The Inevitable Stock Market Reversal: The New Normal Is Just Another Bubble Awaiting a Pop

[Crewleader]

July 2, 2014

The Inevitable Stock Market Reversal: The New Normal Is Just Another Bubble Awaiting a Pop

by Charles Hugh Smith

Is the New Normal of ever-higher stock valuations sustainable, or will low volatility lead to higher volatility, and intervention to instability?

Though we're constantly reassured by financial pundits and the Federal Reserve that the stock market is not a bubble and that valuations are fair,there is substantial evidence that suggests the contrary.

The market is dangerously stretched in terms of valuation and sentiment, and it does not accurately reflect fundamentals such as earnings and sales growth.

Why do we care? If we own no stocks in a retirement or other account, we don’t care; it’s mere background noise. But if we’re exposed to the gyrations of the stock market in any way, we should care, because those who sell near the top before the market drops preserve not just their initial capital, but their winnings from the 5+-year bull market. Those who fail to sell risk losing not just their gains, but quite possibly a material chunk of their initial capital.

Another reason to care is that those who bet the market will decline in a trend-reversal profit handsomely, just as those who buy at the bottom of a decline profit handsomely from the trend reversal from down to up.

http://www.oftwominds.com/blogjuly14/market-top7-14.html

[dixiegrrrrl]

1. Just a bit ago, this headline:

Janet Yellen says Federal Reserve could raise interest rates to pop asset bubbles

I don't know if she will have the courage to do that
or be allowed to do that

If not, the bubbles will pop on their own.

the bond bubble popped last year, but did not garner much MSM attention.

[Warpy]

2. Two things will cause a pop

Either the Fed will get religion and raise interest rates steeply (as likely as the Pope on a pogo stick at present) or the derivatives house of cards will collapse.

Right now, equities are it because nothing else is paying as well unless you're a cowboy hedge fund owner with a staff of HFT computers sucking money out of every single trade.

[Ghost Dog]

3. Yeah.

I notice that my no-longer private Swiss bank is now classifying stocks I hold as 'tangible' assets whereas, on the other hand, not only a Silver ETF but also a high-quality Sterling money-market fund are classified as merely 'nominal' assets.

Weird, huh? The derivatives will probably come through in the end for most of the 1%. For the rest of us... well, we did say what you'd bought was only 'nominal', right?...

Hope you're well,Warpy.

(Pope on pogo-stick less unlikely at present than previously, I'd have thought... Ah, those Jesuits...)