Bubble calling is easy but gives no perspective

Yes, prices are high in some areas, but that rarely means what some pundits are warning about. They just want to make a name for themselves -- not to help people.

By Jim Cramer Jun 4, 2013 9:10AM

Arrow Up (© Photodisc/SuperStock)Tthestreet logohere's something about bubble calling that's irresistible to grownup pundits in search of getting their names around. They are always calling "bubble!" It's the bubble in junk credit, the bubble in housing, the bubble in Treasurys, the bubble in higher-yield stocks. It never stops. This is yet another kind of binary thinking, like the not-lamented-at-all passing of "risk on, risk off" (see TheStreet).


I totally understand the desire of someone who has something to sell, or of someone who wants to create a big name for himself, to call a bubble. What could be better than calling a bubble in housing after a 10% increase in the price of a home? Think about how wise that is. If the bubble "bursts" and suddenly housing prices come crashing down, you are a genius! If housing goes up in price, that might be even better, because then it's an even bigger bubble. How much smarter can you sound?


More important, what do you have to lose? Is someone going to call you out on Twitter for being too bearish? Every now and then that happens. For instance, I had been saying that Tesla (TSLA) is too hard to evaluate because it is a cult stock -- and then someone on Twitter said I'd kept him out of Tesla. But that's become more and more the way of Twitter, which has developed into one of those "Man Who Shot Liberty Valance" things where someone only feels big if they can throw you off his game -- if they can take you down.


Bubble calling is just the cheapest way of getting known -- and if the bubble "bursts," hallelujah.


Me? I think things are different. Instead of seeing bubbles, I think sometimes things get too high. Take Hershey (HSY). Take Coca-Cola (KO). The latter is one of the greatest companies in the world: consistent cash flow, a decent dividend and a terrific record of raising it. But shares trade at 2.3 times Coca-Cola's growth rate, something that's just too expensive for me to recommend, no matter how good the company is.

Does that mean there is a bubble in Coca-Cola? How about we just say it has gotten too expensive?


Or how about housing? Housing is a totally regional business. Yet we have decided to take the number released last week -- a 10% increase in housing prices -- and declare that the nation, once again, is in a housing bubble. Some areas have indeed gone up, but a lot others haven't. The overall actual home is worth less now than it had been in 2006. We have had so few homes built that we can't tell what the market really is like. But we know it isn't overheating nationwide.




Now, regarding bond funds, it is true that they have become dangerous places. Interest rates could rally, and that would cause these funds to fall, and fall hard, like we saw many junk bond funds do last week and Monday. But they aren't "bubbles" that will knock our whole nation off its stride if they burst. They are just potentially a place for large losses.


Once you put the "bubble popping" in perspective -- once you recognize that all that could happen is that something overvalued could down in price, sometimes swiftly -- you can stop scaring people and actually help them. But that's not the goal of the bubble callers. Their goal is to become known, to be heralded, to get on television, to be interviewed on the Web and to sell books and to get subscribers and contracts to perform. Too bad -- they could actually be of help if they weren't so busy bring grandiose and inflammatory for the sake of being recognizable figures at all costs.




Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust and has no positions in stocks mentioned.



More from TheStreet.com

Jun 4, 2013 10:50AM
If there is no bubble on Wall Street, why do the major indices fall when there is even the slightest hint that the Fed will scale back monetary easing? If the "fundamentals" are so good it should not matter to stock valuations what the Fed does. Clearly, many traders know intuitively there is a bubble, but they feel it's best to ride the wave for as long as possible, and hope they exit before the wave crashes. 
Jun 4, 2013 10:55AM
Yes, there are bubbles and we're watching them inflate right before our very eyes.  And they are all directly attributed to artificially suppressed, er, rock bottom interest rates.   Look around, bubbles are everywhere - the USD is in a bubble, so is housing, student loans, auto sales and treasuries.
Jun 4, 2013 12:13PM

Inflation and printed money is a tax on consumer purchasing power. It dose not create jobs. Only supply and demand create jobs. We must increase purchasing power to increase demand and increase jobs. The fed needs to keep real inflation between a deflationary 1% and 0% inflation giving the consumer more purchasing power. No more real inflation. We have got to have real and honest inflation numbers not this crap their feeding us now. And it must include gas and food.


The next jobs numbers and what the fed dose is going to tell a big story.

Jun 4, 2013 10:36AM

You wanna know why so many economists and financial managers call them 'bubbles' in the financial sectors? Because if it looks like a duck, quacks like a duck and walks like a duck......guess what it's a duck, Jim. Real easy, it's not quantum mechanics or the Pythagorean theorem. They are exactly that...bubbles. I will make a wager with you. You stick to your non-bubble theory and I will stick to my Fed induced bubble theory, lets wait 5-7 years and see who comes out on top. Deal?

Jun 4, 2013 12:33PM
Jim,  It goes without saying part of your goal is to help investors make money in the stock market, no matter how it is made. Of course, you should make no apologies for that. However, the huge issue many people have with the market is that it is no longer a market, since it has become grossly distorted by Fed policies. Even when there is a series of bad economic reports, the market responds by going up (i.e. Fed must keep buy bonds due to the weak economy)! The market is a big turn off for many since fundamentals do not count anymore (who cares if you can make a quick buck-I am not playing this game). There is not a investor in the world that believes this thing is going to have a happy ending.  It is a matter of when to run for the exits ahead of the Fed.
Jun 4, 2013 11:24AM
The biggest bubble is in this guys brain and it is full of worthless babble...

Gee Cramer -- things are way way over priced -- Families on average (taking out top 10 percent wage earners) about $38K a year not the average $68K with the super rich distorting the wages.


Yet you claim it's good that house prices are now averaging $300,000 plus way way out of the range most average people can afford. Didn't you get the memo that earlier this year the Fed Reserve loaned billions to housing investors to get the housing market jump started??? OK house were not affordable before and now they are way over priced. HOW DID THAT HELP??


As far as stock prices a lot like Wholefoods have P/E of 37 -- normally a stock is over priced when the P/E is over 10 and a great bargin at P/E of 5 unless it is going bankrupt.


The stock market is headed towards a collapse bigger than the Great Depression collapse as 10,000,000 baby boomers retire and suck on average $40,000 a year out of the stock market and not put anything in.


already Bernanke has to pump $45 billion a month into the stock market to keep it afloat.





Jun 4, 2013 10:51AM
bipolar Cramer is back, woke up with this bubble theory... yesterday it was a commodities market heading to a crash of "epic proportions". Sounds familiar to that guy Myrhadari too...
Jun 4, 2013 12:27PM
They just keep legislating on Capital Hill and more laws and regulations that they can't possibly enforce. Glass Steagall was a way to keep it simple. They will never put it back. IRS is another example of to many laws and no way to enforce anything. The non-profits in this country are WAY out of control and to many of them that get federal funds and cheat on taxes.
Jun 4, 2013 12:21PM
who loves cramer more than cramer........what a hack
Jun 4, 2013 2:09PM
Look what is happening...the DOW is down more than 100 points simply because of fears of what the Fed may or may not do. It's highly likely that if the Fed announced it was stopping QE3 the DOW would fall by at least 300 points immediately. If the Fed announced it would go further...shrink it's balance sheet - the DOW may fall 500 points or more immediately. It's clear the stock market is in the throes of a bubble engineered by the Federal Reserve. Cramer is out of his mind. 
Jun 4, 2013 2:22PM
With regards to Fed easing I can't help but laugh at the pundits new mantra, "the economy is so bad it's good." 
Jun 4, 2013 12:13PM
The FED is artificially holding up the market. Case in point last weeks drop when money tightening was in the cards. The money used is taxpayer money not investor money. It's a form of welfare. It's gonna collapse countries that bought dollars are heading for the exit. Cramer bigger names that actually did some work David Stockmann  Paul Craig Roberts are issuing warings and they don't have to make a name for themselves. They have.
Jun 4, 2013 9:52AM
It makes sense now. They just want to be on TV. Thanks for being the whistle blower on that one Jim.
Jun 4, 2013 2:01PM
CRAMERICA! "Skinning Chumps Since 1998".
Jun 4, 2013 11:51AM
Pretty lame rant, Jim. Intelligence KNOWS the reason why we trashed Glass Steagall, insisted on Check 21, an Automated Clearing House, built all new printing presses and redesigned the currency. You don't "modernize a whole bunch of financial aspects unless you planned on causing Chaos. The fact is, ALL of us had choices when facing the retirement of Baby Boomers. Those of us with ethics were prepared to do massive defensive work as things compressed- to keep it integral, like a legacy. Too bad dumb greedy alumni of Big 10 and Ivy League universities slipped in, mass terminated the skilled workers and career professionals and brought us-- TARP to QE (pick-a-number). You're right, it isn't a "bubble"... it's a tower made out of YOUR integrity, ethics, character and future. You're the rich one, you're the celebrity... the pacesetter, consultant and decision provider. So... no bubble at all. It's really nothing more than a Black Hole you dug and are forever tied to. Hear that sucking sound? No "bubble" makes it... it's the whoring draft of inevitability that says: FEED ME and it gets hungrier every day. How many days does it take to dilute the currency completely away? Bet we're a lot closer to finding out than you DUMB ALUMNI forecast.
Jun 4, 2013 11:53AM
There is a bubble in the stockmarket and the Fed knows it. That´s why they are mulling to increase reserve requirements from banks, who are seen as taking too much risk in order to try to get some return that can´t be found in bonds nowadays.
Jun 4, 2013 12:27PM
Why are VNQ, PMT and LL all on a downward trend? Why is FHA going to have to ask for more money in Sept? 

Jun 4, 2013 1:20PM


Full disclosure:  I currently own no taters.



Jun 4, 2013 3:55PM
Who listens to Cramer?  Do you forget his blunders? 

The guy makes no sense.  He's inarticulate, smeared in his own saliva, doesn't finish his words...

How is this guy still in the public eye?  He's the Kardashian of the financial world.

Please, make him go away.

And if you listen to any of his incoherent gabble, you deserve everything you get.

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