Can I pose a few questions? Are we in a bubble? Is the bubble bursting? The answer to each question must be yes. As an interested observer there is no doubt in my mind that:

(a) the stock market is still in a bubble despite recent corrections;

(b) Irish house prices are in a bubble;

(c) the Irish economy is demonstrating many of the characteristics of a bubble.

Is it age, infirmity or the effect of repeated failures that is leading me to this gloomy conclusion?

Some of you may remember that my particular interest is in speculation - undertaking high-risk ventures in search of supranormal returns. So how can I be pessimistic?

Even the most risk-friendly speculator must shudder at some of the valuations now being applied to assets. Let me look in turn at each of the three areas outlined above.

The price of a share equals the present value of the sum of all future expectations. Bubbles happen when unrealistic expectations are applied to valuations.

I do not understand the current valuation model which values a company only on a multiple of sales. Don't worry about profit or return on investment.

This so called enterprise-valuation model will not work. One example illustrates the madness of current expectations. A recent successful stock-market launch in Britain resulted in a market value which could only be justified by either of the following:

annual sales growth of 65 per cent at a 25 per cent net margin, or;

annual sales growth of 50 per cent with a 40 per cent net margin.

What are the chances of either happening? None whatsoever. A quick look at almost all of the Irish tech-stock valuations should cause you to ponder. In fact it should cause you to head for the door.

But, I hear the shout, the correction has already taken place on Nasdaq and the old-economy stocks are already in a bear market. Yes and yes. But remember, bubbles do not have to explode. Like a slow puncture, markets can decline over time. Rallies are followed by declines with subsequent peaks usually lower.

Is this what is happening? I believe that it is. It is now old fashioned to think that investments must earn a return. Any venture in bricks, clicks or intellectual property rights must cover the cost of the investment and make a margin to cover profit. Profit for many seems an outdated concept. Business ventures must make a profit otherwise capital will flow to other areas. Does that make sense? It should because that's what happens.

How then can you have billion-dollar values on companies with small sales, no profits and only vague hopes of making profits in the future?

The answer is "The Greater Fool Theory". Almost every buyer of bubble-stocks cares little about the business or its prospects. They expect to sell on their shares at a higher price. Buyers believe that there is a greater fool out there willing to pay a higher price to buy shares, which they in turn can sell on.

As long as the "pass-the-parcel" games continue the markets can rise. Day trading is grist to this mill.

Look at today's business pages; look at the valuations placed on certain new-economy companies. The future is obvious - share prices will fall. Most new economy ventures will fail. Investors will lose their money. The few that succeed will be the GEs, Exxons and IBMs of the future.

When is the collapse going to happen? I suspect it is happening right now. Am I qualified to talk? You bet I am. As a scarred veteran of three resource stock-bubbles, I have drawers full of valueless share certificates to prove my point. What should you do? Take profits and do not use borrowed money.

Is a semi-detached house in Clontarf worth £800,000 (€1,015,790). No it's not. The cost of capital to own that house, at say 5 per cent interest is £40,000 a year or £800 per week.

Your housing costs should not be more than about 25 per cent of your income. So, in a simplistic way, you need an income of £3,200 a week to own an £800,000 house.

But what happens if interest rates rise? At 7 per cent the capital cost of an £800,000 house is £56,000 a year or £1,070 a week requiring £4,300 a week in wages.

Even with two people earning, an annual income of more than £200,000 is rare enough.

You can query the numbers but the reality cannot be avoided. Either houses are too dear or incomes are too low.

Will house prices collapse? In general, no. There will be a long period of constant prices, which will allow incomes to catch up.

The Irish economic miracle has a finite life. I do not see us returning to the dreary days of old but growth will probably halve and business casualties will occur.

What should you do? Be very careful of long-term capital commitments based on the expectation of a continuing expansion of demand.

Companies supplying goods and services in the home market are most at risk.

One word defines the risk in all three areas above - leverage i.e. using borrowed money to buy assets.

As bubbles burst, the assets may not generate enough income and/or lose their capital value. To protect yourself, be sensible. If you have made profits in the stock market, take some of them and pay down your mortgage or, if in business, keep a cash reserve against the day when the bank calls.

John Teeling is chairman of Cooley Distillery as well as a number of oil and mineral resource companies.