January 10, 2010

The Economist, the most credible news source in the world, has one word. Again. Sit down. Here you go. Here it is. "Bubble".

Bubble warning
Jan 7th 2010
From The Economist print edition

"Investors tempted to take comfort from the fact that asset prices are still below their peaks would do well to remember that they may yet fall back a very long way. The Japanese stock market still trades at a quarter of the high it reached 20 years ago. The NASDAQ trades at half the level it reached during dotcom mania."

"Today the prices of many assets are being held up by unsustainable fiscal and monetary stimulus. Something has to give."

- The Economist, January 7, 2010

(in come the waves, again?)


Andrew from Russia said...

The other day I was reading a hyper-bullish forecast for 2010. Ironically it came from the very Russian investment bank whose near-death experience made the stock market seize on September 16th 2008 (TBTF, it was bailed out by state-backed sponsors with the agility of presidential bodyguards and, to this day, still posts losses).
Now we are told to just discard that nasty 2008 as a statistical outlier and extrapolate the good times of mid-2000s into 2010s. "Growth" is the main theme again. Worrisomely, zero-percent "growth" will not be tolerated by the regulators - it's expand, inflate, boom for the sake of great numbers. The Soviet central planners would praise today's neoliberals for setting GDP targets. Guess we won't see the final bottom until the religion of "growth" is discredited.
I'm now building a "shortfolio" of basically the same domestic stocks I rescued a year ago at the bottom. If this bet blows up, I'll take out a low-interest "education loan" and train myself for a realtor, for there's no better way to contribute to "growth"! (just kidding on that one)


The rubber band stretches, until it breaks. People going short in this market had better buy an extra large bottle of antacid pills because there is no limit to the schemes they will try to inflate asset prices.

When it does eventually pop, all of us will remember fondly the relatively calm, simple crisis of October 2008.

Randy said...

Keith, are you holding on to AAPL?

Aside from the big picture that we’re in eye of the storm.

I have a hard time understanding the viability of a company that produces commodity type items (no matter how innovative and trendy).
It is so easy to copy and produce the same functionality for a lot cheaper, on top of the already existing competition.

In today’s world any country/company can produce the same items Apple sells; for less.

Just asking.

casey said...

Get out of stocks and gold 4 sure.Commodities are looking frothy too.Cash is king.Short treasuries and the nasdaq.FXP for china bubble burst.

keith said...

Remember, bubbles last longer, much longer, than you think they will.

I'm bullish until I have a reason not to be.

The stimulus cheese keeps pouring in. 0% interest rates for months and months to go. Corporate earnings comps will be strong this quarter. China numbers today were big.

But read the Economist article. I agree with their thesis. We're in a bubble. An unsustainable bubble. Eventually, the government cheese ends. 0% ends. Cash-back on housing ends.

And that's when you head to the shelter.


Mark in San Diego said...

Agree with Keith, that we probably have another 4 or 5 months to go in the stock "rally." The government will do anything legal or illegal to keep the markets going (like buying S&P options, etc.). Although I will not exit the market (I have a lot of dividend stocks that I live on), I am trimming my holdings and increasing cash, selling those stocks like some energy that are getting too frothy. I will pare down to my strong utilities, and some pharma's, and a few infastructure companies.

I am still seeing deflation in prices where I sit - rentals are still being advertised at "reduced rent", restaurants, stores, etc. are all having sales all the time, and the word on the street is "negotiate everything!" A little old lady in my building was telling me, she never pays full price for anything anymore. . .if a carpet cleaner gives here a price, she call 5 other places to get the price she wants.

Just read an item this morning on Yahoo News that people who are getting new jobs are taking huge pay cuts, as employers have scores of people lined up for each job.

Can we say "Japan?"

yoski said...

"Today the prices of many assets are being held up by unsustainable fiscal and monetary stimulus. Something has to give."
That' depends on the type of "flation" we get. In case central banks succeed with money printing the prices are very sustainable. We'll just get some really nasty inflation to go along with it. The rising tide lifts all boats. If central banks fail to get more money into circulation then those asset bubbles will suffer another spectacular bust. In either case, I believe the day of reckoning is still more than 6 month off, maybe even years.
The current commodity prices are a reflection of lose bailout money and many investors betting that we will see inflation.

Anonymous said...

Wow! I stopped reading them awhile ago but just yesterday I went back to their site and was drawn to that very article you dredged up! I guess you read it too, huh Keith?
This reminds me Keith, there was a story they did sometime in the bubble years, like in the year from 2003 -2005 on the bubble and at the time it was not "premium" content, now it is. It was a rare time when this magazine actually looked forward and saw the ugly events that this bubble unfolding would yield. This story you posted like so many of their stories, are kind of "after the fact" analysis. Anyway it would be very informative to see that story from so long ago posted again without paying their exorbitant fees. Hats off to you Keith if you can dredge it up!
Another thing that would be hugely appropriate that you may appreciate is a picture the Economist had on their cover, of a big fat over bloated bird running down a runway flapping his wings trying to take off but he couldn't. On his belly was labeled "debt". This was to signify the American economy at the time which was just after the tech wreck in the early 2000's.

Randy said...

Keefer said:
“I'm bullish until I have a reason not to be.”

Also Known As, gambling.

10 horses racing around in a circle and I know exactly which one is going to reach the finish line first.

I am confident cause I figured it out last time.

Mucho luck monsieur.

1)One can time things perfectly so many times until that one time when they don’t.
2)It usually does not happen when everyone knows its coming, most of the time only the people who prepare when things look good, beat the crash.

You are absolutely right that things move slower then many think, but there is so much junk information out there that its clouding reality.

Me thinks its better to pull out early even though there is room for a few more pennies.

Someone who cashed out of tech stocks in early 1999
and someone who cashed out of real estate in early 2005
Generally did better then those who couldn’t walk away from the potential cash thats still on the table.

Cash will be king!
It hath been foretold

Afterthought said...

That's why S&A is such a crucial website.

Is there an RSS feed for your site Kieth?

Anonymous said...

I've noticed a rather amusing trend of thought control lately.

2 MSNBC articles; one about how people are healthier when they don't(can't) retire; another saying there is more to life than material success.

Those would have been a better hoot in '05, no?

The latest NYTimes about how "...is housing a good investment?” he said. “In fact, it probably never was.”..."

Message for the masses: 1)roll over and take it like a bitch

2)sell your real estate at the coming bottom.

Janus said...

It is mainly a timing issue. Where would you put your money for a little return (5%ish?) without risk? Does that still exist?

Anonymous said...

i see dozens of housing units on sale for 15 thousand bucks ....now how to control associative, .coop and maintenance costs all politically influenced?

ContraryRiches said...

Obaaaaaammmy, gimmmmme chheeeeeeese!!

Anonymous said...


and this is shocking how?


Anonymous said...


Your starting to think like the Bankers, Greed! I thought you really wanted this country to bounce back but based on your current post, I can tell your all about the money!

Your not any different!

long beach, ca said...

in the words of elizabeth warren, bring back the usury laws. stop lending money to stupid poor people, via credit cards, subprime loans and such. not gonna happen. the banks make too much money off of poor stupid people who spend more than they make.

Banana Republicrat said...

"Eventually, the government cheese ends. 0% ends. Cash-back on housing ends."

Didn't you hear Keith? Fanny and Freddie have a license to gorge; they are the baddest of the "bad banks." There's a sucker born every minute, so eager buyers should be flooding the country as we speak.

We can stimulate forever!

keith said...

3:58 anon - must be a newbie.

I'm a realist, trying to help folks here navigate the biggest financial mania and crash of all time.

It's survival. Pure and simple.

wondering said...

stupid question - don't you all think the latest bubble will be supported at least through the elections in November this year? Don't you think the powers that be won't allow a blood bath?

Anonymous said...

Europe is toast

Anonymous said...

I see residential units for sale at prices less than 2 years average rent...

StuckinSoPa said...

wondering said...
stupid question - don't you all think the latest bubble will be supported at least through the elections in November this year? Don't you think the powers that be won't allow a blood bath?

My financial advisor (who has not lost me a stinking dime in 9 years, even allowing for inflation,) thinks so. He has shifted a major chunk (but not all) of my portfolio out of stogy old conservative holdings and into the market, indirectly, thru funds with a proven track record for making money on the upside AND the downside of the market. Apparently, for now, he feels that in volatility there is strength. Like him, and Wondering, I don't see the stock market tanking until after Nov. The trick will be getting that money OUT of the market before anybody else does, and well before it all starts to slide.

But hey, its all just paper, right!

SeattleMoose said...

"Europe is toast".....well I thought that a year ago and gravity is still turned off over there.

One wonders how long Europe can appear to "look good" relative to America when I hear from Europeans whom I work with that "back home" things are hanging by a thread.

Yet, the MSM (both here and there) is making noises about a "recovery" this year.

I guess when confronted with an 800 lb gorilla in the room, there are those who would close their eyes and by doing so, try and convince themselves (and others) the gorilla is gone.

"Blind faith" or just "Blind"?

Anonymous said...

How can anybody think that you can cure a stage 4 cancer with leukemia ?

Print fake money, play monopoly and pretend it is all fair.

It is all a Ponzi scheme, and sooner or later it will collapse as never before.

No such thing as money as out thin air.

Anonymous said...

"Europe is toast."

Yes but it's a fancy little slice of Melba toast with with some sort of animal liver Pate on top. Wafer thin!!

America's more like the whale the suddenly materializes at 50,000 feet in the book and movie "The Hitchhiker's Guide to the Galaxy".

Anonymous said...

wondering said...

stupid question - don't you all think the latest bubble will be supported at least through the elections in November this year? Don't you think the powers that be won't allow a blood bath?

That is an EXCELLENT question.

One thing we know for sure: all Extend And Pretend® is doing is letting the pressure build and the damage mount.

This is going to end Biblical.

sweet potato said...


You may be wondering why no one is questioning your elevating of The Economist as the most credible news source in the world.



Anonymous said...

Anon 5:17 said...

"I see residential units for sale at prices less than 2 years average rent..."

I don't want to live in Detroit or the "Appalachia" of any state thank you very much.

Anonymous said...

29,000 blocks from the resorts..do it for you...at least they produce food in appalachia.....

Deucebag said...

We still gots bubble prices in DC Metro.

And, as a matter of fact, much to my chagrin, despite our utterly depressed private economy, rental rates seem a bit higher now than they were at the peak of the bubble.

I guess despite there being a depression and the continued building of more and more units, condos and townhomes, the tard parasitic government workers, armed with their taxpayer funded COLAs continue to pay exorbitant prices to simply put a roof over their pea-brained heads.

Anonymous said...

"...tard parasitic government workers, armed with their taxpayer funded COLAs...

Isn't it appalling?

I had to laugh when I saw some apologist write "...the one bright spot is increased government employment..."...

AS IF that were a good thing/net improvement for society.