Over the weekend, I read a very interesting article by Ryan Puplava discussing the fundamental backdrop of the financial markets. As he states:
“I’ve been hearing the pushback to the market’s gains, there are a few that are louder than the rest. I guess if you say something enough times; it becomes the truth.”
Ryan argues against a list of fundamental criticisms of the bull market as follows:
- Stocks are overvalued
- Stocks are up because of the Fed
- Earnings are growing only because of buybacks
- Stocks are in a bubble
While Ryan’s analysis is correct when using a 20-year data set, I would argue that the dataset is too small for proper analysis. Over the last twenty years, we have seen witnessed three stock market elevations and two deflations. Each bubble and subsequent collapse were driven by excess liquidity, willful blindness to fundamental underpinnings, Federal Reserve interventions, Governmental deregulation and interventions, relaxation of accounting standards, leverage, suppression of interest rates and the rise of capital cronyism. Never before in history have so many artificial supports been singularly focused, both domestically and internationally, on the inflation of asset prices.
Most importantly, as I discussed this past weekend, while “this time is not different” it is also “not the same.”
While Ryan argues the “fundamental” underpinnings of the financial markets; the problem is that market “bubbles” are “behavioral” in nature. As I stated:
“Now, let me throw you for a bit of a loop.
‘Stock market bubbles have NOTHING to do with valuations or fundamentals.’
I know. I know. That statement borders on the verge of heresy but let me explain.
If stock market bubbles are driven by speculation, greed and emotional biases – the valuations and fundamentals are simply a reflection of those emotions.
