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InvestWELL Report |
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Question:
What is a speculative bubble?
Answer:
A steep increase in values caused by exaggerated expectations of future growth, price appreciation, etc. Each speculative bubble has its own characteristics but all bubbles involve a combination of both fundamental and psychological factors. For example, it could be argued that the current run on oil prices has become a form of speculative bubble similar to the high tech and housing bubbles.
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(Cumulative %)
Investment Strategy – MEMBER SECTION
InvestWELL Picks continues to outperform the market (as defined by S&P 500 index.) while being less volatile than the overall market.
Chart 1.
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- During the last month, the US equity market kept steadily going down (Chart 2 & 3) It would be very dangerous to try to call the market bottoms now.
3 Years and Last Month
Charts courtesy of StockCharts.com
- During the last month, the Canadian market was unable to dissociate itself from its US cousin (Charts 4 & 5).
The Canadian market declined in tandem with the US market.
3 Years and Last Month
Charts courtesy of StockCharts.com
- Last month, the US economy lost 62K jobs while the unemployment rate remained at 5.5%. This is the sixth straight month of nationwide job losses, underscoring the economy's fragile state.
- In Canada, the Labor report will be released the following week. We expect that the payroll numbers and unemployment rates will be unchanged overall.
- Starbucks, impacted by a slowing U.S. economy, is pulling the plug on 600 underperforming U.S. shops, as well as trimming the number of stores it had planned to open over the coming year. We imagine that the sales of tall lattes will decline too.
- Economist Ed Yardeni said soaring food and fuel costs are cutting into the purchasing power of consumers everywhere, perhaps pushing the global economy to the brink of recession. He said the odds of a "synchronized global recession" have increased markedly as central banks outside the U.S. raise interests to quell inflation.
- Home prices across 20 major U.S. cities have dropped a record 15.3% in the past year and are now back to where they were in the summer of 2004, according to the Case-Shiller home price index. Las Vegas, Miami and Phoenix saw the biggest declines, with prices falling by 25% or more in the past year.
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(see
explanation)
Here is a direct quote from the Behavioral Section in last month’s Member newsletter:
"Overall, we believe the market will need to consolidate before it is able to make a significant upward thrust".
It appears that our prediction came true but with a twist, meaning the market was not only unable to go up but, in fact, it lost more ground.
Charts 6 - 8: Advancing/Declining Line, AAII and Equity Put/Call Ratio
Charts courtesy of StockCharts.com
and DecisionPoint.com
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D is correct.
The bubbles can reach over 1000% increase in values over one year.
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