Spectrum Insights - The problem with “bubbles”

Damien Wood

“The OECD concludes that Australia has the most over-valued housing market, with prices 52% above their ‘correct” level.“ Similar warnings continue as do the related dangers of investing in those financing the market – banks. The problem is the quote above is from December 2005. The point being, just because there is strong evidence a “bubble” exists does not mean it will burst soon. The “bubble” can last a long time and even get bigger. Something generally needs to trigger the pop. We keep looking for a catalyst and none appear obvious in the near term. Hence, to abstain from investing in the largest part of A$ corporate bond market – Australian banks – on fears that problems may emerge is, in our view, a dis-service to investors.


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