Irrational Exuberance -- Take 2

Where is Greenspan when you need him? What is going on now in the stock market is sheer giddiness. It is the hot and cold, up and down phenomena that has characterized the market over the last months. The new highs suggest only that everyone wants to forget that a week or ten days ago we were all forecasting rampant inflation and almost-certain recession. We are working ourselves into a froth and smack into a bubble – a bubble in the whole market.

I know the third quarter earnings have been better than expected. I know the 50 basis point drop has been encouraging. I know that a weaker dollar helps with exports. But, come on now. Things are not all that rosy. The credit problem has not even begun to work itself out and inflation is every bit as real as it was last week. And, these are only some of the persistent problems plaguing the economy. My point is, simply, that the market movers are in a frenzy and sucking in many other investors – sucking into a party that will implode.

There are few cool heads right now. It is time to run for cover (puts).