Transcription
The big question that everyone is asking is, are we in a bubble? And most importantly, and if we are, why? And how bad is it? And most importantly, what should you actually do?
Now, I'm going to give you a six-point breakdown on why we may be in a bubble in this entire process. Hey, um, if we have not uh if you're new to the channel, my name is Chiron Tribatza. I'm just a random handsome guy on YouTube. I was a banker at Goldman Sachs and at Credit Suites on Wall Street. And after that, I built and sold uh over five businesses. is and I've also helped run a public company on the NASDAQ. So, this is second nature for me. But you should always get your own advice in this process. But most importantly, I have nothing to sell you and I'm just sharing my personal lessons with you so that it uh hopefully can be helpful to you.
So, let's actually jump in and talk about are we in a bubble and the top six reasons why we actually may be. So, the reason number one in this process is uh valuations are stretched. Now, I'm going to go a little technical uh and I'll explain exactly where I'm going with all of this uh but valuations are stretched. the entire stock market. If you think about the stock market, think about the stock market as one company, right? If you think about it that way, you know that is that company overvalued or undervalued and that's how everything worked. So the stocks are priced like their money is still free. Meaning in reality, we're in a higher rate regime and the market just has not felt like it's caught up yet.
So let's talk about valuations as in what is this one stock worth right now? Sorry, I'm being technical, but it's important. the the price toearnings ratio for the S&P 500 is 27.99 on a trailing basis. So, and the forward-looking is about 19 uh 19.0. So, uh if you're not familiar with any of those numbers, let me explain exactly what it means because the numbers don't mean anything unless you compare it. So, the five-year average is 19.9. The 10-year average is 17.7ish. So during calmer years like 2014 through 2016, the forward-looking PS were closer to 16. So the 16 to 15 to 16 to 17 range. But here is the kicker. Those were the years that we had ultra low rates. Today the rates are higher. Inflation is stickier. Borrowing seems to be more expensive. Yet we're still pricing companies as if money was free. Or at least we think we are. That's like saying we're pricing Teslas if gas was still a dollar a gallon. We would price it differently, right? So, no, it's not a full dot territory boom. Yeah. Bust yet, but it's not grounded in today's reality either only because stuff is changing constantly.
Now, knowing that as the baseline, let me give you reason number two. There's something called Buffett's indicator and that's flashing red and and let me explain what that means. The market cap to GDP and I explain this is exactly what Buffett indicator is. market cap to GDP just at two uh 205%. That's beyond the dotcom territory. And uh this is why Warren Buffett, he's sitting on 150 or 200ish billion dollars in cash. Uh the this ratio, total market cap divided by GDP, is one of Buffett's favorite warning signs. Um think of it like this to give you some perspective. If the stock market were a country, its total value was now more than double the size of the real economy. Like think about that. So during the dotcom bubble we hit 150%. In 2021 we during the pandemic we soared to about 200%. And today we're over that at 205% and climbing. And what's Buffett doing? He's not chasing the rally. He's not he's holding record levels of cash waiting for opportunities. Now Buffett isn't dramatic when it comes to investing. He's when he when the greatest value investor of our time goes quiet, doesn't talk, that's silence. That's his signal. So there may be something to learn here.
Which brings us to a reason number three is that this is the crazy part and I've been watching this a lot, which is speculation is totally back in style. Meaning that retail investors, meaning you and me, are back and they're rolling the dice. They're rolling the dice. Speculation doesn't always mean a crash, but it it it sometimes uh gives us a warning sign that it precedes one. So, we're seeing the classic signs right now. Meme stocks are surging on Reddit. Meme stocks uh you have triple leverage ETFs that are hit hitting record inflows because people are saying, "Man, I want to take advantage of this opportunity." And I get triple leverage, meaning it's not dollar for dollar, it's one $1 for $3. Spaxs, which are these special purpose vehicles in which companies went public during during the pandemic, they're coming back, which we rode off. They're coming back. And more than 50% of all new brokerage accounts was open this quarter. And they were opened by investors under the age of 30. That's crazy. This is FOMO at scale. This is fast money chasing a faster story. And while that energy can be fun and is good for the market overall, it always ends up ending the same way. Okay. And so we got to track that as a data point.
Which brings us to reason number four, which is this AI and crypto peak hype. Now, I have some thoughts about this. Let me explain. When hope runs faster than earnings, it's usually a setup. Meaning, right now, AI and crypto are spinning, like totally sprinting. So, let's zoom out. Every bubble has a story. And in 1999, it was the stocks. In 2007, it was housing. In 2021, it was NFTs. And now, it's AI and these altcoins, bitcoins. I want to pause for a second. I am the biggest I am the biggest AI fan you will find out there. I think I I cannot I cannot I cannot believe a future without AI. I am way allin and I think it's going to change everything. Um however, it's not that AI is not here to stay. It's that how they're valued is what's very interesting, right? So, you can't just change the valuation of AI because it's going to change humanity. Like, we have no metric or barometer or baseline for how we value AI. and we're learning as we go along. I'm the biggest fan of AI. I don't know about the bitcoins and the altcoins and the memecoins, but I'm the biggest fan of AI right now. But uh we also don't know the infrastructure that happens behind AI. Nvidia's valuation just passed $2.5 trillion. That's more than like countries. Bitcoin's back over $90,000. And everywhere you turn, someone is pitching decentralized Uber for dogs and cats, etc. The earnings, I'm just saying the earnings just haven't caught up. We're just paying for the potential innovation for the future. We're paying for the cool stuff. The earnings have not caught up yet. The the use cases, meaning how you're actually going to use something like this, is still unproven. But the money is flooding in. But the investors are flooding in because we know that this could be the gold rush for a lifetime. We know that. But what's the disconnect? That disconnect is actually the warning in all of this because the valuations have not caught up to revenues and earnings, right?
Which brings us to reason number five is um history may not repeat itself, but it rhymes. And history is rhyming again. This moment smells like every bubble that came before it. Meaning, when you line up the ingredients, honestly, they're all the same. They're all here and they're all working in some way. So, it's important for us to look at these data points. Every major bubble has the same three ingredients. Number one, irrational optimism that something crazy is going to happen. That's the bubble. Like, it overvalues. Number two, there's easy money, and that's coming from like under 30 year olds right now. And there's speculative behavior. Hey, I think that's going to happen. speculation. All that it means is I am I am going to bet on something without having the rationale to bet on that thing. That's what exactly is happening. And you saw it with the pets.com crash. You saw it in 2008 with the real estate crash. You saw it in the Japan's asset bubble back in the 1980s and they had they've had two three decades of no flatline growth. And if you look at it closely again, you will see it again today. It is the same formula just different packaging, right? And the I'm not saying anything is I'm just saying, hey, is this a bubble that we should be thinking about?
So what is the answer? The answer is there isn't just one bubble. It may be a small cluster of them. It may be that in tech, it may be in crypto. It may be in real estate. It may be in AI. Even though AI is going to change the world, maybe they're all inflated separately and together. I I don't know. But this probably is not one. It's probably a series of them. And when that happens, you don't need a pin. You just need one to leak. And that means that the cycle is different. And it's not just one big bubble. It's a cluster of them. You've got tech stocks at high high multiples. You got crypto surging based on clear fundamentals. I own some crypto just so I have FOMO and not to miss out. AI startups are raising billions with no revenue just on potential innovation. Real estate and tier one is still priced like it's 2021. And all these asset classes together feel inflated together. So if one cracks, are they all related? The others could follow. I don't know. It doesn't take a big pop, just a little leak.
So the question here is what do we do about it? What do we actually do about it? Now what we have to realize is that is this one important thing. Bubbles aren't just about the price. They are about um belief that they grow up. Uh then they grow or these bubbles grow when people stop asking questions when when the story gets so good that nobody kind of wants to ruin it. And the best investors ask the questions. They ask anyway. So my kind of request to you, advice to you is the same advice to myself and my family is don't panic, don't buy the hype, and don't bet your freedom on someone else's fantasy. It's it's your chance to play the long game. It's your chance to protect your cash like Buffett and your chance to build wealth quietly while the world chases noise.
Now, uh you're listening to a random handsome guy on YouTube, right, in this process. But I will tell you this, there is this um there is this thought process in the world that says money doesn't buy happiness. And I could not disagree more because I know a I know tons of people who have just a little bit more cash who just a little bit more liquidity, can have a better life, can send their kids to college, can pay their bills, and pay can can get out of debt, etc. So, um I always like to tell my friends and my family the these six words and these six words are these which are uh work hard, uh be kind, and make more money. I hope that was helpful and I'll catch you on the next one.