When will the assets bubble burst ?

Dow gained 164 points on Thursday and Friday to move above 16,000 level. It closed the week at 16064. My reading for Dow is as shown below.

It is forming the fifth wave of  its mini wave 3 of sub-wave iii of wave (ix).

I really don't know when the bubble will burst, but the chart says, "Not Yet", if my interpretation is right.

It may be good to look at the 2007-2008 crisis when Dow plunged 7,617 points (53%) from 14,164 to 6,547 in 27 months.

Before 9th October 2007, the turning point.

1. In August 2005, David Lereah,  former chief economist of the National Association of Realtors (NAR), distributed "Anti Bubble Reports" in respond to "irresponsible bubble accusations made by media and academics". Click 'Bubble Meter' for story.

2. Housing prices however continued to rise and finally peaked in early 2006. On 4th May 2006 Fortune Magazine reported, "The great housing bubble has finally started to deflate. .....".  Click 'Welcome to the Dead Zone (Housing Bubble - Fortune Magazine)' for story.

3. Merrill Lynch analyst had warned in 2006 that companies could suffer from their Sub-prime Investments.

And there were many more talks on US housing bubble and possible sub-prime crisis.

However, Dow Continued to rise

From mid 2006 to October 2007, Dow gained 3,458 points (32%) to peak at 14,164.

This Time Around

During the era of Paul Volcker and Alan Greenspan, Federal Reserve did not have 'money printing', they used interest rate and other economic policies to regulate the market.

This time around, Federal Reserve under Bernanke used an entirely untested new concept of 'money printing' to flood the economy with liquidity to get US out of the financial crisis.

Looking at the Federal Reserve Balance Sheet. Before 2008, the assets used to increase at about 27 billions a year. With the QE programs since 2008, the increase was about 600 billions a year on average. The latest QE is 85 billions a month.

A banker said to me recently, "The money has gone into all sorts of assets. In fact, the only way to absorbed the liquidity is to have assets value at higher level to reach an equilibrium state. My money in the bank is shrinking everyday when assets like stocks and properties is going higher and higher."

He was talking to me about buying a double storey linked house in Bangsar for Rm 1.6 millions, "Nobody knows when the bubble will burst, if it can drag on for a few more years (with all the central bankers keep on printing money), the price may reach Rm 3 millions. And when the bubble burst, will it come down to Rm 1.6 millions ?"

Well, nobody knows.

So, how high will Dow goes and how long it can last before the final plunge takes place ?  I go by the chart, hopefully it is well behaved and hopefully the one up there doesn't trick me.

Is there a pot of gold ?

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