The main problem with the US stock market right now is that its
pushing into bubble territory. Now, whether its actually a bubble
right now or a bubble in the making, were not going to know until
But when it does break, itll break hard. And itll break
Then all the Monday morning quarterbacks will look back and say,
Aha! I told you it was a bubble.
Countless experts will trot out some paper or op-ed they wrote
to prove that they were ahead of the curve.
Of course, many of these same experts have been writing the same
basic paper for years. And the markets have proven them wrong time
and time again.
Timing the market is a fools game. I dont try to and neither
I simply evaluate markets based on the available evidence. If
the evidence invalidates a hypothesis I have, I abandon the
hypothesis and form another based on the latest evidence.
Thats not backsliding, by the way. Its how analysts are supposed
to react to incoming data. A good analyst never lets emotion get in
the way of good judgement. Thats a rule I follow as much as humanly
Now, the problem with bubbles is twofold
Number one, they can go on a lot longer than anybody expects.
They seem to take on a life of their own. No one bubble is exactly
Having said that, I think stocks are on a completely
unsustainable path right now. I wouldnt buy the overall market. But
Im not going to give you an exact date when the bubble bursts.
Thats like standing in front of a moving train.
Im not going to tell anybody to short the Dow because it looks
bubbly, for example. You could lose a lot of money doing that, and
many people have lost money these past few years.
In fact, the Dow could go much higher from here. Could it go to
30,000? I cant say it wont.
But theres an important piece of maths thats important to bear
in mind here
The Dow has now moved past 25,000. This fact has been celebrated
in the mainstream financial press. But behind that fact is a deeper
reality. People tend to focus on the 1,000-point markers the Dow
attains, but they forget about the more important percentage
What do I mean?
As the Dow moves to higher and higher levels, each 1,000-point
increment represents a smaller and smaller percentage change. Going
from 25,000 to 26,000 is not like going from 10,000 to 11,000.
When the Dow went from 10,000 to 11,000, that was a 10% gain.
But when the Dow goes from 25,000 to 26,000, thats only a 4%
That is, every 1,000-point gain represents a smaller and