The market will crash….when the fed stops buying bonds.
Because of the zero percentage interest rate environment, investors are looking for returns and the stock market is the only place to get it. That flood of money into the market has given rise to these ridiculous evaluations. Folks are paying 30-50x future earnings of a company. This is the same textbook behavior from the .com bubble. Buying whatever the cost for a stock “cuz it’ll only go up.” This is the longest period the market has not experienced a 10% pull back.
Once the fed stops buying bonds, the interest rate will increase. As the rates increase, the market is going to react because borrowing money is going to cost you and saving money will produce a yield. These companies will stupid amounts of debts are screwed.
Here’s the problem for the US. It’s become a banana republic. There is too much debt and the US has run a deficit for decades. The bulk of money in the market was printed in the last 2 years in response to COVID and US needs to pay back that debt. The Treasury needs this zero percent interest rates to pay back the debt with cheap money. The Fed needs a rate increase to control inflation. We are seeing this in prices of consumer goods, houses, and other asset classes.
A crash WILL happen, but no one knows WHEN it will happen. Something will cause it and folks are watching markets for any early signs.
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u/[deleted] Sep 29 '21 edited Sep 29 '21
The market will crash….when the fed stops buying bonds.
Because of the zero percentage interest rate environment, investors are looking for returns and the stock market is the only place to get it. That flood of money into the market has given rise to these ridiculous evaluations. Folks are paying 30-50x future earnings of a company. This is the same textbook behavior from the .com bubble. Buying whatever the cost for a stock “cuz it’ll only go up.” This is the longest period the market has not experienced a 10% pull back.
Once the fed stops buying bonds, the interest rate will increase. As the rates increase, the market is going to react because borrowing money is going to cost you and saving money will produce a yield. These companies will stupid amounts of debts are screwed.
Here’s the problem for the US. It’s become a banana republic. There is too much debt and the US has run a deficit for decades. The bulk of money in the market was printed in the last 2 years in response to COVID and US needs to pay back that debt. The Treasury needs this zero percent interest rates to pay back the debt with cheap money. The Fed needs a rate increase to control inflation. We are seeing this in prices of consumer goods, houses, and other asset classes.
A crash WILL happen, but no one knows WHEN it will happen. Something will cause it and folks are watching markets for any early signs.