Do we have a stock market bubble?
June 6, 2013
by Brian Wolf

One question that comes up quite often is whether or not our stock market is in a bubble, and if so, when will that bubble pop? Certainly, if you are willing to wait a while, I can answer that question for you very accurately. But of course, by then it would likely be too late.

So to address that question, let me consult with my handy little crystal ball. Now, most of you may not know this but I actually do have a magical crystal ball. However, it does go on the fritz now and then and, to be honest with you, it can be somewhat less than 100 percent accurate. With that being said, I’ll also look into some recent data provided by Thomas Kee Jr. – at MarketWatch http://www.marketwatch.com/story/you-dont-think-were-in-a-bubble-2013-05-21.

In this article, Mr. Kee notices some interesting irregularities. For example:

Materials have had -15.3 percent earnings-per-share (EPS) growth this year, but the materials ETF XLB -1.36 percent is up 10 percent year-to-date (YTD).

Consumer staples have had -4 percent EPS growth this year, but the consumer staples ETF XLP -0.17 percent is up 20 percent YTD.

Telecom has had -14.17 percent EPS growth this year, but the telecom ETF IYZ -2.18 percent is up 13 percent YTD.

Energy has had a -5.4 percent revenue contraction, but the energy ETF XLE -1.16 percent is up 15 percent YTD.

Now, does this make any sense at all? Here we have four industries that are economically doing very poorly, yet their stocks are heading up. My crystal ball says that this information screams bubble.

As we learned from the tech bubble of the 1990s, and the general market bubble of the mid-2000s, when you have entire industries that have stock prices going up while their underlying fundamentals are going down, you have yourself a “bubble.”

The question then becomes, when.? When will the bubble pop? And the follow-up question of, how do you protect yourself from it? No one wants to go back to 2008 and watch their accounts fall by 40 to 50 percent!

And, let’s not forget that markets have both up cycles and down cycles. The secret to successful investing is to avoid the down cycles while capturing a good share of the up cycles.

Sounds good, but how do you do that? Well, the first step would be to work with a professional advisor who can truly show you how they get great returns while avoiding risks that trap so many investors. This first step isn’t a part of my crystal ball, but it is kind of a secret. And by secret, I only mean that so few advisors know how to do this that it must be some kind of a secret. Turns out that working with the best products and money managers in the nation combined with a no nonsense, no baloney, “don’t buy into the Wall Street lies” approach, provides our clients with a level of safety and success that’s hard to find these days.

Oh, and by the way, my crystal ball just told me that global raining will now replace global warming.

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