I've been thinking about investment bubbles in the last few days.
If you read most of my articles you'll know that I recently admitted I have been going back and watching all of Berkshire Hathaway's AGM videos on YouTube. It is fascinating to hear Warren Buffett and Charlie Munger's thoughts from the past about events that have since transpired.
A fair few of the questions in the 2005 and 2004 meetings related to the financial shenanigans that were going on and the potential of a bubble.
Warren Buffett wasn't forecasting Armageddon, but he did point out the residential real estate bubble and that it can take a long time for problems to come to the surface. And even if a bubble doesn't pop, the symptoms of a bubble aren't resolved such as debt.
This is not a piece suggesting that Australian house prices are in an utter bubble and that Commonwealth Bank of Australia (ASX: CBA) & Westpac Banking Corp (ASX: WBC) need to watch out because Australia is doomed.
But I do think it's worth thinking about how much of a household budget is going towards paying off a very large loan just for the median house price with a 20% deposit, which seems hard for the median household to afford. No wonder retail sales, wages and inflation are so low if the average Australian has little money to spend.
There's nothing to suggest that Australian house prices will fall further than the 10% reduction that has already occurred. But there's still a fair chance that good growth isn't coming back any time soon, which is why I question whether investing in shares like National Australia Bank Ltd (ASX: NAB), Australia and New Zealand Banking Group (ASX: ANZ) and Nick Scali Limited (ASX: NCK) is a good idea. Even if there isn't a crash on the way, the high debt is still a problem.
Foolish takeaway
Very low interest rates make investing difficult, but I'd much rather invest in businesses like MFF Capital Investments Ltd (ASX: MFF) and Rural Funds Group (ASX: RFF) instead of ones heavily linked to Australia's economic strength or weakness.
