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Asset prices Not fully inflated Many investments are becoming expensive. But there is little sign of the mania that accompanies most bubbles TALK of bubbles is in the air again. The Dow Jones Industrial Average has hit an all-time high. A loss-making technology firm (Twitter) has floated its shares on a flood of investor demand. Private-equity groups are buying companies using amounts of debt not seen since 2008. A record price (more than $50m) has just been set for a penthouse in Manhattan. A triptych by Francis Bacon became the most expensive piece of art sold at an auction when Christie’s flogged it for $142.4m last month. Robert Shiller of Yale University, who correctly identified bubbles in tech stocks in the late 1990s and in property in the 2000s, has expressed unease about giddy American share valuations. All this suggests that wealthy investors have become increasingly confident. The question is whether they are right to be. Under certain circumstances, fast-rising asset prices are justified. New industries can emerge and create corporate giants (Microsoft, Apple and Google, for example); countries can change their economic policy and grow rapidly (Japan in the 1960s, China in the 1990s). How, then, do you tell a bull market from a bubble? Mr Shiller describes a bubble as “a psycho-economic phenomenon. It’s like a mental illness. It is marked by excessive enthusiasm, participation of the news media and feelings of regret among people who weren’t in the bubble.” They are often enlarged by an expansion of credit. But establishing an objective definition is hard. For GMO, a fund-management group, a bubble is an increase in the price of an asset of more than two standard deviations above the trend, taking inflation into account. Using that standard, GMO has identified 330 bubbles between 1720 and 2010. They have become much more frequent in recent decades (see chart). That is partly due to there being more markets to analyse these days. But it is probably als