How will the bubble in financial markets end? There is a pat answer: badly. But that is not very helpful to people worrying about their Isas, their pension pots or the value of their homes.
So first, is there really a bubble? The best answer is that there clearly is in some asset classes, but by no means in all of them.
Take, for example, Tesla, whose shares shot up again on Friday, valuing the company at more than $800billion (£590billion) and confirming Elon Musk’s status as the world’s richest person.
For a company making only 500,000 cars a year, albeit ingenious and seductive ones, that valuation cannot be right.
Or take bitcoin, now trading at around $42,000. There is nothing behind it. Normal currencies have a government there, or in the case of the euro, several governments. Even gold has a value in jewellery, and is the favoured reserve holding for central banks.
I side with Agustin Carstens, head of the Bank for International Settlements in Basle, who described bitcoin as ‘a combination of a bubble, a Ponzi scheme and an environmental disaster’.
But in both cases people who have warned of the dangers have so far been wrong. Bubbles can take a long time to pop, especially when money is effectively free.
By the way, for Danish home buyers it is literally free. You can get a 20-year loan with a fixed interest rate of zero per cent from a Danish branch of the Helsinki-based Nordea Bank.
I presume the bank knows what it is doing, but it does feel like those 125 per cent mortgages offered by Northern Rock in 2008: a signal that something isn’t quite right with the world.
It’s probably been the gloomiest start to a year for as long as many can remember.
So what happened? The UK stock market jumped, of course. Contrary as this may seem, there is some logic to investors buying into the hope that better times lie ahead.
On this podcast, Georgie Frost, Lee Boyce and Simon Lambert look at what the fresh lockdown means for the economy and why investors are choosing to look straight through it and develop a new appetite for buying British.
Press play above or listen (and please subscribe if you like the podcast) at Apple Podcasts, Acast, Spotify and Audioboom or visit our This is Money Podcast page
There is, of course, the wider point about US markets in general. The main S&P500 index and the Nasdaq index of high-tech companies are both close to all-time highs despite poor job figures and the political mayhem.
It is as though investors don’t give a toss about the country’s real economy or indeed its unreal politics, as long as the Federal Reserve keeps pumping out the money. For a while, it will.
The strange thing is this keeps on happening.
For an historical perspective on all this there are several great books. There is Charles Kindleberger’s 1978 classic Manias, Panics And Crashes, in which he shows how booms and busts follow a natural rhythm. There is This Time Is Different: Eight Centuries of Financial Folly by Carmen Reinhart and Kenneth Rogoff. And there is Irrational Exuberance by Robert Shiller.
Yet for all the knowledge we have about financial bubbles, human nature seems to be such that they keep on occurring.
So are all markets in bubble territory? Here, the answer is surely no. UK big companies are still underrated in global terms. Last week’s surge in the FTSE100 index showed that at last global investors are beginning to recognise that British companies are undervalued by world standards.
It is currently yielding a bit under 3 per cent, but that is depressed by the ban on dividends on the banks and the panic cuts in dividends by big oil.
The dividend restriction is being eased and would be impossible to sustain anyway, and the oil price is clambering back up. Strip out the distortions and the underlying yield would be more than 4 per cent.
This is not to pretend that UK shares would escape undamaged by a general decline in US share prices. But a high-tech rout would do less damage because we do not have any big cap high-tech companies in the UK index.
Other UK asset prices? Well the Halifax has just reported another all-time high in house prices. There are special factors at work here underpinning these, including working from home and the stamp duty holiday.
But whereas UK commercial property must be vulnerable, provided the UK population keeps rising, as it is projected to do, residential demand should remain solid. We know house prices can fall – remember that dreaded expression ‘negative equity’? – but this does not feel like a bubble. Besides, most of us need more living space.
Come back to America, and that dissonance between its politics and its markets. I am worried about the lack of value in the short-run, but on a longer view? I would agree with something Warren Buffett said three years ago: ‘For 240 years it’s been a terrible mistake to bet against America, and now is no time to start.’