This is when everyone in the world is a mega-fan of shares. People relentlessly keep pouring their hard-earned cash into them and nobody thinks for one minute that the market could ever go down. It is a world of optimism, and everybody feels good and buoyantly confident about life. The corollary to this is that they spend loads of money and borrow it too. It tends to happen when interest rates are low and everyone is flush with cash. Valuations of shares get more and more out of kilter with reality and everyone makes up wonderful justifications to explain why shares are so ridiculously overvalued. Phrases like ‘New Paradigm’ and ‘Benign Goldilocks Economy’ are sprayed around in abundance, especially in the financial press. People are usually too busy enjoying all the extra cash to notice the bolt from the blue that usually puts a stop to all the optimism and heralds the dawn of a bear market. Will there be another bear market in the future? Chances are there will be. Why? Because markets go up and they go down. Of course, we can look to history as much as we like, but the bottom line is that none of us know what the future holds. If a bear market takes hold, we have no idea when it might happen, how bad it will be, or how long it will last.
On February 11, 2010, In Business, By admin