Twenty-first-century bubbles: Four new objects, one single story

The twenty-first century has already had its bubbles. Four in twenty years, and each one looked new.

The first is made of bricks. In the United States, between two thousand two and two thousand six, house prices soared.

Banks lent to almost anyone, sometimes without checking income. These loans are called subprime.

It all rested on one idea: across the whole country, house prices never fall. It was wrong.

From two thousand six, prices fell back. At the bottom, in two thousand twelve, the national index had lost more than a quarter.

Borrowers could neither sell nor repay. The housing bubble became the crisis of two thousand eight.

The second bubble is made of code. In late two thousand seventeen, bitcoin neared twenty thousand dollars.

A year later, it was worth a little over three thousand dollars. A loss of more than eighty per cent.

Then it all started again. In November two thousand twenty-one, it passed sixty-five thousand dollars, and fell again the following year.

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The same asset, two bubbles in four years. The memory of the first did not prevent the second.

The third came from a forum. In January two thousand twenty-one, thousands of individuals bought GameStop shares.

Opposite them, funds had bet on a fall. They had sold short more shares than were freely in circulation.

Selling short means selling a borrowed share. One day, you will have to buy it back, whatever the price.

Say a seller at twenty dollars. If the share rises to three hundred, he loses two hundred and eighty dollars per share.

To limit the loss, sellers buy back. And by buying back, they push the price up even more. That is the short squeeze.

In late January, the share passed four hundred dollars during trading. At the start of the month, it was worth less than twenty.

Then it fell back within weeks. Those who bought at the top lost a large part of their stake.

The fourth bubble has a strange name: the SPAC. A listed company with no business at all.

It raises money, often at ten dollars a share, then looks for a company to buy. It is a blank cheque.

In two thousand twenty and two thousand twenty-one, hundreds were created. Even celebrities launched their own.

Many companies that came in through this door then fell well below the starting ten dollars.

Bricks, code, a forum, an empty shell. Four different objects, and always the same story.

A real novelty, easy money, and a crowd convinced the price will rise further.

The lesson is not to flee all novelty. Before buying, ask yourself: am I paying for the object, or for the crowd?