Let’s assume that we all agree that we are experiencing a massive bubble in the stock market. I won’t go into the evidence that supports that theory in the interest of time. With stock market bubbles, it is all about the psychology of the stock market driving the stock market up. Mainly it is caused by irrational exuberance.
The whole theory behind a stock market bubble comes to how high the market can go based on irrational beliefs or beliefs that are not attached to reality. The psychology drives the market upwards until something shakes the psychology, creating doubt in investors’ irrational ideas about how much money could be made in the stock market. Thus, if those ideas are shaken to a large degree, the bubble will burst, and the stock market will come tumbling down.
Chief among those beliefs is that the economy is about to boom, and Covid is in the rearview mirror. What about the tens of millions of people going to come off extended unemployment benefits in September? That is a convenient statistic that no one covers. What about the 44.7 million people going to have to start paying their student loan payments in October? Surveys show that a high percentage of these borrowers would not begin to make payments again if required to do so today.
Now the mother of all psychological effects is in the COVID Delta Variant.
For those people who are vaccinated, you can still catch it. Supposedly it is not life-threatening. Then there are the people who are not vaccinated. There will be community spread because people, for the most part, have transitioned back to normality as if we never even had a pandemic. The media will over sensationalize it. The politicians will use scare tactics to create a sense of urgency to get vaccinated. (they want those numbers up) The narrative and the optics won’t be good sending normalcy out the window. Of course, this could also blow over – what are the chances?
We saw how COVID changed everything in 2020. We were supposed to learn how to live with it in 2021. Are we on track, or are we on the track of 2020 where we hide from it? It is a tough question with few good answers.
Meanwhile, that pin (or picture a vaccination needle) is aiming for that stock market bubble just in time to pop it. My objective is not to add to the fear. It is to explain the other side of the story that is rarely being covered by the media. It is to open your eyes to another alternative in the hopes that you will assess your risk levels and make sure you are prepared.
If it isn’t COVID, something will be the pin that pops the bubble at some point.
Need a second opinion about money and investment issues? Just ASK BOB! Bob is available and always happy to share his views.
Bob Brooks is a Financial Adviser and host of The Prudent Money Radio Show, aired daily at 3 PM CST on 91.3 FM, 97.5 FM, and 99.9 FM in the Dallas Forth Worth metroplex. Listen online at www,prudentmoney.com. You can reach Bob at 972-386-0384 and online at firstname.lastname@example.org.