Why The Market Hasn’t Crashed Yet

Why the market has not crashed yet despite all the signs in real estate, crypto, and stocks

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Why hasn't the market crashed? The signs of bubbles are everywhere, the crypto bubble, bitcoin bubble, stock bubble, real estate bubble. Hedge fund managers are predicting the next crash.

My thoughts on predictions:

Without a timeline, saying stocks will go crash, or crypto will crash, you shouldn’t buy real estate - doesn’t make any sense without a date. Think about it, without a time frame, every prediction eventually becomes true.

Are we actually in a bubble?

E-Trade sent out a survey asking people with over a million dollars in their account portfolio whether those millionaires thought the market was in a bubble or not. 16% of the millionaires they asked said the market is definitely in a bubble, 46% said somewhat of a bubble, 29% said we’re approaching a bubble. Only 9% said we are no where near a bubble. That was in January. And there’s actually some data to support why people are scared.

If we look at the P/E ratio (price to earnings ratio) of the stock market as a whole, that number is 37. Is that good? We need more context, that number is useless unless we compare it against the past. The average P/E ratio dating to as far back as 1870, the mean P/E ratio has been 16.82, and the median 15.83 (around 16). By that historic metric, that means today the stock market is more than twice as expensive as it’s ever been on average and this is one of the reasons why really respected investors are coming out to try to warn people about a bubble and one of those investors happens to be Michael Burry.

Who is Michael Burry?
Michael Burry was the guy who predicted the subprime mortgage crisis in 2008 when he shorted the market. He is back and he screams bubble. Here's what he said "“People always ask me what is going on in the markets, it is simple. Greatest Speculative Bubble of All Time in All Things. By two orders of magnitude.”

Why stocks?
In 2019 Michael Burry said there was a huge problem with index funds. Some of the biggest index funds are controlled by Vanguard like VFIAX which has over $401.691 billion dollars alone. All together - index funds have trillions and trillions of dollars and every single day they grow by billions of dollars. Roughly 17.2% of the entire stock market is made up of index funds (some estimates as high as 30%) so it’s a huge amount and it’s one of the reasons why the stock market has grown to an almost record high.

Michael’s main argument is that index funds have distorted the price discovery of stocks and when the bubble stops, the exit door won't be big enough (not enough buyers which will crater the market).

Why Bitcoin?
The problem with Bitcoin is, no one knows how to value Bitcoin - the reason I think people say it’s a bubble is because it’s a new asset class that we don’t understand how to put a number on just yet. Could the price be a bubble today? It could, but every cycle Bitcoin grows fundamentally stronger with more corporations, hedge funds, retail investors and even countries adding to the balance sheet as the supply decreases. Bitcoin crashes upward - that's what it does.

Why real estate?
Jeff Greene (billionaire who also predicted 2008) says we're in an omni bubble that will get worse because of over extended inflation. When it does, the government will be forced to step in and increase interest rates which should in theory correct the price.

*None of this is meant to be construed as investment advice, it's for entertainment purposes only. Links above include affiliate commission or referrals. I'm part of an affiliate network and I receive compensation from partnering websites. The video is accurate as of the posting date but may not be accurate in the future.