Market Bubble Indicator at 80%: What Could Trigger a Burst

In order to get money, you have to sell wealth

in order to

get cash to get the money to buy things.

And so when that happens, bubbles burst. So bubble bursting means, let's say,

a tightening of monetary policy is classic,

but also something like wealth taxes can happen.

For example, think about wealth taxes forcing

sales of assets that you have to... You're right, by the way,

there's a proposal for a wealth tax in California right now.

Yeah, so state and

national. Right. State and national. I'm not... I'm just trying to

describe the mechanics of a bubble. But you said we're at 80%.

Yes, there's...

I have a bubble indicator that goes back to 1900.

And it just makes a... it has a number of indicators. How much leveraging?

Who has the leveraging? Is it...

what is the amount of money in wealth

relative to the amount of cash that needs to exist and so on. These indicators,

there are a number of them, show that

we're on that... on that chart, if I was to show you the chart, it's about 80%

of where it was

in those two times.

That doesn't mean that that's the end of the move,

okay?

Because bubbles have to be pricked.

And so you can measure that there's vulnerability,

a lot of vulnerability. There's a lot of

vulnerability of who's holding what. So here's my question to you about that,

which is if the bubble is at this 80%

range on your...

on your index or metric, there are folks, we had Paul Tudor Jones come

in here a couple weeks ago and he said, "Look, I think we're in October of 1999."

By the way, the market would still have 40% to go. Back in 1928,

Charles Merrill, who founded Merrill Lynch,

told everybody get out of the market because he thought it was a bubble.

And he was right and he was wrong, insofar as from the beginning of 1928 to

September of 1929,

stock market went up 90%.

But I think that when you're looking at that, you're looking at it

incorrectly, okay? What is a bubble is the definition, right? I want to reiterate,

a lot can go up before

the bubble bursts. A bubble is an unsustained set of circumstances.

It has unsustained amount of buying.

It has an unsustained amount of valuation. It has... and then

there's something that pricks the bubble. Is there a way to sustain this though?

So you can't look at...

you can't look at...

don't sell just because there's a bubble. Okay?

Don't sell just because of bubble.

But if you look at the correlations with the next 10 years' returns,

when you are in that territory, you get very low returns.