Wall Road Lunch: We Are In A Bubble

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Analyst Clem Chambers explains why current markets are in the early stages of a bubble, with significant upside potential but inevitable volatility and eventual correction. Excerpted from: We’re In (The Early Stages Of) A Bubble

Transcript

Rena Sherbill: Welcome back Clem Chambers, the founder of aNewFN. Always great to talk to you on Seeking Alpha.

Clem Chambers: Great to be back on, Rena.

I think last time I was on, I was telling everybody and telling you how good Intel (INTC) was at $20 a share.

Rena Sherbill: We were also talking about gold and silver, which have seen some things, along with the tech sector. So talk to us. How have you been feeling? Last time you were on was September. So how have you been adjusting to these new realities that we are living in?

Clem Chambers: This particular bump in June was very, very, very rough. I was saying that the end of June was the end of a month, end of a quarter, end of a half year, end of a year.

And that the market moved so far, but there was a huge amount of rebalancing required. And that’s what was causing all these connections in June.

And that this Monday would be the first day when we will get some sanity back because when you have to rebalance before the end of the month, you then have to rebalance after the end of the month again.

Because a lot of funds, they’re not allowed to put it this way, at the end of the month, they have to show a certain layout of their positions. But it doesn’t mean they want them.

And if they’ve had a good set of positioning in, memory chips over the last year, or six months, or three months, or even a month, they’re showing so much profit that it’s bending what they should be doing as a fund that has a diversified portfolio risk.

So come along June. They are running for the exit, trying to move their positions around to be sensible. Because the market’s not sensible.

Maybe they’ve made way too much money. And then of course, come the next month, they might be well, we really want to be back there because that’s done so well for us.

And now that things have changed, we need to move back in again. So you’ve got to shuffle before the end of the period and then a shuffle at the beginning of the period. And then because it’s such a big shuffle, it takes a few days and then you’ve got a holiday and then here we are Monday.

And what do you know Monday, or at least 15 or so minutes ago, was looking like the good old days of all those AI and bubbly shares going up a lot. So I think that that’s what you saw.

And it’s really exacerbated by Samsung (SSNLF) in South Korea. The South Korean market has gone so wild. And if you’re an international fund that follows the MSCI, for example, I mean, you’re going to have a bent portfolio.

It’s going to be all over the place because you can’t really have exposure to South Korea (EWY) over the last six months and end up with a sensible return. I mean, it’s a great return. But, when a market does that, it’s going to make your portfolio diversification look a bit strange.

It’s going to look wrong. It’s going to look dangerous.

So when you have markets moving in these ways, you get these big technical maneuvers because most funds, institutions, they’re not speculators. They are buyers and sellers of risk.

And when things go well, they like it, but really they’re not there to incredibly outperform. They’re there to track everybody else. And a bubble presents them with lots of problems that we wouldn’t consider problems.

But they go to work in the morning, go home at night. They’re not speculators, they’re journeymen.

And I think what we saw up until today (Monday) is all about that. And now we’re on again at the beginning of a new year, a new month, a new quarter, a new half. So we should, if I’m right, because I could be completely wrong about this, but it seems to be panning out.

We should get back onto that slope, that rise, that we’ve been getting for a few months.

Because I don’t think we are in, we have had, a dot com crash moment. I think it’s more like ’97 or maybe ’98. And with that, I remember I was there. I made huge fortunes in the dot com and lost them again. I bought the T-shirt, opened a hamburger store in the dot com.

So I feel that there’s a reflection of the dot com going on, but we’re not in 2000. We’re in a couple of years beforehand and we are in a bubble and it will behave like the dot com and there will be a lot of money to be made and a lot of money to be lost and a lot of crying and gnashing of teeth when the crash does come.

But if you’re in a bubble, then you can ride it as long as you don’t believe that it’s going to go on forever. Like the gold and silver people did a few months ago. You can get out near the top.

You don’t have to get out at the top. You don’t even have to get out halfway up really to do extremely well. My long-term plan is to try to navigate the volatility of this technical bubble that we’re in.

That will probably go on for another 16 months because I said 18 months two months ago. So that means it’s 16, but a year or two, and if you can ride that bubble successfully there’s very very good returns to be had.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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