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All the World is a Bubble?

TheStreet.com recently ran an article partially entitled “all of the world is a bubble.” The article was obviously written just to grab headlines. It does present an opportunity to think about value and markets.

The article states that “every asset class is expensive today compared with historic averages and compared with the cost of replacing it,” to conclude that an economic downturn is in the works and that no investment asset will outpace inflation except for “managed timber, ‘high-quality’ U.S. stocks, and bonds.” That is an interesting conclusion to draw from higher asset class values.

Higher asset class values is not necessary bad and it may not foretell the coming of darker days. In a perfect world asset class values would be the produce of supply and demand principles. Specifically, higher asset class values would be attributable to demand exceeding supply.

We know that world demand has increased in the past few decades due to the consumption of several Asian countries. Asset class values should be higher today than they have in the past to account for this additional demand.

Ultimately, the question is whether the countries that are producing this additional demand can use the resources to develop infrastructure that will help increase supply. If that is the case then higher asset class values would simply be a wash.

What do you think? Should be all pull our money out of the markets and buy an “off the grid” cabin or trailer in the mountains or in the desert somewhere?

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