Bubblicious?

One doesn't like to hear that oil is hitting new intraday highs even as there are reports that the Saudis are preparing for a production increase.

I'm still trying to pin down in my mind how much of this is speculative. Obviously, part of it is simply the fall in the dollar, and part of it is demand, but prices shouldn't be climbing this quickly with essentially no new information. When changes in prices last a long time--upwards or downwards--they start feeding on themselves; people begin to think of rising or falling prices as a permanent new norm. That makes bull marketers willing to pay higher prices now, on the assumption that prices will be higher still in the future. But I don't need to tell you this; you all know someone who's bought a house in the last five years.

Ultimately, of course, this is folly. It is not enough to think that prices are going to rise; you have to think that they will rise more than everyone else thinks they will. Otherwise, the future appreciation should already be fully priced into the current asset. Failure to understand this--the belief that you can actually make a profit based on a certain rise--is the root of all bubbles.

On the other hand, sometimes the speculators are right. Perhaps we've simply been underpricing oil for too long, and this is the correction. Only time will tell. Which is why you won't catch me investing in the commodity markets any time soon.

Presented by

Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

How to Cook Spaghetti Squash (and Why)

Cooking for yourself is one of the surest ways to eat well. Bestselling author Mark Bittman teaches James Hamblin the recipe that everyone is Googling.

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register.

blog comments powered by Disqus

Video

How to Cook Spaghetti Squash (and Why)

Cooking for yourself is one of the surest ways to eat well.

Video

Before Tinder, a Tree

Looking for your soulmate? Write a letter to the "Bridegroom's Oak" in Germany.

Video

The Health Benefits of Going Outside

People spend too much time indoors. One solution: ecotherapy.

Video

Where High Tech Meets the 1950s

Why did Green Bank, West Virginia, ban wireless signals? For science.

Video

Yes, Quidditch Is Real

How J.K. Rowling's magical sport spread from Hogwarts to college campuses

Video

Would You Live in a Treehouse?

A treehouse can be an ideal office space, vacation rental, and way of reconnecting with your youth.

More in Business

Just In