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DOW is in Bubble ?

Sub-Prime problem in  US was the creator of many of the financial problems which world is facing now. This Sub-Prime problem created a panic in general investor’s  mind around the world. Banks & other financial institutes were falling. Investors were not agreed to take any risk. Forget about the Sub-Prime assets, they were not even ready to take risk in investing other than Gold, Treasuries e.t.c. So during that period of time most of the markets, in fact all the markets around the world have faced the heat.

US economy effected much by this Sub-Prime and financial related problem. That even brings the question about existence of US$. We all know that big financial institutes are one of the main force of US economy, now if they are in trouble then US economy must be in deep trouble. Now from 2009, Dow Jones like other US stock indexes are performing quite well.
So that brings the question how the barometer of the economy perform well when economy itself is in trouble !  At past and even now when Euro area is facing the debt problem there stock markets were not performing well. The latest example is Japan, due to natural disaster and nuclear problem there stock market plunge in lows, though later they recover a bit but it is still low. It will take time to recover those ground unless they are artificially inflated. In comparison  Sub-prime & related financial problem was bigger than all the problems, many big banks, financial institutes  have just evaporated &  still they are closing down ( As in 2011, there are almost 28 banks have closed down ). Balance who are left, most of them were converted into public sector companies.

Now let compare the Dow Jones with other stock indexes, let take Indian SENSEX for this. India like China is an big Emerging country, it’s GDP is growing around 8-9% level. India is more or less immune from this Sub-Prime and other financial problems
, as it’s banks have a strong base. So all of these reflected in their stock index.

If we compare DOW with SENSEX then I can say that at the beginning there was not big gap between this two. Though in the middle and during last couple of months of 2010, the gap increases but it ends up this days with same gap that it had at the beginning. Here we have to take into consideration that Indian market faced lot of correction during early period of this year, but DOW is completely immune from it. India has faced correction because it was in over-bought position for long and there is also the inflation factor. But Dow was also in over-bought condition but it is completely immune from it.
When risk in the economy is much then it is normal that moneys will be shifting to the non-risky assets like Gold and Treasury. As we all know that Gold has a big run during last few years. Not only due to risk in other investments but Gold is also used as inflation hedge. As such many countries have also bought much Gold during this period . So it is expected that overall Gold value is in higher note. 
Now if we compare Gold with Dow Jones, then we can see that there is not much difference between them without some odd movements for few times. So it is quite interesting to see that people are investing in two contrary assets in same period of time. I can understand issues behind the Gold but I do not understand the movement of Dow according with Gold. It is now long that some experts are saying that Gold is in bubble. Now if experts are labeling Gold’s movement as bubble due to this big increase in Gold's price then what they are going to say about the movement of Dow Jones  during this period!  Is it ok ?
It is quite sure that Dow has similar position with Crude Oil but it has completely different story with Euro & USD. Is not that interesting ?

Some reports say that only time market was more overvalued was in a few brief months in 1929 and in the Tech Bubble.

Companies especially the finance related companies and banks are virtually going on account of US Government subsidy better to say with the money of taxpayers. Some billion dollars of losses were converted into billion dollars of profits during this period. Share prices of big companies  rises 200%-300% in this time since march 2009. Profits are inflated by government attempts to stimulate the economy but this kind of things cannot go so long, eventually they are going to suffer. In fact it may be the retail and small investors who are going to be a victim of that.




NOTE :  Please see the disclaimer below this blog.

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