With the Dow Jones Industrial Average closing above 16,000 for the first time ever this week, it’s hardly surprising that market chatter over whether we’re in an asset bubble is intensifying. The 2000 dot-com bubble and the collapse of the housing bubble and financial crisis remain painful memories in investors’ minds.
With that in mind, here’s a look at 10 notable names and their recent take on where the markets stand.
1. Warren Buffett
The Oracle of Omaha doesn’t seem to be worried about a bubble in his favorite asset class: stocks. Recently, Buffett said stocks are not overbought but in a “zone of reasonableness.” Last month, Buffett said in a CNBC interview that he doesn’t see stocks as being in a bubble at least not for now. “Stocks are not selling at bubble levels, and, what do you diversify into? Do you want to diversify into cash? I think it’s a terrible investment compared to equities. Do you want to diversify into long-term bonds? I think it’s a terrible investment compared to equities. You’re going to have your assets in something and I think good businesses held for long periods of time are certain to deliver good results.”
2. Janet Yellen
Janet Yellen took one step closer to being Federal Reserve Chairman Ben Bernanke’s replacement after the Senate Banking Committee voted in favor of her nomination this week. On the subject of bubbles, Yellen has stuck to the Fed script , at least when it comes to stocks. “Stock prices have risen pretty robustly,” Yellen said at her confirmation hearing, but added that given several factors “you would not see stock prices in territory that suggest…bubble-like conditions.” When asked if there was a federal role to support the stock market, she simply replied, “No.” When asked about other possible asset bubbles like housing, Yellen said that rising home prices and all-cash deals — especially in hard-hit places like Phoenix and Las Vegas — are a “logical response” from the market. That does little to assure investors who remember Ben Bernanke’s assertion that he didn’t see a housing bubble in the works during his confirmation hearing in 2005.
3. Marc Faber
The author of the Boom Gloom & Doom report sees bubbles everywhere and Janet Yellen as Fed chairwoman as cause for even more alarm. “I see a bubble in everything that relates to the financial sector,” Faber said on CNBC recently. “We have a bubble in bonds. We have a bubble in low-quality bonds. We have a bubble in equities...We have a huge debt bubble and it’s only getting bigger, it’s not getting any smaller. So we are the bubble, everything that is in the financial sector is the bubble, and it’s been pumped up by central banks.”
4. Andy Xie
It’s not just U.S. stocks that have investors on edge. Quite a lot of bubble talk has been directed toward China lately, especially in the area of housing. Shanghai economist Andy Xie said China’s shadow banking industry will likely see a severe liquidity squeeze when the Fed winds down its easing measures, and that will pressure China’s property bubble. “China’s rhetoric on growth and the Fed’s on unemployment have reinforced each other in expanding a gigantic global bubble, bigger than the one before 2007,” according to Xie. “When the bubble bursts, the impact on China and the United States will be very different. The United States’ bubble is mainly in the stock market and in the properties for rich people. Its debt is not rising rapidly. Hence, when the bubble bursts, it is merely a round trip for speculators. China’s bubble is sustained by debt. Its destructive power is much greater.”
5. Nouriel Roubini
We’re not in bubble territory yet for stocks, according to NYU economist Nouriel Roubini, but that doesn’t mean there aren’t bubbles forming all over the world. In a Bloomberg interview, Roubini said central bank liquidity is not going to the economic recovery but into financial transactions “We are maybe not in bubble territory for the U.S. stock market, but if you look at housing around the world — Switzerland, Sweden, Norway, France, Germany, Israel, Brazil, Hong Kong, Singapore, China — we have frothiness if not outright bubbles in housing markets in many parts of the world,” he said. Also, the tech sector appears vulnerable with start-ups being overvalued based on forward revenue they haven’t even taken in yet. In addition, central bankers face a tough choice between killing off the recovery, or fueling growth at the risk of inflating the next financial crisis.
