Will the Bubbles Burst This Year?

Wednesday, 22 May 2013 07:55 AM

By Ashish Advani

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I am at a conference at the beautiful Myrtle Beach in South Carolina this week. There is something wrong when I wear a suit and head indoors against the scores of people heading to the beach and golf courses. Sigh! One must carry on nevertheless.

I was listening to speeches by economists from two of the prestigious top 10 banks in the country. It is amazing how they have completely swallowed their own Kool-Aid about how great a time we are having in America these days. If I was to believe them, I would be completely oblivious of the coming financial tsunami of epic proportions that will hit the U.S. markets soon. It is shocking to hear how far they are from reality.

Declassified: ‘Financial War’ Could Wipe Out 50% of Your Wealth’

One of them believes that the Dow Jones Industrial Average is quite cheap at these levels and that we should be grabbing stocks at such bargain prices. The other one believes that inflation is really at 1.6 percent and that the printing of money will not cause any concerns for now.

And they both told stories of how other economists concluded that even if interest rates rise in America, there will not be much of a problem.

There is one comment from one of the economists that I did take to heart and want to share with you: While she was travelling she mentioned to a taxi driver that she was an economist and instantly the cab driver started discussing the stock markets and wanted tips on investing. The last time this happened to her was about one month before the Nasdaq crashed. Therefore, it may be time to get out of the stock markets now!!

There are a few people who I do like to read and respect their opinions. One of them is Marc Faber of the Gloom, Boom & Doom report. A couple of days ago, he had this to say:

"In the 40 years I've been working as an economist and investor, I have never seen such a disconnect between the asset market and the economic reality. ... Asset markets are in the sky and the economy of the ordinary people is in the dumps, where their real incomes adjusted for inflation are going down and asset markets are going up. Something will break very bad."

Recently, I wrote to you about the games that are being played in how economic data is being computed and how the goalposts are being shifted just to make us feel good. I wrote to you about the manipulations with the jobs growth numbers.

So if the jobs are not coming back, or are coming back very slowly, and assets classes are reaching untenable levels, we can only assume that the asset classes will be plummeting soon rather than expect the real jobs growth and wage increases will appear.

Both economists did concede that the bond markets are in a bubble.

So in short, if you should exit the bond market and stock markets are irrational, then the real logical investment is to follow the real growth stories. We have plenty of good, genuine growth stories around the globe.

Singapore, Vietnam, South Korea and Thailand come to mind besides the traditional BRIC countries (Brazil, Russia, India and China), where we still have 5 percent and higher growth rates. India is above 5 percent, China is at 7.8 percent, etc.

Yes, it is risky to invest in such areas, but what we are not being told is that the same level of risks, if not worse, are already present in the bubbles in the United States.

Declassified: ‘Financial War’ Could Wipe Out 50% of Your Wealth’


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