Bubble World

[detective]

We're living in a world of bubbles. 2008 is going to be a hellacious year for the markets, Wall St. will be able to hang on for 2007 with only 2 months left, but 2008 with rampant inflation and bubbles in worldwide equities is going to rear its ugly head.

2008 will remind many of 2000, the bubble in China, the driver for worldwide growth, popping before our eyes will set the stage for a big hit in the equity markets, while commodity prices stay high in a recessionary environment due to a lack of oil. Stagflation.

The nimble will probably be able to ride up the last couple steps upward but we're getting in precarious territory in the overseas markets where fast money is entering and will exit on any weakness.

 

[Pa(b)st Prime]

Quote from detective:

We're living in a world of bubbles. 2008 is going to be a hellacious year for the markets, Wall St. will be able to hang on for 2007 with only 2 months left, but 2008 with rampant inflation and bubbles in worldwide equities is going to rear its ugly head.

2008 will remind many of 2000, the bubble in China, the driver for worldwide growth, popping before our eyes will set the stage for a big hit in the equity markets, while commodity prices stay high in a recessionary environment due to a lack of oil. Stagflation.

The nimble will probably be able to ride up the last couple steps upward but we're getting in precarious territory in the overseas markets where fast money is entering and will exit on any weakness.

I'm very short so I wish you were right but there's no market so rich that I'd call it a "bubble." In fact my worry is stocks are so cheap that they could pop another 10% on air. Do you see any indices at 20x p/e's? Or high p/e's competing with high rates? I don't. So while I think we're going to sell off by no stretch is any market (ok maybe the Euro and crude) in 2000ish "bubble" territory.

 

[kashirin]

Quote from Pa(b)st Prime:

I'm very short so I wish you were right but there's no market so rich that I'd call it a "bubble." In fact my worry is stocks are so cheap that they could pop another 10% on air. Do you see any indices at 20x p/e's? Or high p/e's competing with high rates? I don't. So while I think we're going to sell off by no stretch is any market (ok maybe the Euro and crude) in 2000ish "bubble" territory.

the problem here that in the light of the last developments we can't trust corparations as they all use creative accounting
They create SIV, backdate options, announce buy backs taking debt, excluded charges that happen every quater

current stock prices can't be mesuared by good old p/e, peg etc. as the system just flawed. You must be insider or trade technicals, fundamentals are irrlelevant now

 

[detective]

We are at historically high profit margins for corporations, that's what has kept earnings growth up. It is not sustainable, when profit margins get too high, competitors naturally enter and lower profit margins in the industry.

Price/Book ratios are high, especially for tech stocks. The bubble is in China right now, especially its real estate, which will cause serious problems because its the backbone of their stock market bubble. The value of real estate relative to the income of those looking to buy homes is unsustainably high.

 

[makloda]

Quote from detective:
2008 is going to be a hellacious year for the markets, Wall St. will be able to hang on for 2007 with only 2 months left, but 2008 with rampant inflation and bubbles in worldwide equities is going to rear its ugly head.

All these predictive statements.... The only bubble I see is a negativity bubble.

 

[S2007S]

Im with detective, I agree that there are major bubbles being created across all asset classes, I have been saying this for a few months now. Things look great because liquidity is the driving force behind this global market rally. Seems as soon as liquidity starts to dry up they lower rates to keep liquidty going again. This market is very irrational at the moment. The bull has gone very long without any type of bear market in the last 5 years. I think the bear will be here sooner than later....

 

[S2007S]

Quote from makloda:

All these predictive statements.... The only bubble I see is a negativity bubble.

did you just go long again????

I notice your statements about the market change on a wekly basis.


This week is a very important week for longs... the longs want one thing on Wednesday, a 50bp at 2:15pm. Without that kind of rate cut the market will most likely take another 1-2% dip.

 

[S2007S]

Quote from damnit:

I am long and expect rates to remain unchanged. You would be surprised how many expect the same.

what would be the excuse to rally the markets if rates remain unchanged?

.25 is already priced in, so no rate cut would actually create selling in my opinion.

 

[heidegger]

Quote from Pa(b)st Prime:

I'm very short so I wish you were right but there's no market so rich that I'd call it a "bubble." In fact my worry is stocks are so cheap that they could pop another 10% on air. Do you see any indices at 20x p/e's? Or high p/e's competing with high rates? I don't. So while I think we're going to sell off by no stretch is any market (ok maybe the Euro and crude) in 2000ish "bubble" territory.

Companies taking their subprime writedowns is bad for the bears; subprime crisis might be history ( but who knows?).
Just when all looks OK the other shoe falls

We've been backing and filling nicely since August 16 - also very unbearish.

We should see a post-news sell-off Wed PM though, unless Bernanke does something bizarre like a .5 cut. He's been talking to Jesse Jackson; if he sees himself as some kind of politician he might actually respond to Jackson by doing something rash (unlikely). In any case, the Fed can't allow the market to tank because everybody's pension money's in there. That doesn't mean the Fed can't be overwhelmed by.. whatever.

On the one hand this, on the other hand that.. Analysis will screw you every time.

You're a high roller Pabst. Hope you come out OK.

 

[Pa(b)st Prime]

Quote from S2007S:

what would be the excuse to rally the markets if rates remain unchanged?

.25 is already priced in, so no rate cut would actually create selling in my opinion.

The market rallied for years while the Fed was raising the Funds target so I wouldn't assume that no cut signals a trend change. A no cut or a .25 with a hawkish statement will tube oil, buoy the dollar and any initial selloff in stocks will be bought.