Investors warned of Real Estate Bubble.

Some Americans, including Federal Reserve Chairman Alan Greenspan, think the real estate market may be overheated. But a JPMorgan investment strategist speaking in Oklahoma City on Monday said investors should fear a potential stock market bubble. “There’s no real estate market in the nation that’s beat the stock market in the last three years,” said Jonathan Golub, New York-based managing director and U.S. equity strategist for JPMorgan Asset Management. Investors don’t recognize the nearly unprecedented three-year surge in stocks because most are “mentally anchored” to March 2000, the top of the tech-driven market, Golub said. Golub, considered the voice of JPMorgan mutual funds, spoke before a group of about 50 clients and business leaders at Nonna’s Euro American Ristorante. The accommodative monetary policy instituted by the Fed and Greenspan in the wake of the 2001 economic recession kept the nation “out of the abyss,” he said. But the historic low interest rates produced some unwanted consequences. Greenspan “kept the free money for too long,” Golub said. “The result is speculative behavior.” Consumers have borrowed heavily, refinanced their homes and have taken money out of the equity in their homes to spend, he said. That spending boosted the economy at the expense of savings. Americans, many of whom “feel wealthy” because of the growing value of their homes, are spending more than they make, Golub said. American’s free spending also helped create the soaring stock market. A closer look at the types of stocks that have experienced the highest price spikes over the past three years show just how risky consumers have become with their spending habits, Golub said. The Standard & Poor’s 500 index has grown 67 percent over the past three years. The most volatile stocks in that index have increased by 207 percent. The shares of index companies that have lost money have increased about 250 percent. Index companies that have had executives indicted have soared more than 300 percent. “The riskier the company, the junkier the company, the worse your management was, the better your return was,” Golub said. “Why? Because when you put free money in the system, junk rises to the top.” That, he said, should prompt prudent investors to seek quality companies with strong earnings, dividends, good business plans and solid management. More traditional investments should be in favor “not just for the next six months, but for the next two to three years.” Something must curb the level of consumer spending, and it likely will have to be something drastic, Golub said. “I don’t see something that’s going to quietly burst this bubble,” he said. “I frankly thought it was going to be (hurricane) Katrina. ... But Americans shrugged that off like it was a little storm. That was shocking.” Golub said the Fed probably will continue incremental hikes of the benchmark overnight interest rate until it reaches about 4.5 percent to 4.75 percent. The will increase the cost of borrowing and could have a chilling effect on consumers and the wider economy, he said.