Marc told Trish Regan and Adam Johnson that “we are in a gigantic financial asset bubble.” He has warned before that he believes the bubble could pop in a 1987-style crash.
While I see froth – think Tesla or Twitter or the mania surrounding Bitcoin – I don’t think equities today are anywhere near where they were in 1999, which truly was a bubble. Also see Marshall’s recent post on bubbles, which I think is a good one in terms of understanding the phenomenon.
Faber also spoke about Bitcoin, saying, “I prefer physical gold and silver, platinum to bitcoin. Bitcoin can have a lot of competition. Gold, silver, platinum — they have no competition. How do you value a bitcoin?… How do you value Netflix? Is it overpriced or underpriced? Is Tesla overpriced, underpriced?”
My own definition of a bubble is a two-standard deviation move – meaning that you enter bubble territory when the price moves to a level two standard deviations above the norm on a long-term valuation benchmark metric. I think of a bubble coming from the fact that price movements are never entirely independent of previous price movements. When prices are near long-term norms, the intertemporal dependence is not an overriding variable in price movement. However, as prices move away from trend – either above or below – previous price movements take on increasing importance. That’s why markets overshoot both to the upside and the downside..."
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