Bubbles: Florida Real Estate Bursts as Chinese Stocks Inflate

Only two years ago, many thought residential real estate had entered a new era.

“South Florida,” said a realtor quoted in the New York Times, “is working off of a totally new economic model than any of us have ever experienced in the past.”

The dimensions may have been a bit stretched, but the model was the same boom-bust model Florida had followed in the 1920s. And now, the fabric is snapping back to its normal size. Just two weeks ago, an auction of Miami condos shrank prices down to half their level of 2005.

In the late ‘90s was another new era – one based on communications technology and centred on dotcom start-ups. The technology proved remarkably resilient and productive. Even Alan Greenspan said he thought we were onto something new. But the bubble in tech stocks blew up anyway – as they always do.

One bubble bursts only to puff up another.

Now, the bubble du jour is in China.

In Shanghai, cab drivers offer stock tips. People stand in line in brokerage offices to open accounts. China’s largest brokerage, CITIC, is bigger than Bear Stearns (NYSE:BSC) and Lehman Bros. (NYSE:LEH) combined. And stocks are soaring… Now they’re trading at an average of about 50 times earnings. Pretty rich.

“Déjà vu” is a French expression, well known to investors in the West. We wonder if there is an equivalent in Mandarin.

Bill Bonner
Markets and Money

Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.
Bill Bonner

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Not only the stockmarket.A property bubble too.”Home equity” withdrawals to invest in stocks,maybe worse than that.Maybe no house.Loose lending by the banks and a central authority trying to rein in credit growth by raising rates.Sound familiar?Is it heresy to(quietly)suggest that base commodities and energy might have a bubble of their own?Not yet,though,after the olympics.

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