The Market Is About To Drop – Again
According to him, bubbles like this could be measured throughout six predictable categories that repeat themselves throughout history, of which ill admit is eerily similar to what were seeing today. This also comes at the same time that the stock market saw its worst start to the year since 19′ fund performance hit an all time low, and the survey found that people were more pessimistic about the stock market today than they were at the start of the Covet shutdown or in 2009, so lets break this down what this means for you, how our market today compares with previous bubbles throughout history and then my own thoughts about what he says right after, of course, you pop that, like bubble for the youtube algorithm by giving It a gentle, tap and subscribing if you havent done that already so thanks so much and also big. Thank you to ftx us for sponsoring this video, but more on that later, all right, so to start ray dalio needs no introduction, but just in case he does heres. Why so many people listen to what he has to say. He currently runs the worlds largest hedge fund bridgewater associates that was founded in 1975.. Throughout that time, bridgewater has grown to over 140 billion dollars under management, often beating out the s p 500 and in the process ray dalios gained over 45 years of macro. Investing experience throughout some of the biggest boom and bust cycles in the market. In this case, he now has caused to believe that we are in the midst of a bubble and as a way to see it coming.
Hes broken it down into six categories. First, high prices relative to traditional measures of value; second, unsustainable conditions like extrapolating past revenue and earnings. That cannot be sustained. Third, many new naive buyers who were only attracted because the market goes up. Fourth, broad bullish sentiment: fifth, a large portion of the market financed by debt and six, a lot of forward and speculative purchases made to bet on those price gains continuing of course, throughout the last few years we have seen some of the highest valuations on record. Companies were valued based on unsustainable past performance. New investors bought in at record numbers throughout the covet shutdown. Bullish sentiment hit an all time high at the end of 2021. margin. Debt hit a record just six months ago, and one could say that there was a lot of excitement for investing because stonks only go up so on the surface. Quite a lot backs up ray dalios belief that maybe the market could be in a bubble and is about to burst the moment. You finally decide to invest thats, because in january of this year he called out the excessive valuations of certain companies which later turned out to be true. He noted that the bubble indicator was approaching 70 percent of the peaks last seen in both 1929 and 2001, suggesting that some stocks were severely overvalued and poised to crash under the right conditions, or, i guess wrong conditions if they caused them to crash either way.
They were about to fall, there were fewer buyers entering the market. Investor sentiment was irrationally optimistic and ipos were the highest theyve been since 2001., but since that first article came out, the stock market has for a lack of a better word popped, and he was right for calling them out. However, he makes it a point to mention that bubbles could take a very long time to unwind and that just because they arent at a bubble extreme does not mean that they are safe or that its a good time to go long. In fact, u.s stocks in aggregate still look overvalued by our measures, as he suggests once a bubble pops. It continues to trend downward, and in this case most previous bubbles tend to settle around 20 percent, which gives us a little more room to potentially fall. In fact, emerging tech has followed the exact same trajectory as both 2001 and 1929, and now the biggest question remains: how do we compare throughout the rest of the market with prices now down anywhere from 15 to 70 percent? Well, he shows that relative to previous bubbles, the market is high, but dropping the price to earnings. Growth is also somewhat elevated, but as fewer newer investors enter, the market valuations have had a chance to come back down now forward. Growth suggests that there might be more room to drop, but the shocker from all of this is that bullish sentiment is at an all time, low, now heres.
Why that last point is so interesting. Studies have shown that generally, the more people believe theyre to be an upcoming crash. The more likely the market is to do the exact opposite of that and not crash. After all, the beginning of a recession is usually after peak euphoria, not after peak fear. So when consumer sentiment drops and bullish sentiment is at an all time low that usually indicates that hey, you know what it might be a pretty good time to buy as proof of this just look at the data throughout the last 60 years. Large declines in consumer sentiment translates to an average 23 gain in the s p 500 over those following 12 months. We also have something called the us crash confidence index thats a tongue twister just try saying that three times anyway, that measures investor sentiment and how likely they think a crash is going to happen now. This is really important because the overwhelming data finds that the average investor is almost always wrong with the most crucial points and if the average investor believes prices are about to go a lot higher, usually thats a sign that things will get a lot worse. This also works in reverse, where the more worried investors are, the more likely we are to have bottomed out and now that weve begun to trend downwards. Maybe this could be a sign that were about to see a reversal now. This is also mirrored by the warren buffett, fear and greed index, which analyzes that right now, the market is mainly driven by fear, especially as the market trades well below its 125 day moving average.
Although, even though it seems that we could be coming up on a reversal before we talk about what this means for all of us as investors and whether or not ray dalio believes were still in a bubble, we need to talk about the very popular saying, sell In may and go away, but before we go into that, the one thing im not selling is cryptocurrency and with prices having fallen about 50 from their all time highs. If youre looking to buy, sell track or trade, a multitude of cryptocurrencies and nfts all in one place with fees that are up to 85 lower than the top competitors, then our sponsor ftxus is there to help theyre one of the largest cryptocurrency exchanges in the world. In terms of daily users and trading volume and their founder sam bankman freed as someone who ive been following for years as a highly respected figure in the cryptocurrency space, this has been the crypto brokerage that ive personally been using throughout the entire year because theyre one Of the few companies that allows me to set up an automatic recurring buy, so i could dollar cost average into the markets on a regular basis to build my portfolio just select what you want, how often you want to buy and how much you want to buy And then swipe right plus they give you free crypto on every trade over ten dollars. Their crypto debit card is accepted throughout millions of merchants worldwide.
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As a result, one chart shows that since 1928 the average may delivered a return of negative 0.1 percent. However, since 1950, the may, through october time frame, has returned an average of positive 0.3 and in 2021 may return to 0.56 percent and the year before, that was 4.53. The other interesting point is that, even though may isnt historically a great month, it was found that going all the way back to 1928. The june august period typically is the second best of the year, with gains 63 of the time and an average return of 2.97 and over the last 10 years, stocks have delivered positive returns over every six month period between may and october. So in recent history, even though yes may, doesnt typically do as well some of the other months, it can do well, plus lets be real. Trying to time the market based on an old english saying is probably a pretty horrible idea in terms of ray dalio, though his data shows that, yes, the market is considered expensive according to their historic indicators, but if anything, it is a good sign that people are Beginning to be bearish, because if anything, irrational exuberance is a much bigger indicator of a bubble than excessive pessimism, of course, he also suggests that the market could have some more room to fall with the disclaimer that what one chooses to do with this is a tactile Decision he also goes on to say that bubbles, often over correct and sell off beyond what their fundamentals would suggest, implying that if things get bad prices get worse and that could be a fantastic opportunity to keep buying in.
However, on the other hand, the housing market is a completely different story. Just like most americans are bearish on the stock market. A new poll found that only 30 of americans believe that now is a good time to buy a house which is the lowest on record. Since they started the survey in 1978 and its the first time that less than 50 of the people across the country thought it was a good time to buy. The result is that the negative assessment may keep more people out of the market, leading to slower sales, resulting in a build up of inventory and eventually lower housing values, theres also the ongoing issue of home affordability, which right now is almost the worst on record. In fact, with rates now having risen, an extra 50 basis points in the largest rate increase since 2000. If housing prices stayed the exact same, we could hit a new low for housing affordability any day now, with the average monthly payment having increased 72. Since the onset of the pandemic, the issue today is that you have a lot of people rushing into the markets to get ahead of the mortgage rates, with the assumption that, if they dont buy right now, rates are going to be higher in the future, were also Seeing whats described as a lock, in effect, where homeowners refuse to move, because otherwise theyd be giving up a historically low interest rate. Of course, if we apply the same logic that if the average investor is almost always wrong and they think its a bad time to buy, then maybe its a good time to buy all right im kind of joking.
But i will say that as a real estate investor now for over a decade, this is actually the time im beginning to get back into the real estate market, because there are finally deals to be had from sellers who want to sell or cash out quick. It was a long process, but i partnered with other investors, like ryan pineda, to lock in two deals that were much larger than id. Be able to do myself on my own. For anyone curious one is a mix between commercial and residential lofts in st louis and the other is a project in phoenix arizona where i believe well continue to see consistent long term growth. Its also unique because were opening this up to accredited investors, who could literally invest right alongside with us, so if youre interested in partnering ill link to everything down below in the description on top of that rents tend to be fairly consistent over time, even throughout the Price fluctuation, so as a long term, investor consistent cash flow to me seems a lot more appealing as far as where i think prices are going to be throughout the next few years. Ill be honest. I would not be surprised if rising rates leads to some softening throughout the markets, and some parts of the country could begin to see a lot more inventory, but because of a lack of new building and strong demand, i would not be surprised if prices still remained Fairly high, at least until they changed the laws for more construction and building one day.
So to answer the title of the video it does appear as though ray dalio did correctly call out several segments of the market that were drastically overvalued and have fallen a significant amount, if you were all in spac ipos on emerging tech during stay at home, plays Chances are if you didnt, sell, youve lost a lot of money. However, it is a lot more difficult to determine whether or not the broad market is overvalued, and even though, as data shows that it is expensive relative to past history, that doesnt mean it cant go even higher. So to me, the biggest solution for all of this is to simply diversify, as continuously as possible, throughout as many different sectors as possible, whether that be stocks, real estate, cash and even a little bit of cryptocurrency and then from there just understand that prices will fluctuate. For absolutely no reason whatsoever in ways that make absolutely no sense completely outside of your control, but long term. History has shown us that eventually, markets recover prices trend back up and the most profitable thing you could always do is subscribe. If you havent done that already, so thank you guys so much for watching and also dont forget to add me on instagram and do not forget to get that free stock down below in the description thats worth all the way up to a thousand dollars. When you sign up for public.com using the code gram, the link is down below in the description, make sure to take advantage of that before the offer expires.
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