Stop looking for the next crash

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The market has consistently been hitting new highs and people who aren’t making money are expecting a crash.  The 2007 bubble is so fresh in people’s minds that they think anything good means bubble.  This article will briefly discuss why this is not so.

There are several reasons I don’t think we are in a bubble even though we are consistently knocking down records.  First, there is still a lot of skepticism around stock market valuations, and second, people who are investing aren’t heavily leveraged.

The first is the most important.  In order for there to be a bubble people cant expect for there to be a bubble.  Bubbles come when there is irrational enthusiasm.  Bubbles come precisely when people think it cant get any better.  The blatant skepticism and constant bubble watch is actually what keeps the bubble from forming.  It keeps the market in check.

Everyone keeps projecting a crash when we need to be planning for a pull back. I would like to point out that we did see a pull back recently. Prior to the election of President Trump the market fell about 10%.  Stocks were getting hammered, then we rebounded.  The market tends to vacillate.  It goes up and down it ebbs and flows.  Its one thing to plan for a pull back, those are healthy, those are buying opportunities.  It’s another to project a crash.  The market fundamentals just don’t show signs of a crash.

This is because the market is not being artificially propped up by debt and we aren’t seeing 100% participation. Bulls make money, bears make money and pigs get slaughtered.  When we see bubbles we see an unhealthy level of enthusiasm coupled with leverage.  The problem is when that leverage becomes unsustainable.  Pre recession, average people with no skill owned multiple homes and became real estate magnates.

Right now, the people making money are the people who specialize in making money.  Until we start getting stock tips from the shoe shine boy you cant convince me that we are in a bubble.  Invest through the doom and gloom forecasts that people have been projecting since Dow 16,000.  There is money to be made!

These are some quick late night thoughts I had.  I hope it can create some conversation.

 

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