Source: https://www.linkedin.com/feed/update/urn%3Ali%3Ashare%3A6970979034100883456
MarketWatch ‘Tragedy’ looms as ‘superbubble’ may burst: https://lnkd.in/gb7PCFz4: Entering The #Superbubble’s Final Act:
https://lnkd.in/gFCXmT9d: GMO’s Jeremy Grantham: Only a few #market #events in an #investor’s career really matter, and among the most important of all are #superbubbles, though only a few in #history, they have clear #features in common. One of those features is the bear market rally after initial derating stage of the decline but before economy has clearly begun to deteriorate, as it always has when superbubbles burst. This in all three previous cases recovered over half the #market’s initial #losses, luring unwary #investors back just in time for market to turn down again, only more viciously, and #economy to weaken. This summer’s #rally has so far perfectly fit the #pattern. The US #stockmarket remains very expensive and an increase in #inflation like the one this year has always hurt #multiples, although more slowly than normal this time. But now the #fundamentals have also started to #deteriorate enormously and surprisingly: between #COVID in #China, #war in #Europe, #food and #energy #crises, record #fiscal #tightening, and more, the outlook is far grimmer than could have been foreseen in January. Longer term, a broad and permanent food and resource shortage is threatening, all made worse by #accelerating #climate #damage. The current superbubble features an unprecedentedly dangerous mix of #cross-#asset #overvaluation (with #bonds, #housing, and #stocks all critically #overpriced and now rapidly losing momentum), #commodity #shock, and #Fed #hawkishness. Each #cycle is different and unique – but every #historical #parallel suggests that the worst is yet to come.
The Times that Really Matter for Investors
Most of the time (85% or thereabouts) markets behave quite normally. In these periods, investors (managers, clients, and individuals) are happy enough, but alas these periods do not truly matter. It is only the other 15% of the time that matters, when investors get carried away and become irrational. Mostly (about 12% of the time), this irrationality is excessive optimism, when you see #meme #stock #squeezes and #IPO #frenzies, such as in the last 2 years; and just now and then (about 3% of the time), investors #panic and #sell regardless of #value, as they did at 666 on the S&P in 2009 and with many stocks trading at a 2.5 P/E in 1974. These #times of #euphoria and #panic are the most important for #portfolios and the most dangerous for #careers. This 15% is very different from ordinary bull and bear markets. Averaging ordinary #bull and #bear #markets with this handful of #outliers dilutes the #data and produces #misleading #signals. My strong suggestion is to treat the superbubbles – 2.5 to 3 #sigma #events – as special, collectively unique occasions. It is as if there is a #phase #change in #investor #behavior.
Global Risk Management Network LLC: Silicon Valley-Wall Street-Pentagon-Global Digital CEOs Networks
