Bubble, bubble, toil and trouble
First a lesson in popular mythology, the phrase is actually “Double, double toil and trouble” rather than the popularly accepted version of bubble, bubble… And, in the scheme of where I’m taking this mini rant, this actually makes a whole lot more sense.
Of late, there has been a nuanced and growing voice for what I refer to as “Bubble Calling” in broader markets. And frankly, it’s quite understandable that such noise is being made about the glaringly obvious. With index valuations hitting all time highs almost every day (if not several times in a given day), certain stock prices jumping through the roof every second day, tech companies listing on exchanges with no revenue generation model (not to mention actual hard revenues) and being oversubscribed by upwards of 10 times, easy monetary policy only seemingly getting even easier etc. You get the picture and if you don’t, just open your eyes and look at what’s going on around you.
The bottom line is that anyone that’s had more than 5 minutes experience in this market will tell you the same thing, we have reached bubble like status in not just one market, but practically all of them. The obvious question, bubbles burst, so when will this one? As obvious as the question may be, the answer sadly, is anything but.
I attribute this to a simple fact of participants left with nothing to any longer shock them into action. Shock them into the fear that is so oft quoted as the flipside of the greed coin. Fear and greed we’re told are the cornerstones of the capitalist model and the market to which it gives birth. The greed part is obvious and with the SPX trading where it is, no further examples are even needed. But fear? Well that seems to be desperately lacking at the moment. And frankly, what’s left out there to be even mildly nervous about? Not unlike a surreal case of conditioning of Pavlov’s dogs, market participants and investors of all size and shape have pretty much seen it all, lived through it (for better or worse) all and many have even walked away with a t-shirt just to prove the fact. I mean if previously we had Mr. Taleb telling us about black swans and the unknown that could unleash Armageddon upon us all as soon as tomorrow and we took it as gospel, then today we simply don’t have that. All the known knowns are known as are the unknown knowns (thank you Mr. Rumsfeld).
We, as a market, seemingly have nothing left to fear anymore. Without anything to fear, there exists no reason to be nervous or behave prudently. Prudently means safeguarding profits for fear of loss, but wait, there’s no fear. Being prudent means investing wisely based on valuations and cold, hard facts. Today investing wisely simply means paying whatever the asking price is, safe (seemingly) in the knowledge that today’s high (which you’ve probably paid) is nothing more than tomorrows low.
Unperturbed, the market bubbles along (pun intended), causing many a paid mouthpiece and pundit out there to start calling the blatantly obvious BUBBLE! Yeah, and?
We all know it, in fact it couldn’t be any more obvious but when will it burst? What will cause this to happen? And why will that (x) be the cause of the bubble bursting as opposed to anything else?
The long held fear has been the FED taper, the insinuation that cheap (free) cash will be reduced (as will liquidity) and the sole reason anyone has bought equities will cease to exist, fire yelled in a crowded theatre etc. But, and this is a significant but, even the outright fear of the event which failed to materialise in September as most had anticipated, was not anywhere near enough to see an even modest correction, let alone full blown capitulation of the equity market. So, again I ask, if not even this, then what could it be?
The following http://www.businessinsider.com/chart-comparing-now-to-great-depression-crash-2013-11 is a link to a piece that did the rounds in the market about a week ago. In truth it was the chart that did the rounds, but the piece itself is what I consider to be important as while it states the obvious, it grasps the poignant which is that it’s not the chart itself, but the fact that it’s doing the rounds within financial markets.
It’s coming, how and why is nothing more than a best guess.