Earlier this week, Nouriel Roubini came out with a very gloomy op-ed in the FT essentially warning that there's a gigantic bubble being inflated with cheap US dollars being used in a carry trade.

Analyst David Goldman argues that this theory is pure and total rubbish:

There is NO evidence that the world is borrowing money to buy equities. American assets have gotten cheaper, American companies earning cash flows in foreign currency or producing international tradables are worth more — and that’s it. Now, I think stocks will fall from present levels for a number of reasons, but that is not a collapsing bubble.

Bubbles are created through leverage. There are plenty of worrying applications of leverage, for example, the Private-Public Investment Partnerships that have levered up distressed structured securities a dozen times, and goosed up the price of what used to be called toxic waste. I described this as a mini-bubble toxic waste which contributed to high “trading profits” during the third quarter. My recommendation was to sell the banks. As the mini-bubble burst at the end of October (I reported last week) banks stocks have come down.

So what should we be worried about?

Stocks are overpriced, the economy’s weak, and things are bad. That’s not quite the same as the end of the world. If we do get an end-of-the-world scenario, it will be due to some outside the usual range of worries (e..g, Israel strikes Iran’s nuclear program, Iran shuts down the Straits of Hormuz, and oil goes to $300 a barrel).

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