Bubbles Come and Bubbles Go

In my earlier blog concerning my expectations for 2014 I stated, that I expect stock prices to continue going upwards for most of 2014 or whole year. I still hold on to that statement unless current situation in Ukraine goes out of hand and we see an actual war, or serious economical limitations are set towards Russia. 

If talking about S&P500 index (Graph below for the past year from today, March 19.) we can see clear  a upward trend. I wouldn't say that the market is even close to a bubble yet BUT if the FED keeps interest rates down longer and longer (Bernanke has stepped down and been replaced by Janet Yellen, but so far she seems to be holding rates low, which I find to be a sad decision), in that case the market will go towards a bubble state and I advise all stock investors to be careful.

Source: Bloomberg, S&P500 index, 1y.

If a stock bubble does come, then by examples from history I expect it to last for a few years. This is total speculation at this point but I would guess, that for the next 3-4 years from this point we see stock prices mainly going upwards. Next 1-2 years stock prices grow like we have seen so far, at a steady but clear phase. The following two years after that are more bullish in an increasing term. After that we will hit a season when prices again go downwards. My expectation is 4 years, but I wouldn't be surprised if a bubble came and lasted even longer than that.

This guess of 4 years is based on the expectation that current situation continues, that the FED or the U.S. government does not attempt to control the financial market (until it is already too late). Maybe I am completely wrong or something unexpected happens and changes everything. Anyway a man must speculate and create scenarios in his mind to be prepared for as many outcomes as possible.

I HOPE that the FED does its job to stabilize the market and starts raising interest rates. So that, stock prices stay under control and we will enjoy a long period of steady growth instead of 5 years of feasting and then 5 years of hunger. 

But of course I have to remember, that every crisis period creates the best investment opportunities, so on the other hand I should be happy for the stupidity of the FED and all the politicians.