Uddrag fra Capital Spector.com
Bubbles, however, are in the eyes of the beholder and it’s easy to find disagreement among analysts. For example, Kenneth Rogoff, professor of economics and public policy at Harvard University, is baffled at the stock market’s recent strength. “Given the challenges and uncertainties facing both the US and global economies, it is difficult to see how the current stock market boom can last,” he writes.
Meanwhile, The Wall Street Journal [v]observes: “The case for stocks being frothy isn’t hard to make.” Using the CAPE ratio as a proxy for market valuation certainly suggests that the crowd is pricing equities at an elevated rate relative to the previous trough.
CapitalSpectator.com’s home-grown effort to quantify bubble risk certainly looks worrisome as the current reading approaches the 99th percentile.
Another indicator forged on these pages also suggests the market is flirting with, if not already in, overbought terrain via the S&P 500 Sentiment Momentum Index (for design details see this summary).
A relatively simple gauge of market momentum also suggests that animal spirits have gone too far too fast.
What to make of all this? Alas, there are no generic (or easy) answers. Different investors with different investment strategies can reach different conclusions. For a long-term buy-and-hold investor with more an investment horizon that’s at least 5 years, it’s reasonable to look through the current bout of hand-wringing. At the opposite extreme, investors with short horizons, a low risk tolerance, and near-term requirements for liquidity may want to be relatively cautious at this point.
