Is the entire US economy in a giant bubble?

clowns everywhere wrote:

The stock market has been an insane bull run for over a decade, with a brief dip for Covid in March 2020.

The housing market is at almost comical highs.

Cryptocurrency is at insane highs.

Interest rates are near 0.

Unemployment numbers are not great.

Certain industries are being decimated by Covid.

Does anyone else look at this picture and wonder how it can possibly be sustainable? Part of me says, well, the USA has always racked up insane debt and it’s always been fine. But at some point something has to give, right? Maybe not. I see the administration talking about even more stimulus and I just can’t see how this can keep going.

The BEST of the economy is never sustainable. That should NOT discourage you or anyone else from investing for the future.

I have been told by people here, and by some expert somewhere that stocks can not continue, blah, blah, blah.

My stuff has averaged an 11.6% annual return since 1989. Through all the doom and gloom talk, including the Great Recession...the market continues to go up over time.

There will be corrections. There may be some crashes. So what? The market ALWAYS recovers.

Put money in like clockwork, and don't ever not do it. If there's a crash and you still have a job, put even more in.

I remember Flagpole saying the same thing back in 2008. I should have listened to him then. I’ve done well since 2012 or so but I missed out on some big gains in 3 out of those 4 years.

However, once you get within 10 years of retirement. I don’t see a problem with taking some money off the table when it gets this high. If you have more than 10 years, I agree, let it ride and add more on the dips.

Thank you for the amateur advice Dave Ramsey. The currency crisis the US is about to undergo is about to decimate the savings of many investors. If you're young, plenty of time to recover. But if you are older and think you're 401K with market index funds or Bonds is going to support you it is going to be disastrous. We are at the end of the dollar being treated as the reserve currency and what's coming is going to be extremely painful.

Make sure you're protected from a crashing dollar. Also, use this as an opportunity to learn real economics. The US is going to try and push money out the door to prop up crashing asset values which will make the crisis worse. Once the dust has settled Americans need to reject the idea of the federal government and the FED managing the economy and insist they get out of the way.

clowns everywhere wrote:

The stock market has been an insane bull run for over a decade, with a brief dip for Covid in March 2020.

The housing market is at almost comical highs.

Cryptocurrency is at insane highs.

Interest rates are near 0.

Unemployment numbers are not great.

Certain industries are being decimated by Covid.

Does anyone else look at this picture and wonder how it can possibly be sustainable? Part of me says, well, the USA has always racked up insane debt and it’s always been fine. But at some point something has to give, right? Maybe not. I see the administration talking about even more stimulus and I just can’t see how this can keep going.

Expect the housing market to crash soon. Home prices and construction costs are ridiculous and not sustainable. Thousands of people unemployed on day 1 of the Biden administration and many Dems want to provide an ongoing monthly check to the unemployed (AOC and her crew proposed $2000), which will create more unemployment because why work when you can get free money? More people out of work and businesses forced to close permanently due to the tyrannical forced closures and restrictions. Guaranteed that taxes will go up under the current administration as well, so the middle class will have less money to spend, save, and invest. The economy is going to continue to rapidly decline during the next 4 years.

Certain stock bubbles are primed to pop. Others should fare well. The government printing money should put you into stocks and away from holding cash. The problem with all of these governments printing money (US isn't the only one, take a look at the EU) is it ultimately causes inflation. If you are in cash, you will end up broke. Of greater concern is all of the labor restrictions and environmental legislation that will likely pass with the current administration. Those are recipes for sluggish economic growth.

This is generally accepted investing advice and it’s not bad advice but the premise is flawed. And here is the flaw: you say, the market ALWAYS recovers. Does it? Is that a law of nature? Or do you mean, historically, the market ALWAYS HAS recovered? Because that is true. And you can, of course, make inferences from history to predict the future, and it’s often been considered wise to do so.

But in 2016, someone could have said, “for the last 2 centuries the United States has ALWAYS elected a president who has political experience. Therefore, they will always continue to do so and a reality TV star/businessman cannot possibly win because that has never happened.

This. I remember reading 'The Simple Path to Wealth' by J. L. Collins and at the time it was the first book I ever read about finances. He consistently maintained that very premise: the stock market ALWAYS goes up. Proof? A graph several decades old. Wow--I'm totally convinced now. It's as if we discovered another law of nature--nay, one of the very principles of logic that is embedded into the very fabric of reality itself.

Checks to the people lifted the economy quite a bit out of the severe March-April recession last year. Why would they do anything different now?

The housing prices are what they are because that's what people are willing to pay to live in those areas. If you go to my middle of nowhere Iowa town in Iowa that I grew up in, you can get a brand new house for under $200k, or a really nice and pretty big brand new house for under $300k. But if you want to live in a bigger city area, and not too far away from the center, you're going to be paying $300k for a hunk of junk in a cheap city, and near a million in a higher expense city. The housing market is only going to change if enough people suddenly decide to move to places like where I'm from, way away from the big cities. That's the only place there is enough land such that the primary cost of the home is the materials to build it, and not the square footage of land it is taking up. As long as the trend of people moving to the city continues, which it has been consistently doing that for decades, the prices in cities or desirable nature areas like ocean fronts or near mountains, are going to keep getting higher and higher, while places like where I grew up don't really change at all. I think my parents bought their house in 1990 for $85k, it's now worth $120k. Not much appreciation going on in small towns. Meanwhile houses in California that sold for $200k back in 1985 are now $800k and above.

Yes, there are local market forces in real estate. However, record low interest rates have helped raise prices across the board, certainly more in desirable areas. I think we will see a correction in both real estate and the stock market. However, I’m still investing and I still own my house. I always keep some dry powder though.

Rainy Day wrote:

Yes, there are local market forces in real estate. However, record low interest rates have helped raise prices across the board, certainly more in desirable areas. I think we will see a correction in both real estate and the stock market. However, I’m still investing and I still own my house. I always keep some dry powder though.

Yes the interest rates have made it more affordable for more people to get into the market, which increases demand and the prices. Same thing will happen once minimum wage increases roll out. People low paying jobs will now pay more money, allowing more people to save up for a house than previously able to, so the housing prices will go up even more. There are only so many houses out there unless you move to the middle of nowhere, and as our population rises and more people have money to spend on those houses they're just going to get more and more expensive in urban areas. There's never going to be a time where everyone can afford a great life style in an urban area, if you can't afford it you should move away.

What is going to be the reserve currency if the dollar is dethroned?

Not much appreciation in small towns? Bahahaha.

Google Celina, TX. Hour from Dallas. Population 12k. Farmland everywhere. Housing can’t keep up with demand. Every major builder in the area has a waitlist. Houses are selling for almost double what they were 3 years ago.

clowns everywhere wrote:

What is going to be the reserve currency if the dollar is dethroned?

The million-dollar question. Anyone telling you they know is lying. Likely there will not be one for a while because the world does not trust China and Europe has been just as irresponsible as the US.

I hope that no currency regulated by a global bank will be pushed. That would be a disaster. There may be a push to move fully digital which would also be very bad. You think government interference is bad with paper, the last thing you want is the government giving everyone a digital wallet and having oversight to that. Maybe a new gold standard? The dream scenario for the US, which has a very low chance, we get rid of the Federal Reserve and have no national currency and go back to Gold money as we had pre-1912. Although this seems radical to people today the US became the richest country in the world with no national currency.

If ever there was a giant bubble it would have been at the end of 2019.

There was very low unemployment coupled with very high deficit spending.

Seemingly no cushion to react to a crisis.

Then we had a crisis. Larger than any we have seen in our lifetimes.

And it seems like we will pull through.

As long as people see hope that there is something to look forward to, we will be OK.

All of the stock prices and debt and such are just numbers being thrown around.

Food and shelter and steady consumption are what matters.

We will have to watch the homeless situation and what we do about that.

People with money are still spending it. That's good.

Markets will change. Let's see what happens with travel.

People are dying to travel and there will be an uptick in that as people get the clear to go. That's suppressed demand.

Restaurants are surviving by adapting to online ordering systems and having more takeout.

Americans want the option to eat out one way or another.

There will be more innovations that create new markets.

People and companies will have to adapt. Those that don't will be left behind.

The thing to look for would be companies laying people off to hold their margins if they fear things will get bad.

We are doing better than I thought we would. And I do think there is more optimism because there is something tangible to track as we watch to see the growth of what percent of the population gets vaccinated over the year.

Primo Numero Uno wrote:

Maybe a new gold standard? The dream scenario for the US, which has a very low chance, we get rid of the Federal Reserve and have no national currency and go back to Gold money as we had pre-1912. Although this seems radical to people today the US became the richest country in the world with no national currency.

I'm sorry this is mad! How would any currency regulator buy and hold gold reserves to back its currency? As soon as they announced they were switching to gold the price would rocket.

This is correct and always have been. I’m just surprised that Flagpole still posts here as people who get this will acknowledge, but people who disagree will never agree and remain poor and blame others.

People lose more money trying to time the correction than correction itself.

I mean, take a look at the recent downturn just last year. When it was happening, everyone was saying, “this time, it’s different. We have never dealt with global pandemic on this scale like this before.”

Now, look where we are now. I would’ve never guessed for equity prices to go up like this. I’m sure it’s a bubble and there will be a correction. But would this correction happen after market doubles from here? Would it happen tomorrow? I have no idea, so I’m in the market with some diversification.

Nope. That's the kind of crap I've heard constantly since 1989. There is ALWAYS a reason why THIS TIME stocks will really go down for good. Nah.

BUT, I have protected myself anyway, as everyone should do. I have zero debt including a paid-for house. I have three YEARS of expenses saved outside of investments. I have more investment money than I thought possible and more than I need. The reason I have so much invested is because I didn't listen to the doom and gloom.

There is no stock market bubble because the stock market stopped being a valuation of corporate equities a long time ago. The value of the stock market is entirely dependent on flows of capital from safe harbors to equities. Those flows are almost entirely dependent of interest rates and fed activity. Energy prices used to weight heavily on stocks, but fracing and the rise of renewables has taken that out of the mix. As long as the Fed can provide liquidity and low interest rates, the stock market will be just fine. The US dollar is not going anywhere any time soon. China will never get the world to switch to the Yuan because of political risk (China is a powder keg internally despite the ruthless tactics of the CCP to put down dissent and separatists movements) and because no one trusts China to maintain the integrity of the Yuan. The Euro is continuously at risk due to the possibility of the next ____exit and the continual issues of individual states racking up budget problems with the rich countries unwilling to bail them out. Even with all the deficit spending, US debt as % of GDP is in line with EU countries like Spain and France and is lower than Italy and Japan. But the most important part is that US debt is incredibly cheap. The US debt service as percent of the Federal budget is actually lower now than it was in the 1990s. Borrowing costs are so low for the US that it would actually be dumb not to make huge infrastructure investments right now and to do everything to prop up the economy.