Every day I get so many e-mails from those who follow me, there are many fears, I ask you a question and if in a little while a financial bubble burst?
I’ve been looking at index charts for several months and I’m amazed by the recovery that’s been there, Wall Street is running fearlessly since March 2020 crash. I take a step back to understand if in the future there is the risk of a financial bubble, 2019 was wonderful for the world stock exchanges, the most difficult question is: what are the stocks that did not rise last year?
Honestly I don’t know, world stock exchanges continued to rise even in early 2020 then came coronavirus and we all know how it went. Markets have collapsed, the world has stood still with the famous word that will remain etched in our minds for a long time: lockdown.
A virus was enough to bring everything down, of course it is possible, but my question is: on what basis did financial markets continue to rise before coronavirus? Think about it, and give yourself answers as long as you can make sense of it all. Later,magically to support this crash, central banks (Fed, ECB) have come to inject billions of dollars/euros creating a kind of airbag, reducing the shock of pandemic and taking markets control.
So markets resumed to rise, Nasdaq was the only Wall Street index to have taken off after crash, flying at 12% compared to the beginning of 2020. Answer is very easy, the main protagonists of this index are the famous Amazon, Facebook, Apple, Microsoft and Google that recorded record profits during Covid 19.
But is the real economy really like this? Macroeconomic data says something else, why does Wall Street continue to rise and on what basis?
I’m talking about a financial bubble not to create panic but because I think the movie is another. How many companies have closed or will close with millions of jobs lost. People will have a lot of difficulties and one day the markets “maybe” will react badly, because the assumptions are not there, as Thomas Barkin said: “economy goes down with the ligt but will go up the stairs”.
Many companies will struggle to return to levels pre-coronavirus, as I said Covid 19 has changed our private and working lives. Governments, companies and households are already or will be in debt and this will affect consumer spending and investment.
Someone will tell me, it will not be a financial bubble because central banks will support the economy, experts think it is the best solution, I had doubts already before coronavirus. And how about inflation, everybody forgot that?
If we think about 5G, Big tech monopoly and robots in the future, the coronavirus has simply accelerated what will happen in a few years. Covid 19 has shown that so many jobs can be done from home rather than office, when companies start to restructure work’s way, I think there will be spending cuts with heavy consequences.
To avoid being trapped in a financial bubble, I advise not to plan long-term investments, to stay liquid to take advantage of possible opportunities, this applies to the more experienced. Take advantage of the ups and downs and a great opportunity to make intraday profits, with options recommend Put given the open interest.
For beginners I recommend to start studying the progress of financial markets and some technical analysis books (Martin Pring, John Murphy,Brian Shannon and Achelis Steven B.) because if you do not do it and your advisors will risk being overwhelmed by a financial bubble.
How many years will it take before your investment returns in positive? As Steve Jobs said: Think Different.