The Next Bubble: Anomalous Stock Price Increases as an Indicator?

[jk]

Re: The Next Bubble: Anomalous Stock Price Increases as an Indicator?

why assume a new bubble will be domestic when capital has been set free in a globalized world? so, given that energy is global, you have to ask whether it will rise only in dollar terms or will rise for everyone, everywhere. the same question arises for other asset classes.

as i say at the thread:
http://www.itulip.com/forums/showthread.php?t=1144

my nomination [for a new bubble]: the dollar carry trade. as short rates drop, we can expect a resumption, or even acceleration, of the sell-off in the dollar, depending on how far and fast the fed eases. as short rates drop it becomes, by definition, cheaper to borrow dollars. as the dollar declines it becomes attractive to borrow dollars with the hope of paying back cheaper dollars. the dollar will become "the new yen" - a source of cheap capital for investment in higher yielding instruments and higher potential-return risk vehicles [e.g. equities] all around the world. the more foreign instruments rise, the more attractive it becomes to invest abroad = self-reinforcing feedback loop.

the question this leads to: what kinds of foreign assets will most benefit?

mutual funds fund flows in this country have increasingly gone to international funds. the energy theme is a global theme. why assume that new bubble liquidity is going to stay home?

in this scenario, the fed produces a hybrid japanese/argentine scenario: high domestic inflation [argentine] with the flight of capital [argentine] with low rates [japanese] "pushing on a string" in terms of the domestic economy [japanese].

[oddlots]

Re: The Next Bubble: Anomalous Stock Price Increases as an Indicator?

That makes perfect sense to me. My only question is how does the reserve status of the dollar effect this equation (if at all.) Those who wish to remain competitive in selling to the US must buy dollar assets to maintain a relatively week, export-friendly rate. They wouldn't welcome a trend to shorting the dollar via a carry trade. Could they do anything about it?

[jk]

Re: The Next Bubble: Anomalous Stock Price Increases as an Indicator?

exporters might wish to keep their currencies from appreciating too much against the dollar, but if the u.s. economy is slowed/in recession, and u.s. consumers are paying higher rents, higher heating, higher transportation, higher food costs, there will not be as much of a u.s. import market to care about. the big question for foreign economies will be how well europe and asia decouple from the u.s.

[lewman]

Re: The Next Bubble: Anomalous Stock Price Increases as an Indicator?

Many cautious gold bulls are citing the 70's model/analogy where gold had a 50% correction after it's first leg up into '74. I don't think that holds water because that leg was a 6x multiple of the low. This leg up in gold is nowhere near that speculative and has been corrected nicely all the way up. .

Just posting a link showing difference in gold price trends between the 1970s and early 2000s. Indeed the gold bull in early 1970s was a lot crazier (faster and higher) than what we've got so far. See http://www.zealllc.com/2006/rgold2.htm then scroll down to the charts.