Probably the biggest crash ever.
Originally posted on lifestylemaniacs.com
If you have not seen the movie The Big Short, I invite you to go and watch it. Also, if you have not seen “How The Economic Machine Works” by Ray Dalio, I strongly recommend you watch it.
We are in an everything bubble, that is for sure. How do I know this? By looking at some fundamental market indicators and at the overall economy. We are at the end of a big cycle like in 1929 before the Great Depression.
Pandemic
The thing is, our economy went to hell because of the pandemic, and we have not recovered. Even though now we have begun to travel again, people are not spending like they used to. This rhymes with what happened after World War I.
If you think the pandemic is over, think again. We will probably see another lockdown during cold periods. We have relaxed this summer because of vaccinations, but the percentage is still low. In Romania, less than 30% are vaccinated.
Hyperinflation
Stimulus after stimulus. The US and EU have been printing money like never before. Trillions of dollars and euros were printed this year and last year. This caused all prices to go up.
We see the effect of hyperinflation and high prices in commodities: gold, silver, copper, oil, food products, etc.
The Buffet Indicator
The Buffet Indicator evaluates the US stock market. Currently, it is strongly overvalued. The rationale is simple, people without jobs switched to online gambling, which is what investment has become this year and last year.
The stock prices have been going up, while the GDP has been going down. We have never seen such disconnection in the stock market. If you look at the P/E ratio of most stocks, even at the S&P 500, it is high and indicates overvaluation.
Overpriced real-estate
Have you seen the prices of real estate in the past two years? The reason for this is that people have stopped selling their houses since the pandemic. By the law of supply and demand, low supply and high demand increase the price.
But why would people want to buy a house during the pandemic? Because of all-time low mortgage rates.
Not only this, but the prices of the building materials have also increased a lot, besides inflation.
Crypto cycles
The crypto market flows according to the supply and demand of Bitcoin. Every four years, the bitcoin reward for mining is cut in half (halving). The Bitcoin halving decreases the production of Bitcoin, hence, lower supply.
After every Bitcoin halving, the crypto market starts the bull run, and everything goes up. Until Bitcoin is dethroned by Ethereum, we will still see these 4-year cycles.
Because of its scarcity, it follows the stock-to-flow model. Currently, Bitcoin is undervalued, but it will most probably hit 100K at the beginning of 2022. Afterward, it will crash along with the entire crypto market.
You can find more Bitcoin evaluation tools here.
Takeaways
I am not a financial adviser, so I cannot recommend doing something with your money, but I will tell you my strategy.
I am not an investor, but a long-term trader. I enter a long or short position which may last for months if the trend is strong. I am bullish on most markets, but for the short term. I am always prepared to exit when the trend reverses, even on a small loss.
If I were to be an investor, I would invest only the money I don’t need for the next 5 years. Also, I would dollar cost average every month.
I would buy more during crashes and never invest when an asset is overpriced. Buy low, sell high.
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Disclaimer: I am not a financial adviser and don’t recommend investing in anything as nothing is guaranteed. Everything I write on the topic is for informational and educational purposes only. Always do your research.
