Groupon Cat, pawning his bling.

Cut to today! We're not sure whether or not this is routine business—or just how routine this is, but this just showed up in our inbox:

Yes, that is a Groupon—or technically, really, a coupon (even worse)—for a Groupon. A few things to note here:

1. We unsubscribed from Groupon around the time of the IPO. Or at least we attempted to, however unsuccessfully.

2. We definitely don't receive any Groupon offers on a regular basis. How would we know what to use our Groupon on a Groupon for?

3. This:

To paraphrase Randy Jackson: Kinda pitchy, dawg. $GRPN recently hit an all-time low when hit $8.85 on Monday (it closed at $8.95). Maybe they should offer a Groupon on shares of $GRPN? We'd buy that. Maybe.

But they'd have to resubscribe us to their email list first.

fkamer@observer.com | @weareyourfek

IN 2008

By my dad.

I had just been laid off after the literary agent I worked for was poached, but was lucky enough to find a job and not have to file for unemployment only days later. In the interim between paychecks, however, I’d be broke.

“Well, you’ve got those coins lying around,” he suggested.About ten years prior, as a bar mitzvah present, a relative gifted me with an ounce of gold in Australian Roo coins. I had two options: I could borrow the money I needed and pay it off, or trade my father the coins to sell (or do whatever he wanted with them) for the best price I could get quoted.

I needed drinking money. I didn’t need Kangaroo Coins. Who the hell did? Not the 23 year-old who responded:

“SAHARA COINS in Vegas off of Sahara and Teneya. $862.89.”

The email came back:

“Consider it sold--Love, Dad.”

On January 14th, 2008—the next day—gold broke $900 for the first time.

In March, it would break $1,000.

A little over three years later, gold has come close to doubling what it was when I sold it for a bunch of cab rides to Brooklyn, a nice dinner or two, a pair of jeans, and some truly awful nights at the Cherry Tavern. On July 23rd, 2011, gold broke $1600. As of this writing, it’s at $1637.50.

Maybe it’s time for Dad to sell.

“GOLD AIN'T LIKE NOTHIN' ELSE,” Dennis Gartman—famed trader, economist and author of The Gartman Letter—explained over the phone from Suffolk, Virginia.

“Whatever it is, for whatever reason, it is embedded in the DNA of human beings to admire and hold gold. And if you try to ascribe rationality to gold, you’re wrong.”

And what Gartman characterized as irrational human admiration appears to be at an all-time high. Gold prices are rising and may continue to defy the typical physics associated with the success of any asset like it. As long as the market continues to believe in its intrinsic value.

What was simply a Wall Street go-to inflation hedge—or: an investment that theoretically protects against the decreased value of a currency, like the dollar, which has seen better days—has become a pop investing phenomenon. It’s of interest to people who could care less about the goings-on of Wall Street, many of whom can barely distinguish a stock quote from a stock recipe.

And inasmuch as media enthusiasm is a barometer for investment popularity, the headlines have been accumulating faster than a goldbug at the end of a rainbow. A May cover story for the yuppie-centric New York Times Magazine detailed a surveyor: “Gold Mania in the Yukon,” was the headline. On the cover: “The hunt for the world’s most primitive form of wealth starts here.” An April headline from the front page of the Wall Street Journal: “World is Bitten by the Gold Bug.” On Monday, in the Accessories section of Women’s Wear Daily: “New High for Gold Prices.”

Gold even had its own celebrities now, the kind less famous for their investment ideas than they are their mugs. For a period of time, Glenn Beck so relentlessly shilled for the yellow stuff both on his show and in commercials for consumer gold trade-in service Cash 4 Gold that it merited a December 2009 segment on The Daily Show. This was almost a full calendar year after Cash 4 Gold purchased a 30 second ad during—what else?—the Super Bowl.

It was the same month the Journal reported on a woman named Margaret Petrucell, the founder of It’s a Gold Mine Party, LLC. In the great tradition of Tupperware and Mary Kay and Avon, suburban housewives were having parties to sell their gold and walk away with shopping money. The founder, who before starting her business, was laid off by Goldman Sachs’ mortgage division, joked that “What happens at a gold party stays at a gold party.”

But it doesn’t. If anything, gold mania has spread like a contagion.

A few months ago, at a small fete for Sex and the City author Candace Bushnell’s new book, the party’s host, Bright Lights, Big City author and Manhattan gadabout Jay McInerney—swaying about in a white tuxedo jacket—joked to The Observer that he had started his own hedge fund. “I think I’m just going to be a goldbug!” he said.

In the unlikely event Jay McInerney was, in fact, a goldbug, he would have made a small profit in the intervening months. Same with Glenn Beck and Cash 4 Gold, or one of the many multiplying outlets you’ll find to sell off your gold like it, now with brick and mortar locations in strip malls across America. Even in Chinatown, among the district’s famously sketchy wares—the cheap, fake approximation of Prada clutches and rainbow-stamped Louis Vuitton bags—there are signs that note in flashy capital letters WE BUY GOLD. In late May, Utah legislators frustrated over federal economic policy legalized the use of gold and silver as currency. From uptown to Chinatown to Provo and beyond, everyone’s going for the gold. And it seems that anything the economy does could potentially be good for it.

“Everything through the gold window is like a house of mirrors,” said CNBC reporter and NetNet editor John Carney. “If because of the bad economy it looks like we’re headed towards a period of deflation, that should be bad for gold. But it could be good for gold. We’ve been in a period for a while where everything is good for gold. “It’s actually a joke on Twitter,” he continued. “#BuyGold. ‘Rabid squirrel bites girl in town. Buy Gold!’ And literally, if you had followed that advice all along, you would’ve made a lot of money!”

“Gold has proven to be a superman investment. It can leap over buildings and do things that investments aren’t supposed to do. And it’s laughing at us.”

But there are some very un-funny implications. In 2009 at the Davos Economic Summit, Yale Economist Robert Shiller read off a checklist of Bubble Behavior, among which are: soaring beyond the economic and culture saturation point at which other hyper-inflated markets have crashed (check), sharp increases in value (check), envy-inspiring stories of those earning money among those who aren’t (check), and “new era” theories explaining why now is the time to get in (check). Despite all of this, gold has continued to rise.

And as a function of that, some people are still laughing their way to the bank.

Last November, David Einhorn—the Greenlight Capital wunderkind who started his fund with less than $1M and who just acquired a stake in the New York Mets (if that isn’t a sign of money to burn, what is?)—revealed in an interview with Wealthtrack that gold was the biggest position in his fund (Mr. Einhorn declined comment for this piece). According to the New York Times, hedge fund all-star John A. Paulson netted $5 billion in 2010 thanks to securities that represent a chunk of gold larger than the holdings of the Australian government or the whole of Bulgaria. Even after billionare George Soros shifted his position on gold this year, Mr. Paulson stayed the course, putting more money into AngloGold Ashanti, the world’s third-largest gold producer. Employee capital reportedly represents 42% of his Paulson Gold Fund, which deals exclusively in gold-related or gold-backed investments.

Even the great state of Texas—ever famously oil money—is bowing before the golden gods: the University of Texas Endowment Fund currently has somewhere under $1 billion of gold bullion stored in a New York City vault.

From Mr. Carney’s vantage point, the value of gold has been driven by the realization of its potential not just as a diversification asset, or an inflation hedge, but the inherent value it holds against shakier propositions.

“Gold isn’t subject to political currents. Even if someone makes a big discovery of gold, the size of the amount of gold in the world, that won’t affect the price, whereas if you take a discovery of something useful—like energy—it could hurt the price of other known sources of natural gas in the world. That doesn’t happen with gold. The price of gold isn’t a price of discovery,” he said, “but the size of demand.”

Which brings us to the unique creature known as the Goldbug—a being consumed by demand and unmistakable even in an already frothy market. That creature for whom there is one answer for light, life, and wealth in the universe: the yellow, shiny one. They move in packs, and can generally be found vehemently defending their sworn protector and source of wealth against anything that stands in its way. They sometimes sound unhinged.

“I am not a goldbug,” Mr. Gartman is careful to emphatically note. “I don’t like the goldbugs. I think they’re wrong. The goldbugs think the world is going to come to an end,” and some of them, he explains, are real “black helicopter folks.” But that hasn’t stopped him from owning gold. He just doesn’t have to be excited about it.

“It doesn’t make me happy to own gold,” he noted, “but the trend is up. Fight that trend at your own peril,” he explained.

Some have.

Warren Buffett, the king of value investors, would rather invest in a good company with solid yields than gold. He didn’t buy the gospel, telling shareholders at the annual Berkshire Hathaway meeting this year in Omaha: “You can fondle it, you can polish it, you can stare at it. But it isn’t going to do anything.” (This of course caused Mad Money host Jim Cramer to go typically ballistic, calling Mr. Buffett a “grey-beard” investor, and asking why he wouldn’t “give other people a chance to make some money here”.)

Warren Hatch, a partner and strategist at financial research firm Catalpa Capital Advisor, published a position on gold’s long-term look on July 22, noting that the shiny stuff’s underlying look historically and in this instance isn’t so great. In speaking with The Observer, Mr. Hatch compared it to bubbles of past that should serve as more than obvious cautionary tales: “Gold isn’t going up because of a fundamental reason,” he noted. “Mark Twain once said that history doesn’t repeat itself, but it does rhyme. Five years ago at a cocktail party, people more likely than not would’ve been talking about all the real estate they’re buying.” As for the apocalyptic theories, he conceded that “there are a lot of people who are lobbying more who want to go back to a gold standard, but that argument is completely separate from what gold prices are doing now. For that to even be seriously considered, we would have to be in a far different situation than we are today.” The odds of that happening, he explained, “are miniscule.”

Many of Wall Street’s major institutional investors were still reluctant to get in on it, explained Mr. Carney. “It kills them to think they’ve passed up a profit, but they’re worried that anything that’s gone up 200% over two years could go down 200% over two weeks. It doesn’t make sense that every piece of news is ‘buy gold.’”

Dennis Gartman agreed. “Ask the average Wall Street wiseguy if they’re bullish on gold. They’ll say ‘yeah, you gotta be, we got money problems [with the dollar].’ If you ask them how many hold gold? Very few,” which is where he sees a weakness and potential for an overvalued asset. “It’s a bubble in interest, not in owning. It’s fascinating: everybody’s bullish, but very few are long.”

If they are few, they are prominent, and as convinced of the value of gold as ever. Ben Davies, CEO of London-based investment fund Hinde Capital which maintains the Hinde Gold Fund—the core investment of which is physical gold in a Swiss bank—sees gold hitting $2,000 in four months, and then some. To him and others like him, it’s not just an inflation hedge, but a way of life you’ll soon be adopting.

“This will go beyond popular culture,” Mr. Davies wrote over email from London. In his writings, he didn’t sound apocalyptic. In fact, he was frighteningly, cuttingly rational in his thinking.  The way he saw it, the global economy was in a transitional stage, a maturing phase, the same way one’s voice got deeper as they got older. There were no apocalyptic undertones, but there was a distinct New Age-y feel. “The internet reformation has reconnected individuals with the truism that ‘the desire of gold is not for gold. It is for the means of freedom and knowledge.’ Sounds earnest, doesn’t it? Well,” he wrote. “it’s meant to be—a sound monetary system based on gold is not subject to confidence of the faith and credit of anyone.”

“It cannot be printed or subject to some (mis)interpretation of accounting rules. Neither is it subject to bankruptcy of banks or governments. The physical is not subject to the rules and subversion of exchanges, regulators, ratings agencies or clearing systems ... Money is a serious business, and gold is money.”

For all of the mystical intonations, he was simply saying that it’s not a fiat currency.  As Mr. Einhorn cracked wise in November, gold is “the one kind of money [Fed chairman Ben] Bernanke can’t print more of.” So where is it going?

For Mr. Davies, nowhere but up. Gold being celebrated at cocktail parties, “whether for the right or wrong reasons, is not signaling an end, but a beginning.”

Mr. Carney is less sanguine. “Pigs get slaughtered,” he said.

And Mr. Hatch even more so. “It’s going to be a textbook example of the Greater Fool theory: when the price of something becomes divorced from its underlying fundamentals, and the reason the price is going up is because you can find someone else who’s willing to pay a higher price for it. What you’re doing is finding a greater fool than you to buy it. And eventually,” he said, “the fools run out.”

At one point in our conversation, Mr. Gartman stopped me. “Write this down,”

He grew quiet.

“Gold will stop going up when it does,” he exhaled. “That’s it. That’s all there is to know.” Okay.

As for Dad, it was unlikely that he was parting with the Roo I sold him anytime soon--but not because he was pursuing a new career in gold speculation. “Your dead cousin gave it to you,” he said. “It’s a keepsake.”

It was as good a reason as any to go long.

fkamer@observer.com |@weareyourfek

So what does it mean that after a year of relative inactivity that lasted through his run for Senate in 2010, Mr. Schiff is getting asked again to go on television with the same frequency as early 2008? It might be that as consensus gathers that the housing bubble was preventable and the Dow Jones Industrial Average hits its highest point since June 2008, there's an increasing anxiety about inflated asset values. With investors still afraid of being seduced by illusory gains, the doomsday predictors have once again been summoned to cry bubble. And they are doing a lot of it.

"I think now there's maybe too much of an audience about bubbles," said Marc Faber, a fund manager and notorious market pessimist whose Web site, GloomDoomBoom.com, is illustrated with a series of macabre 17th-century paintings by Kaspar Meglinger called The Dance of Death. "Everybody thinks there's a bubble everywhere," he said. "Everything is high in terms of price, but I'm not sure everything is in a bubble."

Economists say that it's unlikely that "bubble" is the best term for what is going on with the market today. For there to be a real bubble, says Bill Fleckenstein, another market pessimist and manager of a Seattle-based hedge fund, "the behavior of the participants has to impact the economy." He cited signs from previous bubbles such as people quitting their businesses to form dot-coms or taking money out of their home equity.

For Robert J. Shiller, a professor of economics at Yale and the author of the book Irrational Exuberance, the symptoms of a bubble are best measured not by studying the market but by contemplating the very particular sort of envy and greed that a bubble produces in investors. In times of bubbles, he said, investors "don't really feel confident but they think, 'Hey, it's been going up and all these other people have been cashing in on it,'" he said. They begin to say, "'I've been a fool and I feel kind of envious of people who did it.'"

Despite the absence of such signs, bubble-calling is rampant. Bullish investors can point out that unemployment claims have gone down, companies have cash on their balance sheets and corporate earnings beat expectations, but if we believe the headlines, grannies are hoarding gold bars, the housing market in China is about to go bust, the stock market is overvalued and tech companies are going public like it's 1999. James Paulsen, an investment strategist at Wells Capital Management who says the economy is on a clear path to recovery, laments "an illness suffered by most investment players since the crisis, called Armageddon hypochondria." He said to have a bubble, "I think you're going to need some excesses, and the only way you're going to get there is to reestablish some confidence."

But as Robert Pavlik, a relatively upbeat market strategist at Banyan Partners, put it, "the optimists are the ones that sort of get dumped on." On both sides, this reversal of fortune is still an unfamiliar feeling. "The folks yelling 'bubble' aren't being dismissed as curmudgeons and idiots the way they are at most bubble peaks," said Henry Blodget, publisher of Business Insider and infamous for his association with the dot-com bubble. Recent headlines by the bloggers of BI have included "13 Glaring Signs That the Market is Forming Another Huge Bubble," "11 Signs That Gold Is In A Bubble That is Going to Burst" and "The Next Housing-style Crisis Will Be The Municipal Debt Bubble." Mr. Blodget predicted that when we are really back in the middle of a bubble, such prognosticators will again be deemed "laughingstocks."

Mr. Shiller recalled the annoyed reactions he elicited on a radio call-in show a few years ago by hinting that home prices might not rise forever. He said that it's difficult to summarize the difference between then and now, but that it does seem his days of being dismissed as an "effete academic snob" are over. "I had the sense back then that the general public was not very interested or convinced," he said. With what he estimates as one-third of the Americans believing in the strength of their real estate investments at the height of the housing boom, "at that point it was almost rude to them."

Another notorious predictor of doom, Gary Shilling, said that having had multiple bubbles burst in recent memory "has made people more sensitive to bubbles and has encouraged them to look for more bubbles." Mr. Shilling is an economic consultant who recently published a book called The Age of Deleveraging that predicts slow economic growth over the next decade. And while he acknowledges that there are "a few of us that have made a career out of spotting bubbles and forecasting their demise," these days "it's probably being overdone."

But perhaps it's because the financial crisis made brand names of bubble spotters--with the likes of Nouriel Roubini and Greg Lippman becoming coveted financial advisers--that the practice has become so prolific, and the predictions of the original bubble spotters continue to affect markets. "You got such fame if you called the housing bubble that people figure if you call enough bubbles and you get one right you are a hero," said Jim Cramer, host of CNBC's Mad Money. "If you get it wrong, you just say it hasn't burst yet!"

When hedge fund manager Steve Eisman announced that the for-profit education industry was as "morally bankrupt" as the subprime mortgage industry--essentially saying that the student debt of the average University of Phoenix graduate was as likely to be repaid as the mortgage of the proverbial strawberry picker from California--shares in for-profit education companies tanked. But using one's past successful predictions to justify predicting the next apocalypse is not always a good thing, as the recent criticism directed toward Meredith Whitney, for her dire predictions about municipal bonds, has shown.

Journalists have their own version of the bubble syndrome, clamoring over one another to be the person who successfully profiles the caller of the next bubble. Take the recent article from Bloomberg that has been bouncing around the financial media echo chamber for more than a week now. The headline: "Loneliest Man in Davos Foresees 2015 Bank Crisis While Global Elites Party."

The lonely man in question was Barrie Wilkinson, a partner at the consulting firm Oliver Wyman, who was rather surprised when his report "The Financial Crisis of 2015: An Avoidable History" became one of the firm's most read publications. The report has a cinematic opening about a hypothetical "John Banks" being awoken in Singapore at 3 a.m. in 2015 to learn that his employer has declared bankruptcy. "As he lay there in his spacious air-conditioned bedroom, unable to return to sleep, John tried to reconstruct the events of the last four years," it reads, before launching into the hypothetical rise and fall of a shadow banking system in emerging economies due to increased regulation.

"What the media has certainly lost is that they try to make it look like a prediction rather than a scenario, and we would like to reposition it as a scenario--but a plausible scenario," said Mr. Wilkinson.

ewitt@observer.com

In other words, if this "bubble" were to pop, it wouldn't be the mothers and fathers of the world hoping to put their children through school who would be getting screwed. It would be the private investors. It would be a handful of (mostly) rich people who would be out of some of their money.

Siegler is talking about the valley, but the situation in New York is similar: it's mostly angel investors sinking money in the this latest round of rockstar right-coast startups -- people like Ron Conway, whose portfolio went from being five percent New York companies two years ago to 20 percent "and climbing."

It's true that the fallout from an angel-fueled bubble would be more contained than the fallout the dot-com bubble, in which many ordinary Americans put their money into the inflated IPOs of companies like Pets.com.

But that doesn't mean a bubble can't do damage. The flow of easy money undermines the incentive to find a revenue model, stay lean and work hard. A tech funding bubble could ultimately hurt Silicon Alley's tech scene by taking away the natural mechanisms that force startups to survive.

ajeffries [at] observer.com | @adrjeffries

Why New York, and why now? For many of today's Internet companies, the competitive advantage lies in the innovative nature of their products, not necessarily their technological prowess. Thanks to Internet-based services such as EC2 from Amazon (AMZN), startups can essentially rent the supercomputing power they need and can launch -- and thrive -- with fewer than two dozen employees.

The article cites super-investor Ron Conway, who has invested in New York-based companies including BuzzFeed, StackOverflow and Buddy Media, saying his portfolio has gone from about 5 percent New York companies two years ago to about 20 percent "and climbing."

New York has produced a wave of design-heavy but technology-light startups in recent years and some (Foursquare, Tumblr, Kickstarter) have gotten extremely popular with users and investors. The rise of incubators like BetaWorks and TechStars could foster more rockstar companies. But the sudden easy flow of money has got some prognosticators worried about a tech bubble.

According to Steve Greenwood, who was head of business development at Drop.io until the New York startup was acquired by Facebook, "This is the epicenter of the next Internet revolution!"

Nobody tell him New York wasn't built for earthquakes.

ajeffries [at] observer.com | @adrjeffries

The Observer's Laura Kusisto asked last week if Israel -- where foreign buyers of luxury properties have not only rapidly and substantially driven up the cost of housing, but have created a fragile market -- may compare to Dubai's and to the US, whose real estate crashes were felt around the world. 

Meanwhile, Bank of Israel Governor Stanley Fischer, the former MIT professor and Chief Economist at the World Bank, also last week, told a Knesset finance committee that an unusual phenomenon of Israeli parents helping their young married children buy first homes was also skewing the real estate market to make it look more similar to those countries which have had a bubble.

Both observations made headlines here in Israel.

Then, in a high-profile announcement in Jerusalem Monday, Israeli Housing Minister Yuval Steinitz laid out a bold government program to make it easier for young couples to buy a first apartment.

The government of Prime Minister Benjamin Netanyahu, himself a former finance minister, is to be applauded for moving to increase the availability of affordable housing. While the steps they are taking are important, they do not address all the issues. As long as there are foreigners with money who want to own property in specific areas in Israel, prices will keep going up. Building more apartments, especially non-luxury apartments, will likely have little effect on this pricing.

But statistics fail to give the full picture. They do not consider each area of the country individually, nor the social and religious considerations of the buyers.  Jerusalem well demonstrates some of what is going on.  

While clearly, there are many factors that affect pricing, one of the most basic economic principles is of course supply and demand.  Who are the buyers purchasing all this property in Jerusalem? And who is creating the housing demand?

• There are the haredi (ultra-orthodox) buyers who are marrying young (usually the couple is in their early 20's), expect to have large families, and usually want to live in neighborhoods that are predominantly ultra-orthodox. Many in this population are economically weak, and families are under great fiscal pressure as they are expected to help their children purchase an apartment as they get married.

• There is the Arab population, also with large families and often economically weak. As most neighborhoods in Jerusalem are largely homogeneous, they live primarily in predominantly Arab neighborhoods.

• There is a more transient -- but still constant -- population of students (Israeli and foreign) who are studying in university and post-university programs for relatively short periods of time.

• There is a mix of modern (both religious and not religious) singles, young couples and families.

• And there are the "foreigners" who buy apartments that are often left empty many months each year.

The "foreigners" and some of the more affluent families in the "modern" group are buying luxury apartments, generally in neighborhoods near the center of the city or near the Old City. Catering to this group has caused the limited building in those neighborhoods to be exclusively high-end. As many of these buyers are religious Jews who will not commute by car on the Sabbath, having the Western Wall within walking distance will likely keep these neighborhoods from dropping in price.  

The pricing of luxury apartments is very high and will remain so as long as there is a demand by people that can pay these sometimes astronomical prices.  Purchasers of these apartments are not buying the apartments for an economic short-term investment. They are buying these apartments so they have a place to stay when they visit, and emotionally, they want to own land in Israel, especially in Jerusalem. It is possible that if the economy remains weak around the world, fewer people may be willing to buy a second apartment they rarely use and these prices will level off or go down slightly. But this class of buyer -- with strong attachments to the city and the State -- will always be around.

The lack of reasonably priced apartments in the central neighborhoods, caused by the increase in the luxury apartment prices, has also pushed up the prices on non-luxury apartments. This has forced many people to the surrounding neighborhoods, raising the prices in those areas, as well. But even a slight drop in the luxury market will not have any significant effect on the non-luxury apartments. Simply put, there is a very large demand and not enough supply for regular family apartments and apartments for young couples, professionals and students in the more central areas. This high demand surely will cause prices to at least hold or more likely to increase.

One needs to look at the neighborhood make-up of Jerusalem. There are many socio-economically weaker neighborhoods that surround more affluent ones. Young professional couples and students have seen this as an opportunity. They are moving into these neighborhoods, demanding better schooling and transportation, and fixing up the buildings and the neighborhood. And when a gentrification process begins, all neighborhood prices quickly go up. 

The municipality is putting an emphasis on affordable housing. Pressure is being put on developers to finally start building for non-luxury buyers. They are working on programs to give financial incentives to developers that make apartments available for young families and students. While short-term, this might cause prices to level off or even come down, as more apartments becomes available, the prices will jump back. The demand is there.

So, can one make a worthwhile real estate investment in Israel today? Absolutely. But you need to do your homework, as well as decide what you are expecting to get out of your investment. And avail yourself of professional advice. Not all Israeli cities -- nor sectors of the real-estate market -- are alike.

Mark Goldfarb, who is living in Jerusalem, is the CEO/Managing Director of the Israel-based Habira Group Capital Ltd. www.habiragroup.com Habira Group has recently launched an investment fund that is focusing on investing in lower-end residential properties in Jerusalem. Mark Goldfarb can be reached at mark@habiragroup.com.

The Journal says that last week, junk-bond prices hit their highest prices since 2007, and 2010 is already a record year for junk-bond sales. Companies have issued $172 billion in risky debt.

There are some compelling reasons investors are looking at junk. Defaults are down significantly from a year ago, according to Moody's, and the ratings agency expects the rate to fall even further through the end of the year. Also, even though the price of high-grade bonds has lately slipped, investors still hardly get anything back when they lend to safer borrowers. But The Journal also raises something of a red flag:

The demand for bonds has allowed some of the riskiest borrowers to sell bonds with fewer protections for investors. These provisions, or covenants, prevent companies from taking actions that would hurt bondholders and would protect investors if companies are sold.

Nothing like lending money to a company that's more likely to default without a contractual safety net! The last time we saw this kind of investor behavior was in the runup to 2008, the year the financial markets were brought to their knees.

Gilbert says that, as happened to banks during the credit crisis, investors are now looking to distinguish between governments that have been too profligate and are now doomed and those that might be big enough to survive. Investors are flogging the tar out of Greece and Ireland by charging exhorbitant rates for their debt, while the U.S. and Germany are able to raise money at astoundingly low rates. Trouble is, as was the case with the banks, the risk hasn't gone away, it's just found a new place to hide.

Investors may be taking on too much risk in long-dated, low-yielding bonds like U.S. Treasuries or Black & Decker, Gilbert says. Having started with alcohol metaphors, he takes the parable to its logical conclusion. "The problem with hangovers is that once they fade, the prospect of getting drunk all over again starts to seem like a great idea. This fixed-income party will end badly."

Traders have flooded into the bond market at a rapid clip as concerns that the economy isn't recovering fast enough -- and may be headed for a double dip -- have engendered a widespread flight from risk into the relative safety of government bonds and other high-grade debt securities. The ensuing rise in price has driven yields down. The benchmark 10-year Treasury note has gone from a high of around a 4 percent yield this spring to as low as 3.47 percent in August.

So is the bond buble ready to burst? Hard to say. On one hand, economic uncertainty makes U.S. Treasury securities seem like an attractive bet to investors, and it's unlikely that the boom times will return any time soon. On the other hand, Barr writes:

But the case for Treasurys at current prices assumes a strong probability of deflation, a persistent decline in prices that damages the economy by increasing real debt burdens. Every piece of economic news that shows even minor improvement undermines that case and boosts the argument that bond yields should be higher.

So bonds are probably overpriced, but for the short term, "even if a big bond selloff isn't at hand, coming weeks are likely to bring enough frantic trading and big price swings that it will be hard at times to tell the difference."

That conclusion hardly supports a trading position, but we're not sweating it. Swings in the market are bound to make for good copy in the near future, meaning highly opinionated financial firebrands are liable to continue saying wacky things about the market for government debt. Let's have fun watching!

The August ISM manufacturing index came in at 56.3, up from 55.5 in July, registering its 13th straight month of growth. Anything above 50 is a signal that the manufacturing sector is growing.

The benchmark 10-year Treasury note was lately down 1 0/32 and yielding 2.59 percent. The 2-year was down 2/32 to yield 0.50 percent.

Previously: Treasuries Jump on Housing Data, Analyst Says Sovereign Defaults Coming Soon.