The Everything Bubble

Dated: April 21 2021

Views: 73

Am I sounding the alarm? Well not yet, but I definitely have my finger on the button. If you’re over the age of 40, you’ve lived through at least three epic market bubbles: junk bonds in the 1980s, the dot-com bubble in the 1990s and the US housing market in the 2000s. While the market crash in these bubbles were sector specific, we are now witnessing the “everything bubble” where housing, equities and crypto are all at all-time highs wildly surpassing the pre-crash prices of each of their respective bubbles.

There are three main factors creating this bubble environment that we are in. Let’s take a closer look at them.

1. Too much money

The government’s relentless printing and distribution of money to field the effects of COVID-19 was intended to help those who needed the money the most. While that has in part been effective, many who didn’t need the money found themselves with padding to the tune of thousands of dollars, and no better way to spend it than on housing, stocks, and speculative “assets” such as Bitcoin.

2. Historically low interest rates

While low interest rates have always been a catalyst to drive up housing prices, the commitment of the US Fed to keep treasury yields artificially low (whether overtly or not), has also given rise to the notion of “TINA” or There Is No Alternative to equities in the financial markets because of the returns involved with the different asset classes are simply too low.

3. Forced Lockdowns

In a normal world pre-COVID, many of us had additional monthly expenses that were part of day to day life. The monthly 407ETR or GO Transit charges for our commute to work, the gym fees, travelling and entertainment, restaurants. While some of that has partially been replaced by online retailers and software, the cost savings have been enormous, and can average over $1,000/month for some households.

Quite simply, this cannot be sustained into the long term. Keep an eye out on increasing interest rates and an end to government financial aid programs, and how investor sentiment changes after the world reopens and the pent up demand wanes after the first few months.

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