Bubble for thought

The world is wash with money. Europe QE is well under way and the printing presses elsewhere are running at capacity. Since the rest of the world’s economies are not doing as well, they want our US$ and that’s causing our dollar to aggressively strengthen.

Our growing economy, stronger dollar and cheap oil are making every day Americans feel richer and jump into the stock market. Not to mention there is excess American QE money now finding its way into the market. Since there is no other bubble insight brewing, and this excess money must go somewhere, do you think this might be where it shows its ugly head?

Are we in a growing bubble? If that the case, we may see DOW at 25,000 in couple of years since I don’t see we are anyway close to a recession!

Who had the best month ever Feb/15


Every time I read about the imminent “correction” of 10%, 20% or even 30% I get a little spooked because the folks making these calls are “experts” like Tom Gardner, but he’s certainly not alone.

But then I try to find the driver, the reason for the massive downturn and it always turns out to be something to the effect of we are statistically overdue. I live in the Pacific Northwest. We are overdue for a major earthquake, but I’ve not sold my home and moved to someplace that has a reputation for geological inactivity.

That’s a bit abstract, my point is I just don’t see any makings of a bubble. I don’t see any economic indicators that would drive the market into negative territory (with the possible exception of massive wealth inequality - the US of A is about par with Uganda). But what ever is going to wake the bear is well hidden so far as I can determine.

I will concede, I am not a professional observer in these matters. I am an amateur and maybe I’m just unaware of the subtle stuff that a more seasoned observer might pick up on. But again, even the pros always seem to be short on economic indicators. They cite statistical history.

I think that’s lame and lazy fear mongering.


Maybe fiat money is different from gold money. With gold money one relied on gold’s scarcity but there can never be a scarcity of fiat money which can be made out of thin air.

Take air. We can add to or remove from the atmosphere a few thousand tons of air and no one will notice but cut the air supply to a small room, say the Black Hole of Calcutta, and people die. Maybe fiat money is like air, too much of it is not a problem but too little is.

Maybe QE is not working because the extra air, sorry money, is not being used. Economists actually figured it out when they added the term velocity to the money supply equation. Supply = quantity * velocity.

The Theory’s Calculations
In its simplest form, the theory is expressed as:

MV = PT (the Fisher Equation)

Each variable denotes the following:
M = Money Supply
V = Velocity of Circulation (the number of times money changes hands)
P = Average Price Level
T = Volume of Transactions of Goods and Services


Increase “M”, decrease “V” and nothing happens. But with gold money there was a limit to “M”, a limit that has been removed by fiat money so the fiat money economy does not work like the gold money economy.

There is an ongoing experiment happening called the eurozone. The euro works like the gold standard in suppressing independent monetary action by the individual states comprising the eurozone. Look at the mess it has made! Maybe fiat money does have its advantages.

Denny Schlesinger


I agree that It’s possible that the US QE money is finally starting to validate the trickle down theory. Getting to ordinary people , after residing with the super rich ( now even more super rich) for years.

The strong dollar is not necessarily a cause for rejoicing, it helps some and hurts others. Since all the rest of the world seems in a race to weaken their currencyI assume that may be the better position.

This prolonged but leisurely climb of the broad stock market does not look like a bubble. Yet. And there is nothing big like the dot com boom. Groups are rotating in and out of bubble territory. The 3D Printing stocks are an example. Lots of hype, now languishing in the valley of despair, even the single public company in the group growing very rapidly.
I don’t now when the next recession will arrive. But when it does, declining market will have forecast it by many months. While there are some market forecasted recessions that never developed , I know of no example where the recession came before the bear market.

more on market valuation

The big market story last week was that the Nasdaq hit 5,000.
The technology index has been on a massive run, rising more than 300% since 2002. That’s incredible.
Or, depending on how it you look at it, it’s up about 0% since 2000. Which is awful.
Or, if you prefer, the Nasdaq has gained about 10% a year since 1990. That’s pretty average.
It all depends on your perspective. And your perspective is pretty arbitrary.
The S&P 500 has more than tripled since 2009. Many view this as a sign of reckless bubble-like abandon. Sure enough, dating back to the 1800s, the period from March 2009 through March 2015 ranks in the top 5% of all rolling six-year periods.
But since 2007, the S&P 500 has returned just about 3% per year after inflation. That ranks among the bottom third of all rolling eight-year periods since the 19th century.
So take your pick: We’re either in a historically large, blistering six-year rally, or a historically low, lethargic seven-year slump.


so anybody can find data to back his opinion.


so anybody can find data to back his opinion.

The start and end points will always influence the rate of growth but you don’t have to use the starting and ending prices. You can use a best fit line like Klein charts do. This S&P chart shows 7.4% average CAGR but if you used the actual starting price the CAGR would be higher:


My point is that some people put too much faith in the numbers as if we were talking about planetary orbits. Investing (and the economy) is more like fishing in that we use stretchy measuring tapes.

Denny Schlesinger

That Klein chart points out that 2008 2009 was a a wonderful once in a generation buying point.

Long range since technology growth is compounded, companies using it should also show exponential compounded growth, and the stock market should mirror that. But few of us will live long enough to see the real long run, that is for endowed institutions.