Is That a Bubble in Your Market, or ...

... Are You Just Happy To See Me?

When I look at the market, I can’t help but be reminded of my small town neighbourhood circa 1981…my pre-teen gang would go to the corner store and buy those brilliant pink packages of Bubblicious gum, as many as we could afford with our meagre allowance. Oh the flavours! When I think back on it, I have to wonder, what foul alchemy could make a wad of pink gooey matter taste like Watermelon!? Like Cotton Candy? Like Sour Cherry?

Anyway, back then, who cared about chemicals!?! We’d stuff as many pieces as possible into our mouths, barely able to chew the gelatinous mass. One by one, each kid would start to blow a bubble. And one by one, each of those bubbles would burst. But one kid (let’s call him my arch nemesis), his bubble would just keep going. It would grow and grow and we would stand in awe of this adolescent achievement.

We couldn’t take our eyes off his bubble. We would take bets. We would taunt him. And then we’d cheer him on. Who doesn’t want that bubble to go on forever?! You know the end of this story. We all do. Because we lived it.

The. Bubble. Burst.

That mammoth, miraculous, mesmerizing marvel just popped. One breath too many and that kid had to go home and get his mom to cut the gum out of his hair. You could see the letdown on everyone’s face. We couldn’t believe it. It burst! How could that happen?

Physics…that’s how. As every kid learns, f*cking physics will get you every time.

In the case of the Market, it’s economics. Economics will get you every time. Luckily for us, John Hussman is around to analyze micro and macro economics and use that analysis to diagnose the current state of the Market. And he says –

Can you smell the Bubblicious?

In a set of recent interviews (Part 1 and Part 2), he describes in graphic and alarming detail what is happening in the market and the inevitable outcome (Bull, meet Bear!).

Luckily for us, Anne spent some time communing with John and has distilled the interviews to these key points:

Governments have been propping up the economy. For example, near 0% interest rates.
Investors want returns for their money and this money – that would normally be in bonds – is looking for a more profitable home. That home is currently the stock market – driving stock prices up. These prices aren’t going up because of company fundamentals (aka: intrinsic value). It’s more like a frenzied bidding war at an auction sale.
Governments will not prop us up indefinitely and investor confidence is not unlimited. So when the tide turns, money will flow out of the stock market and back into other investments like bonds.
Ergo – the market is blowing a big-ass bubble and is about to get gum in its hair. Like my adolescent friends, we just don’t know which breath (or event) will burst it.

We are left waiting on the edge of our seats. So what can you do as a DIY Dividender?

Make sure you have some cash handy. Remember, when the bubble bursts, it’s a K-Mart blue-light special for DIY Dividenders. It’s when we go shopping! Beef up your savings and/or cull low-performing investments (anyone have some mutual funds they need to sell?) to free up some cash. Hey, the market is in a bubble…it could be a good time to sell. 😊

Make a buy plan. Know your sector allocations and decide what to buy when the bubble bursts. This will also help you feel proactive and powerful when everyone else starts to freak out.

Make a ‘Keep Calm’ sign. As a DIY Dividender, you already know, the price is at the whim of a crazy market. But it is possible, during a bubble burst, for you to panic (a little). It happens to all of us. Watching your investments ‘lose’ value, is stressful to say the least.

Just remember, the real value of your DIY DGI portfolio is in the relentlessly recurring and growing dividend income, not the unpredictable stock price. And because you are not at the mercy of prices to make money, you can hold those DGI stocks quite comfortably for a really long time…even until the market swings back up and prices recover.

As DIY Dividenders, we know we sometimes need to go against the grain. In the wise words of Warren Buffett:

Be fearful when others are greedy and greedy when others are fearful.

Bring on the Burst!

Want to become a DIY Dividender and learn how to build a reliable and growing income?

Check out our workshop, DIY: Design Your Six Figure Retirement.