You will see from the charts in this article, there is so much proof that the bull market is actually a dangerous speculative bubble that it is simply undeniable.
Despite what the cold, hard facts show, legions of pundits, economists, and investors are coming out of the woodwork to deny the existence of what is one of the most obvious bubbles in history. This widespread denial is what happens when emotions trump logic and reasoning.
Citigroup’s Panic/Euphoria sentiment indicator also confirms that investors are excessively optimistic, as they typically are during bubbles:
A sentiment indicator that combines the Volatility Index and Investors Intelligence survey data shows that bearish market sentiment is at a multi-decade low, which also occurred during last decade’s bubble:
Money-losing stock IPOs (courtesy of the current social media and tech bubble) are near the highs hit at the peak of the Dot-com Bubble in 2000:
CNN Money’s Fear & Greed Index shows that “extreme greed” is the dominant emotion that is currently driving the stock market:
The stock price of luxury broker and auction company Sotheby’s tends to spike during bubbles, as it has in the past several years:
Contrary to popular belief, the U.S. economy has not deleveraged or paid down debt after the financial crisis; total outstanding credit is actually hitting new highs, which is helping to drive our ersatz economic recovery:
Thanks to record low interest rates, total U.S. corporate borrowing is approaching 4 percent of the GDP – a level that marked the peaks of the last several bubbles, including the housing bubble and the Dot-com Bubble:
U.S. private sector leverage has continued to even higher levels after the financial crisis:
Ultra-low interest rates and inflated asset prices have greatly boosted the profits of the U.S. financial sector since the year 2000, which has become the country’s dominant industry like manufacturing was in the middle of the twentieth century. Record financial sector profits, outsourcing, and other forms of labor cost-cutting have boosted U.S. corporate profitability to an all-time high (as the chart below shows). This record level of profitability is not sustainable because it is predicated on the continued inflation of asset prices and the growth of the financial sector, which will both experience pain when the current bubble ends.
As mentioned earlier, record-low corporate borrowing costs (thanks to the Fed’s QE and the bond bubble) has led to a corporate borrowing binge that has financed approximately $1.9 trillion worth of stock buybacks from Q1-2009 through Q1-2014, which has been a significant driver of the U.S. stock bubble. The last time corporate stock buybacks hit this level was right before the stock market crash of 2008:
The Federal Reserve has actually admitted that U.S. stocks would be 50 percent lower if it was not for their aggressive stimulation (using a 1994 to 2011 sample period, which is pre-QE3):
The only question that matters now is when will the U.S. stock bubble burst? Though I don’t believe in making long-term stock investments during a bubble, I publish tactical bullish calls that are useful for shorter-term traders. I believe that timing the popping of the stock bubble must include the use of traders’ tools such as chart analysis.