"Is this a bubble or a recovery?" It is a question often asked, but it is one that threatens to distract investors, consumers and governments.
A bubble involves a rapid and unfounded rise in prices. Buying assets in such circumstances requires investors to rely on the "greater fool" argument, to believe, mistakenly, that they will make money on the up and get out before the burst.
Irrational exuberance is not evident today. It is rational to have revalued companies upwards by 50 per cent from those frozen post-Lehman days as the world recognised that they were not going out of business, and it is rational to expect further uprating of equity valuations. We are living a rational bubble. Beware, then, of writing it off. That way lies missed opportunity.
With money set to stay artificially cheap, with many governments facing commitments they cannot meet, and with taxes rising, it is rational that investors want assets whose value is as far as possible independent of governments.
Equities buy a slice of a company's future earnings and current assets. Commodities buy something tangible and possibly scarce. Gold is portable wealth. It is rational to seek returns not correlated with governments' ability to pay. This is a rational bull market in real assets, with room to run.