<i>"IMO just because some asset class is appreciating in value it doesn't automatically make it a bubble."</i> I guess that is based on why stock markets are rising. Since mid-August lows they have risen in parabolic fashion. Why? Were the reasons for weakness then negated overnight? Nope... just lubed upward on massive liquidity by the Fed. Econ news is poor = rate cut ahead. Bullish. Econ news is strong? Economy is sound, still more rate cuts ahead = bullish. Earnings are weak? Bullish = rate cuts ahead. See the basis of this recent ramp to new all-time highs? Based on continued cycle of debt. Perhaps the sub-prime and off-book debt issues have ended. Crisis abated? http://news.yahoo.com/s/ap/20071011/ap_on_bi_ge/foreclosure_rates;_ylt=ArHRMyg_K69G2tWdauRVEHqs0NUE
Seems it is all over and was contained after all....................NOT ``The truth of the matter is that borrowers are going into default as soon as they hit their adjustments,'' said Rick Sharga, executive vice president of marketing at Irvine, California-based RealtyTrac. Bloomberg
Someone posted a good chart the other day with the SP in terms of gold. By that measure you wouldn't be thinking bubble at all. Price US equities in anything but teh $ and you can see that we have lost ground and are not even remotely in bubble territory, infact on a global basis US equities are cheap and getting cheaper with every % decline in the $. If the $ shows some strength you might get a bit of a sell off but far more likely are sell offs in the EM where the $ is hurting their exports and profit margins at both ends (input prices and what they get back in $). The US market looks likely to break out to much higher levels to my eyes, as does Gold, and ofcourse the $ looks set to make new lows. If you want to short a bubble then the FXI is where you will be able to make some money though probably buying calls on bigger dips for now and maybe writing a bull put spread on any significant retrace if you want to be agressive is where the returns are. Right now I think the story is the $ and if that turns and breaks its down trend then the probability of a short equities trade working rises.
O.P. I don't know how long you've been in the markets, but let me tell you one thing from my experience, when there is no such thing as bad news.... THAT'S THE BAD NEWS! I am a trader and had been trading the long side of this market exclusively for the past several years, I am adjusting to neutral right now. You can't keep whipping a bull and expect production without rest. Expansion without some bit of cooling, even a bit of contraction can't last forever. Good Luck!
so therefore the market would go down on what.? im coming to the conclusion that a run of fantastic bullish fundamentals and bullish news will translate to a stock market meltdown.
Commodities are expensive. Long bond yields 4.9%, which is under 2% after inflation. Stocks are undervalued compared to other asset classes. That's all there is to it.
There will be no more bear markets and maybe only one or two more corrections for the foreseeable future The bull market that began in 2002 may last for over 100 years.
Not being rude - the above captures the prevailing ignorance towards economic fundamentals. Very common around here. 2001+ marked an unprecedented explosion in the money supply, ushered in by Greenspoon. An economy - be it national or global - can only "absorb" so much excess credit before inflation hits. When inflation hits hard, a responsible Central Bank will restrict credit (choke off demand) and the stock market will tank. During the money pump run up, our money supply was expanding at 4 TIMES the rate of US GDP. Think about this in laymans terms. Imagine an "economy" that produces 5 loafs of bread. There are five participants in the economy who each have 1 dollar to spend. How much each is loaf of bread? 1 dollar. Now imagine we turn on our printing press and give each participant 4 extra dollars but keep the number of loafs at 5. How much is each loaf now? 5 dollars. This is money pump inflation. This is essentially what happened since 2000. The global economy has grown at a moderate rate while the global money supply has grown at a TREMENDOUS rate. This is why hard assets are exploding (ie commodities - gold, silver, metals, grains, energy, livestock, real estate). Commodities retain their value during credit booms because their demand remains static, in absolute terms, no matter if the dollar is strong or toilet paper. People still need grain to eat, land to live, metal to fabricate etc. Hence, commodities are a safe haven - a bulwark - against inflation. The music will stop at some point. The fundamental laws of economics cannot be sidestepped by statistical trickery, academic cunning or Fed doublespeak. We either end in a recession/crash with high rates. And preserve whats left of the dollars value. Or maintain a slow edging ascent accompanied by what could very well be the worst inflationary period this generation has ever seen. The lower and middle class will get absolutely robbed as their savings are held mostly in cash or have no savings at all. Prices will skyrocket relative to wages and they'll get fucked. This is in every bit equal to ROBBERY on a national scale and unfortunately, a possible reality. The Fed's self-proclaimed mandate has always erred on defending the Dollars value (low inflation). Times are changing. Bernacke may very well 'inflate his way' out of the coming Social Security/Medicare/US Debt Crunch. Either way, the country is in for hard times.