An asset bubble is forming at an unprecedented rate. The bubble is being formed, in part, by the influx of cash into the technology sector, which has attracted an eye-watering $19 billion in the last six weeks alone.
This is according to the Bank of America, which also reports global market capitalisation has ‘risen $50 trillion, or $6.2 billion an hour’, since March 2020.
This asset bubble, like every asset bubble before it, is being caused by low interest rates and, like every asset bubble before it, is beginning to cause sleepless nights as economists are predicting an inevitable crash (or, hopefully, a correction) as stocks rearrange themselves at something like their real value.
This is something that the global economy needs like a hole in the head right now, as we begin to believe that we can shrug off the pandemic and begin to explore a ‘new normal.’
This asset bubble is also not helped by amateur investors playing the market and playing with people’s money in extremely hazardous ways. Already, the GameStop story is an urban myth, and we will soon discover some of those who lost a lot of money because they got seduced by something that looked like an easy win.
The only real question about this asset bubble is whether the current circumstances are so strange that any correction will not, in fact, be as catastrophic as experts believe.
Big tech, indeed any decent tech, is more valuable to the world and its people than ever before. Before the pandemic, you could entertain the notion that a world without technology was somehow attractive, certainly not something you would rely on to support your life.
Now, technology is front and centre, and this will not change. It will become more valuable.
Experts may warn of an asset bubble that is about to explode in a messy and destructive way. But it is just possible that the assets’ real value has increased far more than the analysts believe possible.
Only time will tell.