Is the stock market experiencing another bubble?

[lanlady]

Why is the stock market rising? Has the world/economic news been so good? Seems to me the news hasn't risen above so-so, you know, comme ci, comme ca. Blackouts in the US, sabotage in the Iraqi oil fields, continuing layoffs--what's to justify the optimism?

My instincts tell me there's another fabricated bubble going on here.

[brokensymmetry]

1. Partly -

People have been telling themselves that the market has bottomed; however, by historic measures they're very wrong. We have a current P/E of 33 - normally, bottoms require a P/E of 16. This implies we could decline 50% from the present levels very easily.

Part of the problem, too, is that people have invested in stocks because interest yields are quite low.

But your instincts are, I think, correct. Get ready for another decline. BTW - did you know that insider sales are at a very high level? I wonder what they know that we don't?

[On the Road]

3. OhYes, OhYes, OhYes,

The reason for the rise the last few months was the recovery, weak as it was. The market now looks toppy and has failed to reach new highs. The medium-term bull is over. The long boom took 17 years; the retracement will take more than three.

I agree with BrokenSymmetry on the overvaluation based on PE and have heard the stories about rampant insider selling. Add to that the fact that Sep and Oct are the worst two months of the year.

I bought $20K of BEARX and URPSX last week. They make money if the market goes down. Will double up by Labor Day.

On Edit: Hi, LanLady! Want to try another DC get-together this fall?

[lanlady]

5. I just hate to get sucked in

I have some cash from an inheritance. I want to invest it and was thinking of buying land as opposed to stocks because I still don't trust those shysters.

(I'll PM you on the get-together, definitely think we should do it!)

[whathappened]

2. call it the old sucker pitch

suck them in and then leave them hanging out on a limb , these rich suckers who control these markets no just what tit takes to bring them in at the right price and then drop a bomb on them and steal there money , thanks , but no thanks to the stock market , the dam rain can change the way the market rolls

[German-Lefty]

4. I wish I could share your Pessimism

I'm holding a bunch of euro right now and the damn things are falling like rocks. At least this will fix the German economy.

I was planning on buy a bunch of stocks, but I got greedy hoping this would go down further. I'm not sure if I should cut my losses or believe you guys. I'm pretty sure things are still screwed, and I'm guessing there's still a ways down it can go. I just don't know. I hate sitting on cash maybe I should think about bonds or a bond based fund.

[rapier]

6. the speculators friend

The rally off the October bottom was to be expected. Not in it's timeing perhaps but in gneral in its length and scale. The rally since March has been highly speculative and is now almost madness, just like 99. The most worthless dog and cat stocks rise the most. 30% or more moves in a day are par for the course now as the most speculative money is thinking just like 99 all over again.

Dollar volume in stocks is rising again. It never did drop to 'normal' levels. At the peak of the mania there was $5 in stock traded for ever $1 in real economic activity. I don't know the number now but it's getting back there.

Keynes said "markets can stay irrational longer than you can stay solvent" An excellent point.

Stocks rise and fall on liquidity. That being the money available for speculation. The world is awash in speculative money, because that is what is prefered by the Fed and the Street. The Fed in particular is and has been following policies which encourage speculators. Al is the father and mother of all the bubbles. He is now in the process of recoubling his efforts to inflate financial assets.

Most don't realize it but it is a giant battle now keeping the financial markets afloat. An accident could happen at any time. In fact there has been a accident in long term interest rates.

[stevebreeze]

7. it's not hard to see the tax cuts are intended to raise the markets

cutting both cap gains ans dividend taxes. The indicator I might be more concerned with is the insider tradings going on. Those in the know have been selling at 30 times the rate they are buying.
:kick:

[happyslug]

8. 1870s and 1930s

In both depression (the 1870s is less know for it is older AND most people lived on the farm at the time as compared to majority of people living in urban areas by the time of the 1930s) a pattern occurred, you have the start of the depression with a decline in the stock market, than people who have money thinks it had bottom out and start a "sucker's rally" which than goes down. This occurs about 3-4 times in the ten year period a depression. Thus a depression is a time period where you have 3-4 recessions, 3-4 booms (sucker's rally) each recession worse than the previous one. You finally bottom out (in the 1870s it was in 1877, in the Great Depression in was in 1938).

Once you hit bottom it still takes years to fully recover. For example the Stock market did not beat its October 1929 highs till the early 1950s and that is with the growth caused by WWII. Thus my fear this is just the first of at least two more sucker's rally before this depression is over.

You may ask why this occurs? The answer is two fore, first you have people wanting to get a better return than 0%. If you want better return than 0% you have to invest in stocks, the problem is as you invest others will follow, and all of it with high risks and low returns (but better returns than keeping the money in the mattress of your bed).

At the same time do to the increase in money caused by the bubble there is to much cash in people's hand and the market has to get rid of it. The way to get rid of it is to drop the value of whatever it is invested in. Thus downward pressure on values of stocks.

Thus you have a need to invest and nothing to invest in. If any stock starts to show promise of increase in Stock value, people start to invest in that stock. This cause a new Bubble. The problem is sooner or later the overall decline in value of things takes over and forces the price of the stock to nose dive and most people end up losing even more money, and what money is left is invested in whatever stock starts to climb again (thus starting another sucker rally). This goes over and over until the excess money is removed from the economy. It takes about ten years for the Government is not willing to introduce high levels of tax rates to remove the money that way.

Just a comment on why the next ten years will be interesting.

[German-Lefty]

9. Huh

I'm not tring to dog what you said, just help me figuar it out.

At the same time do to the increase in money caused by the bubble there is to much cash in people's hand and the market has to get rid of it. The way to get rid of it is to drop the value of whatever it is invested in. Thus downward pressure on values of stocks.
Increase in money? Whose money, the companies inwhich were invested? Or do you mean because of the appearant level of the market people are think they have more money, because of their portfolio? Or do you mean because of the heated economy it seems like there is too much money, because it moves around so fast.

Thus you have a need to invest and nothing to invest in. If any stock starts to show promise of increase in Stock value, people start to invest in that stock. This cause a new Bubble. The problem is sooner or later the overall decline in value of things takes over and forces the price of the stock to nose dive and most people end up losing even more money, and what money is left is invested in whatever stock starts to climb again (thus starting another sucker rally). This goes over and over until the excess money is removed from the economy. It takes about ten years for the Government is not willing to introduce high levels of tax rates to remove the money that way.
First off the market is zero sum; it can't remove money only redistribute it. Are you arguing some supply side argument that the wealth is too distributed, and needs to be concentrated with the wealthy in order to fix our economic problems?

Doesn't normal monetary policy say to try to increase the money supply when it's bad, and decrease it when it's good.
Doesn't normal fiscal policy say to tax when it's good and spend when it's bad. You seem to be saying the opposite of both of these: Taxes will help the recession. There's too much money in the system.

HUH
:dunce: