Looking back to the general price reflation we’ve seen since March, it’s understandable that a lot of investors are getting concerned that we could be back in “bubble” territory in some places.

Since March, pretty much everything has been moving up: equities, commodities and the exceptional upward move in high grade and high yield bonds.

And, of course, the astonishing rallies in emerging markets while government bonds didn’t sell off (yet), despite a deluge of supply.

Even house prices in the United States have shown signs of timidly rising in the second half of 2009.

The worrisome point of this generalized upward move is that we haven’t really fixed anything of what provoked the latest crisis.

Meanwhile, most investors have learned that the true cause of the crisis was the unsustainable build-up of private sector debt in countries like the United States.

Now, we’ve shifted private sector borrowing to public sector borrowing.

Household debt levels are no longer growing, but governments’ debts are going through the roof with total debt level in most developed countries, including the United States, demonstrating a mindboggling upward crescendo.

No doubt, but don’t get scared yet, the world is once again sowing the seeds of the next — and even bigger — crisis a few years down the road.

For now, I think that the combined global monetary and fiscal stimuli are doing a better job than generally expected.

Most developed economies seem to be back on track toward limited growth this year, while many emerging markets only tiptoed in some kind of a crisis.

All that said, I must stress that I remain extremely bearish about economic prospects within five to 10 years, mainly because of the means that fabricate the actual, albeit timid, recovery.

But, in my opinion, it is still too early for investors to start worrying about the next tsunami-like crisis.

Instead, while remaining vigilant for any serious sign of a turning tide, investors now should focus and try to identify and to profit from the formation of the actual new bubbles in the making — and let the worries about these bubbles bursting for later.

Don’t worry, they will burst and we will have enough opportunities to get out in time.

At this time, in my opinion, the two major developing bubbles are emerging markets and government bonds.

I’d like say that until central bankers shift their focus away from inflation and towards asset prices, I think these bubbles will continue to develop.

I have to repeat that this doesn’t mean that the long-term outlook looks good, but that’s more of a problem for the developed economies and on speaking on the world scale for later.

During the last decade, we’ve gone from one bubble to another.

We have gone from equities in 2000, to housing in 2007, and now to government bonds, hereby increasing the importance of that asset class to the economy.

Simply look at Iceland now and what happened to Argentina and the suffering of their citizens following their sovereign debt crisis to get an idea what a sovereign debt crisis means.

Overall, I think the long-term outcome may involve inflation and deflation simultaneously in several different parts of the world.

If that’s the case, it will hurt a lot.

I don’t think we will have to face that kind of pain in 2010.

So far, inflation remains subdued and the global recovery will probably help investors somewhat to become less pessimistic about
governments’ ability to reduce their deficits.

Under these circumstances, I don’t think that the actual market valuations should be considered to be in bubble territory yet.

For the time being, rising asset prices are seen as part of the solution, not as a problem.

So, investors should remain very vigilant.

And for those with strong nerves, in my opinion at least, they can still play the ongoing bubbles.