Jacob, I certainly go along with your sentiments. What is happening to the market now reminds me of the 1999/2000 climb of the market and the SOX. This was the "technology bubble". SI has a lot of history from that period of various persons saying the upward trend was "crazy" and couldn't continue. However, it did continue for several months after all the dire warnings about a top was "imminent".
In the 2006/07 era we had the "housing bubble". The art of "flipping" houses every few months to pocket great gains was something to behold. People said it couldn't last, but it did for awhile and went on to highs that no one could imagine. We all know how that turned out, and let's remember, that was 2007 and we are now in 2013, 6 years later and signs of recovery have just begun with a long way to go to get back to "normal", maybe another 4 to 6 years for that to happen?
Now we are starting up the curve of the "asset bubble". Where it ends, no one knows, but it will end badly. In the meantime the "market" is loving it. There are many articles in the media about the present situation, but I would like to post a marker to one that was posted yesterday, full of charts and pointers to other material. I will post a few excerpts from the article as well as a couple of charts, but the full article can be found at:
advisorperspectives.com
<<There Is No Asset Bubble?
By Lance Roberts of Streettalk Live
March 4, 2013
""While the level of corporate profitability is certainly important - corporate profits are more of a reflection of the issues that have historically led to asset bubbles. Increases in leverage, speculative investing and the push for yield, as identified in Bernanke's testimony, are more attributable to historic asset bubbles from the peak in 1929, the technology bubble in 2000 or the housing bubble in 2008. For example, the housing bubble that started in 2003, which was built around excess credit and leverage as homes were turned into ATM's - led to a surge in corporate profitability and economic growth. However, the growth of corporate profitability did little to deter what happened next.""
""The downfall of all investors is ultimately "greed." Greed can be measured not only emotionally by looking at bullish versus bearish sentiment indexes but, more importantly, how much leverage investors are taking on. The chart below is the amount of margin debt by investors overlaid against their relative positive or negative net credit balances.""
""With both margin debt and negative net credit balances reaching levels not seen since the peak of the last cyclical bull market cycle it should raise some concerns about sustainability currently. It is the unwinding of this leverage that is critically dangerous in the market as the acceleration of "margin calls" lead to vicious downward spiral. While this chart does not mean that a massive market correction is imminent - it does suggest that leverage, and speculative risk taking, are likely much further along than currently recognized.""
""As opposed to Bernanke's statement that increased risk-taking are okay as long as such risks are outweighed by"the benefits of promoting a stronger economic recovery and more-rapid job creation," it appears that such a progression is not the case. As we have seen with virtually every indicator - economic activity peaked in 2010. Since then, even with the input of global stimulus, the rate of economic growth has weakened as shown in the chart below.""
""In the long term it will ultimately be the fundamentals that drive the markets. Currently, the deterioration in the growth rate of earnings, and economic strength, are not supportive of the speculative rise in asset prices or leverage. The idea of whether, or not, the Federal Reserve, along with virtually every other central bank in the world, are inflating the next asset bubble is of significant importance to investors who can ill afford to once again lose a large chunk of their net worth. It is all reminiscent of the market peak of 1929 when Dr. Irving Fisher uttered his now famous words: "Stocks have now reached a permanently high plateau." The clamoring of voices that the bull market is just beginning is telling much the same story. History is repleat with market crashes that occurred just as the mainstream belief made heretics out of anyone who dared to contradict the bullish bias.
Does an asset bubble currently exist? Ask anyone and they will tell you "NO." However, maybe it is exactly that tacit denial which might just be an indication of its existence."" |
