The Everything Bubble | 2022

The everything bubble of 2022 and what economists are saying will happen.
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Sources:
https://ec.europa.eu/info/sites/default/files/file_import/8_geoff_kenny_ecb_paper_0.pdf
https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20211215.pdf
https://nyti.ms/3yNcdOM

WHY DID THE MARKET CRASH TODAY?
Investors are uncertain about what’s going to happen this year. The stock market didn’t really crash but it dipped because fears of the new variant as well as an increase to interest rates.

WHAT ABOUT INFLATION THOUGH?
This year we had a lot of it. For every $100 we kept around in cash, we lost somewhere between $6 to $7 in purchasing power and a lot more depending on what we’re trying to buy. However, we invested into the stock market’s S&P500 at the beginning of this year, we would be up almost 25%.

Real Estate was also huge for investors. I was lucky to buy a house this year right before the market took off. The median home price went up to $400,000 for the first time ever and if you bought at the end of last year, you’d be up almost 13%. If you had bought a home before the pandemic started when the median was only $313,000 you’d be up a gigantic 29%.

A Goldman Sachs analyst is saying that by the end of next year, home prices will grow another 16% which is insane when you consider that real estate should typically grow between 3.5 to 4%: https://bit.ly/3yM4QqH

Cryptocurrencies also did incredibly well. If you bought Bitcoin in January – you would be up 17 and a half thousand dollars or 59%.

WHAT’S DIFFERENT NOW?
Some economists are starting to worry that instead of inflation, we could get deflation. Here are 3 possible scenarios.

SCENARIO 1:
STAGFLATION: which is a combination of stagnation and inflation. Stagnation is when incomes aren’t growing, there’s high unemployment combined inflation. But the real question is – now that we are already up 6.8% in November – will inflation look closer to what we saw in 2007 right before the financial crisis or is it closer to the one in the 70s when inflation hit 12 percent in 1974? Neither most likely.

The 1970s was a result of run on the dollar when we moved off the gold standard, social welfare programs were expanded thanks to Nixon, there were low interest rates to help fund the ongoing war, but mostly – what started it was that they enacted something called “price or wage controls”. That gave the government power to control how much stuff cost by controlling how much people were making.

SCENARIO 2:
The second scenario is a short burst of hyperinflation which took place between 1946-1948. We just got out of WW2, most people weren’t traveling, they weren’t spending money, they were just working to make sure we won. There was a lot of pent up demand but companies at the time weren’t focused on making consumer stuff as much as they were focused on producing war stuff.

The most popular job that represented a big part of the economy in that era was manufacturing – and wages grew 22% in that sector. That meant a lot of money was trying to buy not enough stuff which caused a huge inflation spike of 20% in 1947. But that spike quickly went away and by 1949 we had deflation. Could this be a repeat from almost 80 years ago? Yes it could.

SCENARIO 3:
Deflation. Watch the video to hear my personal thoughts about the everything bubble and deflation that economists are worried could happen.

*None of this is meant to be construed as investment advice, it’s for entertainment purposes only. Links above include affiliate commission or referrals. I’m part of an affiliate network and I receive compensation from partnering websites. The video is accurate as of the posting date but may not be accurate in the future.

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