Invest Wisely

The Next Investment Bubble - Alternative Energy ?

Eric Janszen’s article “The Next Bubble” published in Harper’s earlier this year does a great job of explaining how bad the US housing bust really is. Graphing the deviation from long term means of the NASDAQ bubble and now the housing bubble shows the stark reality of financial loss. The tech bubble wiped out $7 Trillion while the housing bubble in America stands to wipe out at least $12 Trillion. Although it seems quite logical that alternative energy could in fact become the next bubble to reflate American financial assets I am not so sure the speed and timing will come right on the heels of the housing bust. Furthermore, the magnitude of the housing bust and its soon to be felt effects on the US Economy will be much greater than the tech bust for two main reasons.

1. The average American now has to live within the means of their income in the absence of the home ATM previously enabling ever increasing consumer spending.

2. The losses in the valuation of housing are leveraged losses. Leverage is a very powerful investment tool, magnifying gains but more painfully magnifying losses. There was no real hard invested capital related to the growth in housing. This wealth and purchasing power will not be replaced for years to come and only after incomes rise and people can save money. A very slow process which will not facilitate growth in the US Economy.