Monday, January 11, 2010

Bubbles, bubbles everywhere

Here is an image of the cover of the latest issue of The Economist magazine. The bull market in world stock markets is only 10 months old. For the most part world markets are trading visibly below their 2007 tops. The Economist admits that it sees no bubbles at the moment. But it asserts that assets are overvalued world-wide. It also predicts that unless monetary policy around the world gets tighter, bubbles will begin to inflate everywhere.

Here is my view. Assets now may well look overvalued. But markets are forward looking and are anticipating a strong economic recovery. At bull market tops one typically does not find much concern about overvalued assets or bubbles. So I think this cover is one more manifestation of the Wall of Worry that world stock markets are climbing.

I think the bull market is stocks has much further to go and will last at least through the end of 2010.