I’ve been reading a lot of articles by financial prognosticators saying that the market is due for a fall immediately as it is too high and it has been a 6 year rise.
Here’s my feeling. (Caveat emptor, I’m not a financial guru, I’m a historical trend and current news junkie) We know that the market is irrationally moving up and down on the slightest news. That’s the canary in the coal mine. That means there’s a lot of money in the system, looking for a place to land. This time a large portion of the money is in large corporate balance sheets rather than the investment houses. See fb, apple and google. That seems to be causing a fair bit of m&a activity. Weird things like whatsapp for billions of dollars.
However the thing we are missing is the cloud on the horizon. In 1987 it was the S&L’s failing. In 2000, it was tiny startups with suspect value prop going public because that was a way to raise capital using peoples 401k and IRA managed money. In 2006 we had credit default swaps going crazy and cheap available debt for real estate given to people who couldn’t afford it.
In each of those cases, there seemed to be a market rise on cheap money…a bubble formed somewhere…and then the correction.
I have yet to discern where the bubble is this time. Apple, for example, has $160B in paper, and a PE of 12, and is being stingy about spending it. Microsoft is sitting on $80b…but cash is cash, and even if the underlying exchange rate changes, they still have many billions.
Where is the bubble? It’s not real estate, it’s not fake public companies or odd financial instruments, nor is it too much credit/margin behind the market creating a false sense of buying power.
Once that thing appears, that thing that I’m not yet reading about in small articles in the WSJ or watching about on a tv investigation, that’s when we need to hunker down. Where is the anomaly that begins the economic sink hole?
Maybe it is cheap fuel due to fracking? That would destabilize the economy a bit…especially for producing countries who use that money to invest. Or maybe, insidiously, it’s the new bourbon craze…
So just let it ride, but watch the news closely.