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Skepticism, let alone pessimism, is almost the opposite of euphoria. The final reason to be skeptical of bubble mania is that so many people are so certain that we are in a bubble simply because stocks have gone up. Most companies in the markets are growing far more than any national economy, and if you want your investments to grow, hitching a ride with companies that are thriving makes more sense than investing in government bonds whose yields barely match inflation. Valuations are always a relative game stocks just like the hard-to-get Sony Play Station are worth what people are willing to pay. Stock markets, however, represent 4000 or so companies, the vast majority of which represent the cream of the crop of capitalism even the most speculative of them are seeing massive revenue growth even if they are still losing money.
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Perhaps the recent frenzy surrounding Gamestop was also a signal of froth. There may be pockets of that in those Shaquille-infused SPACs (though honestly, Shaq has done better managing his investments than most of us). The word “bubble” assumes speculative mania, and that is not at all evident just now. If you had listened to Alan Greenspan (then chair of the Federal Reserve) in 1998 warning of irrational exuberance and sold your stocks, you would have missed massive gains, especially had you then taken some profits before March of 2000. First, even if the bubble hunters are onto something timing matters. Stock sold off not because of negative economic news and expectations but because of very positive ones, that the pandemic would soon be in the past, that trillions more in federal spending would bolster even those ailing the most, and that consumers, after hibernating in pandemic-land, would soon unleash an orgy of spending, driving up prices and inflation.īut there’s still good reason to question whether any of that portends bubbles about to burst. That led to a fair share of “I told you sos” by those bears who had been predicting doom, but the selling was triggered – as it often is – not by any swift change in the fundamentals of companies but by a shift in expectations reflected in rising interest rates. The past two weeks saw some wild selling and lots of volatility, as both the Nasdaq and S&P 500 indices gave up their gains for the year. The contrast gets even more acute comparing bankrupt retail chains such as Nieman Marcus with on-line retail superstars such as Etsy, Farfetch and, of course, Amazon. Those realities are reflected in stock markets: in our pandemic year tech companies are up four times more than energy and consumer staple companies. The widening gulf between those that have thrived in the Zoom economy and those economically devastated by the pandemic has simply intensified an already wide gulf between capital and labor. It got much worse before it got better, but it has since gotten much, much better than almost anyone expected. Calling bubbles, predicting them, and warning of them has almost become a bubble itself, but that also means that almost all of these predictions have been wrong.Īlmost exactly a year ago at this time, I warned that markets were due for a sharp correction and that the emergence of COVID-19 was more than a valid reason. If there’s any doubt about the veracity of that statement, just look at Google’s Ngram (which traces usage of all printed words over time): the use of terms such as “stock bubble” and “stock market bubble” soared after 2000, crested in 2005 and then receded a bit but still has stayed at level never seen until 2000. Since the dot-com crash of 2000, bubble-hunting has become its own cottage industry. What could go wrong?” quipped one bubble-watching economist recently.Īssets soaring, however, is not in and of itself a sign of bubble.
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And then there is the SPAC phenomenon, which is a complicated vehicle to bring private companies public and is seeing a multi-billion frenzy. But is it true? The fact that stocks have run up in aggregate 80% since they dove in the first weeks of the pandemic in March, or that bitcoin has gone up nearly five-fold or that Tesla has soared almost eight times over to become bigger than the next ten global auto makers combined by market cap certainly should force everyone to ask the bubble question, as should the nearly $20 trillion that global governments have spent to shore up economies devastated by pandemic disruptions.