People seem so worried and doom and gloom about high valuations and an equities crash...so doesn't that mean it won't happen? Or at least, not in the catastrophic way we imagine it? I imagine everyone is being cautious and perhaps not entirely committed to being long in this market, that if there is an eventual exit, it won't be so unexpected and catastrophic.
Is a hypothetical bubble priced in?
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I don't think it's priced in. I think there were a lot of smart people saying housing market was in a bubble and that it would crash from 05-07 ( they didn't see the contagion). Also in 97-99 everyone knew tech was in a bubble including the fed ( irrational exuberance speech).
There is an old saying, markets can stay irrational longer then you can stay solvent. That's the way I would sum up this market we have right now, I believe we will stay at or near highs until something breaks( lose faith in central banks, unexpected shock, public revolts against fed, etc)
Your beginning to see some signs (boj seems to run out of unconventional ideas that can stabilize markets, currency or economy, US might elect trump who is anti-Yellen).
Anyways eventually IMO this ends really bad - worse then 08 and most asset classes crash. Just look what happened to oil, tons of people tried shorting as we had around 1 mil barrels excess supply per day. Most of them got taken out as oil continued to stay between 90-105 for a year. Then out of the blue in a year period it all of the sudden mattered ( outside forces couldn't hold it up, because we began running out of physical storage). Oil dropped 70% of its value, rebounding a bit since.
There is an old saying, markets can stay irrational longer then you can stay solvent. That's the way I would sum up this market we have right now, I believe we will stay at or near highs until something breaks( lose faith in central banks, unexpected shock, public revolts against fed, etc)
Your beginning to see some signs (boj seems to run out of unconventional ideas that can stabilize markets, currency or economy, US might elect trump who is anti-Yellen).
Anyways eventually IMO this ends really bad - worse then 08 and most asset classes crash. Just look what happened to oil, tons of people tried shorting as we had around 1 mil barrels excess supply per day. Most of them got taken out as oil continued to stay between 90-105 for a year. Then out of the blue in a year period it all of the sudden mattered ( outside forces couldn't hold it up, because we began running out of physical storage). Oil dropped 70% of its value, rebounding a bit since.
I had read an article that a bubble crash is already priced in - unlike no other time in history. The banks, insurance companies, etc. have already hedged for a bubble pop. Only time will tell. In 1999 everybody knew we had a massive bubble, yet the crash still caused a gigantic shock when is did happen.
The VIX and skew doesn't look like fear is priced in this market to me.
Here's a good read for you: http://www.hussman.net/wmc/wmc161003.htm
"Every financial bubble rests on the presumption that there is still some greater fool available to purchase overvalued assets, no matter how overvalued they might become."
Good read. Always waiting for a bigger fool...
So, eventually the bigger fools will run out and everything will come crashing down on whoever is last holding the hot potatoes...
Fair, the VIX isn't that bad. So am I wrong in thinking the attitude is constant doom and gloom and bubble worries? I haven't been around long enough to know whether there are always constant naysayers. I also don't know what "the skew" is, so I'll have to read up on it.