If the past year hasn’t been hectic enough, we are now on the brink of facing what some consider to be a repeat of the dot-com bubble.
Various esteemed investors and financial institutions across many sectors all have their own opinion as to why this may be the case.
One of the most famous opinions is that of Warren Buffett, who recently pointed to one of his favorite indicators, the Wilshire 5000 Total Market Index.
Also known as “The Buffett Indicator,” this gauge compares the value of the stock market to the size of the economy- and its signaling a crash could be coming.
In 2001, Buffett was quoted saying that it was “probably the best single measure of where valuations stand at any given moment.”
In short, Buffett’s favorite indicator tells us when the market is overvalued – and with it currently hitting a record high… Well, “overvalued” seems to be an understatement here.
And when we have Bank of America saying that the Fed has “lost control,” that speaks volumes.
Keep in mind that Bank of America was the same institution that played a large part in causing 2008’s financial crisis.
Perhaps they are speaking from “personal” experience?
Bank of America is comparing the current market conditions to those of 1987’s stock market crash.
A large part of their belief stems from the recent historic yield spike in mortgage-backed securities, an activity that occurred right before the 1987 market crash.
BofA stated, “The question is whether the Fed wants to respond now with more treasury and MBS purchases or wait for an even larger risk-off event before doing so.”
The bank is warning that, “Unless Fed fights back very soon with more treasury/MBS purchases, a similar fate likely lies ahead.”
Our thought is… Hasn’t the Fed been fighting for us this whole time?
Despite if they truly have, or haven’t been, the red flags occurring right now should act as warning signs to us all.
At the end of 2020 (before the GameStop Mania), the New York Times had this to say about IPO’s: “By a variety of measures, including price to expected earnings and price to the past decade’s inflation-adjusted earnings, equities have never been so expensive outside of the dot-com bubble years.”
And it’s not just established companies that have been fueling the fire.
“Initial public offerings, when companies issue new shares to the public, are having their busiest year in two decades — even if many of the new companies are unprofitable.”
There are unsettling parallels between today’s market environment and the 2000 dot-com bubble. In the late 1990’s, investors were excited and bought many companies simply because they ended in a “.com”
And now, it looks like every part of the market is contributing its own chaos to the fire.
When the internet bubble burst in 2000, it triggered a massive stock market decline.
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