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 8:37PM

DAN in Ca...Yeah have to agree a couple post' back...

And Iron, see that wasn't hard was it..??

I have gotten in to and wondered some times in the past with Antman's predictions...

Some of his Charting is excellent and projections, some historical ones, can be a harbinger of rises and falls down the road...But as always I encourage many interested in investing or investors to read several opinions from different sources...

Kinda like buying a new car? If you buy the first one you see on the first lot you go to...

IT MAY NOT BE THE RIGHTor the BEST one, you could have gotten.

It's called DD...

Jan 23, 2013 8:20PM

We got some "newbies" here that are taking some of this too serious...

If you really want to talk about investing, you almost have to force the situation..

You can "check out" out the type of acceptance it has on many of these similiar blogs; With a look at "the hand or thumb thingy"..I find that quite immature, stupid and/or  pretty much, a waste of time.


I would much rather read a comment why, you have a different idea AND maybe a better insight then what has been presented by someone else...IF YOU DIDN"T COME HERE TO LEARN on a Financial site...You are wasting your time..

If all you have is blow about Obama,Bernanke,Geitner or some other Political figure..


Jan 23, 2013 8:20PM

Hi Anthony;  One thing for sure this is a party and a half.  I am still short MSFT, COST, CMCSA and have been for almost a month and they are still very close to where I shorted them then.  The consumer still hasn't scoured out the spending and lifestyle habits of the last 40 years or so.  Lifelong habits are difficult to break.  And as I was saying on Cramers blog the Arbitrage of the Asian economies are still at work lowering Americans wages and Lifestyles as we sleep.  Fake everything in America now.  From an administration denying everything about the dangers from massive money printing to the liberal medias role in acting out gun violence.  Am I old and cynical like I was warned I would be 25 years ago? I remember my boss telling me some 25 years ago.  "When you get old you have seen things so many times the truth can't help but sneak through", and that is what being cynical really means.  JMHO

Jan 23, 2013 8:16PM

Great article again Anthony !!! 

Don't worry about all the haters of your recent doom trend in writing. You are right.

You are in good company with Robert Shiller, Peter Schiff, etc. 

Jan 23, 2013 8:09PM
Bond holders will be crushed this year.  Inflation will come, and I don't think it will be a smooth curve.  I believe it will jump quickly.  When this happens, people will get hurt, and the government will just be dealing with more bailouts.  You ain't seen nothin' yet.
Jan 23, 2013 8:06PM
The only reason Netflix went up today is because so many people are out of work and have nothing better to do than watch movies.  Very cheap entertainment.  Netflix ticks me off with all the buffering streaming a movie.
Jan 23, 2013 8:01PM

Iron Chief...Stick with the program man....And read all the diatribe; Was meant to be some Humor..

NO SENSE in getting wrapped up in all this Doom & Gloom shidt...OR even talking about O'Bummer or Mr. Bencrankee....We are just gonna have to make the best of it...


I'm gonna start a Lemonade Stand....I really hope you grasp the hidden meaning on that..??


Jan 23, 2013 7:57PM
OK guys mark your calenders and submit your predictions; 10% retraction, from these levels by June, creating one heck of a buying opportunity.
Jan 23, 2013 7:47PM
Buy the fear and sell the exuberance.  The S&P 500 is up 35% over the last 3 years, while GDP has been floundering.
Jan 23, 2013 7:33PM

"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"


What, this 1.5% GDP growth over the last 4 years is so brsk that a recession is now inevitable?  I think this "expansion" has been well documented to be substandard when compared to previous post-recession expansions.


And the CBO's deficit projections are based on 4% annual GDP growth.    Look it up on the CBO's own website.  Bwahahahahahaha.

Jan 23, 2013 7:27PM
You are a pessimistic idiot.  Try Peale's Power of Positive Thinking.  How do you even keep your job when you're wrong much more than a broken clock?  You should get a job in a zoo so you can hang out more with bears

Jan 23, 2013 7:23PM

With no fundamental change over the last 2 months (e.g. the fiscal cliff hanging over our heads), Anthony has reversed fields long to short, short to long, equities to precious metals and back again) several times.


I think his technical analysis hasn't worked in a while.  That is why the "market is broken".


The idea isn't to argue with the market, it is to make recommendations that will do well in the market in the near future.  If it is irrational, then your tools better keep up with the market.


Of course, eventually, it will go down.  And precious metals will rise again.  But maybe not for 6 months.  In 6 months he will reverse course 6 more times...just watch

Jan 23, 2013 7:13PM

Yup...There are always ones that blame the Poor Dog...He just thinks everyone is crazy..??


As he slowly walks away...

Jan 23, 2013 7:11PM

With about 77% of our economy based in the service sector, we've become totally dependent on credit to spur GDP growth. The housing foreclosures began as early as 2004 and are just now winding down, millions of working Americans simply don't have a high enough credit rating to purchase homes, cars etc. and create the demand necessary for growth, but this will be changing significantly over the next few years, those who lost there homes early on are already taking advantage of the low rates, but many more must make there way through he pipes before the money will flow and create a strong enough current for more than 2% growth annually. The feds will have to dance on a fine line to prevent over inflation, but it can be done.

Jan 23, 2013 7:11PM

There it is...Straight from the Horse's A... or I mean Cat's Mouth...

Not bad advice..

How you doing tonight, Fatty ??

Jan 23, 2013 7:09PM
Jan 23, 2013 7:06PM

Some of us,"bullish investors" have been accumulating cheaper goldminers for sometime,Anthony.


But buy good ones, not some that jump up and down, because daytraders are trying to make .20 cents a share...

Stay above the $10-15 range....In any of that stuff.

Jan 23, 2013 7:06PM
In defense of Anthony. How many people were right about the housing bubble?  Yea, that's what I thought!  Looks like a lot of people are going to get burned again.  Can't blame Anthony on this melt down soon to happen.  Don't walk on thin ice.  That is the moral of the story.  Sooner or later you will get wet.
Jan 23, 2013 7:02PM
And it wasn't you that did it, BUT you giggled.
Jan 23, 2013 7:00PM
Worst yet your Momma is sitting close to you, and she slaps the shidt out of you....??
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