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Keys to Spotting Market “Bubbles”

By Erwin J. Shustak, Esq. of Shustak Reynolds & Partners, P.C. posted on Friday, June 1, 2018.

Vikram Mansharamani, a lecturer at Harvard’s John Paulson School of Engineering and Applied Sciences, pointed to several “clues” that the economy is possibly ripe for a bubble crash.

First, the stock price of Sotheby’s, the well known art auction house. Sotheby’s stock price hit a high in 1989 when the Japanese buyers flooded the art market, paying record world prices for art.  You may recall that was the height of the Japanese financial influence, which included the purchase of Rockefeller Center in Manhattan for a multi-billion dollar sum. The price was so high, in fact, and no one assumed the Japanese would default on their debt obligations, that the lenders did not even record the huge mortgage on the property to save on what would have been a record, hundreds of millions of just mortgage recording taxes!

According to Mansharamani, “when you hear of paintings selling for more than $100 million or higher, setting new world records, it’s time for caution. Overconfidence is running rampant”.

Skyscraper Construction is the second barometer. Companies tend to build big buildings in boom times and the boomier the times, the taller the buildings. The iconic Chrysler and Empire State Buildings in New York City, for example, were both under construction in 1929 when the market crashed. Another boom occurred in 1974, and included the construction of the Sears Tower and the World Trade Center, just before we entered a decade of deflation and stagnation. The Tapai 101 in Taiwan was started in 1999, just as semiconductors peaked.

Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes. We represent many broker-dealers, registered representatives, investment advisors, investors and businesses. For more information, contact Erwin J. Shustak, Managing Partner [email protected], or call 800.496.5900 ext. 109.

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