Technically Speaking: If Everyone Sees It, Is It Still A Bubble?


As Mark Hulbert noted recently, “everyone” is worrying about a “bubble” in the stock market. It plots the relative frequency of Google searches based on the term ‘stock market bubble.

What Is A Bubble?

“”My confidence is rising quite rapidly that this is, in fact, becoming the fourth ‘real McCoy’ bubble of my investment career.

“”A bubble is a market cycle that is characterized by the rapid escalation of market value, particularly in the price of assets. Typically, what creates a bubble is a surge in asset prices driven by exuberant market behavior. During a bubble, assets typically trade at a price that greatly exceeds the asset’s intrinsic value. Jeremy Grantham once produced the following chart of 40-years of price bubbles in the markets.

As Howard Marks previously noted

“”It’s the swings of psychology that get people into the biggest trouble. Especially since investors’ emotions invariably swing in the wrong direction at the wrong time. When things are going well people become greedy and enthusiastic. In other words, investors have fully adopted the “Greater Fool Theory. “

The discussion of “valuations” is an old-fashioned idea relegated to investors of an older era. In 1999, when Buffett spoke out against “Dot. “ Com” stocks, he got dismissed with a similar ire of “investing with Warren Buffett is like driving ‘Dad’s old Pontiac. “Today, young investors are not interested in the “pearls of wisdom” from experienced investors.

“The big benefit of TikTok is it allows users to dole out and obtain information in short, easily digestible video bites, also called TikToks. That advice runs the gamut, from general information about home buying or retirement savings to specific stock picks and investment ideas.

Plenty Of Analogies

As of the end of April, the National Association Of Investment Managers asset allocation was 103%. “”Regardless of the investment acumen of any group , once the collective investment opinion or posture becomes too one-sided, it can be an indication that some market action may be necessary to correct such consensus.

Give Me More

With margin debt reaching levels not seen since the peak of the last cyclical bull market cycle, it should raise some concerns about sustainability. It is NOT the level of leverage that is the problem as leverage increases buying power as markets are rising. The unwinding of this leverage is critically dangerous in the market as the acceleration of “margin calls” leads to a vicious downward spiral. Importantly, this chart does not mean that a massive market correction is imminent.


‘I have no idea whether the stock market is actually forming a bubble that’s about to break.

That’s because, in that case, your investment horizon is far shorter than for those who are younger. “Millennials are quick to dismiss the “Boomers” in the financial markets today for “not getting it. We have just been around long enough to know how these things eventually end.

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Source: Lance Roberts | Real Investment Advice

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