Saturday, February 09, 2013

Irrational Exuberance May Come Again

"It's déjà vu all over again." ~ Yogi Berra

Low interest rates may once again be creating asset inflation for stocks and real estate, just like in the early 2000s.   This should be no surprise as asset inflation is one of the goals of the Fed via its policy of low interest and quantitative easing.   Unfortunately, the question is probably when, not if, asset inflation becomes a bubble and accompanied by an ensuing crash. 

To me, it feels like the markets are in the early stages of bubble formation.   The market has had a choppy recovery since March 2009, which has kept many investors cautious.   Lately, however, it seems people are become more positive, optimistic and bullish about the economy, stock market and housing. 

Recently,  almost every investor is seeing a nice return in their portfolios and that has me worried. In our case, we've seen most of our investments go up the last three months.  I know our results are mainly due to a rise in the overall market, since I'm not that good of a stock picker. However, when the majority of people start thinking that stock market gains are easy, it's probably time to take profits and prepare for a significant correction.  That time seems to be getting closer every day.

For more on Reflections and Musings, check back every Saturday for a new segment.

This is not financial or investing advice. Please consult a professional advisor.

Copyright © 2013 Achievement Catalyst, LLC

No comments: