Is there a bubble in financial markets?
Comment of the Day

January 26 2021

Commentary by Eoin Treacy

Is there a bubble in financial markets?

Thanks to a subscriber for this chartbook from Deutsche Bank which may be of interest.

No doubt that in aggregate US equity valuations are at, or close to, all-time-highs.

Eoin Treacy's view

There are a couple of things that are worth considering. The first is that identifying a bubble is not a timing indicator. The easy money policies adopted by central banks following the Global Financial Crisis 13 years ago were inevitably going to cause a bubble in something. The new information is that there is evidence of a bubble in a large number of asset classes because zero interest rates made a nonsense of any kind of valuation metric.

The one thing we know about manias from history is they are powerfully attractive. They suck in investors from all over the world and by the time they peak everyone is fully invested. Let’s take a poll. So how are subscribers invested and how much cash do you currently hold relative to what is “normal” for you? By looking at our individual actions, in aggregate, we will probably come up with a better understanding of where the wider investment community is.

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