Is a Little 'Bubble Paranoia' Good for Your ETF Portfolio?
NEW YORK (ETF Expert) -- Authors Lu Wang and Joseph Ciolli at Bloomberg described the fear of U.S. stocks falling as "bubble paranoia." Yet, if fundamental and technical indicators both suggest that U.S. stock assets are extremely overvalued, is the maladjustment with some investors or with the markets themselves?
The above-mentioned writers explained that U.S. Federal Reserve members believe asset prices are in line with historical norms. So that means that asset prices are not ballooning? This is the same institution that did not see the housing bubble or the subsequent credit crunch prior to the 2008 financial collapse. It is also the same institution that has overestimated economic growth in every single year since the 2009 recovery began.
The real trouble with relying on the Fed's convictions alone is the foaminess of the data. Margin debt is at record highs. Credit spreads are at record lows. Most notably, U.S. stock prices are more expensive than 82% of previous bull market peaks based upon book value, 86% of prior market tops based upon 10 years of profits/earnings and 89% of preceding high-water marks based upon revenue/sales.
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