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Using caution with bubble type internet stocks, stocks with no profits, real estate with large price jumps is suggested by experts. Models and methods have been developed to detect bubble type activity. Sornette at the Financial Crisis Laboratory, Swiss Federal Institute of Technology and the Bank of Finland's Taipalus have developed models to detect bubbles, including the bubble activity in internet IPO's and stocks in 2014. Chancellor at Boston asset manager GMO and Utkus at the Vanguard Center of Retirement Research have also come up with methods to detect bubble activity. Utkus says investors could reduce allocation by 10-20% in the case of stocks with bubble activity. Investors were doing this by reallocating in April 2014 from biotech and internet stocks to safer large cap stocks, because internet and biotech stocks had seen sharp increases of over 25% in a short period.

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Adam Parker, chief equity strategist of Morgan Stanley, sees the Standard and Poor's 500 stock index ending 2012 at 1167. Garry Evans, global head of equity strategy at HSBC, sees the S&P 500 stock index ending 2012 at 1190. This is down from the end of 2011 level of 1257. David Kostin, top equity strategist at Goldman Sachs, sees the S&P at 1250 at the end of 2012. Parker, Evans and Kostin, share concerns about the macroeconomic environment and Europe. Parker also sees weakness in bank earnings contributing to this level in the S&P 500 stock index. Parker view global macroeconomic factors determining 50% of the outcome, with weaknesses not only in Europe but also in China. His predictions for S&P earnings per share are at about $100 for 2012 and $103 for 2013.

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ECB president, Mario Draghi, said on March 25, 2014, "we will do what is needed to maintain price stability." Annual inflation in the eurozone declined to 0.6% forecast for the eurozone, 0.9% for Germany, and a negative 0.2% in Spain, for Feb. 2014.

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Stewart points out that Japanese government efforts to prop up stock prices by buying stocks in 1992 failed after 2 years when the fundamentals did not support the government effort. Experts say that even if the stock prices recover in China in 2015 after government efforts to prop up prices, this will be temporary if the economic fundamentals do not support such high valuations. The Shanghai Stock Exchange has a P/E ratio of 37 and the Shenzen Stock Exchange has a P/E of 80, very high valuations. Earnings numbers from smaller companies in China are also unreliable increasing investor risk. Additional issues are the timing of the government's effort to promote a surge in the stock market in 2014-2015. It comes as real estate and housing prices are in a bubble and the economy is slowing rapidly.

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American companies on the Standard and Poors 500 stock index are sitting on a pile of cash-estimated at $960 billion. This includes undistributed foreign earnings that would incur 35% taxes if brought into the U.S. At the same time companies are hoarding this cash, using some of it for acquisitions, and only gradually increasing dividends. The dividend payout ratio- the percentage of earnings paid out as dividends- is at 28.9% for the past 4 quarters according to Standard & Poors. The dividend payout ratio was 46% for three decades since 1936, and 52% for the last two decades, according to Standard & Poors. Zweig cites Benjamin Graham who stated that companies should pay two thirds of dividends to shareholders. Why? Because shareholders can make better use of the money. With too much money companies tend not to make the best productive use of capital. One example is Microsofts's purchase of Skype at $8.5 billion, considered inflated by many analysts. Graham stated that when the companies are not making productive use of the capital it is appropriate to expect that it be returned to shareholders in the form of dividends. At the 50% ratio one dividend fund manager says companies could return $207 billion to investors. ...

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Inflation was a little above the eurozone average of 0.7% for Jan. 2014 in Germany and below the average in Portugal, Spain, and Ireland.

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A professor of sociology at the University of Basel describes the growing inequality in Germany, in graphic terms. For the lower middle class the efforts to gain upward mobility are like trying to move up on a downward escalator. About one third of jobs are temp jobs which lack the protections of permanent jobs which were at one time 90% of all jobs. Her book is titled- "The Hidden Crisis; German Social Decline at the Heart of Europe." Nachtwey says on the surface Germany has become competitive and has maintained its growth rate, benefiting from the strong manufacturing sector with trade surpluses, low unemployment. Yet this conceals the underlying crisis of the cost which this has come at- a persistent erosion of the social compact of one elevator where everybody moved up together that was the norm in the early postwar period, fulltime employment, a strong welfare state. Job protections weakened, and while manufacturing sector pay remained stable or rose, less skilled and low wage workers suffered. This has also led to the fracturing in the vote with the fragmentation of political parties following the refugee crisis and the weakening of centrist parties. Voters are now open to different messages after the increase in inequality and uncertain economic future for the lower middle class. ...

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The month of August 2011 ranks as the 10th worst month for U.S. stocks in 75 years. Or to put it another way of the last 900 months, the month of August 2011 ranks the 10th worst month in terms of volatiltiy. The average up and down movement each day in August was 1.%. In August the Dow Jones Industrial Averages were down 529 points, or a drop of 4.4%. This is not what worries investors as much- as their are months like May 2010 which had a 7.9% drop. The impact on investors is in the increased uncertainty that this creates about how an investment will perform in the future.

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Krugman points out that the U.S. Federal Reserve's forecasts in March 2012 show the U.S. will experience low inflation and high unemployment for many years. These forecasts are in sharp contrast to the expectations in the equity markets based on an uptick for a couple of months of unemployment numbers. The Fed's own statements suggest the improvement in hiring may be temporary and a response to the overreaction in hiring in 2009-2010 to the financial crisis, and not a lasting improvement. The Fed pointed out that the long term unemployed are at about 40% of the total unemployed and the share of the population that is working in March 2012 has barely budged from 58% in 2009.

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Investors in China fear that the overheated economy and property bubbles, may see a sharp turn with excessive tightening of monetary policy. China rebounded quickly after the 2008 crisis, but did this with a huge stimulus and by encouraging excessive lending levels. Some of this local government lending is suspected to have gone into low quality projects with the danger of bad loans. Inflation was 2.8% in April, and as lending tightens the Shanghai Composite Index has fallen 16% in the last month. The crisis in Europe, the extremely short 2-3 month horizon of mainland Chinese investors, the excessive supply of shares- attempts to raise $74 billion in share issuance in mainland and Hong Kong markets and an IPO of $30 billion for Agricultural Bank of China- all put pressure on stocks. OECD index of leading indicators for March 2010 show a drop from February, and the Chinese economy grew 11.9% in the first quarter 2010.

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Joe Nocera describes his personal situation which also reflects the situation of the average investor in his 401(K) for retirement - inexperience in handling the boom-bust cycles in the market and loss of savings, especially in the last two decades with sharp swings in the market. The Employee Benefit Research Institute statistics on savings of the average American are striking, dismal is the right word- only 22% of workers 55 or older have more than $250,000 set aside for retirement, and 60% have less than $100,000 in a retirement account. The average savings of an American near retirement are $100,000.

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Denning provides a reminder of the growth but also real risk in emerging markets. The weighted average score in Transparency International's 2010 Corruption Perceptions Index for BRICs countries is 3.3 out of 10, compared to 6.7 for the Eurozone, and 7.1 for the U.S. Russia needs an oil price of $120 in 2012 to balance its finances, and the consensus is for oil price to be $103. China has a bad loan problem at its banks. Brazil and India have inflation problems and growth constraints from poor infrastructure. There is aneed to be grounded in realities when it comes to emerging markets. The IMF underscored this weakness in its recent report. Sudden capital outflows could reveal serious weakness in some countries.

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Analysts fear an oil shock in 2012 similiar to that in 2008. There is similiarity in the situation now and in 2008- as in 2008, the surge in oil prices comes at a time of higher tensions with Iran and shrinking spare capacity. Spare capacity is at 2.5 million barrels a day on average for January and February 2012, according to the Energy Information Administration. This compares with 3.7 millon barrels a day for the same period in 2011. Part of the reason is that global oil demand is increasing in 2012 by 1 million barrels a day, to 89 million barrels a day. Technical and political problems have shutdown another 750,000 barrels a day. The problems begin to kick in during the second half of 2012. The U.S. ban on dealing with the Iranian central bank for oil trades starts in June 2012. According to the International Energy Agency, the EU embargo and U.S. sanctions will take 1 million barrels a day of Iranian crude out of the market. The result will be that demand exceeds supply by the third quarter by 1.1 million barrels a day, according to the U.S. Energy Information Administration. Use of existing reserves in Europe, the U.S. and other countries will make up the gap. The effect will be to put pressure on oil prices. May Brent crude on the ICE Futures Europe exchange was up to $125.81 a barrel, on March 16, 2012, and prices for April delivery were at $107.06 a barrel on the New York Mercantile Exchange....

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Portfolio manager Robert Arnett, who manages two of PIMCO's funds, has some alarming things to say about the environment retirees face in the future. In ten years for every working age person added to the workforce there will be 10 new retirees, the complete reverse of what it was ten years ago when there were 10 new working age persons for every new retiree. The impact of this will take the shape of many more retirees selling stocks and bonds to live on and fewer buyers for the bonds and securities, lowering the prospects for higher prices for bonds and securities. He expects the demand for goods and services to continue with higher prices. He sees stocks giving a nominal return of about 5%, bonds a nominal return of 2-4%, for a balanced portfolio yield of about 4%, during the next 10-20 years. After inflation and taxes the returns will be very thin. Expectations of 10% returns do not take into account deficits, debt, and demography in developed countries, says Arnott.

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Florida's House of Representatives passed a bill in March that reduces the number of weeks of unemployment benefits from the standard 26 weeks to 20 weeks. A similar law was passed in Michigan recently. Both states have unemployment rates exceeding 10%.