ISI Group’s Francois Trahan — Institutional Investor magazine’s top-ranked strategist — says we could be headed into a “fun phase” for the markets, but that the economic rescue plans are putting us on track for another asset bubble.

At the State of Wisconsin Investment Board’s recent annual reception, Trahan said that the massive capital injections into the economy have increased the money supply so that it is now above where it was in the 1970s, writes Ray Unger for Wisconsin’s Capital Times.

Trahan says the most critical factor in a bubble is money supply, and says we are now in uncharted waters in terms of a global synchronization of record-low interest rates and monetary growth, Unger writes: “Indeed, concluded Trahan, this worldwide crush of money into the global economy will eventually lead to further asset bubbles.” Two areas in which the next bubble could well form, according to Trahan: commodities and emerging market consumers.

“The emerging market consumer is the likeliest source of the next speculative mania,” Trahan stated, noting that economies like South Korea’s have put in place policies designed to spur domestic consumer spending. They are thus poised to grow faster than most of the more developed economies, so Trahan recommends holding mutual funds or exchange-traded funds in these areas, Unger writes.

The U.S., meanwhile, will lag those economies but still grow at at least 4% in 2010 because of easy year-over-year comparisons, Trahan says.

“One of [Trahan’s] final comments was that we’re ‘staring at the fun phase for a while,’ so don’t be surprised if investors become encouraged by the early stages of this bubble activity,” Unger says.

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