Today I came across an interesting article by Ruchir Sharma in the Financial Times. In the article, aptly named ‘The mother of all bubbles,’ Ruchir describes the absurdity of investors’ gluttonousness for US stocks.
The image of America as an exceptional nation leading the world has long forgone. The article reads how “in political, diplomatic and military circles, the talk is [more] of a dysfunctional superpower, isolationist abroad and polarised at home.” An impression that was further reinforced by the presidential elections last month.
Yet, the faith in the financial markets appears to be unaffected. On the contrary, November has shown the strongest relative outperformance of the US market compared to the rest of the world. Even when correcting for the domination of Big Tech, the rest of the world was outperformed by more than four to one since 2009.
While there is some rationality to this premium, the US financial market share (70%) is completely disconnected from its share in the real economy (27%). As such, it is not surprising to read Sharma conclude that “America is over-owned, overvalued and overhyped to a degree never seen before.”
While these fundamental figures might alarm and spur any ‘rational investor’ into action, the financial world is known for disregarding anything that may suggest that its pricing is wrong. (With repeated financial crises as a result.)
Since financial bubbles1 are built from speculation rather than empirical facts, it’s impossible to know when—but not if—they will burst. Nevertheless, with an impulsive driver back at the wheel, today seems a good one to assess your exposure to this ‘mother bubble’-risk.
For more detailed insights, please find the original article here.
