Investor Points of Few – Building the Perfect Bubble

By Alan Steel

It’s been suggested in some circles that a “bubble” is any bull market where you don’t have a position.

Well, that’s the so-called “amusing observation” anyway, and certainly one that defines the now eight-year-plus investor zeitgeist; where every significant market movement in either direction is like a bowel in the throws of ablutions. 

It seems we just can’t get a break towards any collective positivity.

And maybe that’s a good thing.

Maybe the cleverest of clogs out there are actually clippety-clopping along with glee through the muck of anti-marketisim, in the words of Mike Williams, as the negativity is serving to dampen the fuse of euphoria.

Because once the stock market happy pills of “this time it’s different” are deemed legal (again) by pundits and professors alike and handed out to the herd, that sentimental twist of fate, wrung out by the grip of renewed optimism, tends to result in the release of equity aplenty from the $£€trillion cages of cash ISAs and deposit accounts…alongside all of the bad monkeys, Bitcoins and black swans, of course.

Or so “they” say.

Now, I don’t want to get completely caught up in bubbleology and the study of Tulips today, but I do think we need to repeat some core thinking (I didn’t say absolutes, by the way) about what blows things up to the point of eventual poppage.

In principle, when the price of something far exceeds an assets fundamental value to the point where future income appears implausible, essentially the weasel goes pop. 

Or so it should. But try teaching that lesson to Bitcoin, whatever the hell Bitcoin actually is. 

And be aware that you’ll get as many different opinions about what an asset’s fundamental value actually is as it takes economists to screw in a light bulb (the answer is that it’s impossible to tell. Economists just keep going on and on about how the last bulb broke).

So, are things overpriced out there?

Well, the analysis of specifics stocks opens a host of questions that would become far too difficult to address in a blog, but in more general terms the breadth on major indexes appears reasonable despite the much-maligned corporate buyback driver (that now seems to be easing it’s foot off the petrol pedal) and our assumed over reliance on FAANGS in order to digest returns.

As such, are we on the verge of bubble-laden recession, global, local or otherwise?



Hmmm…on preponderance of this and a lot of other stuff – low interest rates, inflation, unemployment, deflation and relatively strong employment, corporate earnings, growth and stock market performance…just, hmmm…

Now add all of that into the views coming out of global research houses like Pring Turner and Ned Davis, and suddenly investor SatNav suggests that we “take the second exit at the next roundabout and continue on the road you’re on.”

Still, the apparent need to justify the good stuff remains.

Or maybe not.

Maybe the scourge of scepticism, one of Wall Street’s most powerful marketing reprises, which earns respectful attention through little more than glaring down with haughty derision over the glasses at the end of it’s over-involved nose at anyone who might question it, should be left to its singular device.

Maybe we should endorse the apocalyptic headlines, laud the benefits of passive investing a la Warren Buffett who does so despite his mutli-billion dollar fortune being built on exactly the opposite, and tell everyone to listen out for the four horsemen’s hoofs.

Clippety clopping and, clippety clopping as we go forward building the perfect bubble; the one that doesn’t pop.

In fact, maybe just maybe by helping to build up this perfect bubble of negative investor sentiment we can delay the actual one from arriving for at least a little while longer.

And anyway, as Robert Shiller once wrote on Project Syndicate, “Speculative bubbles do not end like a short story, novel, or play. There is no final denouement that brings all the strands of a narrative into an impressive final conclusion. In the real world, we never know when the story is over.”

All we know today is “not yet.”

Alan Steel, Chairman, Alan Steel Asset Management


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