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Are risky assets a “bubble that is about to burst”? (translated from deflation com)


The 2020 edition of Robert Prechter’s book Conquer the Crash has a section titled “Financial Values ​​May Fade.” Here’s an excerpt:

People seem to take it for granted that financial value can be created endlessly, seemingly out of nowhere, and accumulate until the moon. Turn the direction and note that financial values ​​may disappear into nowhere, and they insist that this is not possible. “Money has to go somewhere … It just goes from stocks to bonds, to money funds … It never leaves … For every buyer there is a seller, so money just changes hands.” This is true for money, but not so for values ​​that can go all the way up and down.

Asset prices do not rise because of the “buy” per se, because for every buyer there is a seller. They grow because those who do the trades simply agree that their prices should be higher. As for everyone else – including those who own some of these assets and those who don’t – they don’t have to do anything. Conversely, for asset prices to fall, one seller and one buyer who agree that the previous value of the asset was too high is enough. If no other active buy or sell bids compete with the price of this buyer and seller, then the value of the asset falls, and it falls for everyone who owns it. If owned by a million other people, their net worth falls even if they haven’t done anything. Two investors did it by closing the deal, and the rest of the investors and all non-investors did it, deciding not to mind their price. Financial values ​​can disappear due to declining prices for any type of investment asset, including bonds, stocks, commodities, real estate and cryptocurrencies.

As we enter 2021, will financial values ​​be on the verge of extinction? Well, the January 14 New York Times article addresses this issue. Here’s the headline, subtitle, and excerpt:

Growth that will not stop, or a bubble that is about to burst

Sentiment and valuations in the stock market are high, and given the expensive bonds, there may be few safe places.

After a turbulent but lucrative 2020, Wall Street is hoping for a calm – and still profitable – 2021. Not just hope. Expectations. Sentiment indicators suggest that investors have rarely been more confident that stock prices will rise. The hype about what the year might bring explains why stock prices are so high. But is it justified? Or are they some kind of extremes that indicate that the bubble is ripe to burst?

The economy and income are thawing out of the deep freeze they’ve been placed in to fight the coronavirus pandemic, and vaccines created faster than thought are spreading. But the impact of the pandemic could drag on and change lives in unforeseen ways, and at some point, trillions of dollars in debt issued to support the economy will have to be reckoned with. While the recent escalation of post-election political divisions has not slowed stocks rally, it could still have economic and social consequences that undermine confidence in markets or the United States as an investment destination in general.

One ominous development is that as the value of stocks rises, alternatives such as government bonds emerge. This may leave few places to hide for investors who decide that stocks are overpriced. The world may become safer, but markets may be more dangerous.

“By no means can we say that US stocks are cheap,” said Meb Faber, chief investment officer of Cambria Investment Management. How expensive is the market? Very much, by different standards. Earlier this month, it was worth 1.86 times the economy, for example, well above anything in the past few weeks. “These things can go much further than one would expect because they tend to reinforce themselves,” said Mr Faber. “The problem with the markets is that the more expensive they get, the more likely they are to lose a lot of fat.”

In 2020, especially in the fourth quarter, the growth was large and significant. The S&P 500 rose 11.7% for the quarter, leaving it 67.9% above its March 23 bottom. According to Bank of America, the index rose 16.3 percent for the full year of 2020, with an estimated output of the economy declining 3.5 percent and profits 15 percent. Some investment advisors are concerned about overpricing; others are comfortable.

Jeremy Grantham, long-term investment strategist at GMO, says the stock is in a “full-blown epic bubble.” In a commentary posted on his firm’s website, he highlighted “extreme market overpricing, explosive price increases, frantic issuance and hysterically speculative investor behavior” and predicted that “this event will be recorded as one of the great bubbles in financial history, along with a bubble South Sea, 1929 and 2000 “.

translation from here

This is why Bitcoin “rejected” the $ 42,000 mark

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