Ray Dalio's Stock Market Bubble Signs (Warning For 2022!)

Understanding these stock market bubble signs from billionaire investor Ray Dalio and his hedge fund Bridgewater Associates will help you prepare as stocks kept hitting all time highs in 2021! Add me on Instagram: michellemarki

Timestamps:
0:00 Is The Stock Market In A Bubble?
0:44 Interest Rates To Stocks Is Like Gravity
1:32 Ray Dalio's Bubble Indicators
4:02 Halfway There To The DotCom Bubble Level?
5:04 US Stock Market Bubble Gauges
7:50 When Stocks Decline In The Long Term Debt Cycle
8:51 Is The Fed Deflating The Bubble?
9:48 Elevated Expectations Lead To Underperformance
10:10 Liquidity Withdrawal Will Likely Pop The Bubble
11:19 Dalio's Classic Bubble Definition

Ray Dalio had said where we are in the stock market now is because of "plenty of liquidity and ridiculously low interest rates."

Dalio defines a bubble as an unsustainably high price and has 6 criteria by which he measures the extent to which stock markets may be in a bubble.

If we average out the bubble indicators from February 2021 for the total market and emerging tech, it was comparable to the overall score of 2007 or the Great Financial Crisis / Great Recession. It might stand to reason that conditions may be even frothier or bubblicious now going into 2022.

The Shiller PE and Buffett Indicator are remarkably close to the Internet Bubble peaks.

We are hovering at the levels of market overvaluation that it seems like the bubble could burst at any moment. Dalio admits that some stocks are in extreme bubbles, especially emerging tech companies, whereas a lot of stocks are not in bubbles.

He also likes to track a basket of bubble stocks, which have been flying way higher than the S&P 500 but appear to have peaked in February 2021.

Dalio said that what's often indicative of a bubble is a rush of new buyers who are attracted by rising prices in the stock market, which had already reached the 95th percentile in early 2021.

While sentiment now is almost as bullish as it was in the 2000s Bubble, it seems like IPOs and SPACs are just as hot if not hotter than they were in the DotCom Bubble.

With US total debt as a percent of GDP being as high as it's ever been, Ray Dalio in June 2021 gave an update of his long term debt cycle chart in which he showed the overall debt cycle contrasted with money supply and interest rate charts. I superimposed the Dow Jones index on top of that to see how stocks performed during similar conditions.

It appears that money supply seemed to be at a climax in 1946, similar to now. And then as interest rates began to rise, the Dow Jones fell from 1946 to 1950 before climbing again.

Bridgewater updated that the unprecedented amount of liquidity has caused their bubble measures to flash red in some pockets of global markets. They believe there is likely bubbles in areas of emerging tech, cryptos, SPACs, NFTs, and collectibles.

They wrote that "all bubbles eventually deflate and pop when they run out of the key fuel inflating them," pondering "whether the modest Fed tightening could begin deflating these bubbles."

They reveal how trading and call option volumes have been declining and how some of the bubbliest segments are down by more than 25% from their peaks. It's possible some of the bubbliest areas are deflating already.

The last time we had elevated expectations, growth stocks underperformed the rest of the market for the following decade.

Bridgewater noted how equities are especially sensitive to the amount of liquidity that has been pumped into the market from all the government's money printing, and stocks are less sensitive to actual economic growth.

They believe that withdrawing liquidity from the markets will be what most likely pops the bubbles they are seeing, forcing traders to liquidate leveraged positions in a wide market sell-off. This liquidity withdrawal will likely take the form of bond purchase tapering then interest rate hikes.

And while Ray Dalio says that the current stock market may not be in the highest bubble, and we can't necessarily say that it's even in a bubble.

Ray summarized it best when he said "a lot of liquidity, a lot of debt financed, debt monetization, makes for a classic bubble."

I look forward to making more investor friends! Please like and subscribe if you learned something or enjoyed my video. Thank you! :)

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Disclaimers: This content is for entertainment, information, education purposes only. Michelle is not a financial advisor and is not providing advice. Please consult with a professional financial advisor with a fiduciary duty and responsibility if you need help in your situation. All trademarks, logos, and brand names belong to their respective owners.

[financeabcs]

Good information but hard prediction to make. Better to stay invested than to run for the exits!!! 🙏

[cgrilley]

Please, please pick on ARKK, Michelle!!!! I'm down over 30% this year in that lemon investment!!! I'm leaving it in a dark corner of my portfolio and hoping it recovers in the new year somehow. Happy New Year!

[Richard_Dawson]

I have about 5% of my portfolio in Uranium bitcoin any advice on any other Crypto currency that I can grow my $300k capital to a million Dollar.

[kevinmurphy]

Thanks for the video but tbh, Ray seems to say a whole lot without really saying much.