Are we at the height of the financial bubble?
Some signs are quite worrying on the markets:
- Tighter monetary policy and high valuations.
- Less liquidity globally as central banks slow accommodation.
- Less liquidity in the economy vanishes previous monetary injections and pandemic aid.
- Higher inflation reduces consumption in the absence of income policies
- Weaker economic growth
- Weak consumer confidence due to inflation
- Flattening of the yield curve
- Earnings growth weaker
- Compression of profit margin
- Weaker year-over-year comparisons than most economic data.
All this seems to indicate that 2022 will present itself as a turning point for finance and markets, and some sectors, such as virtual currencies, are already feeling it.
First of all, the “Margin debt”, the money borrowed for financial speculation is at its highest
After all, the overall market capitalization exceeded that of 2000, when the DotCom bubble burst
Cash flows in equity funds have reached colossal levels, which are difficult to maintain in the future. This cuts the resources for maintaining current levels of market growth.
Being at the top of a bubble means that there is only one direction, that of the descent. If the economy were particularly strong worldwide, it would not be a problem: it could withstand this and many other blows. The problem lies precisely in the fact that many problems are still not solved:
- The energy transition is doing damage in an important market like the European one;
- The Omicron variant is only now entering China, so there will be problems in the distribution chains;
- outside the US the situation is politically and economically very turbulent
- the demand for labor in the US is high, but has fallen nonetheless
The premises are negative and risk leading to a situation not of slowing down, but of crashes. There are some possibilities for this to happen. Think 2008, and make it worse, and you get a picture of what could, but hopefully not, happen.
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The article Are we at the height of the financial bubble? comes from ScenariEconomici.it .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/siamo-al-culmine-della-bolla-finanziaria/ on Tue, 11 Jan 2022 18:32:21 +0000.