Now that we are eight years into a bull market, some investors and, most certainly the financial media, are assuming something just has to go wrong. As a result, you are seeing lots of stories about what area of the market is already in a bubble waiting to pop.
Here is an interesting take on some of these so called bubbles from economist, Brian Wesbury.
Some people think the auto sector is in a bubble that has already burst because sales of cars and light trucks have been lower compared to a year ago. According to Wesbury, auto sales should be at around 15.5 million per year based on population growth and scrappage rates. Sales were way below this level from 2008 through 2012, think back to the financial crisis. Since then, sales have been above this level. The economist thinks sales will slow back down to around the 15.5 million pace which isn't a bubble bursting, it is just the end of the catch-up period.
You might also have heard about home prices getting high. Using a price-to-rent ratio, the national average prices are very close to the long-term norm compared to rent. This doesn't sound like a bubble to us.
Finally, you keep hearing about the coming bubble in student loans. Thanks to poor government policy, some students will be saddled with debts they have trouble repaying, but because so many of these loans run through federal lending agencies, defaults are not going to bring down the financial system; you and I, the U.S. taxpayer, will just end up with an even larger budget deficit.
So instead of worrying what may or may not happen to the stock market, why not focus on having an investment system that is designed to put money to work in high demand areas and avoid weak demand areas? Over the past 12 months, REITs, real estate investment trusts, gold and commodities have all lost money. None of our clients were invested in these money losing asset classes.
The key to successful investing overtime is avoiding big losses. Make sure you have an investment system that helps you avoid weak demand areas while putting money to work in high demand areas.