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There is a consensus arising among Wall Street research firms, one that says markets have entered bubble territory but that it’s an investor frenzy set to last for a while.

The latest edition of Goldman Sachs’ U.S. equity strategist David Kostin’s Weekly Kickstart report provides some valuable perspective for investors. He notes that pockets of the market are showing all the hallmarks of an asset bubble. Special purpose acquisition companies (SPACs) raised US$76-billion in assets in 2020, a six-fold increase from 2019. Also, companies without profits have been dramatically outperforming the S&P 500 in recent weeks, with high trading volumes the strategist says “register as a historical extreme.”

At the same time, Mr. Kostin argued that U.S. stock valuations have not yet reached extremes, in aggregate. He cites the famous Shiller CAPE ratio (cyclically adjusted price-to-earnings ratio), developed by economist Robert Shiller, as evidence that stock prices are much less stretched than many investors believe, as long as interest rates remain low. He does warn investors to avoid stocks with EV/Sales [enterprise value to sales] ratios above 20 times, as high trading volumes and price increases indicate dangerously frothy conditions.

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Citi global strategist Robert Buckland confronted the bubble issue more directly, entitling his Jan. 22 research report Bubble? Perhaps, But It Could Get Worse.

One of Mr. Buckland’s key observations was that “Past equity bubbles hit much higher valuations than now, but with bond [yields] at 5-6 per cent, not 0-1 per cent. Bonds were an obvious alternative once those bubbles burst. They are not now.”

This is the TINA problem I’ve written about previously – There Is No Alternative to equities with yields so low. Re-allocation of investment assets from fixed income and bloated money market funds into equities should push stock prices higher for a significant period.

Citi notes that the tech-heavy Nasdaq trades with a CAPE ratio of 58. This is high relative to history, but well below the 113 reached in 2000 and the 83 level Japanese stocks hit in 1990. Mr. Buckland emphasizes that the equity market bubble is not global - the MSCI World ex-U.S. index is flat over the past three years.

‘Expensive stocks set to become more expensive’ is not a comfortable investing environment. Thankfully, the domestic market has a much lower technology weighting than the S&P 500 and cyclical sectors like mining and industrials have not reached excessive valuation levels in many cases.

Still, the scale of speculative activity worries me and we haven’t even discussed the mass stock manipulation of Gamespot Corp. That stock has been moving by 50 per cent or more daily. This market is not fun - it’s more of a white-knuckle operation - but most signs point to higher prices for equities. My market outlook is ‘anxiously optimistic’ for the near term.

Also see: Time to pause? Wall Street grows wary of some stock bubbles

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-- Scott Barlow, Globe and Mail market strategist

This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.

The Rundown

Warnings about inflation are everywhere. Here’s why investors should stay calm

From magazine covers to op-ed pieces by Ivy League professors, warnings about the rising threat of inflation are everywhere. A common prediction is that prices will surge as economies reopen over the next few months. Some forecasters go further and argue that inflation is poised to rip higher for years to come – ambushing investors, challenging central banks and trashing the notion of lower-for-longer interest rates. So what should investors do in the face of this imminent peril? Despite what you may think, the most appropriate response, at least for now, is probably nothing. Ian McGugan explains.

The dividend investor’s dilemma: Should you use a TFSA, RRSP, RRIF or taxable account?

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Now’s an ideal time to address the ins and outs of holding dividend stocks in taxable accounts, in tax-free savings accounts and in registered retirement savings plans and registered retirement income funds. Interest rates on bonds and term deposits are dismayingly thin and not expected to rise much in 2021. Yields on dividend stocks are nearly a lottery win by comparison and thus certain to hold the attention of investors. Picking the right account is about optimizing your results to reduce tax on your dividend income. Rob Carrick presents this guide to choosing the right account for dividend investing.

Forget theme parks, restaurants and air travel. Here’s a post-pandemic investment idea with a better chance of success

There is no doubt that once we’re all vaccinated, we will be heading out and about. The era of only doing video calls while wearing sweatpants may not end totally, but will surely subside. And here is the issue: As we go back out and engage socially or professionally, we are going to need new clothes. David Rosenberg explains his latest idea for a stock trade - clothing retailers.

How options trading could be fueling a stock market bubble

It’s getting increasingly difficult to overlook signs that investors are taking things too far, too fast. The latest signal is from the somewhat obscure market for stock options, where traders can place bets with brokers that a stock will rise or fall. Speculation has reached a frenzied level not seen since the tail end of the dot-com boom two decades ago. That enthusiasm is having a growing influence over the regular stock market itself. Matt Phillips of The New York Times reports.

Others (for subscribers)

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Monday’s analyst upgrades and downgrades

Monday’s Insider Report: Multiple insiders collectively invest over $8-million in this large-cap stock

Globe Advisor

Why advisors need to consider micro-cap stocks for investors’ portfolios

Are you a financial advisor? Register for Globe Advisor ( for free daily and weekly newsletters, in-depth industry coverage and analysis, and access to ProStation - a powerful tool to help you manage your clients’’ portfolios.

Ask Globe Investor

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Question: I am trying to figure out how I can put $6,000 into my TFSA in 2021. Is it a worthwhile idea to transfer some of my stocks from another investing account into my TFSA instead of using cash? – Kathie S.

Answer: Stock transfers to a Tax-Free Savings Account are permitted by law. If your account allows you to hold stocks (some don’t) it won’t be a problem. But there are two factors to consider before you decide.

First, you should never transfer losing stocks into a TFSA, or any registered plan. The Canada Revenue Agency will not allow you to claim any capital losses in that situation. You should sell the losers into the market, thereby legitimizing any capital losses. Then contribute the cash.

If you have winning stocks, transferring them to a TFSA is deemed as a sale and will trigger a capital gain. You have to decide if you want to incur that tax liability now. The shares will be valued at their current price when they go into the TFSA and future capital gains will be tax sheltered.

As you can see, there is quite a bit to think about.

--Gordon Pape

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What’s up in the days ahead

This Friday, look for the 2021 edition of Rob Carrick’s ranking of online brokers.

Click here to see the Globe Investor earnings and economic news calendar.

More Globe Investor coverage

For more Globe Investor stories, follow us on Twitter @globeinvestor

You may also be interested in our Market Update or Carrick on Money newsletters. Explore them on our newsletter signup page.

Compiled by Globe Investor Staff

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