All bubbles pop!
Good afternoon.
In as much as I hate to admit it. I am currently in a bubble. To widen this statement, I would propose that many are in some kind of bubble or another. Be it the fear bubble regarding healthcare, or housing/ real estate bubble, or the wall street/ finance bubble, or the government bubble and finally the cryptocurrency speculative bubble which I admit to be a participant.
One thing I try to remember when dealing with markets and finance is that bubbles always and eventually pop. In many cases, we are unlikely to receive a warning until the tide goes out and exposes who is swimming naked.
We have entered uncharted territory with the reports of Q3 Earnings as at November 2021 and it is only exacerbating the decline of the global economy that we know of. This can be highlighted by observing;
The Stock Markets at an ATH (All Time Highs) and in Europe too.
Art markets at ATH (Phillips, Sotheby’s and Christie’s auction houses)
Ten year breakeven inflation rate at 25 year high in reference to bonds
1.75 Trillion Infrastructure bill that was approved last week and is separate from an additional 1.9 trillion that will be injected into the US treasury that would expand the nation's social safety net, as well as government funding and the debt ceiling, which are both set to expire in early December.
And we watch the US national debt expand beyond control and the government relying on excessive printing through QE (quantitative easing) policies that have set interest rates at near-zero, creating a flow of cheap money for companies to borrow at will.
All these have created erratic herd like behaviors by retailers and investors alike leading to an irrational market as asset prices are way overvalued and we see billionaires responding to this irrational rationality. According to Bill Blain from Shard Capital;
“Every market journal will warn you every single indicator is screaming overbought, citing: a looming global supply chain recession, the stagflationary threat, record PE multiples still rising despite consensus earnings have peaked, markets hitting successive peaks, short-sellers being forced to bail-out, one-way record options volumes….
Just how over-priced are markets? Who knows? Who can tell..? Are they about to pop? The combination of speculation, options madness, the irrationality of memes, artificially low rates and inflated asset prices have never combined to drive markets like this in my lifetime…
It’s dead simple: If bond yields are too low then money is too cheap = inevitable financial asset price inflation (pushing up stock market prices). It really is that simple. Markets have been distorted and juiced by artificial bond rates since QE. When is the market going to wake up to that reality? When the distortion ends…”
There are more examples of market distortions but I don’t want to belabor my point. When we see the two biggest winners and richest men in the world start to sell their collective holdings of more than 11 billion dollars that is telling us something. Maybe they know something we don’t know. All we can do is follow the smart money in the case of Elon Musk and Jeff Bezos so as to escape the bubble we are all in.
There is no harm in taking profits in anticipation of a financial crash.
See you tomorrow!
- Ope