“Remember the word bubble? You heard it here first.”
So said Donald Trump at a campaign event in Cedar Rapids, Iowa, on Saturday. As Bloomberg reported, he was speaking to a group of about 1,200 people, discussing the economy in between taking potshots at former Florida Governor Jeb Bush.
Whether we are in a bubble has yet to be determined, although I have been rather skeptical. Whether Donald Trump is the first to declare so is not at issue; he most certainly is not.
Have a look at the chart below of interest in the word “bubble” via Google Trends. It peaked in about March and April of 2009 — just as the market selloff was hitting bottom. Those investors who were wary of U.S. equities because of their early 2009 bubble concerns missed a legendary rally, one in which indexes such as the Standard & Poor’s 500 Index recovered all of the losses from the financial crisis and then some, in a tripling from the lows to recent highs.
As you may recall, we have discussed this phenomenon many times during the past few years. Sometimes the bubble term is applied to the art market. Hedge-fund managers are sometimes guilty of carelessly using the term, as is the news media. Thing aren’t made any easier by definitional issues. (Also see this and this). It got so bad after the crisis that I declared we had a bubble in bubbles.
Regardless, you have been hearing bubble calls repeatedly, increasingly and incorrigibly. What’s so amusing is that they peaked after the last bubble popped, when all the warnings were too late. We now are at the end of the sixth year of incorrect bubble calls. Just as every general fights the last war, every disappointed investor, armchair strategist and fallen analyst who missed the most obvious bubble in history has now become an expert in spotting them.
Only they are not.