Frothy U.S. Stock Market Just Isn’t Crazy Enough to Be a Bubble

livemint.com:

When everybody’s talking about a bubble in the stock market, should we worry or relax? The answer from past bubbles seems to be a bit of both—with one big caveat about today’s market. The caveat comes first. While it might feel like everyone in the markets is talking about whether there is a bubble, mentions in the media and searches on Google aren’t especially elevated.

Unfortunately, this was also true before the great dot-com bubble that burst in 2000, the credit bubble that burst in 2007 and—although the data is only for the English language—the China bubble of 2015. In all three cases investors were focused on the bubble, but relatively little was written about them until afterward, when the number of articles and searches exploded as investor portfolios imploded. This undermines the argument for relaxing, which comes from human nature: If everyone is talking about a bubble, investors ought to be cautious about buying, making it hard for a bubble to inflate.

The trouble with trying to foresee bubbles is twofold. First, before a bubble bursts it is often obvious to those paying close attention, but they can’t get the message out widely enough to take the air out of it. It’s hard for a newspaper to keep warning of a bubble without boring its readers; it’s hard for readers to avoid buying stocks when past warnings have been followed by yet-higher prices.

As the old joke has it, a bubble is when other investors are getting rich and you aren’t. When that happens often enough, most investors either stop listening to the warnings or join in despite their misgivings. Second, when prices keep going up it’s natural to change one’s views.