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A $1.4 Trillion Sign We’re Dealing With A Massive Market Mania

Dear Reader,

Over the last several weeks I’ve shown you why to remain cautious with your investments even though it looks like the pandemic – hopefully – will come to an end by the start of the Summer.

Today let’s get back to talking about one of the largest risks… The extremely overvalued stock market.  But first let me give you context from recent articles on this.

Plus, on top of this market valuations are still either at their all-time highest levels or their second highest levels ever depending on which metric you look at.

Yes, the only other time in history according to the metric – Shiller PE or CAPE ratio – the S&P 500 was valued higher only once in the last 120 years and that was right before the Dot Com bubble crash.

The market is valued at a higher level now then right before the Great Depression.

High valuations don’t mean a crash is coming soon… But they increase the likelihood of a crash…

But this isn’t just me talking… Here’s Jeremy Grantham of famed investment firm GMO…

“The current stock market is “one of the great bubbles of financial history, right along with the South Sea bubble, 1929, and 2000.”

“These great bubbles are where fortunes are made and lost — and where investors truly prove their mettle…Make no mistake — for the majority of investors today, this could very well be the most important event of your investing lives.”

These bubbles and then crashes were some of the worst in world financial history.

According to some estimates, at its height the South Sea Company was worth $4 trillion in today’s money after factoring in inflation.  Making it by some estimates the most valuable company ever.

As you can see in the chart above shares, in the South Sea Company rose from £100 in 1719 to more than £1,000 in August 1720… Only to spectacularly crash after the speculation ended.

The company never fully recovered.  And many of its directors went to jail and were accused of treason.

This according to Beth Daley of TheConversation.com.

The same thing happened before the Great Depression in 1929…

This led to the greatest and longest recession in world history.  And transformed an entire generation and how they thought about the stock market.

Many never invested in stocks again.  And it took 25 years for the stock market to reach another high.

The same thing happened again with the 2000 Tech Bubble Grantham mentions…

It took almost 20 years for the NASDAQ to reach another high after this crash.

We’re repeating history again today…  In both my estimation and Grantham’s.

This makes investing in stocks riskier now… And it also means you should expect lower returns owning stocks – if you buy today – for potentially decades going forward.

Yes, you can still buy individual stocks that will make you a lot of money over the long term – which is what I try to help you do every day.  But the overall risks in the market are extremely high right now.

And this is a best-case scenario.

Frankly, I’m not going to go into the mid case or worst-case scenarios I researched because they follow these same lines… But the economic and investment situations are far worse.

Let’s go one step further though.

Let’s say unemployment craters as Covid cases do and the economic situation in the US and worldwide improves faster than I expect.

The market valuations are still insanely high.  And already brings in a huge – almost historic – amount of risk into investing today.

I’m not trying to throw cold water on the Pandemic Victory Parade… I’m an eternal optimist and hope this comes true soon.

But when I talk about investments, I don’t tell you anything based on hope.  I do on actual data and information.

And there are still enormous risks in the market right now due to the valuations… Even if we are at the end of this pandemic.


With this in mind, let’s get back to talking about valuations this week.

A report came out from JP Morgan’s Conor Hillery – co head of investment banking in Europe, the Middle East, and Africa – that showed “global deal making has already reached $1.4 trillion this year.”  And we’re only at the end of March.

To put this into context…

That’s a 103% increase from this time last year… And it’s the fastest start to any year in the last two decades during the Tech Bubble.  Both according to Dealogic.

The $1.4 trillion in deals already done this year is like the entire size of the Australian economy.

This is so extreme that just from these deals alone investment banks have made $30.6 billion in the first three months of the year… Making this the best quarter ever in terms of fees earned for investment banks.

The unprecedented boom in special-purpose acquisition companies (SPACS), which promise private companies a faster route to public markets, helped push equity capital markets (ECM) fees up by nearly 340% compared with the same period in 2020, to $13.1 billion. That is more than double the revenues in any first quarter over the past 20 years, according to Dealogic. 

Again, 20 years ago right before the Tech Bubble popped.

This is from MarketWatch with emphasis being mine above.

The last time we saw a frenzy like this in a particular industry was the housing boom and then bust that led to the Great Recession.  And then also back in the early 2000’s right before the Tech Bubble popped.

You know what happened with the Housing Bubble when that popped… And you saw the chart above about what happened after the Tech Bubble popped.

Plus, you throw on top of this the other risks I’ve talked at length about in the last couple weeks…

  • Inflation
  • Unemployment
  • Debt

There are multiple massive risks in the market and for your retirement right now. And no one is talking about them. 

In the face of all this, the market continues to rise as its up 8.6% this year already.

And the markets valuation is even higher now than it was a couple weeks ago.

As I’ve said a couple times in the last few weeks…

Valuations are still sky high which makes investing right now incredibly risky… Especially combined with the bad economic situation and high unemployment in most countries right now.

And frankly, we still don’t know enough yet to tell whether the pandemic is truly over… Or if it’s going to come roaring back at some point.

We just don’t know.

I’m not saying you sell everything unless you want to lock in profits.  What I am advising here – and do daily – is advise caution… And only investing in the best.

Because if you invest in undervalued stocks that have huge competitive advantages, leading to large profits and cash flows, and little to no debt… The best… You’ll earn higher and safer returns no matter whether the market crashes tomorrow or 10 years from now.

As I said above, I don’t recommend you sell everything… So, what’s the best way to protect yourself from all these risks?

Make sure you’re in great stocks that have the following traits…

  • They’re cheap.
  • They have little to no debt compared to a lot of cash.
  • They produce large profits and cash flows.
  • And make sure they aren’t in industries that could be hammered by Covid.

These kinds of stocks – the ones I try to find for you every day – are things you should continue investing in because they will provide you good to great returns no matter what the market is doing.

All while protecting you from the major risks like valuation, unemployment, debt, and inflation.

To see some of those kinds of stocks that will help protect your retirement portfolio – Click the links below.

Disclosure – Jason Rivera is a 14+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.

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