Why the market could fall 70% and it might not be wise to buy this dip
I am not trying to fear monger. I have some genuine concerns. First I’ll talk about why we might be at the beginning of a bubble pop and lastly I’ll make some other comparisons to 2020
Bubble
Lots of people say the dot com bubble was bigger, pointing to a few companies with massive valuations and companies that didn’t sell anything. However today, not only is the breadth of the bubble in almost all sectors, there are nearly 1000 billion $ unicorns that are losing money. 1 trillion + in combined market cap, and we haven’t even factored in spacs.
Pets.com is the poster child for unreasonable valuation yet they only raised 85 million with a market cap of 400m. Now there is a thousand of those worth 2x. I feel like many tech companies have massive PE yet huge market caps. How big can they really get in finite markets? Some retort: international markets. not only are those markets smaller in $ terms, but countries have little interest in letting foreign corporations succeed over their local companies,
And you can hardly blame them as it is a sovereignty risk. Netflix might have been the wake up call to valuations. How many subscribers can they really get to justify a large pe and market cap for a 20 year old company?
Now vs then
Jan2020 unemployment rate 3.8%
Jan2022 unemployment rate 3.9% with 4.5m people not counted that worked in 2020 but is not looking
Jan2020 inflation sub 2%
Jan2022 inflation 6-9%
Jan2020 fed was not anticipating raising rates
Jan2022 fed anticipating both raising rates and money supply tightening
Jan2020 no pandemic, trade war with China, crime at historic lows
Jan2022 pandemic ongoing, international travel restricted, possible invasion of Taiwan, possible war with Russia, crime at 40 year highs
Jan2020 president who loves the market, lowered taxes
Jan2022 president who has disdain for market, when companies said they can’t get people to work because they are collecting too much government money, the president said “well pay them more”. President also wants to raise taxes
Jan2020 spy 321
Jan2022 spy 437 +36%
Edit: 70% comes from a 40% over valuation + 30% recession fall
I am also not selling, I instead either put new money in cash or defensive stonks
I also forgot to say that a lot of companies appear more profitable than they are as money losing companies are giving them lots of business
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