As U.S. stocks rose to record levels in the past few months, a flurry of pundits have come out of the woodwork to claim – and deny – that stocks are experiencing another bubble.
I’ve also published a detailed report in which I laid out the case for why stocks are experiencing a bubble, though I believe that this bubble can continue expanding in the course of what I call the Bubblecovery or bubble-driven economic recovery before popping.
In this column, I will outline and debunk the most common arguments that are being used by high-profile U.S. stock bubble deniers, which includes former U.S. Federal Reserve chairman Alan Greenspan, Fed chair candidate Janet Yellen, Blackrock’s Russ Koesterich and Larry Fink, and Charles Schwab’s Liz Ann Sonders, to name just a few. Take note of the fact that these individuals have a vested interest in encouraging the public to risk their hard-earned money in stocks regardless of market conditions, and did not predict or warn about the global financial crisis, as I did. According to them, “it’s always the right time to buy stocks!” (similar to the argument used by Realtors ®), so please take their advice with a very large grain of salt.
Here are the most common, but logically unsound arguments being used to deny the fact that U.S. stocks are experiencing a bubble:
Argument #1: Stocks are the cheapest they have been in decades
This is by far the most common argument used to convince the public to buy into the latest stock bubble. While this argument is technically true, it is very misleading and a textbook example of lying with statistics. Most valuation measures indeed show that the U.S. stock market is near the bottom end of its valuation range of the past twenty years
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