This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Bubble Trouble? Not Now

NEW YORK ( TheStreet) -- Are stocks in a bubble inflated by Federal Reserve funny money? No.

Do headlines and many investors think they are? Yes! And that's a great sign this bull market has room to run.

It probably seems weird to say rising stocks plus dour investors means no bubble. To many, the mismatch means stocks have strayed too far from expectations and must return to earth. However, true bubbles happen when sentiment -- investors' expectations -- is sky-high. As Sir John Templeton once said: "Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria."

Bubbles pop -- and bear markets begin -- when euphoric investors don't notice deteriorating fundamentals. In late 1999 and early 2000, for example, investors cheered scores of new dot-com initial public offerings, claiming their unprofitable business models didn't matter. Clicks ruled.

Meanwhile, the U.S. Leading Economic Index (LEI) was falling, signaling a coming recession -- bad news for all those unprofitable tech firms -- but investors bid stocks higher and higher, paying a huge premium for future earnings that never came. What followed was one of the biggest bear markets in history.

Today, we have the opposite. Investors are near-universally skeptical, fretting many of the long-running sore spots they've grappled with since the last bear ended including Fed policy, budget bickering and a slow economic recovery. As a result, most don't notice the fundamental economic strength around them.

It's true the recovery as measured by headline GDP is one of the slowest in modern history. But slow growth is largely a function of falling government spending. Public spending and investment have detracted from headline growth in 12 of this expansion's 16 quarters. Private-sector components have done much better. Business investment alone has more than compensated for public-sector cuts. Folks just can't see it because the headline figures are so muted.

Fundamental strength is evident worldwide, too. Global growth is accelerating. The UK has sped up since the Bank of England ended quantitative easing (QE) last November. Despite a modest, gradual reduction in the BOE's balance sheet, GDP accelerated sequentially in the first and second quarters while the purchasing managers indexes (PMI) for services, manufacturing and construction point to continued growth in the third quarter.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs