Penny stocks are coming to the forefront - does this represent the beginning of the end?

As I scanned the SGX website today, trading is clearly dominated by penny stocks - Dyna-Mac, Ramba, Jaya, Swiber, Ausgroup, Mewah etc. In 2007, months before the market began its deep descent, I remember penny stocks grabbing the spotlight. Could a similar situation unfold?

Many experts (Michael Lombardi and many local "gurus") have turned sceptical on the stock market since the arrival of 2011. They expect a bear market to arrive by the 2nd half of this year. After all, this rally has been around for 2 years. Should we believe them?

In an article written by James Stack (Chief Editor, Investech)"This Is No Bubble—It's an Unloved Bull" on 23 Mar 2011, he argued that this bull run is only half way through.

First, the same psychological ingredients of a bubble that we recognized on Wall Street in the late 90s and in the real-estate market in 2005 is just not present. Valuations are nowhere near the extremes that would constitute the dangers of an investment bubble.

In 1999, at the peak of the high-tech bubble mania, the S&P 500 Index sported a lofty price/earnings ratio of 33.9, based on trailing earnings. Today, the same trailing P/E ratio for the S&P 500 Index is less than half of that level, at a moderate 16.9. The 80-year average valuation is 17. In short, you can’t have a bubble if there’s no extreme valuation, because there’s no excess air to let out.

Another important historical observation that he made is that rising oil prices do not cause bear markets. More often than not, oil prices rise in tandem with an economic recovery and healthy bull markets.

Does this mean why Warren Buffett and John Paulson are still in the market? It must be so.