11/22/2013 6:15 PM ET|
Dow 20,000, here we come
Big gains alone don't make this market a bubble waiting to pop. So far, the mania is missing. Dow 20,000 is not only doable, but reasonable, if that gets going.
Watching the Dow Jones Industrial Average ($INDU) top 16,000, many investors are hoping this market is in a bubble (so they can shrewdly buy stocks at lower prices when it pops). But we have a long way to go for that.
Right now, the most important part of a bubble is missing — the mania. We need intoxicated investors, a buying frenzy, over the top speculation, and a get-rich-quick mentality. A bubble without a mania is like an ice cream sundae without a cherry. We can do better.
Although it's possible to have a bubble without a mania, those maniacal meltups help historians confirm whether it was a true bubble. Also, meltups make you feel rich before you go broke (be sure to save your statements so you can remember how much you could have, should have, and would have made if you had sold in time).
There are some signs of exuberance. Mutual funds are bringing in a lot more cash, some money managers are afraid to miss the expected Christmas rally (and their year-end-bonuses), the VIX ($VIX) remains in the complacent zone at 12, and the Investors Intelligent sentiment survey is over 50 percent bullish.
That's a good start — but nothing like a true bubble. In the old days, bullish sentiment readings were off the charts at 80 percent. We can do better.
If this were a traditional bubble, I'd be getting stock tips from supermarket baggers, cabdrivers, and my barber (he tells me no one is giving him tips, either).
Rather than bubbling with excitement because the market more than doubled, investors seem disinterested. They aren't buying stocks like in 1999, or buying houses like in 2007. In fact, I don't know what they're buying. Now that those 401(k) accounts are finally getting back to even, investors need to step up to the plate and push this market much, much higher.
Dow 20,000 is possible
After we breached 16,000 for the first time the other day, the folks at CNBC put on their party hats — but you ain't seen nothing yet. To make this the real deal, we need a little parabolic action.
Dow 20,000 has a nice ring to it. In fact, Dow 20,000 is not only doable, but also reasonable (yes, we can do 25 percent in six months). It may also boost the bullish juices if someone wrote a book, Dow 20,000 (note to publishers: the title is available).
If you want to see a real bubble in action, take a look at China. Hong Kong's Hang Seng Index was at 20,000 in July; now it's around 24,000 (almost 20 percent in four months beats the U.S. market). On some days, the Hang Seng rallies by 5 percent to 7 percent (that's 1,000 points on the Dow). On a typical day, the Hang Seng might be up 3 percent. In China, they know how to do bubbles (and like all bubbles, it will not end well).
The Fed can help
Our so-called bubble is boring compared to China. With the helium the Fed is pumping into the economy, it's going in the right direction, but not fast or high enough. We need to catch up, so I'm wondering if the Fed can do more. Rather than reducing quantitative easing, how about increasing the bond buying to $100 billion a month? That would keep interest rates low and delight the stock market.
The only problem: QE is similar to investing in penny stocks. Easy to buy, but hard to sell. I have no idea how Janet Yellen is going to end this experiment after she becomes Fed chairman, but if it continues, it will really light a fire under the stock market. Maybe then we'll have the euphoria that is so desperately missing. It would be a short but random walk to Dow 50,000.
Stop talking about bubbles
To my fellow financial market writers: Please stop writing about bubbles. How can we have a bubble if you keep writing about it?
The whole idea is that a bubble is a secret until after it pops. Do you think they announced it was a bubble when the Dutch were trading tulips? In 1929, no one wanted to jinx the market and discuss bubbles, and if you did, they'd recommend a good psychiatrist. In 1999, investors thought dot-com stocks would go up forever. And in 2007, most people didn't think there was a housing bubble. At the time, it seemed perfectly natural for housing prices to double and triple within a year.
Those were the bubble years, and we can do it again if we try.
Advice from Bernard Baruch
In case anyone mistook my attempt at humor for reality, allow me to redeem myself. Here is some serious advice from financier Bernard Baruch. Asked how he made so much money in the stock market, he replied: "By selling too soon."
Bottom line: Only you can decide if the potential reward is worth the potential risk. The market is priced for perfection, and nobody is perfect, not even Mr. Market (unless you think it really is different this time).
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As long as the banks can get money from the fed for free, they can pump the stock market to infinity. Then as the stock prices rise artificially like this, banks, hedge funds, and "investors" play the market with the house's money and that pumps it even further up. But I have to ask, what would the dow number be if all of the money in it had to be earned by real work... 5000 or so is my guess.
First sign of a bubble......When business columnists say the Dow could hit 20,000.
The Fed Reserve, sooner than later will have to taper off and or end its welfare (QE's), the propped up and overvalued market could in reality see a record low instead.
Inflation, still high unemployment, a stagnant economy and our out of control debt are the true indicators.
What a ridiculous article. First, the author says we are missing the mania ,ie, buying frenzy and secondly, investor disinterest over reaching 16,000. His attempt at humor goes over like a turd in the punch bowl. Sometimes I wonder that these headlines are written for the sole purpose of getting reader attention rather than providing substantive information.
Imagine how you would react if you read a week ago that the Dow had dropped 1,000 points after having reached 16,000. That's a mere 6.3% decline. By typical definition ,that's not even a correction (10% req'd.) -it would have to drop 1,600 from today's close. Even a 500 point drop would just be 3.1%. But 500 points sure sounds scary.
The difference between where we are today and where we've been is that the numbers have gotten bigger, and for some investors that has become quite scary and for financial writers a pool of themes for scary headlines.
1989......Nikkei 225 rose up to its record-high at 38915.87 yen. (December)
2009......Nikkei 225 fell to its record-low at 7054.98 after the bubble economy burst. (March)
2013.....Nikkei 225 Nov 22 3:00 PM JST 15,381.72 +16.12 (0.10%)
So clearly we don't expect the same exact Fall and or duration since our Markets are clearly different in some ways. However, we can expect eventually an extended long Duration Bear Market. Just by the fuzzy logic of Wall Street, it must happen. These things are neither positive nor negative, just speculation of what might happen in light of the FACTS on the Ground. Facts such as........
1)$500-700Trillion in Scam Banking Derivatives
2)Out of Control Federal and State Debt
4)Record Student Debt and little Jobs to pay it off
5)Massive Fed balance sheet
7)Lack of a Living Wage
8)Record Buying on Margin
9)Stolen Funds from SS and Medicare
10)Soaring Health-Care Cost
And that just us, the rest of the World is in worse shape. But sure, we aren't in a Bubble.
This notion that the FED can just continue to grow it's balance sheet is false. There have been several studies that show how at some point, the massive balance sheet becomes a huge liability, not a asset. Eventually the Markets will have to acknowledge that the FED is trapped and then so are the Markets. Whether that be this year or two years from now, the notion of hold to infinity is over. Soaring National Debt and a bloated FED has guaranteed that.
What is actually happening is this, Wall Street wants you to play keeping up with the Jones. They want you to FEAR not making as much or more than the next guy. They care nothing about if you lose it all. Wall Street Types are constantly selling as they tell you DOW 20,000. They are selling, locking in profits, while telling everyone else to hold to infinity.
On Fast money, one of the hosts stated that since 2011, 60% of earnings are due to Stock buybacks.
The Federal Reserve has swollen it's balance sheet from well under a Trillion to fast approaching $4Trillion in just a few short years.
All 10 industry groups in the S&P 500 index are at or near gains of 10 percent or more for 2013.
The last year that all 10 industry groups in the S&P 500 closed the year higher by 10 percent, 1995.
But according to the author of this article, we aren't in a Bubble.
Most would not be shocked to see 20,000. The Problem is, most of the same folks wouldn't be shocked to see 10,000 either. There is no such thing as a Sure Thing concerning Stock Markets and Economies. They never has been a Sure Thing concerning Stock Markets and Economies.
The leverage that is moving the Markets is strong, the force that will eventually bring it down, far stronger. What we have is robbing Peter to pay Paul. Eventually you run out Credit Cards to Max OUT. Then all hell breaks loose. The DOW 20,000 folks are praying like heck that the fundamental farce which has become today's Markets isn't exposed.
"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning." Henry Ford
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