The Dow Jones Industrial Average on Monday closed at its highest level in 13 months as some observers warned of a new asset bubble. (Mario Tama / Getty Images)
By Frank James
The Dow Jones Industrial Average closed 204 points higher Monday, finishing at its highest level in more than a year.
The surge came on the news that the G20 nations would continue to stimulate their economies. Commodities like gold and oil also rose, with gold selling for more $1,100 an ounce and crude oil rising 2.6 percent.
The rise in stock and commodity prices was more proof that the "giant pool of money" examined on NPR's This American Life program is still searching for places to invest in order to get the highest gains in a low-interest rate world.
The Wall Street Journal wrote of the "continued flow of easy money" as contributing to the higher asset prices as the dollar fell lower.
Some are warning that what's happening with soaring prices in equities and commodities is a classic asset bubble as people borrow cheap dollars to speculate in all kinds of risky investments.
One such is famed doom-and-gloomer Noriel Roubini. The New York University economist warned well before the subprime crisis and the credit crash that a day of reckoning was coming and he was right.
He's not warning of another crash. An excerpt from a CNBC piece quoting Roubini on CNBC:
"It's going to eventually occur but it's going to be six months from now, a year from now," Roubini said. "In the meanwhile the bubble's going to become bigger globally and the bigger the bubble the bigger is going to be the crash."
Not everyone buys Roubini's dire warning. Washington Post columnist Robert Samuelson wrote in a piece published Monday:
So, Roubini's new bubble remains unproved. But this doesn't invalidate his warning. We've learned that there's a thin line between promoting economic expansion and fostering bubbles. With hindsight, lax Fed policies contributed to both the "tech" bubble of the late 1990s and the recent housing bubble, though how much is debated.
categories: Economy
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