EP 34 | Why This Time The Experts Are Right About The Stock Market Bubble

On this episode of The Impatient Investor, Andrew talks about why experts have been sounding the alarm about a stock market bubble and why investing in assets that address a basic need is the smart thing to do.

“Even during the great depression, there were companies that thrived because they catered to essential goods and services people would always need.”

Full Transcription:

Experts have been sounding the alarm about a stock market bubble for almost four years. Once the Dow Jones Industrial Average broke 20,000 for the first time in early 2017, most experts were convinced we were in bubble territory. Did it burst then? Nope.

Then came early 2018 when the Dow crossed 25,000. experts were shouting from the rooftops even louder. Did the bubble burst then? Not exactly. 2018 was a down year, with the Dow down 5.97% for the year, but not something you would categorize as a bubble bursting. 

In 2019, the Dow came back roaring up to 22.34% from 2019 with momentum continuing into 2020, when it hit a record high of 29,551. on February 12th, 2020, the bubble was sure to burst then, right? Right. But not for the reasons the experts had predicted. in March COVID-19 happened and the stock market shed almost a third of its value. No expert had predicted a crash from a pandemic, but a curious thing happened. instead of taking the typical five-plus years to recover from a crash of this magnitude suffered in March, it took the stock market only five months to return to near-record levels pre COVID. 

The experts are certain this time that we’re in bubble territory and that bubble may already be deflating. Why are they so certain? Check out the warning from one of Wall Street’s own. in a letter to investors dated October 27 from Greenlight Capital to paraphrase and market watch founder, David Einhorn had the following to say. 

“The top is in for the U.S. stock market after an enormous bubble in technology stocks popped last month. our working hypothesis, which might be disproven is that September 2nd, 2020 was the top and the bubble has already popped.” 

After all the alarm sounding done by the experts before September 2nd, about a stock market bubble, what makes experts like Einhorn so certain that we’re in bubble territory? Before giving his reasons Einhorn gave a little background about how bubbles work. 

“Bubbles tend to topple under their own weight. As all investors finally hop in short sellers cover, and the last buyer has bought or bought massive amounts of weekly calls that decline starts and the psychology shifts from greed to complacency to worry to panic” Einhorn wrote. why should be worried now? Here are Einhorn’s 10 signs leading up to why he thinks the bubble may have already burst. 

One, in IPO mania. Two, extraordinary valuations and new metrics for valuations. Three, a huge market concentration in a single sector in a few stocks, read tech. Four, a single tier of stocks that most people haven’t heard of at S&P 500 type market capitalizations. Five, the more fancyfull, and distant the narrative, it seems the better the stocks perform i.e. Hertz filing for bankruptcy yet stock continues to climb. 

Six, the outperformance of companies suspected of fraud based on the consensus belief that there is no enforcement risk without which crime pays. Seven, outsized reaction to economically irrelevant stock splits. Eight, increase participation of retail investors who appeared focused on the best performing names. Nine, incredible trading volumes in speculative instruments like weekly call options and worthless common stock. Ten, a parabolic ascent toward a top. What is the bottom line of all of this? Investors are insane. Get the hell out of the stock market. Investors have shifted from greed to panic. And if you don’t want your portfolio to sink with the boat, abandon ship. This isn’t the first analyst that has been sounding the alarm about the RMS stock market Titanic. 

So once you abandoned ship, where do you go? You can’t stay out at sea forever. You’ll run out of supplies. The metaphor being your portfolio will be eroded by inflation, where to put your money? Zig when others zag, those who jump the stock market ship will likely put their money in something even more volatile like gold or Bitcoin. there’s evidence this migration is already happening. It will be the case of bursting one bubble only to start another one. this time involving gold or Bitcoin. Put your money where the smart money is putting their money. The smart money is doubling down on tangible assets that are always in demand, assets that address a basic need. Even during the great depression, there were companies that thrived because they catered to essential goods and services people would always need, even in bad times, people are always going to need food, shelter, household products, healthcare, communications, and security.

Investing in a basic need is a sure proof way to withstand a downturn. Be fearful of the stock market. Be fearful when others are greedy. Right now, the greedy are either on Wall Street, or if they to listen to the experts and jump ship, they’re jumping into gold or Bitcoin, you should be just as afraid of golden Bitcoin, which have both demonstrated to be even more volatile than the stock market in recent year. Being fearful doesn’t mean staying a drift indefinitely, follow the smart money that is investing in essential products and services that thrive in any economic condition. That’s why we’re invested in affordable housing, a market segment that is already undersupplied in good times that is even more in demand in a downturn, making it a solid investment in any environment. For more information, go to www.stoptradinghours.com.


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S P E A K E R | I N V E S T O R | P O D C A S T E R

Andrew is a founder and Managing Member of Four Peaks Capital Partners. He oversees the company’s acquisitions, asset management, and investor relations. He also co-directs the overall investment strategy along with Mike Ayala. He brings to the company over 10 years of experience in general management and new business development

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