When vast sums of money flood speculative, non-traditional assets like a Pokemon card, it serves as an alarm bell. It indicates the market is in a euphoric "ultra risk-on" phase, often preceding a crash.
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A surge in highly speculative assets may not indicate a strong economy. It can be a sign that people feel so far behind financially that they're placing huge bets, believing in an "only up" market out of desperation rather than confidence.
The current market isn't just an AI or tech bubble. It's an 'everything bubble' fueled by excess liquidity from monetary and fiscal policy, encompassing crypto, meme stocks, SPACs, and both investment-grade and high-yield credit.
A true market bubble isn't defined by high valuations but by collective psychology. The most dangerous bubbles form when skepticism disappears and everyone believes prices will rise indefinitely. Constant debate about a bubble indicates the market hasn't reached that state of universal conviction.
Bubbles are created when assets like startup equity are valued astronomically, creating immense perceived wealth. However, this "wealth" is not money until it's sold. A crash occurs when events force mass liquidation, revealing a scarcity of actual money to buy the assets.
A market enters a bubble when its price, in real terms, exceeds its long-term trend by two standard deviations. Historically, this signals a period of further gains, but these "in-bubble" profits are almost always given back in the subsequent crash, making it a predictable trap.
Unlike the 2008 crisis, which was concentrated in housing and banking, today's risk is an 'everything bubble.' A decade of cheap money has simultaneously inflated stocks, real estate, crypto, and even collectibles, meaning a collapse would be far broader and more contagious.
The current crypto environment mirrors the lead-up to the 2008 financial crisis. 'Good money is chasing after many intrinsically weak assets,' which are then complexly leveraged and integrated into the balance sheets of systemically important institutions, creating a growing, underappreciated systemic risk.
In a late-stage bubble, investor expectations are so high that even flawless financial results, like Nvidia's record-breaking revenue, fail to boost the stock price. This disconnect signals that market sentiment is saturated and fragile, responding more to narrative than fundamentals.
History shows that when a tech sector dominates Super Bowl advertising, a market crash follows. The dot-com bust followed the 2000 Super Bowl, and the "Crypto Bowl" of 2022 preceded crypto's collapse. Today's AI ad-spend may signal a similar downturn.
In a telling sign of speculative excess, Japanese golf club memberships, valued for status, became a traded asset class. Banks offered 90% margin loans against membership certificates, turning a luxury good into a vehicle for stock market speculation and a bizarre indicator of the bubble's absurdity.
