Process = Recovery ==> Transition ==> Normal

The present path to normalization is, and has been, a long one compared to past recovery cycles.

Fundamentally it looks as though we are exiting recovery and on our way to normalization. Confidence is the key to continuation. I suspect the economy (along with the market which seems to have got ahead of things a bit) will go through a choppy transition period before it comes out the other side to normalization.

How long the transition period lasts is anyone's guess. Given that it has taken extraordinary stimulus (both monetary and fiscal) to get us to this point, it is not unreasonable to assume that the transition will be more painful and volatile than normal.

The trajectory of the market has been significantly different from the trajectory of the economy. The likely tightening of fiscal and monetary policy will throw a spanner in the works for both market and economy.

WhatsApp and Facebook = Jump the Shark

The smart money is using the fleeting money (high stock valuations) to hit the exits.

Whether it is Facebook using its funny money (stock) to buy WhatsApp for $19b, or the raft of other mega-valuation names (LNKD, TWTR, CSOD, NOW, P, AMZN, WDAY, CNQR, SPLK, DDD, SSYS, etc.) who are hitting the market market with secondaries and/or convertibles or debt of some sort, I think the smart guys are taking money off the table.

We are moving into the 2Q doldrums so I think this is probably a good time to shorten up as well. The market hasn't broken yet, but when it does there will be lots of regret. The writing was on the wall.

What is a bubble? aka A Con Game

The global financial crisis of 2007-09 is often described as a bubble bursting. A bubble implies highly inflated prices.

There were highly inflated asset prices, eg. a variety of housing related leveraged debt instruments, but the general equity markets were not overly inflated on either a trailing twelve month or a forward earnings basis. The bursting of the housing bubble (and I would suggest it was also a localized/regional event) was predicated upon a mountain of easy money which in turn led to a run on the financial system and a consequent financial market panic. The real world came to a stop, earnings consequently collapsed and equity valuations in hindsight looked grotesque. What it really highlighted was that the financial system (and the economy) are based substantially upon confidence. The confidence of bankers to lend, investors to invest and business men to make investment decisions. When that confidence disappears in a tightly coupled, complex system all bets are off. That is what we call systematic risk, where one action begets another and feeds upon itself.  

There was no one singular cause to the global financial crisis. There were myriad factors and contributors. However, when confidence in the whole system evaporated, it led to panic and an exit from all asset positions.