Shocking: Has Warren Buffett Gone Insane???
If we use Warren Buffett’s own favorite bubble indicator (chart above – red line), it clearly suggests that we are in a financial bubble. Yet, consider the following….
- Why Warren Buffett is buying so much of Apple
- Tepper, Buffett join bullish chorus betting on unrelenting stock-market climb
Tepper appeared to attribute the simultaneous buying in stocks and bonds to central banks, which have been trying to foster growth in regions like Japan and Europe for years. “Could be there’s too much monetary policy still around the globe? Reaction in markets suggests it’s affecting the bond market more,” he told CNBC.
His remarks follow similarly sanguine comments from Warren Buffett, who runs Berkshire Hathaway Inc. BRK.A, +0.30% BRK.B, -0.02% and declared in a Monday interview on CNBC, the stock market “not in a bubble territory.” “If rates were to spike, however, then the stock market would be more expensive, Buffett said.
How do we reconcile the above?
Well, basically, both views concentrate on liquidity and near zero interest rates.
So much so that one can argue that the stock market deserves infinite valuation if interest rates are at zero. Mathematically, that would be a correct assumption and that is precisely why Mr. Buffett and Mr. Tepper suggest that stocks will continue to go higher.
And that is precisely where the problem lies.
Certain measures (like P/E ratio) suggest the stock market is incredibly overpriced and in a bubble. As outlined here The Most Important Part Of Buffett’s Annual Letter Yet, the same individuals can argue the market is heading higher – perhaps much higher.
Which view is the correct one?
It appears we would be best served to listen to Mr. Tepper and Mr. Buffett directly. Yet, I do not recall either individual calling a 2007 top either. Invest accordingly.
If you would like to find out exactly what happens next based on our Timing and Mathematical work, please Click Here.