Associated Press

NEW YORK — A string of exploding investment bubbles that started with the dot-coms and ended with mortgages and oil dominated the years from 2000 to 2009. And it looks like this decade will be no different.

It doesn’t seem to matter to many hedge fund traders and other professional investors that the Standard & Poor’s 500 index has turned in its first losing performance over the course of a decade, having fallen 23 percent from 1,469.25 at the start of 2000 to its current level of around 1,100.

Or that they or other investors helped create and then destroy the bubbles that left stocks worth $2.5 trillion less today than when the decade began — and that’s before adding in the effects of inflation.

A mix of investor hubris, ignorance and piles of easy money created the bubbles. New ideas about where to invest seemed foolproof and greed crowded out doubts.

Many investors looking for the best returns failed to see the potential problems with an Internet business that had no sales plan, or that thousands of expensive homes bought with no down payment might end up in foreclosure.

Now, these investors who fled the last blowups risk running smack into others. The Federal Reserve is keeping borrowing costs low to help revive the economy, and that means there’s still plenty of easy money around, helping traders to inflate the price of everything from stocks to commodities such as gold.

“They’ve put out the biggest punch bowl in U.S. history and people are guzzling from it,” said Haag Sherman, chief investment officer at Salient Partners in Houston.

It begs several questions: What will be the next bubble? Or is it already here? And, how do individual investors protect their savings?

Some analysts have already been asking if the stock market formed a bubble with its huge rebound this year. The S&P 500 is up 66.7 percent from the 12-year low of 666.79, its best performance since the 1930s. Continued...

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Gold is also suspect. It’s above $1,098 an ounce and up 24 percent in 2009. Other possible sources of bubbles include stocks in emerging markets such as China, where the Shanghai index is up 76.4 percent this year.

Analysts say it’s in the DNA of markets to let ambition cloud good judgment and that even when investors learn or relearn a lesson about excess, many still forget it.

Moreover, investors still have $3.2 trillion in money market mutual funds that’s waiting to be invested, according to iMoneyNet Inc. With so much cash available and investors hankering after big returns, analysts warn that bubbles may be inevitable. The signs of effervescence can be hard to spot.

“Pets.com was going to have a market cap larger than Exxon Mobil,” said David Darst, chief investment strategist for Morgan Stanley Smith Barney in New York, referring to the Web site that collapsed in November 2000, nine months after raising $82.5 million from investors.

He says investors will keep getting tripped up as they find new ways to invest.

“Human nature doesn’t change,” Darst said. “Market mechanisms change, but human fear, human greed will be like this decades and centuries hence.”

The numbers from this decade tell a stunning story:

ÇThe Nasdaq composite index, powered by the dot-com buying that began in the late 1990s, went all the way up to 5,048.62 in March 2000, then crashed down to 1,114.11 at the depths of the 2002 bear market. It rose as high as 2,859.12 in October 2007, but no one expects it to return to its loftiest levels.

And the indexes don’t reflect inflation, taxes and fees, which take the value of an investment down further. Thornburg Investment Management, which analyzed the value of investments beyond the decade, said $100 invested in 1978 would have been worth only $376 thirty years later after accounting for inflation, expenses and taxes.

ÇCrude oil, sparked by a weaker dollar and worries that oil producers would soon be unable to meet global demand, rose 71 percent in just six months to a high of $147.27 in July 2008. Prices then crashed down to $33.87 in five months. Continued...

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ÇLow borrowing rates and insatiable demand for mortgage debt by investors made it easy to get loans. That helped prop up housing prices and fuel speculation on securities based on those risky mortgages.

The peak came in April 2006; after that, home prices fell 31.9 percent to a low in May 2009, according to the S&P/Case-Shiller 20-city index. Along the way, two investment banks that bought mortgage-backed securities collapsed and the government spent hundreds of billions of dollars to prop up many commercial banks.

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