Bubbles as Far as the Eye Can See
Most sane investors have an inkling that financial markets are in a bubble. But just having a general sense that things aren’t right sometimes isn’t enough. Looking at actual statistics can put into perspective just how large some of these bubbles have grown.
The Case-Shiller 20-City Composite Home Price Index has moved past its pre-crisis levels and has increased over 50% since 2012. The United States isn’t the only country that’s been affected, as Canadian home prices are up over 80% since 2009.
Stock markets are up significantly over the past 18 months, but that high growth isn’t because of an overall healthy economy. Most of the growth comes from the FANG stocks (Facebook, Apple, Amazon, Netflix, Google). Over the past five years, Facebook is up over 700%, Amazon nearly 300%, and Netflix over 2000%. Those are tremendous gains for those lucky enough to have gotten in on the ground floor, but they’re not sustainable over the long term.
There’s a twofold bubble here. The first is in Tesla stock which, benefiting from market euphoria and the love for anything tech-related has made Tesla one of the world’s largest carmakers when measured by market capitalization. It’s larger than BMW and Ford and almost as large as GM. But more importantly, its market capitalization per vehicle sold is over 100 times that of some of its larger competitors. High stock prices won’t be sustained without more cars being produced.
Then there’s the bubble in auto loans which, while not as large as the housing bubble was, is still ready to pop. Subprime auto loans make up about a quarter of loans and their delinquency rate is rising.
Corporations have taken advantage of historically-low interest rates to ramp up their issuance of debt. Total debt securities are up 75% from pre-crisis levels, while overall liability is up over 30% from pre-crisis levels. And of course, everyone knows by now that the total national debt in the United States is now up over $20 trillion, with no end in sight.
For investors looking to protect their assets, now is the time to start thinking about protecting them. Like all bubbles, it’s only a matter of time before this “everything bubble” bursts. Those who get out near the top will be better off than those who hang onto the bottom.