We've been thinking a lot about bubbles lately. Bonds are clearly in a bubble by any measure. Real estate has surpassed the highs of the last bubble in many high-end areas.

Stocks are at all-time highs, and at extremes by many valuation measures after four and a half years of double-digit returns. But as we noted in 2010, the government and the Fed can't afford to let stock or real estate prices fall. Since that time, the banks have earned their way back to healthy balance sheets thanks to free Fed money, but households and Federal, state, and local governments would all be devastated by a collapse in stocks and house prices. It's not CPI deflation the Fed is terrified of; it's asset price deflation. Therefore, the printing will continue as long as it's necessary to keep asset prices up.

John Mauldin has an excellent review of the history of financial bubbles over the last 100 years here. You'll have to sign up for his free newsletter to read the whole thing, but that's something you should do anyway. In summary, the history of the Fed is a series of asset bubbles in different asset classes. What's different this time is the deliberate intent and extreme measures of central banks to keep asset bubbles inflated.

So what's an investor to do in an era of infinite global fiat currency? It would seem to be a pretty good bet to buy any asset class that's not in a bubble, and then just wait until that asset class's turn comes around. We have been fortunate enough to invest pre-bubble a handful of times over the years: tech stocks before the late-90's tech bubble, commodities before the 2008 commodity bubble, Amazon.com between the first and second bubbles, and housing between the last and current bubbles. Of course, we've never been great about timing the exits, but even occasionally selling a fraction of a position during a bubble can be tremendously profitable.

What asset classes are not in a bubble right now? Try these for a start.

Emerging markets stocks



Of course, it still makes sense for long-term investors to have a diversified, equity-heavy asset allocation. But adding tactical tilts to these three asset classes could give you a lot of bang for your buck.

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Nailed it

Twitter (X) : To be fair, though, I thought they'd come up with someone more appealing than Cackles Harris.