Question

1. Please answer the following bubble related questions.

1. What does bubble mean in maritime markets?
2. What may be the advantages of predicting bubbles in freight and second-hand markets for shipowners?
3. Which factors may cause minor bubbles in the dry bulk freight market?

Answer 1

A bubble is an economic cycle specified by the fast growth of asset prices followed by a decline. It is generated by a flow in asset prices unjustified by the foundations of the asset and driven by lighted heart market behavior. When no more investors are willing to buy at the increased price, a sell-off occurs, causing the bubble to collapse.Through observed detection, we have identified four bubbles in the shippingfreight market, which is explained by the world economy, unevenness shipping services between supply and demand, the time lag in ship construction, crude oil prices and a weaker U.S. dollar.
Although increased regulation can partially reduce bubbles, economists have a difficult time perfectly identifying bubbles and an even harder time excuting policies that won’t negatively affect other areas of the economy.Most commonly, the Federal Reserve tries to holdback bubbles by creating monetary policy aimed at controlling rising asset prices. The Fed inclines the federal funds rate when there are inflation concerns and decrease the rate to encourage economic growth. And when banks increase interest rates, borrowers have a tougher time getting loans to fund investments or small businesses.
Advantages of predicting bubbles:-
1)It may help to reduce bubbles.
2) Policies might be made for controlling for controlling prices.
3) Government will get time to make monetary policies.
Factors which may cause minor bubbles:-
1)sudden rise of pricing
2)great depression
3)herd mentality of ignorant investors