is a term for the opposite of a bubble."

In the opposite of a bubble, prices become disconnected from values because sellers believe that, whatever the fundamentals, they will soon be able to buy what they have sold at a lower price.

It’s a cute idea, but I don’t think it really bears much relation to current markets. What assets are or even might be trading at irrationally low levels? Certainly not stocks. Maybe some bonds, but really the bonds aren’t the things which are trading weirdly: there’s much more trading in credit default swaps than in the underlying bonds. And those are going up in value, just like any garden-variety bubble.

This entry was posted in economics. Bookmark the permalink.