Mind on Money: Is the next bubble on the horizon?

Mind on Money: Is the next bubble on the horizon?

The Ruiz family has some expertise in bubbles. Our youngest son, Ethan, is a bubble-blowing savant. His version of chilling on a sunny afternoon is to stand on the upper deck blowing bubbles using a variety of tools and techniques.

It’s a whimsical experience to sit on our lower deck, grilling or sipping a cocktail while being showered with beautiful bubbles from above as they float away on the breeze.

Believe it or not, “bubble juice” is not to be taken for granted. What I assumed was simply dish soap and water didn’t work very well when I tried to make it, which led to an epic dad fail. There is a specific recipe for making bubble juice, and I now buy the good stuff on Amazon by the gallon.

While backyard bubbles are fun, they’re not the only type of bubbles the world is dealing with now days. There is more and more talk in the investor “ether” about a brewing bubble in U.S. stocks. Having been involved with financial markets for a long time, I’ve learned financial bubbles also have a specific recipe for bubble making grandeur as well.

The first ingredient we need for a nice financial bubble is some exciting new innovation. Twenty years ago or so, during the last bona fide bubble, this ingredient was in the form of the World Wide Web, which was revolutionizing everything about society, from the way we shopped to the way we invest, communicate and work.

Now I think the new bubble ingredient is likely to be 5G, which has the promise of connecting everything in real-time speed. This new technology may end up making our homes smart and our cars drive themselves. Based on the current speed of evolution in semi-conductors and connectivity, I would not place the first true Artificial Intelligence or machine consciousness outside the realm of the current innovation cycle. The prospects of creating a truly connected and smart 5G world could definitely be a key ingredient needed to get investors and markets onto the bubble breeze.

The second necessary bubble ingredient is a new generation of investors. Ideally those who were too young to experience the last bubble, including how it ended. Enter the huge Millennial generation. This massive group of young people is progressing through life and careers, and reaching the age when they begin amassing some personal savings. With this new-found extra cash in the bank, the Millennials need a place to grow their money.

Fortuitously, new phone trading apps like RobinHood make this process easy and free. Our new investing friends don’t even have to worry about stock prices being so expensive; now they can trade fractional shares, which is indeed an even more powerful bubble-making ingredient.

Then we need a sprinkle of hype. Perhaps some new initial public offerings for game-changing technology stocks. The hype of new stocks like Snowflake and Palantir help to get everyone eager and willing to take more and more risk. Heck, if a stock can double in price in one day, then the sky’s the limit, right?

Finally, we need the most important ingredient of all, which is the widely accepted belief that “this time it's different.” I believe the current “time its different” ingredient came to us in the form of the virtual Jackson Hole central banking conferences last month, where guidance was provided that interest rates were likely to stay at zero percent until 2023, and going forward the Fed was committed to taking a more liberal approach toward inflation. If this doesn’t get us all thinking trees really can grow to the sky, then my goodness, what will?

Yes, bubbles can certainly be fun. I’ve noticed when Ethan makes bubbles, the bigger the bubble gets the longer it tends to last when it floats across the yard. Few things get Ethan more excited than a big bubble that makes it all the way to the tree line. Sadly, we’ve never seen a bubble make it past the tree line yet, though, as it turns out even the biggest and most glorious of Ethan’s bubbles all pop eventually.

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor. Marc Ruiz is a wealth advisor and partner with Oak Partners and registered representative of LPL Financial. Contact Marc at marc.ruiz@oakpartners.com. Securities offered through LPL Financial, member FINRA/SIPC.