Are we in a stock market bubble?
Despite the prevalence of meme stocks, crypto scams, and some insane-looking valuations out there, it is challenging to argue that we are in a stock market bubble
With the S&P500 consistently breaking through to new highs, many pundits argue that we’re in a stock market bubble built by the Federal Reserve (“Fed”). Further, they say that as soon as the Fed raises interest rates, the entire house of cards will come tumbling down.
In my book, The Little Book of Big Bubbles, I argued that to identify a bubble, we needed to answer two questions:
Are highly unlikely/impossible views of the future determining behaviour?
Is the pricing mechanism in this market based on a positive feedback loop?
The answer to the second question feels like an obvious yes for some markets (cryptocurrencies, meme stocks, and housing). Participants in these markets are buying almost exclusively because they expect the price to rise. There is such an enormous detachment from underlying fundamental value here that the game is purely speculative. I mean, Squid Coin, anyone? Come on!
But, are highly unlikely/impossible views …