- Debt is cheap.
- Debt is plentiful.
- There is the egregious use of debt.
- A new marginal (and sizeable) buyer of an asset class appears.
- After a sustained advance in an asset class’s price, the prior four factors lead to new-era thinking that cycles have been eradicated/eliminated and that a long boom in value lies ahead.
- The distance of valuations from earnings is directly proportional to the degree of bubbliness.
- The newer the valuation methodology in vogue the greater the degree of bubbliness.
- Bad valuation methodologies drive out good valuation methodologies.
- When everyone thinks central bankers, money managers, corporate managers, politicians or any other group are the smartest guys in the room, you are in a bubble.
- Rapid growth of a new financial product that is not understood. (e.g., derivatives, what Warren Buffett termed “financial weapons of mass destruction”).
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