A Wealth of Common Sense: Animal Spirits: The Super Bubble
Asset prices are based on a number of variables. There are metrics like the price-to-earnings ratio in the stock market. Or the level of an interest rate when looking to get a home mortgage.
But prices can also be influenced by emotions. Investors didn’t seem to mind when stimulus checks hit the economy, as it led to higher asset prices right away. Now, we’re dealing with the inflationary after-effect of printing so much mone
A number of investors have already noted the amount of money increasingly being created and moving into the financial system over the years. That’s led to a few calling all asset classes as overpriced, even in a “superbubble.” And if market sentiment changes, that could lead to a huge drop.
One such proponent is Jeremy Grantham, who sees a reckoning coming. With both stocks and bonds down a sizeable amount this year, other asset prices may decline as well. And as long as the Federal Reserve is willing to raise interest rates, there will continue to be pressure on financial assets like stocks and bonds.
As financial assets drop, the big winner from the inflation and money printing of the last few years appears to be the lower 50 percent of households. They’ve seen job changes and bigger salaries and raises, which may lead them better off in real terms.