If enough people believe an idea to be true, than the idea will cease to become an idea and will become a fact. Participants of the financial markets often look everywhere to look for clues where the financial markets will go, and one of the ways is to measure the Greed and Fear of the market. Counting the word "Bubble" on major publication is an interesting way to judge the emotional level of the investors. Interesting read to help understand the psychology of markets.
~ Xeo
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| Source:www.buzzle.com |
The word "bubble" in association with markets has been
mentioned in the press 4,600 times this year, a high profile industry
commentator has noted, and it could be a worrying trend if the talk of
bubbles continues at this pace, analysts told CNBC.
On Sunday, the co-founder of Morgan Stanley
subsidiary ConvertBond.com Lawrence McDonald, who is a well-known
market commentator and New York Times contributor, tweeted the statistic
and estimates that "bubble" mentions could reach 7,900 by the end of
this year.
By comparison, the word was mentioned in news
6,850 times in 2007, the year before onset of the global financial
crisis, and 6,800 times in 1999, before the dotcom crash of 2000, he
noted.
According to Evan Lucas, market strategist at IG,
the bubble talk could become a self-fulfilling prophecy, because the
commentators talking about "bubbles" and "overvaluations" often have
positions in markets.
"More and more newswires are concentrating on
terms like 'bubble,' 'overvalued,' 'overstretched,' 'premium pricing'
etc.," Lucas said. "It almost creates a snowball effect, as bearish
commentators take bearish positions and then tell their clients to do
the same. Eventually the bulls become exhausted and the bears take
over."
Strategists say this bearishness could soon play
out in markets with the current bull-run in major stock markets nearing
"tipping point," and as investors question the economic fundamentals
behind the rally.
"The S&P 500 is struggling to find a reason to go higher and European indices have been trading lower for the past 4-5 weeks after the German Dax hit a record high. Meanwhile, the Australian stock market cannot get past its recent 6.5 year high," said Lucas.
Currently the S&P 500 is trading at 18.84
times earnings, the Nikkei is trading at 18.86, the Australian stock
exchange at 16.11 and the German Dax at 16.11. In contrast, China's
stock market, which is considered cheap by many industry watchers, is
trading at 9.7 times earnings.
"I personally feel the 'bubble' word is too strong, but
stock markets are certainly feeling overdone and have run up too hard,"
he added.
Lucas' views echo recent comments by uber-bear
John Hussman, an analyst and mutual fund owner, well known for his
criticism of the Federal Reserve.
Hussman, quoted in the Wall Street Journal at the
weekend, said markets were in the throes of a highly advanced equity
bubble, now within 15 percent of the 2000 dotcom bubble.
"The main difference between the current episode
and that of 2000 is that the 2000 bubble was strikingly obvious in
technology, whereas the present one is diffused across all sectors in a
way that makes valuations for most stocks actually worse than in 2000,"
he added.
Andrew Su, CEO of Compass Global Markets
and also a trained psychologist, also gave credence to the concept of
self-fulfilling prophecies especially in an overheated market
environment.
"Certainly the use of the word bubble in the media
can impact on peoples' behavior and if something confirms their belief
that there is a bubble, they will fixate on that and ignore any other
evidence. Once they act on that, then you have the butterfly effect," Su
said added.
Su also told CNBC that he believed the influx in
bubble talk this year was warranted in some parts of the market, namely
Chinese and Australian property and U.S. equities.
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