New Stock Bubble Theory Picks Up Steam

Gary Tanashian submits: The new stock bubble theory is picking up steam. Here is an article by the Contrary Investor that is open to the possibility. In fact, the last paragraph sounds like it could have been written by this writer:

Again, this discussion is not about fortune telling as it applies to the financial markets. It's about being aware of and accepting of historical seasonal tendencies and longer term equity market cycles that may indeed have meaning for what lies directly in front of us. It's about maintaining balance and flexibility.

One by one, respectable analysts I follow are coming on board to the idea of a bubble or at least an upside blow-off in stocks. For now I will take this as a necessary development in the market's effort to get as many people on the wrong side of the trade (long) as possible. But in a global-macroeconomic environment that has become a three ring circus of assets performing daring and breathtaking acts, we should not discount the idea of a great new stock bubble that climbs a "wall of worry" to dazzling heights, conveniently assuaging the investing public's fears about all that is wrong with a system where assets rise and economies grow because of global currency inflation and debt accumulation instead of real productivity. Yes, China is in some ways a model of ascending productivity, but insofar as it remains dependent on the the US' credit creation machine, it is vulnerable. The same goes for most of the rest of the industrialized world.

Here in the US, we are a "feel-good" nation not used to wallowing in the depths of the problems experienced routinely by much of the rest of the world. This has allowed the US to continue clinging to its debt for consumption raison d'être even as the consumer's supposed last liquidity umbilical cord is cut (housing ATM). Wouldn't a brand spanking new bubble in equities work wonders as scared, abundant and hot money panics into yet another asset class? This has become all about momentum and getting to the next hot play before the herd thunders in. It is why I call this a casino. It is advised to take care of real financial preparations and real life before you speculate in this circus. Then remain grounded and aware of all possibilities.

I expect Q4 to be supremely interesting and I also expect my portfolio to become more interesting, asset and hopefully performance-wise than it was in Q3, where surviving Goldilocks became my main priority. I will update the portfolio's composition as it materially changes. Good luck to all as we enter the witching season with contrarians getting contrary themselves, myths and stories being cemented and perceptions in flux.

At this point, the market looks ready to at least take a breather. At most, the VIX will break up from the wedge and reign havoc down on complacent bulls. But where would that impulse come from? At this time, I would have to conclude that in the absence of any fundamentally earth shaking news, this is a market that wants to go higher as seemingly silly as that sounds.

Relevant ETF symbols include S&P 500 Spiders (SPY), Diamonds Trust (DIA) and Nasdaq 100 (QQQQ) for tracking and participating in the US stock market's fortunes, whether long or short.

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Comments

[R McCoy]

Nice to know I'm not the only one picking up on a strange vibe - the FrankenMarket idea serves as a perfect metaphor. Not even a day removed from the Dow closing at a new record high, CNBC is airing commercials proclaiming victory and encouraging viewers to "buy the rally". Don't be too quick to pass this off as an attempt to increase ratings or a freebie promo for the retail brokers. It might also shed light on the predicament that the contrarian in all of us is facing - or will face very soon. Tanashian echoes my sentiment with his closing statement:



My best guess is that the markets will postpone any needed correction for the near future, and be driven higher by an influx of capital from retail investors. Without sounding arrogant, I would bet that many of these folks aren't following stochastic oscillators, MACD, or the VIX. My only hope is that if this happens I will be able to recognize it.

The confidence this group has in the market has slowly, but consistently, increased over the last five years. Recently, confidence in their economic outlook has seen considerable improvement as well. Although the wallet of an average american driver is not seeing a considerable increase in cash on hand from cheaper gas, the psyche of an average american consumer is already trying to decide between LCD or Plasma. In other words, some of these folks will take this newly imagined wealth and throw it at the companies they know and love (hence the large cap rally).

Or, we might just stumble our way through another few months of the FrankenMarket.

[sharetipsinfo]

Market view for coming days.



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Regards

sharetipsinfo

[IndianStockMarket Forum]

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