Another day another bullfest!
Stocks roared higher today as the high octane stock market continued to climb a massive wall of worry. Many of us have been wondering where the next bubble might form. I think we are seeing it right now in plain old equities.
Lets state the obvious here. We all know none of this move higher makes sense given the news. When you think about it over the past few years: When has the market ever made sense? The two biggest rallies(Bear Stearns and the current March rally) have hit at a time when the news was most dire. The one conclusion I can make here is investors continue to be play follow the money and speculate.
The speculative nature of investors in America continues to amaze me because the bubbles that are created as a result of their speculation always collapse. Yet, despite pounding after pounding, they continue to come back for more. It kind of reminds me of an abused wife that constantly continues to reconcile with their ex believing that "He has changed this time!".
Lets take a quick look at some of the bubbles of recent history and see how they all worked out:
- The tech bubble. Need I explain more...NASDAQ 5000 down to 1500
- The housing bubble. Again....No explanation needed. Prices down 30%-50% from the highs.
- The OIL run from $50/barrel up to $147 and then back to $50.
- The speculative explosion in commodities like copper which tripled in price before collapsing.
- The natural gas run up to $21. Today's price? $3 and change.
I could go on and on but you get the point. The one common result here is obvious: Speculation ends in tears!
Welcome to the new world of investing folks. Investors now prefer a "speculate and gamble" investment strategy as opposed to the old school version of "buy and hold" investing.
Speculative investing of course is the fastest way to the poor house because there are no basis or fundamentals that support what or why you are buying. Speculators simply become one of the herd and jump into whatever bubble that is blowing up. They then pray that they aren't the last sucker in who proceeds to get pummeled with an 80% loss as the first ones in begin to sell.
The examples I gave you above all collapsed because of one simple fact: THE FUNDAMENTALS ALWAYS MATTER! The prices were unsustainable because the valuations did not justify the prices. Valuations are completely ignored when bubbles start to form because the investor is too infatuated with the millions he/she is going to make on his/her investment.
Remember Amazon at $300 a share in 1999? $150 oil? How about that one bedroom house in the ghetto that sold for $350,000 back in 2005? You look back today and think about how insane people were for paying such prices. This is the effect that bubbles and greed have on investors. They can make the sane go insane!
I see a lot of similarities when I look at the current 30+% bounce in equities. The fundamentals continue to deteriorate and yet we continue to see the same trend: The bad news continues to get ignored while the good news is amplified.
S&P downgraded many of the banks today and equities didn't even blink following the news.
We are seeing a full blown speculative feeding frenzy in the S&P right now. Trying to get in front of this freight train and shorting this move is not a very good idea in my view. The close was pretty bullish. I will be placing a few small short plays if we move into the 950-1000 area.
Cash is still my number one recommendation. Bubbles never end well and they seem to be almost impossible to avoid at this point if you are in the market. Treasuries even look like a bubble today as we try to sell $2.5 trillion worth of them this year to the rest of the world.
Its a pretty sad day when it appears that no investment option is safe.
I am starting to think that the mattress may be the only place left to protect yourself from losses.