Singapore Entrepreneur - Blowing Up Another New Bubble?

This May has seen one of the most spectacular run-ups in the stock market amidst an economic crisis. Most Asia markets have seen almost a 50% gain since March. From a low of 1600 in March, The Straits Timex increased to 2400 points in May. The Bull run is cooling off now in June after investors start feeling that they are not getting much fresh data to support a quick market recovery. Before we look out for any silver lining in the clouds and try to jump the gun again, let us take a backseat a little and recall slightly on the past few crises.

In 1999, the world was faced with an eminent danger of a huge collapse from what was known as the Y2K bug or Millennium bug. To combat this bug within a short timeline, then Fed chairman Alan Greenspan released huge credit line to allow corporates to tackle the problem. When the world ticked its way past 12 midnight into Year 2000, nothing of the worst anticipated happened. The world then turned its attention to the excess pool of liquid cash amongst banks and investors. This coincided with the internet craze in that era, which brought about a dotcom boom. The world started blowing a huge bubble which finally burst in 2001. Gullible investors were blindly led to invest into any internet startups which had even out-of-the-world ideas.

US went into recession after the dotcom bust in 2001. Then the 911 incident caused a double whammy to the world economy. Amid the recession, Alan Greenspan introduced stimulating measures like cutting the credit interest rates on several occasions to near zero percent. When the US economy past its bottom in year 2002, investors started to get restless again. At about 1% rate from banks, it bored most investors who were looking at much better returns. The US economy enjoyed its boom from 2003 to 2007. So much money was earned during this period that many types investment products were born, including investing into US housing market. The US started blowing a new bubble when investors started investing into toxic sub-prime products. Banks around the world was enticed into this lucrative market which eventually blew and brought about one of the history's worst financial crises today.

The uncanny resemblance of creating these 2 giant bubbles makes me wonder if the current recession in the US is nuturing another new possible bubble of the future. Although recent news are reporting data that shows evidence of "green shoots", many spendings around the world are still artificially created with government stimulus packages or government printing more money to buy up bonds, like what the Bank of England is doing.

The several events described look like a chicken-and-egg situation. If governments or authorities do not do anything, we are destined to stay for a long and dreadful downturn. Even if we jolly well know it is a new bubble being blown, we are going to pack off the idea that it will not blow up until at least a few years away. It is still better than being stuck in the mud, isn't it?

Perhaps, we have to just accept this is how the world economy works; a new bubble is being blown each time the economy goes bust. You could well say that the world is like a reality TV show actor, and the producer is the rich economies, who creates the storyline to stimulate viewership. Everything is artificial.

Nonetheless, who cares. As long as you earn real money, that is real. But the artificial economy poses many traps. Keep your guard each time when your asset grows. Bursting bubbles are usually easy to spot. The problem is people are always blinded by greed and they never seem to learn their lessons, as seen from previous events.