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I do think we're in a bubble but I also think it's unlike any other bubble the great bubbles of History whether it's the sa SE bubble or 1929 or the tech bubble you take a very good economic situation and you merely extrapolate it into the future and if you do that and it actually occurred the market would be worth very high multiples of book and earnings and so on it's a very simple game believe in today's perfect conditions and assume unrealistically as it turns out that it will go on forever if you did that today and you extrapolated today's conditions which are miserable you would of course have the very opposite of a bubble so that makes it unique we're in the highest 5% of pees and we're in the lowest 5% of economic conditions today so there's never been anything like that in history and why has it happened we know the trouble is of course Co and we know the push on stock prices is a combination of central banks Federal Reserve and fiscal spending and it's Global so we have never had such a global agreement that every government is looking to spend and every government is looking for their Central Bank to accommodate this is an enormous push and what we discovered long ago is how effective that is at moving stock prices it's as if every dollar that is not absorbed by the real world flows through line of lease resistance blows through into asset pricing that is what is happening it's a very impressive struggle between the real world of productivity and employment and GDP and the paper world of PE ratios and house prices pushed by easy credit low interest rates of course being key and just plentiful supplies of money flapping around to those people who are likely to buy houses and stocks it is not necessarily the case at the small business level at all so this is not necessarily terrific for the real broad economy but it is clearly terrific for the stock market and the question is does the real world eventually catch up and since this is novel economy just like the novel virus you can't can't be quite as certain as you could in Prior bubbles I described our confidence in Prior Bubbles as near certain all of those things of course occurred and you can't be that certain this time because the forces are unique that's going to make life more intellectually interesting however my bet would be of course that reality will catch up with the high pees when you buy overpriced assets you get a guarantee of a low return what you don't get is a guarantee of being wiped out next week my belief is is that if you're trying to time a Breaking of a bubble the value is not that important all of them are overpriced and whether they're overpriced at 25 times earnings or 35 times earnings or in Japan at 65 times earnings it's very difficult to work out in any sort of academic way since you're dealing with craziness where it's going to Peak I much prefer to look for signs of truly crazy behavior because every bubble that really crashed and broke in a spectacular way which most of them did was preceded by crazy by legendary stories this was notably lacking as I wrote and talked about over the years of the 10year bull market it has not been lacking really in this rally of the co low we have seen not only a terrific rate of acceleration in the price rise double the normal bull market which is characteristic that acceleration is characteristic of late stage bubble but we've also seen wonderful craziness the spacks which are a promise to use your money give me your money and trust me I'll do something useful with it is a real Echo of the south sea bubble where we have such a spectacular opportunity we can't reveal what the purpose of your money is yet and they got lots of money and ran off with it I'm not saying the spikes will run off with your money but I am saying it's a real testimonial to the speculative nature buying hurts a bankrupt company and having it go up four five six times in a real hurry and so on and so on you read about your own having Tesla quadruple in a year I own a Tesla It's a Wonderful car I think they're a spectacularly interesting company but are they four times the company they were before Co H I don't think so these stories are everywhere and they're what you need before a bubble breaks and we saw them in early 2000 and late 99 and we saw them in late 1929 before the crash we saw them in Japan and here we are again so I think this is an indicator not a certainty but a strong possibility that we are quite close to the bubble breaking in terms of psychology perhaps a matter of weeks or months not years and I am sympathetic to the argument what am I supposed to do the yields are so low but the market doesn't care that uh you don't have easy safe Investments to make and your desperation is your own matter what it does is focus on the difference between shortterm and longterm the short term you can say I'm offer Nothing by fixed income I get something out of stocks even though it's half what it seemed to be in the yield it's still better than nothing therefore I'll do it and the prices rise and that is a logic that you hear one way or the other all over the place and then there's the argument in the long term which is in the end all assets equal replacement cost house prices go up but if you can build one at Half Price you put a ceiling on it if you can create a new company at half price I am a great fan of venture capital for this reason I've spent my entire life fighting the FED frankly what I will say is this that typically the FED wins many more rounds than we have but in the end we've had a knockout In the End the Fed has not been able to keep the tech bubble going indefinitely it sent it over the 21 time earnings of 1929 it send it up to 35 but it couldn't go on in Def even Japan that went to 65 the price they paid when you finally knocked it out was here we are 31 years later not even faintly close to the high of 1989 if you go into their real estate market which was an even bigger bubble I think the biggest bubble including the Sai bubble ever or tulips they went down for 30 years and now they're bottoming out may be but they're bottoming out in Central City prices at a quarter of where they came from the land under the empress Palace in 1989 90 was indeed worth the state of California to give you some idea we spent a day or to checking it out it really was true and the price you pay for that is you could be 50 years later and still not back to that level again I would say don't fight the FED if you're a short-term player but if you're a long-term player you have to be prepared to fight the FED on occasions as long as inflation is not really Gathering Ste when you find yourself facing a slowing global economy you have to kick in the tail and it needs massive government stimulus on a sustained basis a few years ago I debated Jim Grant who called me an apostate amongst value managers for hedging about this time is different I maintain that the former dangerous words this time is different should be replaced by the five most dangerous Words which is this time is never different that is a very dangerous idea to think that you can never have important permanent changes and I think almost everything has changed since 20 about so the certainties that we used to have no longer exist but that was 5 years ago that was before the most massive move against value on any way you care to measure it now we are off the scale so I don't think the value is as dependable and useful a weapon as it was for 70 years prior to 2000 but I think it's a very handy weapon when you push the parameters so far that it hits historical lows against grow STS so we may not snap back 120% I would have calculated 20 years ago but we are going to have a very big reversal in favor of value stock sooner or later I think we can be pretty safe about that and one of the things comes down to the nature of the fs I don't recommend necessarily going short but I do recommend owning as few us equities as you can face emerging equities emerging markets are not only at an unprecedented low relative but they are actually quite cheap abs absolutely compared to the US on their own and who are they they're China who is going to represent according to the World Bank over 30% of the entire world's growth over the next 20 years
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