After careful consultation with Bridgewater Associates’ army of military-grade robots and several days communing in silence with Ray Dalio in his cave of radical honesty, the hedge fund’s Greg Jensen and Jacob Kline can say with certainty that there’s no bubble to be seen. Some high asset prices and a little froth? Sure. But nothing to be too alarmed about.
Factors arguing against a bubble are, according to the authors:
- Prices have increased quickly, but not as fast as other bubbles
- Valuations are still in "normal territory"
- Leverage isn't a major driving force of prices and overall lending is still "modest"
- There aren't any significant new investors entering the market
- U.S. retail and foreign investors have "modest" positions
- Corporate stock buybacks are sustainable
- Economic sentiment is "less ebullient" than other bubble periods…
"Assets not being in a bubble doesn't mean they can't decline and aren't vulnerable to surprises, but it does make a cascading pop in asset prices much less likely," the authors added.