Asset Bubble and How It May Pop...in 2016.

No. I'am not a Bear yet. Like I've said before, I see an 85% chance that the Bull market will continue into 2016. But I do think a fair amount of effort should be put in watching for the current easy money driven bubble in Bonds to burst.

US Stocks are richly valued, but not to the point of previous market frenzies. I'll be more bearish when the Trailing PE multiple of the S&P 500 is scratching 21. (e.i. the index would have to be above 2200 today).

To get there, we need more money to go into Stocks. That will have to come from the Bond Market. As interest rates rise, eventually, a Bond selloff will begin and move to stocks as the US Economy will be seen as strong to support higher stock multiples because of expected accelerating earning growth, as seen with the November Jobs numbers out today.

The Bond market has been seeing a flight to quality rotation for some time as you can see in this graph depicting the ratio of the TLT and JNK ETFs as the Proxy for the 20 yr Treasuries and the High Yield market.

The High Yield market is under threat from the marginal Oil Shale producers that are in danger of default if oil market doesn't at least stabilize soon. 

As the bond market deflates, all that money will go into the Stock market and multiples will begin to get high overall. At which time, the prudent investor should be looking for the door as the final leg up of this long bull market cycles back into a retreat. 

For now, the trend looks positive for now.