When is a financial bubble a bubble? Just listen to the kids

High school students, as a group, are a good indicator of financial bubbles. As I sit in class or walk the hallways, I like to listen to what students talk about. Often times they speak about their personal ills (relationship troubles, fights with parents, issues with teachers or other students). However, if one is patient, and is willing to sift through the mundane, nuggets of gold appear. Every so often the commentary turns to the world of finance.

Back in December 2017 and early into the first quarter of 2018 there was a steady hum concerning bitcoin. Students, who were otherwise failing their mathematics classes, would opine knowledgeably about bitcoin. It had reached meme status. To my surprise, some students even knew the valuation of an x amount of USD in Bitcoin.

After listening to that particular conversation, I texted my wife, “Bitcoin is a bubble.” This was well before bitcoin crashed to its current levels; about 80 percent from its all time highs. Yeah, there were people already sounding the alarm that bitcoin might be a bubble, but when my accountant friend got into it, I was worried. I have been following bitcoin for years, never invested in it, but I was curious about the technology. My accountant friend, on the other hand, heard about bitcoin in the months before the incredible run up to its 20k valuation in November of 2017. In October of that same year, he was investing in cryptocurrencies and by the early part of 2018 he was holding as the price was off its highs. I nodded along as he spoke about it and asked how he set up his wallet. It was an intellectual exercise for me. I wasn’t going to invest.

About the same time, my brother, who works in IT, was also investing in crypto. He had also heard about it in 2017. I was mesmerized by the sheer level of financial savvy that people, who had never heard of bitcoin or really read much about the world of investing, demonstrated. I didn’t question it much. I mean, my brother is a smart guy. He is up on his technology and what’s going on in the industry. My accountant friend, well, he is an accountant. Although, he did tell me he was investing with a couple of our friends, who, let’s just say, aren’t accountants.

Needless to say, the world was a buzz with bitcoin. People were emptying out their life savings to buy bitcoin. It had reached peak saturation out there. From a financial perspective it was a great intellectual question, is bitcoin a bubble? and, sure, there were articles from well grounded individuals that pointed to past bubbles and how bitcoin fit the mold.

But let’s just say, my financial barometer for financial bubbles has become the high school kids.

They are not an efficient warning indicator on the upside of the bubble when valuations are skyrocketing, but they are good indicators once a bubble is about to pop. There is a parallelism with fads (think fidget spinners) which roll through schools like an expanding wave overwhelming the shore until retreating onto itself. Normally, by the time adults have become aware of the fad it has petered out at the adolescent level. I call this residual awareness, in other words, the discovery of an emergent trend which has been impactful enough to register on to the collective adult consciousness; otherwise known as pop culure. In turn, it is residual awareness because by the time adults acknowledge the extent of the fad, it’s receding from the the shores of teenage existence.

In a reverse effect, residual awareness affects teenagers (maybe even younger than that) in much the same way. When the adult world becomes infatuated by a financial bubble (fad) the same mechanisms work in reverse and by the time teenagers are aware or engaged enough to know the current value of bitcoin, society has reached peak exposure and it has filtered its way into the high school setting. At this point, the fad or bubble is reaching the end of the popularity cycle because once a financial system has caught the attention of an adolescent — who are constantly distracted by a never-ending assortment of angst, wants, and desires — it has to have peaked. This was the case with bitcoin. By the time teenagers were discussing this particular financial vector it had reached critical mass and was well on its way to popping.

All this is to say, today as I sat in class a teenager was espousing the virtues of the real estate market and what good financial sense it made to invest in the market.

I texted my wife, “the housing market might be in a bubble.”

Insert wide-eyed emoji here.