Stock Bubble Forming

Posted on Posted in Daily Blog Post

Bubble normally takes about 2 years to burst. I am very sure we are now witnessing the signs of the beginning of the bubbles.

Can the market move higher? Why not, but the higher it goes, the more dangerous it becomes. I keep on saying that the market will go higher till 2016 since 2 years ago but not without some panic sharp correction. We may get another one soon.

Let’s look at some signs we are near a major multi-year top:
a. P.E starts to go higher and higher despite the sluggish economic growth and company’s earnings growth. ISM data from U.S. and China are all negative Fundamentals seem ignored.
b. Investor’s sentiment for bear is at all time low-less than 20%. VIX, put-call ratio is telling that investors start to get complacent. Remember that consensus is always wrong at or near to the top of the market.
c. The fear of missing the 6th year bull market starts to strike the average investors who have been away from the market since 2008GFC. These 2 years, we will see more and more investors pouring money into mutual fund.
d. Almost all indices are moving up in a near parabolic fashion. It is getting a lot easier to make money in stock markets. Stock market crash in 2008 has been completely forgotten. We all have a short term memory
e. High margin debts. What is troubling is that much of the buying is being fueled by cheap debt, McMillan said. While no formal definition of a “bubble” exists, McMillan said he sees a bubble as a price jump in an asset given the availability of cheap financing.
f. Economy is not going anywhere. Stocks value are jumping well ahead of the growth.

20140311B

Though, we may have some sorts of sharp correction at any time from today, the market has not reached the ultimate tipping point when we can see ‘buying panic’-the FOMO (fear of missing out) and buy anything that moves.

Fed's Fisher raises concern over stock values

Richard Fisher, president of the Federal Reserve Bank of Dallas, on Wednesday last week said he was concerned about "eye-popping levels" of some stock market metrics, and said the central bank has to monitor the signs carefully to make sure another bubble isn't forming.

In his speech in Mexico City, Fisher said some indicators like the price-to-projected forward earnings, price-to-sales ratios and market capitalization as a percentage of GDP, are at levels not seen since the dot-com boom of the late 1990s. He noted that margin debt is pushing up against all-time records. "We must monitor these indicators very carefully so as to ensure that the ghost of 'irrational exuberance' does not haunt us again," Fisher said. While a few Fed officials have mentioned unease about stock prices, Fisher's comments are the most pointed to date. Fisher did not spare the bond market, saying that narrow spreads between corporate and Treasury debt "reflect lower risk premia on top of already abnormally low nominal yields." Fisher is a voting member of the Fed's monetary policy committee this year. He has been a strong opponent of the Fed's latest round of asset purchases. Source: market watch

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