By Robert Lenzner, Forbes Staff No sooner did the stock indexes go to a new peak than whispers about a “bubble” bursting– look out below because stocks are vulnerable to a 20%-40% move– begin to make the rounds. Out ahead of thge “bubble” pack was the Treasury bond bubble being predicted for many months by the fixed income gurus who predict QE means a massive inflation– and by some Cassandras who know it’s a route to shooting off their mouths on television. Lately, with home prices rising every month, and the inventory from the mortgage forfeitures and financial meltdown rapidly disappearing, there has even begun to be worry warts wondering if the run on home prices has had its day– for the time being. Thankfully, the fears of a “bubble” in commodities, especially crude oil and gold, which have been fomented by billionaire hedge fund impresarios and those wannabe hedge fund billionaire impresarios– have been relatively quiet. And for good measure, too. The Chinese economy seems to be getting squeezed by tighter capital controls and a slowing in growth. The dollar is strong– a slap in the face to the goldbugs, who absolutely must have a fast depreciating dollar to get the parabolic rise in gold to $5000 an ounce (it’s $1600) that will allow them to sell into it. None of this is remotely like the Hunt brothers driving silver to $50 an ounce in 1980 as they famously tried to corner the market. None of this is at all as exaggerated as the manic spike in Japanese stock and real estate prices in the late 1980s– which, as we all know well, precipitated the fall since then. None of this is as irrational as the run-up in technology stocks in the late 1990s, when shrewd investors like Leon Levy dared go short and ride the turmoil to profits. Nor does it correspond to the madness of the credit market bubble prior to 2007 when every fool in the world was buying mortgage backed securities without understanding the value of the real estate that backed them. All those incidents– those painful happenings– were bubbles gone bursting. Lucky for us, esteemed veteran investment adviser Morris Offit, founder of OffitBank, has just published his pithy opinion underscoring that for now no investment asset class is at an extremely irrational level. For a “bubble” to happen, writes Offit, “the price in the market grows well beyond the maximum value that any of the traditional demanders available willing to pay.” Even the 10 year Treasury at a yield of 1.50% or 1.85% or 2% looks to be a bubble since the Fed itself is acquiring two-thirds of the newly marketed government debt alongside accumulation from pension funds, insurance companies, clearing houses and family offices. Just because everyone receives a negative return on these securities does not make the Treasury market a “bubble,” Offit strongly believes. I’m with him. Yes, eventually interest rates will begin to rise– but not in a ruinous spike. Summing up, Offit writes; “The special …read more
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