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According to many stock market experts, investors are now experiencing the “biggest US fantasy trip of all time,” thanks to reckless Federal Reserve policies, trillions in government stimulus, and the speedy vaccine distribution. However, the crazy market mania will likely end in tears, as major risks are being overlooked. It’s been just over a year since the last stock market crash, which led to a 35% drop, and then the fastest rebound ever recorded. Fueled by an unprecedented amount of printed money and record low-interest rates, investors’ speculative frenzy resulted in what is being called “the greatest stock market bubble of all times,” and various measures can prove so.“The last 12 months have been a classic finale to an 11-year bull market,” said Jeremy Grantham, financial historian and co-founder of the investment firm GMO. “Checking all the necessary boxes of a speculative peak, the US market was entitled historically to start unraveling any time this year.”
Things are even more dangerous this time around because the bond, stock, and real estate markets are all inflated together, Grantham added, highlighting that even commodity prices are soaring. To analyze today’s market bubble, it’s necessary to start by looking at what Grantham and several others have been calling “the most inflated asset”: Bitcoin. Grantham, a historian of bubbles, explained in a wide-ranging Bloomberg interview that bitcoin is in a bubble similar to the Nasdaq at the peak of the dot-com frenzy of the early 2000s. Back then, the Nasdaq 100 fast and furious 50% drop was a major warning sign for the broad market, but many decided to ignore it. Right now, the same is happening to bitcoin, which declined by 50% over the past two months.
Of course, bitcoin is not the only bubble out there. But its downward trajectory is making market veterans who predicted previous crashes extremely worried. A couple of weeks ago, Robert Kiyosaki, famous investor and author of Rich Dad, Poor Dad tweeted the following: “The biggest bubble in world history is getting bigger. The biggest crash in world history is coming. [I’m] waiting for Bitcoin to drop to $24k”. Grantham and Kiyosaki’s warnings were just the latest of the cautionary advice coming from long-term market watchers. In an interview with Business Insider, Toews Asset Management CEO and founder Phil Toews compared the insanity of the current market to tulip bulb mania in the Netherlands.“We’re living in history through something that’s as bizarre as tulip mania. And everybody’s just like, ‘It’s fine.’,” he described.
Over the past 12 months, the pace of stock price growth has been simply outstanding. Despite all of the economic turmoil we are still facing, the S&P 500 and other indexes have been recording one record high after the other, and several stocks are hitting new highs with each passing day. Amongst the telling signs of rampant speculation in the market are the huge increases in volume and prices in formerly “under-the-radar” stocks as well as the enormous popularity of “penny stocks” and the increased amount of dubious investing advice on message boards and stock touts. It’s in times like these that speculation reaches a fever pitch, and since valuations aren’t supported by tangible economic prospects, investors are set to get bitterly disappointed.
Suze Orman, a personal finance media personality, has also warned about this issue. “I don’t like what I see happening in the market right now. The economy has been horrible, but the stock market has been going,” she said in a video for CNBC. Exceedingly high valuations, both Toews and Orman add, have considerably contributed to making the current stock market bubble ready to burst. One major example of it can be seen in tech stocks, which skyrocketed this past year, despite the fact that many of them failed to meet their earnings expectations. Orman emphasized that these kinds of markets do not benefit the average American at all and cautioned investors of an important thing to always keep in mind: the stock market is not the economy.
But one thing is certain: When the stock market bubble bursts and an epic crash occurs, Federal Reserve Chairman Jerome Powell won’t be able to sit before Congress and tell lawmakers that nobody could have seen it coming. All of these market veterans have been warning for months that we are about to witness a crash of unprecedented proportions – and all of those who have decided to ignore the risks will face a reckoning they will never forget.