Wednesday, February 24, 2016

All Bubbles Are Different....But End The Same.......A VERY PESKY FACT!

All Bubbles Are Different....But End The Same

The current topping process has been extended due to ongoing global bank interventions (and a lot of exuberance) but even those interventions now appear at risk of no longer working.

The pattern of bubbles is interesting because it changes the argument from a fundamental view to a technical view. Prices reflect the psychology of the market which can create a feedback loop between the markets and fundamentals.

This pattern of bubbles can be clearly seen at every bull market peak in history.The chart below utilizes Dr. Robert Shiller's stock market data going back to 1900 on an inflation adjusted basis with an overlay of the asymmetrical bubble shape."  

There is currently a strong belief that the financial markets are not in a bubble. The arguments supporting those beliefs are all based on comparisons to past market bubbles.

The inherent problem with much of the mainstream analysis is it assumes everything remains status quo. However, the question remains of what can go wrong in the markets? In a word, "much."

Economic growth remains very elusive, corporate profits appear to have peaked, and there is an overwhelming complacency with regards to risk. Those ingredients, combined with a tightening of monetary policy by the Federal Reserve, leaves the markets more vulnerable to an exogenous event than currently believed.

It is likely that in a world where there is "little fear" of a market correction, an overwhelming sense of"urgency" to be invested and a continual drone of "bullish chatter;" markets are poised for the unexpected, unanticipated and inevitable completion of the full market cycle.

Take a step back from the media, and Wall Street commentary, for a moment and make an honest assessment of the financial markets today. If our job is to "bet" when the "odds" of winning are in our favor, then exactly how "strong" is the fundamental hand you are currently betting on?

This "time IS different" only from the standpoint that the variables are not exactly the same as they have been previously. Of course, they never are, and the result will be "…the same as it ever was."



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