The Investor’s Not-So-Sweet 16

By Rob Isbitts via

Narrowing down what pricks the bubble…from 16 possibilities

Two popular questions I hear these days are:

  1. What is the possibility of picking a perfect bracket for the NCAA Men’s Basketball tournament, which involves choosing the winners of 63 games over 3 long weekends?  Answer: according to Duke professor Jonathan Mattingly, the odds are 1 in 9,223,372,036,854,775,808.  That is over 9…wait for it…quintillion).
  • What will finally push the stock market from 10 years of exuberance to a condition known as a burst bubble…a la the years 2000-2003?  That is a far less precise calculation, and it has nothing to do with numbers higher than most of us can count…unless we are talking about the national debt, of course.

With the middle weekend of the NCAA tourney upon us, I thought I’d offer my own suggestions of 16 items that could ultimately be, as a college basketball announcer would say about a shot to seal a win, “the dagger,” for the longest bull market in modern equity market history.  As with March Madness, I have divided them into 4 brackets, not by region of the country, but by type of market risk.  Here they are.


The “Quantitative” Bracket

  • The “CAPE” – this popular version of the price-earnings ratio, which smooths out corporate earnings over time and incorporates inflation, is about as high as it has ever been…except for the Dot Com Bubble…and in the late 1920s.  In fact, CAPE closed January right about where it was in October of 1929, the month of “Black Monday” on Wall Street.
  • The S&P 500’s 10-year annualized return is over 15%.  That’s in the top 4% of all data going back to 1960.  The only time the S&P was roaring louder than it is now was…you guessed it…the period leading up to the Dot-Com Bubble.

The Unemployment Rate is threatening to bottom and start climbing.  I am not talking about the “headline” rate that is typically what you see in the headlines.  I refer to the “U-6” unemployment rate, which includes those who gave up after looking for a job, or who are working multiple jobs to make ends meet because one job doesn’t do it.  It is threatening to pop above 8%.

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