The Market Is About To Drop – Again

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The Ray Dalio Bubble:

First: High prices relative to traditional measures of value.

Second: Unsustainable conditions – like, extrapolating past revenue and earnings rates when they can’t be sustained.

Third: Many new, and naive buyers who were attracted because the market has gone up

Fourth: Broad BULLISH sentiment

Fifth: A high percentage of purchases being finances from DEBT

And Six: A lot of forward and speculative purchases made to bet on price gains.

He noted that his “Bubble Indicator” was approaching 70% of the peaks last seen in both 1929 and 2001, suggesting that, some stocks were SEVERELY OVERVALUED…and, poised to crash under the right conditions.

Well, he shows that – relative to PREVIOUS BUBBLES – the market is HIGH – but, declining. The price to earnings growth is also somewhat elevated, but – as fewer NEW investors come to the market, valuations have had a chance to come back down…forward growth suggests there might be some more room to drop…but, the shocker from all of this: BULLISH SENTIMENT is at an ALL TIME LOW.

Now, here’s why that last point is SO interesting: Studies have shown that – GENERALLY – the MORE PEOPLE BELIEVE the market is going to crash…the more likely it is to do THE EXACT OPPOSITE. After all, Recessions follow Peak Euphoria…NOT Peak Fear…so, when consumer sentiment drops, and bullish sentiment is at an all time low…that generally indicates that…hey, it might be a good time to buy.

This is important, because the overwhelming data finds that…the average investor is almost always WRONG at the most crucial points….and, if the “Average” Person believes prices will continue going higher…USUALLY…that’s a sign that…things are actually going to get worse.

So, to me – the best diversification is to simply invest on a consistent basis, throughout as many different sectors as possible – including stocks, real estate, cash, and maybe a small portion of cryptocurrency…and then…understand that prices will fluctuate outside of your control for reasons that sometimes make absolutely no sense…

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