It has been almost six years from the last bubble explosion in the last quarter of 2007. There was 7 years between 2000 and 2007 boom. Investors have restored their faith in the economic growth. Including taxi drivers. The S&P 500 is at the same level as before.
- Interest rates - the amount charged by a lender (takes the loan) to borrower (gives the loan) for use of his assets.
The mother of all bubbles is speculation and leverage debt. The lower interest rates are, faster the economy improves, because people are more keen to lend money from banks, which is the main initiator of the rise from crisis.
Easy to notice, with every boom, interest rate grows, so banks could get more revenue. Because people are lending anyways. Currently the prime interest rate of US is 3.25% .
I only have one question. Why don't the banks already increase the interest rate? Perhaps, because people haven't been lending money yet. Maybe they have enough vacant money from selling all their assets from the financial crisis (the last crisis) so they don't have to lend. But same time, why not make some money on the stock market? "I want to beat the inflation." would be a good explanation.
- S&P 500 is at the same level as it was in 2000 and 2007 . It means the market capitalization of those 500 America's biggest companies (the amount of the money on the NYSE and Nasdaq stock market) has grown almost two times in the past 5 years. I don't think it makes any sense compared to the revenues of the companies.
- News and articles
First of all, many economists like Roubini for example have expressed concerns about market being too rapidly growing. Probably some cautious investors are taking their money out now. But this is a zero sum game. Someone has to put their money, in that case. Now...this someone is probably one of the so-called taxi drivers that enter the market too late.
http://finance.yahoo.com/blogs/daily-ticker/nouriel-roubini-bullish-now-mother-bubbles-begun-140143386.html - The Mother of All Bubbles has begun.
Also, I found an article from 22july 2007, 2 months before the recession. It truly demonstrates the optimism of analysts, though there are strong signs of instablity.
http://finance.yahoo.com/blogs/daily-ticker/nouriel-roubini-bullish-now-mother-bubbles-begun-140143386.html
In conclusion out of Dow Jones Industrial Average 30 companies - 1 has no P/E (no profit), 25 has 0-20, two has 20-40 and also two has P/E of over 40. Also in 2007, the average S&P 500 P/E was close to 65. In the moment it's 17.2 . It means that the market has not yet overreacted.
Though the indexes have already reached the same level as before, I remain confident that the recession is not yet coming, but I believe it will take 6 months until we can see the the signs changing, P/E growing and taxi drivers talking about stock market. I would agree to Roubini's article. Short-term positive and long-term catastrophic.
In the end, a little note from Warren Buffet : "Be greedy when others are fearful and fearful when others are greedy."
