Are We In A Market Bubble? Why I took a Break from Trading

 Hi! there, and Welcome.

What do you know about market bubbles? well, let me first of all explain what I think a bubble is. Take an inflated balloon for example. It takes just a little puncture for all the air to come out. That is to say, a bubble is an inflated stuff. Whether or not that stuff can stay inflated is the most important question.

                                                                                     

                                                2024 Market Bubble by Dalle.E.3 MS Copilot

We are almost through Q1 of 2024 and we have had record-breaking months in February and March with stock and cryptocurrency markets hitting all-time highs. Wait! read that last statement again. These markets have been making new highs today and breaking those highs the next day. In fact, as I write, gold is headed to the all-time high it put in just 7 days ago. As a day trader, I sometimes laugh when I take profits and the market just blows past that point and continues in the direction I was in. But, I have quietly laid low and turned myself into an observer and a student of forward testing. 

Back in September 2023, I began reading a book called "A Random Walk Down Wall Street" by Burton G. Malkiel. I'm about to start chapter 8. Yeah! so before you judge me for being on chapter 8, I admit that I know I should be done reading it by my standards but I have just been lazy with finishing it and besides, I'm reading lots of stuff at the same time lol. 

This book somewhat made me to exercise caution when the markets are overly hyped as they are now. That is, the book has gone through history and explains lots of market bubbles in ancient China to the Tulip bubble in the Netherlands, as well as the 1990s dot.com bubble, and the 2008 mortgage crisis bubble. And as someone who lost a lot of money in the 2021 Post-Covid bubble, I must say, what I see happening now as I write may go down as the 2024 artificial Intelligence (AI) bubble. 

Wait! Before you come at me, let me be clear that I do not doubt the significant and economic boosting powers of AI. What I'm witnessing as the book I mentioned above clearly spells out in chapter one, about investment theories is that we are witnessing a speculative spree of cheap money built on a house of cards. Burton G.M. puts forward two investment theories the Firm foundation theory and the Castle In the Air theories of investing. Safe for me to say, what we are witnessing is a pure castle in the air theory, embedded within which are people purely speculating by buying into assets that are trading not based on their current earnings but on their future forecasted or speculated returns. As the words imply, I have to ask you, Who in their right senses builds castles in the air? 

My idol Ray Dalio, pointed out how his models seem to suggest that markets are trading at a point where he cannot possibly consider them bubbly. When someone like that speaks, you have to adjust your position. As a day trader aspiring to turn myself into a full-time investor, I could care less in what direction the markets are going as I'm typically getting in and out of the market in the major direction of the market. So when Mr Ray. D published that article, I decided it was time to actually take a break. 

While on break, I have kept researching and fitting the pieces together to make sense of these insane market prices and it just doesn't add up. For example, we have had record inflation which subsequently led to record interest rates from all major central banks of the world and eventually plunging the markets into a crash as seen in 2021-2022. With central banks now positioned to lower those interest rates and communicate this to the markets, it was normal for the markets to rally, and added to that, was the ushering in of the AI technology which boosted markets as everyone saw that this is a technology like no other. However, since 2024, we have seen the very inflation that caused rates to go higher begin to creep back into the frame. Somehow the markets have ignored this and added to that, we are seeing physical and abstract (trade) wars causing continuous supply chain disruptions around the world. Wait! central banks have not stopped printing money and remember it was this money printing that led to the last inflation spike. 

I don't know about you but I have been long enough in finance to realize that when markets are either overly bought or sold, I should take cash and shift aside because sooner or later, something is going break and puncture the bubble. 

I hope you have some cash saved up because remember, you want to be a buyer when everyone has sold and a seller when everyone has bought. For now, the day trader is doing fine!!

Have a blast!