BERLIN (Reuters) - An American who won this year's Nobel Prize for economics believes sharp rises in equity and property prices could lead to a dangerous financial bubble and may end badly, he told a German magazine.
I am most worried about the boom in the U.S. stock market. Also because our economy is still weak and vulnerable," he said, describing the financial and technology sectors as overvalued.
Bubbles are created when investors do not recognize when rising asset prices get detached from underlying fundamentals.The cause of the rise in the market is due to the emotion of the investor. The investor feels that they are missing out of an opportunity to make money in the market. As season investors are testing the waters in the stock market, it has cause a fury of novice investors to put flood money into it. Hence, an ugly cycle of speculation taking place. A wise investor would need to pull back because this country is bleeding severely. With false hope brought upon the media and by Congress, this economy is very fragile. The government is spending beyond its mean, put more people in poverty and on food stamps, destroyed our credit rating, unable to fix a website, and made every citizen paranoid. With the problems America faces, it is impossible to believe that our stock market is not affected.