November 21, 2013

Markets can still go higher, not bubble yet

Doug Kass on Debt, Investor Sentiment and stock market:

While debt is cheap and plentiful to some, it is not universally so, as lending standards (especially mortgages and small-business loans) are relatively tight.

While investor sentiment is optimistic (and at multiyear highs), retail investors remain relatively noncommittal to stocks, and there is no new marginal buyer of equities (as was the case in the late 1990s). Nevertheless, the Investors Intelligence gauge of adviser sentiment (at a 55.2% bullish reading and only 15.6% bearish) is not only at the highest difference between the two in 2013 but at the most extreme reading since mid-April, a point in time when stocks experienced the largest correction of the current bull market that began in March 2009.

While some investors might be thinking that a new era lies ahead, they are in the minority.

Bottom line: While equity markets might be richly priced relative to fair market value, I would conclude that we are not currently in a stock market bubble yet.