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Wealth Strategies: Monday selloff hasn't burst bubble yet

Sunday, July 22, 2012 - 04:21

July 23 - Harvard's Martin Feldstein says that fundamentals still don't justify current market valuations and believes that a U.S. recovery could cause yields to rise and won't necessarily be good for stocks.

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Should we worry about a stock market bubble Harvard's Martin Feldstein is he joins me now good to talk to you nice to talk -- you. So we see a market actually stagnate as of late but you don't worry there were a little ahead of ourselves line. Well. Interest rates are very very well. And those extremely little long term interest rates really weren't very close to zero on treasuries and tips IR. Forcing people to look elsewhere to try to get some yield and you turning to the stock market. What those interest rates are likely derives so we've got a mobile and long term bond market. At some point we'll go back and much more normal read real reason to -- 3%. Range and that's gonna make equities less attractive -- the other thing is that. Profits and business profits. Have been good fast -- they're slowing down now we're seeing some negative. News on profits. A lot of those good profits were coming from overseas. Earnings. And they were coming from the fact that the US dollar was falling some of -- when translated. -- Profits in two dollar profits. They. Look better school matters and it's stopped happening. Which might be discouraging because the stock market it's not like it's up 25%. For the with a modest gains we can be in that inflated environments. Is it just stocks and long term debt are there other asset classes that that have a bubble field. Well. People say but I don't follow it and agricultural land. Is similarly being more like people who were looking for an inflation -- and they want real assets. I think for typical investor it is long term bonds and the and the stock market. That are at risk. What is the economy starts improving. Does that take away that possible bubble. And they made it worse. Because if the economy starts improving. We may see long term rates rising. Long term rates are down because the -- has promised to keep rates short rates down for the next few years. Those few years will start to. Become. Shorter and shorter in terms of perspectives. In the fair of me show willingness to -- rates rise. So. I I don't think that. And improving economy. Crusade. Is going to held the stock market. It certainly won't help the bond market well but. -- never end well as we know and are often detrimental to the economy. If we do see a bubble burst and other stocks or bonds can that. Further floor at the very slow recovery were happening. Yes it would mean most people. Are still. Looking at will which is lower than it was before the downturn began five years ago. But those who -- stock market investors. Are ahead of the game. And that's helping to keep Hawaiian consumer spending going. That could turn around if we so you know. Decline in the stock market. Is there value anywhere in the stock market or through arteries but -- hall. But I would say as a whole. The overall averages. Are being driven line. What's happening to. Comparable investment meaning long term interest rates and that's what worries me about the stock market. What about the argument you could play well stocks in Europe are risky. Somebody emerging market economies are growing away we thought king cannot justify what's happening in the US market now. -- well it may be bitter. Less risky than some alternatives. But still very risky. Roland that there Harvard's Martin Feldstein to talk you. You'd think --