Go to the Globe and Mail homepage

Jump to main navigationJump to main content

The headquarters of mortgage lender Fannie Mae is shown in Washington September 8, 2008. (JASON REED/Reuters)
The headquarters of mortgage lender Fannie Mae is shown in Washington September 8, 2008. (JASON REED/Reuters)


Five bubbles set to burst in 2010 Add to ...

But creating a whole new class of devices? That's an entirely different challenge. Fans point to Apple's winning decade of turning out gadgets like the iPod and iPhone as evidence that Steve Jobs and Co. have demonstrated a deft hand for designing appealing, must-have consumer electronics. But skeptics fear that Apple is headed for a device dead zone.

The Tablet's classification will fall somewhere between pocket-sized phones and bag-sized laptops. It would take a very compelling product to convince people that they need yet another device in that in-between range. Amazon's Kindle success, with an estimated 1.5 million sold, helps prove that size hasn't been a huge obstacle when it comes to electronic book readers. But the Kindle has been available for two years. As of 2010, the niche will tart to get crowded with other e-book devices from Barnes and Noble and Sony N. Apple shares recently reached an all-time high as excitement around the new product builds. But if people don't stampede for Apple's dazzling Tablet, it -- like all bubbles -- will burst.

Written by Scott Moritz in New York

Nothing Gold Can Stay

Investors have made plenty of green off gold in 2009, but as the poet Robert Frost wrote, "nothing gold can stay."

Gold futures hit record highs in 2009, as gold bulls rode the fear caused by Lehman Brothers' collapse in late 2008 and the ensuing heavy borrowing by the U.S. government to glory. Noted investors like John Paulson, David Einhorn and Jim Rogers, as well as many central banks around the world, also took big positions in gold, amping up the bullishness. The SPDR Gold Shares hit an all-time high of $119.54 on Dec. 3.

That's a 52 per cent march higher from the 52-week low hit in early January. But while gold futures have backtracked this month, they could be headed much lower.

Gold is a popular hedge against inflation, which may be one factor driving bullion prices higher as the U.S. government borrows heavily to fund the bailout of Wall Street, the economic stimulus program and other measures meant to blunt the effect of the Great Recession -- not to mention the war in Iraq. That said, the Federal Reserve's Federal Open Market Committee and recent wholesale inflation and consumer price data have done little to give root to near-term inflation fears.

"For the next two years, deflationary pressure is going to be dominant, and it is going to become a time bomb down the line if and when we keep monetizing large deficits," Nouriel Roubini, the bearish chairman of economics research firm RGE Monitor, told a Reuters conference earlier this month. "It may be too soon to hedge with gold."

So while deep-pocketed investors like Paulson, Einhorn and Rogers may be making a good long-term bet on inflation, remember they all got into gold at much lower levels. And they are better able to wait out that time than many investors are. And central banks? Traders should be leery of following their lead.

According to Bloomberg, central bank gold-buying will result in the first net expansion in gold reserves since 1988. Gold tumbled 15 per cent that year and prices didn't recover for 15 years. Moreover, as the economic recovery plods on with 10 per cent unemployment, consumers have been reluctant to open their wallets for discretionary items like jewelry. Gold bulls are surely tired of hearing it, but Warren Buffett's famous disdain for the precious metal rings particularly true in a time of frothiness like the present.

"Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it," Buffet told an audience at Harvard University in 1998. "It has no utility. Anyone watching from Mars would be scratching their head."

Written by Michael Gannon in New York

Someone Cut Uncle Sam's Credit Card

It doesn't take a fortune-teller to foresee the bursting of the bubble in U.S. Treasuries. But for those still in need of convincing, look no further than the Oracle of Omaha's last letter to shareholders.

"When the financial history of this decade is written, it will surely speak of the Internet bubble of the late 1990s and the housing bubble of the early 2000s, but the U.S. Treasury bond bubble of late 2008 may be regarded as almost equally extraordinary," wrote Warren Buffett to his loyal Berkshire Hathaway subjects. Buffett issued that warning, mind you, in February 2009.

Report Typo/Error
Single page

Next story




Most popular videos »

More from The Globe and Mail

Most popular