The stock markets are already forming new bubbles.

The stock markets are already forming a new bubble.

A bubble as an advance in an asset's price to levels that are "detached from fundamentals". Instead it is based on the rate of appreciation of the market and to the rate of appreciation in our PE estimate of value. When the market is up we gradually raise our fundamental PE expectations from 10 to about 30.

So a market bubble is comparable to feedback in a sound amplification system. The recording system picks up the noise from the loud speakers and amplifies it. That amplified noise is picked up and amplified over and over again. The market goes up for no fundamental reason but just because it is claimed an important index has gone up 7% each year for the last 50 years. The real gain is 0.5% but because they continually add winners to the index and quickly remove losers, the index is not an average index it is a winners index. You can see the effect by looking at Value Line where they track three indices of their own with all being different degrees of winner indices. That contributes half the inflation of the bubble. The second half of the inflation is that we continually degrade our investment criteria as the bubble expands by dropping the requirement by raising the acceptable PE and PEG ratios. An average PE of 30 is said to be fine during the bubble whereas when the market is deflated the sound PE is more like 10 or less.

So the market goes up because it went up before and that feeds back into the system and the feedback continues until in the case of sound feedback, the amplifier blows up.

Each year not only is the market more overpriced but the overpricing accelerates until the market destroys itself like feedback to a sound system. This always happens when stock advisors like GE/MSNBC/Pravda's Crammer point out that you had better get in the market soon because it gained 100% and you missed that. Well obviously the fundamental value of the stocks did not go up more than their income so about 20% of the two-year gain is based on fundamentals. So a bubble is forming. It is not an 80% bubble now though until it pops. It seems more like a 30% bubble now because we have already degraded our investment criteria by raising our PE fundamental expectations.

It appears the U.K. was on target when it raised rates and began to start cutting government spending. Inflation there accelerated faster than economists forecast in February to the fastest pace in more than two years. That is adding pressure on the Bank of England to again increase its benchmark interest rate.


GE/MSNBC/Pravda should be banned from the American nuclear and defense industries after their exhibition of incompetence and irresponsibility in Japan. How can a company run by people filled with hate for free enterprise be depended upon to defend and keep America safe?

World Markets this week:
The greatest nuclear risk of catastrophe in Japan is the storage of used fuel rods at nuclear facilities because environmentalists and bureaucrats will not allow a solution. If France they reprocess the spent rods and reduce the nuclear threat by 98%. The environmentalist object to that because the recycled fuel actually contains material that could be used for bombs but is not refined to that level of potency. Also the environmentalists do not approve of the final resting-place which is to put the waste back in the ground where it came from. That could be done if uranium mining companies were contracted to seal the waste in old exhausted uranium mines.

US Economy

Sales of existing homes fell slightly in February after three straight monthly increases. Homes sold at an annual rate of 4.88 million in February, down 9.6% from January and 2.8% lower than February 2010 sales. The report was worse than the 5.05 million economists had predicted. At the same time, the median home price declined 5.2% from last year t to $156,100 due to the high percentage of foreclosures and short sales.

Mar 22 10:00 FHFA Housing Price Index Jan

Mar 23 07:00 MBA Mortgage Index 03/18
Mar 23 10:00 New Home Sales Feb
Mar 23 10:30 Crude Inventories 03/19

Mar 24 08:30 Initial Claims 03/19
Mar 24 08:30 Continuing Claims 03/19
Mar 24 08:30 Durable Orders Feb
Mar 24 08:30 Durable Orders ex Transportation Feb

Mar 25 08:30 GDP - Third Estimate Q4
Mar 25 08:30 GDP Deflator - Third Estimate Q4
Mar 25 09:55 Michigan Sentiment - Final Mar 69.0 68.0 68.2


Market Outlook March 22, 2011


We expect a bounce to bring buyers in so those funds can sell out at a profit. What we are seeing now is called a redistribution of stocks from the strongest to the weakest investors. We see the large investors still lightening up by the pick-up in volume on declines and then they sit on the side and watch the money dribble in and raise the price so they can sell another big block.

We think the next stock market support level will be down at Nov 4, 2010 levels about another 9% lower. But actually the real support starts about 16% lower than yesterdays close. All of this year's gains are already gone.

http://finance.yahoo.com/echarts?s=%5ENYA+Interactive#chart2:symbo yel=^nya;range=1y;indicator=ema(50,20)+volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined

World Markets
International trade shows that the world economy has only revived about 25% not the 6% shown by the stock and commodities markets. Look at the last five years of world trade and the last year and you can see the world has not recovered the way Obama and GE/MSNBC/Pravda socialists are telling Americans. In fact world trade based on actual shipments is now one third what it was last September.

http://www.bloomberg.com/apps/quote?ticker=BDIY:IND


Asian markets up again last night. China up 0.3%, Hong Kong up 0.8%, India up 0.8%, and Japan up 4.4%.

European markets are down this morning up in a range of about 1% to -0.6% half way through their day.

US pre-market futures are flat at about 1% at 8:30 AM EST.