Is the ASX 200 in Bubble Territory? – Recessions are Inevitable

On Monday, 20 January, the ASX 200 hit another record high. That marked five record high closes in a row, before it slipped in today’s trading.

As you can see in the below chart, in less than three weeks, Australia’s biggest 200 stocks by market cap shot up 5.8%.

ASX 200 All Time High

Source: Google Finance

And January’s rapid rise comes on the back of an impressive 21% gain in 2019. That’s seen the price to earnings (PE) ratio hit a record high of 18 times.

Little wonder then that the bulls are celebrating. Many analysts believe that record low interest rates and further quantitative easing (QE) by the world’s central banks could see the ASX repeat…or even beat…last year’s performance.

Not to mention a certain US president’s determination to head in the November elections with markets at or near new highs.

The ASX 200 in a Bubble?

But Donald Trump’s resolve aside, The Rum Rebellion editor Vern Gowdie, isn’t buying it.

Vern reminds us that what goes up must come down. And that recessions are inevitable. ‘Between recessions the market expands. And during the recession, the market contracts. That’s the complete cycle.

The last global recession is now 11 years past. Long enough for many investors to forget the pain of seeing 30–40% or more of their wealth disappear in a matter of months.

But Vern warns that you can’t wait around for the government to announce we’re in a recession to take precautions.

The official definition of recession is two quarters (six months) of negative growth. Therefore, the official recognition of a recession cannot be made for at least six months.

The market (invariably) changes trend before a recession. Those waiting for a recession to be the precursor for a market downturn are blind to history.

When the cycle rotates from up to down, then a recession will commence…but it won’t be recognised for at least six months after the event. By then it’s too late.’

Fair warning.

Beyond his overall view that the Aussie market is overvalued, Vern’s singled out five particular stocks he believes you should sell today…or at least at market open tomorrow.

You can get all the specifics here.


Bernd Struben

The Rum Rebellion

The Rum Rebellion