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Ask HN: Are We in a Mega Bubble?
123 points by techsin101 9 days ago | hide | past | favorite | 68 comments
I don't know why but I cant help but feel that domino pieces are in place and whole thing is about to crumble.

Stock prices feel weirdly high, when thousands of people were dying they were rising fastest.

Crypto/NFT/Coins feel like graph of a chaotic equation that starts going crazy the longer it goes on.

The housing market seems to be on steroids too, house prices have doubled in last few years.

I feel either very bad inflation is about to happen to or huge correction, or both

Am I just imaging it?

In terms of inflation, this is a very thoughtful piece shared recently on HN: https://www.lynalden.com/inflation/ She talks about the difference between broad money and base money supply.

In terms of stock prices, going by CAPE ratio, US domestic stocks are at dotcom bubble valuations. But there are other markets outside the US that have underperformed this past decade that may be 'reasonably priced'.

Based on that metric, plus the prospect of lower corporate profit margins going forward, people like Bogle and Dalio expect lower US market returns this decade, more like 3-5% IRC.

There could be stagflation, inflation, it's anybody's guess. In developed markets there are many deflationary headwinds like demographic trends and innovations in tech.

I don't know anything about crypto valuations, besides the irrational FOMO I feel when I think about them.

There's also the Buffet Indicator, which is sky high: https://www.currentmarketvaluation.com/models/buffett-indica...

But as that site points out, maybe it's not so bad when you take the low interest rate environment into account: https://www.currentmarketvaluation.com/models/10y-interest-r...

She just put out a great tweet tonight about meme stocks and their effect on the markets.

Do you have a link to that tweet?

She's great. I'm sad I only heard about her recently. Really level-headed analysis.

Seconded. She puts out so much good content and thoughtful analysis.

Since the early 2000s, the world is in a savings glut (1) situation. That means you shouldn't ask yourself a question of is asset X worth its valuation?, but rather ask the question do savings have anywhere else to go?.

Also - ignore crypto, it's a distraction. Zooming out, it's just a simple wealth transfer: dollars in => black box => dollars out. Dollars out go to miners, exchanges, scams and the lucky few who cash out. Nothing in the black box can conjure up new dollars. Once the dollar inflow stops, it's over. Crypto is not worth $1.5T, not even close, there's at most a few dozen billions in the ecosystem - a rounding error in the grand scheme of things.

US tech stocks are overpriced, US startups ridiculously so (savings glut faucet flooding a small sector in search of something, anything). Real estate in a few selected locales is a bubble, but not overall.

The worrying part is not the asset prices, but what it tells us - that the largest wealth funds and corporations in the world cannot find anything worth investing in.

(1) - https://en.wikipedia.org/wiki/Global_saving_glut

"Once the dollar inflow stops, it's over."

That's true of anything. If nobody is buying X, you can't sell X. If nobody is buying stocks, stocks are worthless.

> That's true of anything. If nobody is buying X, you can't sell X. If nobody is buying stocks, stocks are worthless.

Most assets do produce income, that's usually why you would invest in them. For example, stocks provide dividends and houses provide rent. This is also one of the reasons why Warren Buffet advises against buying gold and cryptocurrencies, they do not produce anything. The sentiment that stocks are worthless if no one is buying them is typical for speculators who do not care about the intrinsic value of a stock.

Without new money coming in, stock returns don’t beat inflation. Average dividend return on S&P500 is only 2%. Most people invested in stocks are dependent on stock prices going up to beat inflation.


Dividends are bad for tax drag, its very common now to re-invest that money back into the company, raising the stock price. Ultimately all stock prices rise because more money flows in, but the reasons for the flow matters. If a company wins $1B out of thin air its still up to the investors to realize this and price the stock accordingly. Which is completely different from money flowing in because a cult-of-personality ceo tweeted a meme.

Why would stocks be worthless then? You still collect dividends. You own a part of a company..

Which again makes it illogical that no one would be buying them.

It's not a bubble it's a greater wealth divide being formed.

Those with money are making a killing, those on the lower end are getting screwed over more and more by the day. Think about who Covid measures impact the most and how.

Eventually that will correct though, stocks and real estate prices can't continue doubling if it's not backed by real fundamentals. Especially with remote work, nobody is going to buy a 1 bedroom city flat for 300k when you can get 3 bedrooms for cheaper out in the countryside.

It's hard to say, finances and governments are smoke and mirrors.

There are so many moving parts right now no one can really know. Experts in finance have been extremely wrong multiple times in this pandemic.

I agree with you it should all come crashing down because the foundations seem rotten but I've been around long enough to know some amazing financial gymnastics often get pulled off by those in power.

House prices don't operate on simple supply and demand principles. This is a very good article that explains why - https://alastairparvin.medium.com/if-the-uk-built-1-million-...

I've been waiting for this 'exodus to the countryside' for a while, maybe this is the catalyst.

Photovoltaic is becoming practical, work from home is the future, starlink getting better every month. New building methods, tiny homes, making deserts arable. Anything can be delivered, even to many rural locations.

I've been thinking about putting a group of people together who are interested in discussing the prospect of an experimental off-grid tech collaboration in Southern California or the Sierras. Anyone who's interested, feel free to email.

I think that occasionally, but then I talk to young people and realize people like stuff like restaurants, entertainment, travel, etc. Sure, some people are coming out of the pandemic realizing they're hermits(myself included), but even more people are coming out remembering how much they like malls, sporting events, nightlife, etc.

I have no doubt that a significant portion of city dwellers will flee to the country, and that a good portion of that might even stay, but the cities will keep on thriving. If nothing else, you can't beat the efficiency and wealth generating capacity of the cities in the long term. Want your kids and the country they live in to be able to compete on the world stage? You're going to be drawn to the cities, even if you only make it as far as a suburb.

True, and even if only a small percentage of people leave it could reduce housing costs in the cities.

Here in Finland there's a ton of housing stock in the countryside, vacated by the urbanization. All of these houses are connected to the electric grid. There would be a lot of unused capacity to fill before needing to go off-grid. Even if you wanted a large property far away from anyone else, there's a number of old farms to pick from.

That's interesting, are they relatively affordable? Farmland in the US is not cheap at all, at least everywhere I've looked at.

I think a key difference is that traditionally average farms have been quite small in here, just a few hectares. So a farm with old buildings and small field area would definitely be very affordable. If you'd want to acquire farm for _farming_, then you would need to go orders of magnitude bigger and that would be costly.

If solitude is what you're looking for, keep in mind basically all of these are surrounded by forests. So even having a relatively small property does not mean you'd be living next to some people.

In any case you're likely to have plenty of space for lots of photovoltaic that could earn money from the grid. But in Finland the demand for electricity is highest in winter, not summer, isn't it? So how could you deploy lots of PV AND keep it free of snow? Of course in winter the sun is pretty low in the sky so maybe the key would be to (a) keep it quite vertical (helping keep it snow-free), and (b) keep it rotating to follow the sun. But then of course clouds, overcast, and shortness of day become the main issue. Oh well.

Sure, power usage and price are the highest during winter, though PV panels are already cheap enough that you can profitably setup them in Finland too. Going off-grid with solar is not an option around the year though.

I actually did get myself a 10kWp on-grid plant one month ago. I'm not planning to touch it during winter. The day during winter is so short that it doesn't make sense to take any risks, for example to climb on the roof to clean the panels. Even if you could do it without personal risk, the chance of damaging the panels is non-zero, so the expected value of this activity is very low.

It could make sense to install some vertical panels facing south, those would capture a bit of energy even in the winter. But the rotation mechanisms are a waste unless you're area constrained, just add more panels with the same money and the ROI will be better.

In the meantime a large number of real is estate is being taken by corporations

I think that most of us would say that you are not imagining it. However, predicting the future is hard. The whole system is a fiction and can be patched for a long time with new fictions. The suffering of many get disipated by some sofisticated smoke screens that got perfected hundreds of years. Whithout major environment disruptions, no significant correction will happen because most people are quite clueless and very short term oriented. Even rich people. The complexity is too big for our minds. Do you believe that 25%/year (made up number) inflation is a huge correction?

> The whole system is a fiction and can be patched for a long time with new fictions

That's a good way to summarize it, I tend to see this trend of governments creating their own digital currencies as the next step in the economic shitshow. One can even argue that's what a complex system would do: add more complexity, create more branches, justify the new bureaucracy with funny numbers and statistics, do anything to self perpetuate. Only time will show us if that's really feasible or if it'll all come crushing us down under it's own weight.

Due to the lockdown, people and companies are spending less. (Less Traveling, no reason to buy fancy clothes and other luxury items because you can't show them to anyone)

So the savings rate skyrocketed. And it was already very high due to world wide demographic changes: The rapid economic growth in China and other East Asian countries over the last 40 years.

As interest rates fall, retired people earn less. So they save even more. It's a a positive feedback system.

So it's not a bubble, but a long term savings glut: More and more money chasing a fixed pool of productive capital.

Global debt to GDP is at an all time high, though: httpss://www.axios.com/global-debt-gdp-898959ed-f96a-4c4d-85a3-5d3cc419631f.html

Personal / corporate savings is a fraction of public debt.

This is why people think there's a "bubble". But you don't really have an "everything bubble" - that just means fiat money is worth less than you think it is.

It's a reverse bubble with your wages.

Sure, there are a lot of indicators all pointing in spooky directions. The problem is that the time frame in which these indicators actually indicate anything is well out of the planning range of most folks' investment capabilities. You _could_ shift everything into much lower risk investments, but the storm we all see brewing may arrive tomorrow or it may arrive in 15 years. Unless your investment career has many more decades left in it, that's probably not actionable intelligence.

One thing about investments and wealth in the U.S. that became apparent during the last few corrections is that the people that have the most to lose are also the people that have the most control over the regulatory levers. What this means is that no matter what is happening in any particular market, if big fish are losing lots of money, the U.S. government will do absolutely everything within its power to reverse that trend - even if it means socking it to the little guy. As long as you can manage to keep your wagon in roughly the same circle as the investment class, you'll have the best protective fiduciary policy and legislation that money can buy...

I don't know if you're imagining it.

But I have had the same feeling that things are going too well for too long, given the circumstances.

I'm certainly no economist, but here are the explanations I can think up:

1. We have had income inequality rising for a very long time. Where things and processes were getting cheaper, but the spending power of most of us haven't been going up much at all. 2. Instead of taxing our way out of this potential economic disaster, we inflated our way out. Inflation doesn't allow the rich to loophole their way out. So, for once, all the corporations and very wealthy have been paying their share as well. 3. A lot of the inflated money has actually made it to the middle class and lower, causing a boom in spending. 4. An explosion in pricing is the natural result of suppressing a populations growth, then suddenly giving them a ton of economic stimulation.

I hope it's not a bubble, and it's actually the economy jolting to life a bit. But what do I know, could easily be a bubble.

I think that each of those statements sound plausible but dont really have much to do with each other. In fact there is a lot of good news even within some of the bad news.

Stock prices reflect the fact that some elements of our economy are very resiliant, including demand, despite major disruptions. Would a crashing stock market have been better news?

Housing market is definitely a mess though but that has less to do with speculation and more to do with significant constraints in supply, especially in our largest and fastest growing cities. More people want to live in most of these cities (because cities are still generally well functioning and important labor markets) than they can house. We can and should build significantly more housing and make a major boom in more construction in our major cities and that would make the speculation in other parts of the market make more sense. Without building then we are walking down a difficult path.

I believe that Cathie Woods, who is managing one of the most successful ETF funds ever, has some of the most insightful things to say on this topic. Here's her latest video where she explains her current views:


Basically she is such a believer in technological improvement, that she thinks that the deflationary forces of technological improvement will work faster than the inflationary forces of low interest rates and high amount of money printing. She has been right for the last 5 years at least.

Deutsche Bank just made a statement you may find interesting.


Not only it's not pure imagination but some folks are starting to bet heavily on inflation:


All those markets do feel a bit frothy, but if a global pandemic wasn’t enough to pop the bubble, I don’t know what would be.

The bubble was popped when stocks dropped like an anchor in March 2020. It's free fall was stopped by printing a lot of money.

The question is, if another event happens, will the fed stop the free fall? I bet yes because they only have one tool to address this problem.

Which means taking debt is low risk forever because the fed will always print money and save you the trouble of losing your money

the fed already stepped in with money printing before covid was already a thing because of a corporate debt bubble about to burst https://www.forbes.com/sites/pedrodacosta/2019/06/03/feds-po...

(a bit like the subprime mortgage bubble but for corporate debt)

Those faulty and badly managed companies got even more free money injected and are even more addicted to near zero interest rates because of covid...

Now if inflation becomes to high for consumers the feds have to choose between consumers or once again rescueing those companies when setting interest rates. Neither will turn out good

This is somewhat tongue in cheek, but refinancing a 30 year mortgage and taking out the equity every 5 - 10 years and putting it anywhere else sounds awfully reasonable when the loans are so cheap.

It feels *weird*.

how about physical limitations when oil well's permanently can't restart after stopping because of covid lockdowns and a lot of other reasons (mainly very rich people who became much richer and start looking at commodities at one point to spend their less valuable currency) driving up commodity prices and devaluing currencies pegged to the US dollar. This causes consumers coming under pressure to be able to buy food or shelter since wages are the last thing to rise since inflation is tax on the poor and elderly (see the commodities boom driven by high oil prices and bio fuel crazes preceding the 2008 financial crash and arab spring but at a global scale). Not to mention a lot of baby boomers are retiring burdening all civilized nations (with pensions systems) increasing labor shortages and driving up all prices. TLDR restarting economies hitting limitations and shortages that can't be fixed by printing imaginary money

Oil wells running dry would be good in the medium to long term. It would save us a lot of long term pain if oil and coal magically disappeared.

Billions would die and a few more billion would be impoverished if oil magically disappeared. If oil wells ran dry in the medium term (10-30 years?) the world be screwed. Petroleum products are so ingrained in every part of your life, most people have no idea.

You're not wrong, but I think our current level of technology is so basically capable that I think we would actually just adapt pretty quickly, as soon as it becomes .001% economically advantageous to do so.

We would do a combination of both consuming less and developing new forms of what we do consume, especially over a 10-30 year term. I don't mean everyone wakes up anfndecides to care for the planet more than whatever they want to do today, I mean once something becomes expensive enough, we'll just stop doing it.

We've already done things just this year that would have sounded outlandish and impossible. But it eems in fact very little is actually impossible.

The largeness of the numbers doesn't really result in the kind of immovable inertia they imply, for a few different reasons.

1, The huge size of "everything that needs oil" is met by how equally large billions of people are organized into heirarchical structures with magic communication and coordination. Overnight 5 billion people can do something new.

2, All that collossal amount of oil-powered infrastructure is not actually all that long-lived. Ecerything from your toaster to the biggest steel plants to cargo ships to ...everything, it's all actually turning over all the time and nothing ever gets to be 50 years old, just from natural pressure of competition, obsolescense, and simple churn. That means it's really not that remarkable to imagine it all being changed into something else over the course of 30 years, instead of just newer versions of the same things.

We're not ready for that. For example, how can clean energy replace plastic? Billions would die as the sibling comment points out.

With enough energy you can synthesize hydrocarbons from CO2 and water.

If it was real, if we are in a bubble that is about to burst, what would you do differently?

Not OP (who may well just be interested and not do anything differently at all) but if I had an oracle for market crashes I would use it to sell before the crashes and rebuy after/during.

Trillions were printed last year at the drop of a hat. Inflation is just getting started.

Same thing which happened in the past won't happen now. Most the crashes are due to something which haven't been seen before that.

Market might stagnate, less returns. Some startups or new companies valuations are too high. If analysts start to value them truly for their current worth not the distant future worth those prices will drop in a big way.

There was once in late 60s Buffett sold all his stocks and was waiting for market to crash for 2-4yrs. Now sort of he is doing a similar thing. As his cash levels grows he is basically planning to buy something big.

There's always war scenario.

Coins mcap is low.

Low returns is what iam expecting....

We’ve been in a bubble for a while and everyone predicts a crash every other day.

The question is: are you going to not make hay while the sun shines because the weather forecast is unpredictable?

Yes, you are imagining it.

I am confident of this because I read Bogleheads.org. There, we find wisdom of this kind:

"Nobody knows nothing." (Meaning: Nobody can predict the future.)

"It's not different this time." (It often feels ominous. We just forget that it did.)

"Stay the course." (Put your financial plan in place and execute on it. Don't deviate.)

Good Luck.

> I feel either very bad inflation is about to happen to or huge correction, or both

Its really so funny how everyone millennial in the country is now a student of Ludwig von Mises and the quantity theory of money.

Google "pushing on a string".

And economists don't consider asset bubbles to be inflation for a reason.

The more useful question is, why does it matter? Let's say we are in a "mega bubble." What are you going to do with that information? On a long enough timeline, everything goes to zero.

Not buy a house, not buy stocks, or do buy assets. Later if it's going to inflation or former if it's going to be just contraction.

Stock prices are okayish compared to interest rates of other investments. But a lot of money got printed which can/will lead to inflation which in turn pressurizes the FED/EZB to increase interest rates. If interest rates need to be rised we will see a lot of problems: Falling stock rates, defaulting countries, domino effects... Which will keep FED/EZB from doing that...

I expected a crash since more than 6 years and I expected a much deeper fall than March 2020 which kept me from investing enough into stocks :(

The much bigger issue than short/middle term monetary policy though is the demographic change/transition! Look at https://ourworldindata.org/age-structure

In the coming years, the baby-boomers will retire and instead of earning and investing money, they will take money out of the market and I am not sure where this will lead us. But I know this will be huge.

I found this guy's perspective to be useful: https://mobile.twitter.com/DaveHcontrarian

In a nutshell: He views the current situation as the end of a 40 year bull market and predicts a very big market crash in the short term followed by an inflation driven recovery for the next ten years.

> He views the current situation as the end of a 40 year bull market and predicts a very big market crash in the short term followed by an inflation driven recovery for the next ten years.

That's what everyone remotely acquaint with money and markets knows. It's just inevitable with the way markets work and human psychology.

The better question would be what is going to trigger the event.

If I would do a kind of bet, I would bet that the event which will trigger the market crash will apparently be like nothing real (like Pandemic, natural disaster ...) happened, yet one day the "market" will start selling everything after a normal-like event in the market (a company buying another company, or a corporation selling their division ... or announcing a third quarter loss). And like probably other stuff once the spiral of the market will go down more and more people will start going out, wanting their money back so making the spiral faster and faster.

I think the difference between what I explain and COVID is that COVID can be seen like an external event but we had big hopes we can solve it. So there was not need in the market to react to this long term. Hope made the market rise up very quickly after the first months of 2020.

Of course I am just reading articles on the internet, I don't have any experience in money/markets/financials so I see this mostly as a funny possible situation.

It's almost impossible to predict this kind of even for a a very simple reason - markets not only react on objective events, but also react on expectations and fear/greed.

One of my favourite simplification is weather forecast - currently feather doesn't depend on our expectations of it and predicting it is already extremely difficult task. Now you can imagine if weather would factor in what we expect it to be - and forecasting would be even more complicated.

That's said, it may be important or unimportant event, however noone has capacity to predict it (although in the hindsight there will be a lot of those who will brag that they had seen it coming).

That's a nice analogy

Why does that matter?

First, I would imagine that in a fragile market any major piece of bad news could trigger the necessary panic (the Credit Suisse hedge fund story would have been a prime candidate), but it seems impossible to know in advance which one.

Then, I would have thought that if you are wondering what to do with your money the more important thing would be a rough sense of timing (or market level) for the crash and a sense of what assets will do well in the aftermath.

According to David Hunter that level is SP > 4700, which he reckons will be reached in the next few months and in the aftermath equity will perform poorly and commodities will do great.

By the way, if anyone has reasons to believe this is full of shit I'd love to hear them. I'm certainly no financial expert.

It's economic singularity.

It is very hard to assess the situation as we stand in the eye of the cyclone. And there are a few different viewpoints that could be equally enticing, depending on whether you want to have an optimistic or pessimistic outlook. From where I stand, before looking at money supply, prices etc., the key factors are two.

Firstly, Covid and the impact of disasters on economy, which, without sources to support my position, tend to have positive impact on economy as an aftermath. If you look at Black Death scale, the catastrophe improved financials for the lower incomes, so there is hope :-). Nevertheless, the impact of covid on availability of workers is nothing like Black Death as the fatalities are much less and mostly impacting older age groups. On the other hand, if you take Australia for example, with a normal net immigration of 200k per year I believe, the lockdown and isolationism from Covid has huge impact on labor markets. Therefore, my expectation is to have short-term labor benefits in advanced economies that realise benefits of isolation (e.g. substitution of international travel with local vacations etc.), until they find a way to have the dog fed and the pie (i.e. selective opening of borders). At the same time, less advanced economies are to be impacted by limits to immigration with increased unemployment and potentially some political turmoil.

This leads to the second key factor in my opinion, which is the global geopolitical situation which, while people "hope" will end up with something like a second cold war, there is no guarantee that it will not be the preamble to a third world war (maybe we can skip it straight to cold, I doubt it). It does not take more than looking at the news to see that the things are moving in this direction with blatant attempts to bolster nationalistic views from "both" (it's more complex than two in reality) sides.

From this standpoint, we'll either go for an abrupt economic correction in a war, where inflation and economy will be the least concern for most of us, or we'll see a huge re-structuring of the global economic models and paradigms (e.g. more local production, especially for critical products, with potentially a new west vs a new east closed system - I am not sure whether Europe will end up on one side, the other or both as a disbanded union, doubt it can maintain its intended neutrality game given its political immaturity). In this case, western economies might be able to see some huge economic opportunities but they will have to move a bit to the left from an economic principles perspective, which is possible given the positive experience of right-wing politicians with social measures during Covid. While possible, I think it is unlikely, as concentration of wealth is a measure of success for the people whose opinion matters, and they will err on the side of having everyone poorer but with greater divide rather than the opposite...

I have not even touched on demographics, and e.g. the calculation that China might be making with regards to now being the time to have a war if ever, given its aging population...

I wrote quite a bit, but at the end of the day, this demonstrates the complexity of the situation which makes it very hard to make predictions. And therefore, for any economic decision stick with the basics, the expected price is today's price.

Edit: the implicit assumption in my thoughts above is that the greater a closed system the more inequality it enables. This might work in general, but I can think of at least one potential counterexample, e.g. North Korea.

every 10th or so house is on sale and every 4th shop is closed... doesn't compute.. houses are on sale because prices are so high yet businesses around them are failing full force.

You are right about bubble, and you are right about it expanding.

But it will not correct it self.

Here is why.

Business is based on knowledge. We all know knowledge expands. Since the knowledge expands, so does the commerce bubble.

The commerce bubble will collapse when the knowledge collapse. We are all intellect seeking addicts, while one part of the group builds and expands the intellect, the other group makes money out of it.

It will never collapse. Its part of a circle and the circle will keep getting bigger.

But bubbles have collapsed in the past

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