What will be the next market stumble?

I’ve been playing with money this morning. In particular, I’ve been glancing through the charts. This SP500 is where I stopped.

The DotCom and housing busts are clear here. The run up in between is impressive. It got me thinking, are we starting an addiction towards run ups and busts? If so, where’s the next bubble?

And when you look at the last 40 years, wouldn’t you say we’re still way ahead of the logical path?

It’s enough to make you stuff your money in a mattress. Let me know if you have an opinion. I’m considering cashing out some gains and rebalancing my side of the portfolio.


  1. J. Strupp says:

    Chinese asset prices.

    The general assumption these days is that China was the first nation out of the global recession and they’re now back to the glory days of double-digit GDP growth. Foreign capital is flooding into China in search of higher returns. As capital rushes into the Chinese economy, the PRC response (which is normal) will be to raise interest rates. Higher interest rates usually do the trick; however, the rest of the world is holding rates around zero so the effect of higher Chinese interest rates will probably lead to more capital inflows. The next logical course of action would be to allow the Renminbi to appreciate against the dollar but there’s no way the PRC would allow that to occur considering the fragility of global demand for Chinese exports. The result could be a 2007-08 like asset bubble, primarily, in real estate and equity prices as more and more capital piles into the Chinese economy (much like our bubbles but larger in scale). The PRC could instruct domestic banks to restrict lending which might actually avoid this scenario but the PRC believes in the free flow of capital much like we do. We’ll see if they change their mind.

    Of course, the elephant in the room is that the American debt bubble of the past 25 years has collapsed and there is a massive global demand shortage. China can build all the manufacturing facilities they want, but if they can’t stimulate domestic consumption by lowering their savings rate, they’re going to have a massive over-capacity problem long term in my opinion.

  2. J. Strupp says:

    O.K. that was mind-numbingly boring. Put simply, we could easily move our debt driven asset bubble from the stock market boom of the 90’s, to the real estate boom of 2004-2008 to Chinese real estate/equity markets.

    This can only occur IF we choose let our banking system go back to business as usual. We are in the process of doing that very thing right now which could set up a series of boom-bust scenarios similar to those of the late 1800’s in my opinion.

  3. Well it sounded impressive. But what if I only invest US?

  4. Steve, nice link, thanks.

    I’m ready to sell off, but I’m on the cusp of capital gains v. regular gains and need to do the math. Of course, if I wait too long there may not be any gains.

    I love the market, I love the market, I love the market…

  5. What if it’s energy? I may have to look into that.

  6. The Lorax says:

    It is energy…

  7. J. Strupp says:

    More specifically oil. Definately a possibility, especially if the dollar continues to slide.

    Of course, this scenario would assume very strong economic recovery with a quick pick-up in global demand and close to full employment here in the States. If this happens, the Fed. will no doubt be too late in implementing an exit strategy and inflation would be a major problem. Oil could skyrocket on inflation expectations if this scenario appears to be playing out. Supply could be a problem too considering the amount of global oil production off line at present. Of course, this possibility might not be a “bubble” but an actual, real life crisis, which would probably throw us right back into full blown, 1970’s style recession.

    I’m definately not in this camp but there’s always a possibility. Inflation is simply not an issue right now. Demand is.

  8. I am leaning towards oil. I think I’ll play it with the idea of it not peaking past it’s previous high, but nearly so. Then I’ll short.

    Now, to scurry up the cash…

  9. J. Strupp says:

    Long term, probably not a bad bet at all.

    I’d look at it this way, if you see $20/barrel oil again, then you have bigger problems than whether or not your investment paid off.