As U.S. stocks rose to record levels in the past few months, a flurry of pundits have come out of the woodwork to claim – and deny – that stocks are experiencing another bubble.

I’ve also published a detailed report in which I laid out the case for why stocks are experiencing a bubble, though I believe that this bubble can continue expanding in the course of what I call the Bubblecovery or bubble-driven economic recovery before popping.

In this column, I will outline and debunk the most common arguments that are being used by high-profile U.S. stock bubble deniers, which includes former U.S. Federal Reserve chairman Alan Greenspan, Fed chair candidate Janet Yellen, Blackrock’s Russ Koesterich and Larry Fink, and Charles Schwab’s Liz Ann Sonders, to name just a few. Take note of the fact that these individuals have a vested interest in encouraging the public to risk their hard-earned money in stocks regardless of market conditions, and did not predict or warn about the global financial crisis, as I did. According to them, “it’s always the right time to buy stocks!” (similar to the argument used by Realtors ®), so please take their advice with a very large grain of salt.

Here are the most common, but logically unsound arguments being used to deny the fact that U.S. stocks are experiencing a bubble:

The global economic recovery is growing on the backs of post-2009 bubbles in China, emerging markets, Australia, Canada, Northern and Western European housing, U.S. housing, U.S. healthcare, U.S. higher education, global bonds, and tech (Web 2.0 and social media).

50 percent of the SP500’s earnings are generated overseas (up from 30 percent a decade ago), so U.S. corporate earnings are benefiting from temporary economic booms in countries that are making the same mistakes that the U.S. was in 2005.

Exports have helped to create 6.1 million jobs and accounted for half of U.S. economic growth from 2009 to 2012. Approximately 75 percent of U.S. exports head to Canada and emerging markets, which are both experiencing bubbles (click on the links to learn more).

Thanks to low interest rates, as well as rising housing and stock prices, financial sector profits have surpassed their peak reached during the prior bubble. The financial sector is on the verge of becoming the most-profitable U.S. industry once again, accounting for nearly 20 percent of the SP500’s earnings.

U.S. housing is experiencing an “echo bubble” or a Housing Bubble 2.0 and house flipping is making a comeback in former bubble markets such as Arizona, Nevada, Florida and California.

There is a growing automobile loan bubble and student loan bubble, which have been the two main drivers of consumer credit growth since the Great Recession. This chart shows how rapidly household credit is growing once again as deleveraging is officially over:

http://www.forbes.com/sites/jessecolombo/2013/12/17/heres-why-the-stock-market-bubble-deniers-are-completely-wrong/

Historic chart:
http://www.vectorgrader.com/indicators/market-cap-gdp

Dr M Khalid's global village blog