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By Jason Stipp and Robert Johnson, CFA | 05-29-2013 12:00 PM

Johnson: Bubble Talk Overblown

Worries that Fed policy has created massive asset bubbles aren't substantiated by the fundamentals, says Morningstar's director of economic analysis.

Jason Stipp: I'm Jason Stipp for Morningstar.

With the markets on a general upward trend and some good data in the housing sector, are we in bubble trouble?

Here to offer his take on the possibility of bubbles is Morningstar's Bob Johnson, our director of economic analysis.

Thanks for joining me, Bob.

Bob Johnson: Great to be here.

Stipp: So here we are again with some strong performance and some strong data and some talk that some areas are really getting overheated.

Why would we be talking about bubbles right now, and is that even the correct terminology to use?

Johnson: I get a lot of questions from reporters who say, well, if the Fed pulls back--if they stop buying the mortgage bonds, if they raise interest rates--won't it ruin all of these bubbles that have … been created by all this Fed policy?

And my answer to that is, we're not really in bubble territory. The Fed has been easing, but not much of the money has actually managed to make its way into the economy. And I look at a broad cross-section of categories, and I'm certainly not seeing anything that looks like a bubble, except maybe in the bond market.

Stipp: So you mentioned that broad cross-section of categories and looking at fundamentals. Let's start with the housing market. We got Case-Shiller data [this week]. It showed that prices were up 11% year-over-year. Some folks have said that we might be getting back into bubble territory with housing prices? What's your take on that?

Johnson: I think that's a little bit silly. I think people are looking at a lot of what the Federal Reserve has been doing and saying, look at all the bubbles they've created and all the markets that are up artificially.

But I think when you look behind the curtain, things are not up as much as one thinks, and we're certainly not in bubble territory.

Stipp: One of the reasons is that we're nowhere near the peak that we met before the housing crisis?

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