Tuesday, August 11, 2009

Are We Just Cycling Through Bubbles?

The market had a small sell off today.  Nothing to get too worked up about but perhaps the start of something bigger.

But as this market tries to find its equilibrium point, it got me thinking.  Are we just going to keep cycling through bubbles?  And if so, how badly is it going to end?  If we do indeed keep putting off our problems, like all financial mistakes it will just be that much worse when the bill comes due.

Right now, the market has rallied about 50% from its lows.  This run-up is in a matter of months.   Does that actually sound normal to anybody?  The market has gone up this much because the government is pumping out cash like there is no tomorrow.  This has already had some effect that should cause people's eyebrows to rise.  The rally has been very broad based.  And I emphasize the broad part.  Some of the worse stocks are doing OK.  Stocks of companies that should not exist have actually gone up with the rest of the market. When junk is doing well, you know you have a bubble on your hands.

Just look at the other bubbles that we have had in the last decade.  The valuation of some of the dot coms were just ridiculous.  Billions in "value" for companies with no revenue.  The housing bubble was probably worse.  Run down shacks were selling for small fortunes in parts of the country.

Bubbles take longer to form than just a few months, but maybe this one actually has formed faster because we have had the others one that preceded this one.  Maybe we aren't even in a bubble and I'm making too much of this.  But I just don't see how we can have possibly gone up this much this fast.  The future does not look bright from here.  Granted, expectations were so low as to be ridiculous before but anyone who thinks that we are going to just bounce off the bottom is just not looking around.  There really is not much of an economic recovery happening.  People are still losing jobs and companies are still pulling back.  Is this really news to get excited over?

1 comment:

  1. I think we have worked through the excesses of this last bubble and this market movement is the start of a new bull market.