Are we transitioning from a housing to a stock market bubble?

There are a number of things happening this morning that add up to a trend. It’s not new, in fact, we’re all well aware of it, but it’s also spreading fast around the world and is arriving soon in Australia.

The trend I’m referring to is the rise of equity market overvaluations. I won’t call them bubbles at this stage for the reason that they are not if one accepts that the world has entered a new era of permanently low and zero interest rates. In that world it is perfectly rational to bid up yield bearing securities to monstrous multiples.

The US and Europe have been enjoying this paradigm for some years. But it’s suddenly rampant in Asia as well with Japan’s Nikkei index today breaking through 20,000 points for the first time since 2000 and in response Japanese Economy Minister Akira Amari said “If stock gains were a sign of a mini-bubble, this is something we would welcome”. China and Hong Kong are also flying to new highs as economic growth stagnates and interest rates fall.