Bubble or not?

The Chinese government has been busy over the last few weeks trying to prevent the epic stock market bull run (the Shanghai Stock Exchange is still up 20% YTD) from turning into an epic bear run. Aggressive moves including suspension of IPOs, creation of a $19B fund, suspension of trading on half the listed securities,  investigations on “malicious short-selling” may seem par for the course in an economy still officially described as “socialist with Chinese characteristics” managed by a Communist Party.


However,  over in the capitalist world, global central banks have not been left behind in their quest to support asset prices and the wider economy as a consequence. Central banks (the guys who print money), believe it or not, are major buyers of equities. The Swiss Central Bank alone reported having “invested” 18% of its CHF 525 billion in foreign currency reserves in equities. The Norwegian Sovereign Wealth Fund meanwhile reportedly owns 1% of all listed stocks globally. That’s just the direct stock purchases. Successive waves of monetary easing by the Fed, Japanese and European Central Banks have left lots of cheap money sloshing around. Benchmark interest rates in much of the developed world are zero, near zero or negative(!) in the case of Switzerland. The search for yield has pushed investors further into equities, stretching valuations. With the NASDAQ Composite at roughly 2.5% above the last market peak all the way back in March 2000, it's time to acknowledge that perhaps valuations in everything from that latest hot startup to San Francisco real estate may have gotten out of hand.