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Do we have a stock market bubble arising?


I find evaluating stocks difficult right now. A part of me wants to be all in on what I deem reasonable valuations, but the other part of me is finding it hard to discover these. "I love the rally," says Simon Baker of Baker Avenue Asset Management, "I definitely think there's a bubble brewing, but you have to be long this market."

It makes you wonder, if the sentiment is turning towards markets only moving in one direction.  However, not everyone sees rainbows and unicorns in the stagflation utopia we have created. In a research note, Nomura Securities strategist Bob Janjuah is warning that over the final three quarters of next year and into 2015, there “could be a 25% to 50% sell off in global stock markets.”

Mr. Janjuah says  “The major themes are unchanged–anaemic global growth/mediocre fundamentals, what I consider to be extraordinarily and dangerously loose monetary policy settings, very poor global demographics, excessive debt, an enormous misallocation of capital driven by the state sponsored mispricing of money/capital, and excessive financial market/asset price speculation at the expense of any benefit to the real economy."

Where Mr. Janjuah sees the economy collapsing is a much delayed rebalancing of the global economy as central banks pull back from all of their aggressive stimulus activities.

This is where economics get fuzzy. How does he forecast central banks pulling back stimulus? What models is he using? And what are the assumptions in those models? Or is he simply guessing?

Those of you who have been reading my blog over the years probably know that I don't see it ending. I believe the central-banking-powers-that-be have positioned themselves in such a way that the best possible outcome moving forward is stagflation.  I believe there is no pulling back, let alone an exit strategy.

However, if Mr. Janjuah's prediction were to come true, I would welcome it. I love the notion of a market tank, with great tanks come great opportunities.


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