Is this a market bubble?

When stocks go vertical as investors ignore technical, fundamental and economic evidence trouble is brewing.

By Anthony Mirhaydari Jan 23, 2013 4:17PM
Red arrow digital Riko Pictures PhotographerThe market dislocations reached an extreme on Wednesday as mega caps IBM (IBM) and Google (GOOG) boosted a small portion of the market, while the rest melted lower. While the Dow Jones Industrial Average ($INDU) goes vertical and pushes to new highs, the NYSE actually has a few hundred net declining issues. If this isn't a blowoff top, than the market has truly broken.

The central bank-fueled market fantasy continues as stocks keep ignoring all the technical, fundamental, and economic catalysts saying caution is warranted. Even long-dated VIX contracts remain buoyant as the volatility term structure steepens -- a harbinger of downtrends. Sentiment has reached a bullish extreme, with newsletter writers recommending their largest net long positioning in the Nasdaq since July 2000.

That's right folks: We're looking at dot-com bubble levels of market idiocy.

Then, it was the belief that slapping ".com" on any mediocre business idea was a license to mint money. Now, the belief that that central bank interventions will solve all the structural ills that still plague us: Excess indebtedness, structural budget deficits, stagnant wages, dilapidated infrastructure, and an employment-to-population ratio mired at early 1980s levels.

Not just here, but around the world.

That the European Central Bank's commitment to "do whatever it takes" via unlimited bond purchases will solve the loss of competitiveness of economies like Greece, an imploding real estate market in Spain, and youth unemployment in Portugal amid signs Germany -- the center of strength in the Eurozone -- is falling into a recession.

Or that the Bank of Japan's announcement Tuesday of a 2% inflation target will end its multi-decade debt-deflation malaise caused by zombie banks, massive government indebtedness, an insular culture, and a rapidly greying workforce.

Or that yesterday's comments from the Bank of England -- that it could embark on its own competitive devaluation as it warns of a currency war -- will erase huge household debt loads and signs the country is falling, yet again, into recession.

This is fiat currency manipulation and maltreatment on a scale the world has never seen. It's a sign that global policymakers are acting in desperation.

They are scared that the normal business cycle is trying to run its course, pushing the economy down into a natural pullback after a multi-year expansion. But, since the required improvements haven't happened, the housing market hasn't fully recovered, consumer balance sheets haven't healed, government deficits haven't closed, they cannot allow it to happen.

So they are trying, as we enter the sixth year of 0% interest rates, to use more cheap money to stave of recession by juicing the stock market. Fed chairman Ben Bernanke has repeatedly pointed to the Russell 2000 small cap index as a measure of his success.



They are not succeeding in helping the real economy. Many rich-world economies are already in technical recessions. And here at home, the Citigroup Economic Surprise Index has crashed through the zero line as the economic data continues to disappoint as the stock market disconnects from reality. Such as the big miss in yesterday's Richmond Fed manufacturing report.


With more taxation and spending cuts coming out of Washington very soon, spiked with the drama of a possible government shutdown, a loss of consumer confidence, and the 1.5% GDP hit from the fiscal cliff deal, the United States could see an outright economic contraction this year.


Clearly, the stock market and bullish investors aren't considering this line of thinking at all.



They just see cheap money being pumped into a system already drowning in liquidity. And they see that as rerating equities higher despite a stalling of earnings and revenue growth; ignoring the problems this monetary stimulus is causing, from a massive accumulation of excess reserves at the Fed to a decline in net interest margins at financial institutions to signs of excessive risk taking by the likes of JPMorgan (JPM). 



Eventually, with crude oil marching towards the $100 a barrel level, inflation concerns will also enter.


Which is why I've moved into precious metals and the related mining stocks -- an area of the market that's been forgotten over the last few months and is poised for a turnaround.  Today, I'm adding Golden Star Resources (GSS) and Silver Wheaton (SLW) to my Edge Letter Sample Portfolio.


Disclosure: Anthony has recommended GSS and SLW to his clients.


Be sure to check out his new investment newsletter, the Edge, and his money management service, Mirhaydari Capital Management. A two-week free trial has been extended to MSN Money readers. Click the link above to sign up. Mirhaydari can be contacted at anthony@edgeletter.c​om and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.  

Jan 23, 2013 6:59PM
Anthony, although I haven't always agreed with your stock market predictions, financial/economic assessments, or political views, I absolutely agree with your fundamental precepts and arguments in this article!  I certainly don't understand all the technical data and/or the complex charts in your article, but I do understand the basic premise -- our country is BANKRUPT; as such, the US dollar is steadily losing value and the country is headed for hyperinflation! Unfortunately, President Obama and a majority of the Democratic Party believe that they (the federal governmnet) can spend their way out of this fiasco.
Like in Dr. Seuss' story, "How the Grinch Stole Christmas," I wouldn't touch this stock market with a 19 1/2 foot pole!

I know that I'm going to get a lot of flack from many MSN Money bloggers. But, I'm sorry folks, Anthony Mirhaydari is right on target!  I admire his courage for standing up for what he believes in. Don Moore

Jan 23, 2013 6:59PM
Or no one says anything and keeps on eating....??
Jan 23, 2013 6:58PM
And everyone is pointing at everyone else ??
Jan 23, 2013 6:55PM
Have you ever been to a decent dinner party........And someone lets a loud noisy fart....??
Jan 23, 2013 6:46PM

What I find particularly galling about Anthony's (and for that matter, all of MSN's investment advisors) is that they treat the Stock Market as if it a Monolith, instead of a conglomeration of thousands of companies.

What is so difficult to understand about today's market action?

From MSN:

"Google and IBM reported surprisingly solid fourth-quarter earnings late Tuesday, a hopeful sign for investors who expected tech companies to struggle at the end of last year."


So Google and IBM shares were up, and everything else I missing something?

Must be......

According to Anthony:  "If this isn't a blowoff top, than the market has truly broken."


Jan 23, 2013 6:42PM
Then why is CONGRESS SITTING ON THERE ****?!?!?!
Jan 23, 2013 6:41PM

I usually keep my nose out of here, but I seem to remember a conversation on the Titanic.


Passenger, "Is it true we're sinking?"

Steward, "No Sir. This ship can't possibly sink."

Passenger, "Can you tell me what that gurgling noise is then?"

Jan 23, 2013 6:40PM
Anthony "wet blanket" Mirhaydari is at it again.  When will the sky fall?  Why tomorrow, of course.
Jan 23, 2013 6:32PM
This guy will keep writing negative articles until we either finally do have a bust which may be years down the road or he will get fired.  I'm opting for the firing.  This guy is a douchebag. 
Jan 23, 2013 6:23PM
You´ve got it right this time. It´s musical chair all over again.
Jan 23, 2013 6:19PM
Talentless, poorly minded, egocentric crap-prophet of modern days. You just write tasteless and meaningless articles so people can click on them. You are a moron. I read some of your articles and they are all either fear boosting or flip-flopping gathering of letters. 

Jan 23, 2013 6:09PM
I agree.  Going to add positions starting tomorrow.  The stock market has been propped up by cheap money and cheap interest rates so now I feel a correction is due.  Gold, silver, gold and silver miners all look good to me.  This is the time to do just the opposite of what everyone else is doing.
Jan 23, 2013 6:03PM
The market will go up to compensate for the 85 billion a month the FED is propping it up with.   When the FED stops, look out below.  

Until then ride the market higher.   But when the music stops grab a chair and hunker down.   It will not be pretty....
Jan 23, 2013 6:03PM

10,000 Baby Boomers retiring every day........... Get the premium from your mutual funds while the banks still have enough QE money to keep it inflated....... JMHO


After all this is about where the market should have been if the banks and politicians where not crooks.

Jan 23, 2013 5:55PM
No question in my mind there is a bubble forecast. When? Who knows. The Fed has been monetizing debt with those monthly infinite treasury bond purchasing programs. These QE programs have increased the money supply 58%. We consume 75% and export just 25%. 16+ trillion in debt and rising.  You can't spend your way into prosperity. Wall Street is on economic steroids by the Fed's interactions. Sooner or later you come down from the high and go into withdrawals....the bust. The Fed has created 3 bubbles within the last 20 years, it's creating another one. What makes you think this is different. Come on people are you that naive, ignorant and gullible?
Jan 23, 2013 5:46PM

There`s always somebody that goes to a party and wants to be negitive and bring

everybody down to their level.

Jan 23, 2013 5:46PM
This guy just doesn't quit.  Please keep writing articles about the doom and gloom.  The market keeps thriving and making you look more like the idiot every day. 
Jan 23, 2013 5:37PM
If you keep saying the market is going to correct you will eventually be right , but those of us who ignore your headline grabbing crap and stay disciplined and invested are up 4+% year to date alone!!
Jan 23, 2013 5:32PM
Its always easier being a doomsayer ( bear) and to be wrong...because you just have to change your arguments to bubbles and that the bears will win out eventually. Of course there will be a bear market eventually, but most of the analysts on MSN have been caught flat footed by the market still doing well.

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