Forget the tech bubble and the property bubble – now we have a government bubble

Hedge fund manager Crispin Odey of Odey Asset Management is worth listening to. He's one of the few investors who managed to make money from both the crash and the rebound, shorting banks all the way down, then buying them all the way back up. So what's he saying now?

The big news is we're back in bubble territory. "Markets are now entering a bubble phase," says Odey. This may last "until the end of the year," he reckons. The bubble has been pumped up by the Bank of England's quantitative easing (QE, or 'money printing'). As a result, "individuals and institutions are stampeding into real assets eager to have anything but cash or government bonds... The latter are expensive because of the QE."

So what should investors do? "At some point the QE will have to come to an end but, until it does, this bull market is sponsored by HMG [Her Majesty's Government] and everyone should enjoy it."

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We agree with him on the bubble point we reached much the same conclusion in yesterday's Money Morning, in fact.The stock market rally is just another bubble and it's set to pop. But the trouble with buying into bubbles is that you never know when they're going to pop. Everyone thinks they can make a quick profit then get out on the back of some "greater fool" getting in. But what usually happens is that everyone ends up running for the exit at the same time.

Our preference would still be to stick with the defensive stocks that have been left behind in the 'dash for trash'. You get a decent dividend yield and you don't have to worry about watching every utterance from Mervyn King for hints that QE might be about to end.

But if you do fancy a punt on the broader market, I was speaking to Robin Griffiths, a highly respected technical analyst with Cazenove Capital yesterday. He reckons there'll be a 10% correction in mid-to-late October which would provide a short-term buying opportunity. But keep your eyes open Griffiths expects another sell-off around spring 2010, after which everything "could come undone".