They called it the Everything Bubble while it was inflating. Rarely do the mainstream media get it so right on the way up.
But all bubbles burst eventually. So, where can you hide now?
If everything was caught up in the bubble, then everything must now crash. Well, almost everything…
But what is the Everything Bubble?
Investment bubbles are as old as time. From tulips to Beanie Babies, investment mania and crazes can bid up the price of just about any asset. And I use the term “asset” loosely…
But bubbles tend to be confined to specific assets. We had the housing bubble of 2007, the tech bubble of 2000, the Asian bubble of the 90s, and the Japan bubble of the 80s, for example.
This time, just about every financial asset out there seems to be in a bubble at the same time. And that’s why they’re calling it the Everything Bubble.
Has the Everything Bubble finally burst?
Over the past few weeks, the prices of almost all financial assets have plunged. This is incredibly rare. Many investments are supposed to perform well while others are crashing, with modern investment strategies – such as diversification – built on this assumption.
But this hasn’t been true during the recent crash. Bonds plunged alongside equities, for example, which isn’t supposed to happen.
So why did it? Because bonds were bid up in the Everything Bubble alongside all other investments. So their prices fell as the bubble burst.
What to invest in as the Everything Bubble bursts
The Everything Bubble has made life very difficult for investors. There seems to be no place to hide from the carnage as almost all investment prices tumble.
This time, the only two sectors holding up alright have been energy stocks and gold. That’s because gold has a long history of performing well during a crisis, and its price was not bid up like the rest of the assets in the everything bubble. Energy stocks were also beaten down before the bubble burst, and they are benefitting from the energy crisis taking the world by storm.
This shows how owning undervalued assets protects you from bursting bubbles. They’re just harder to find during an Everything Bubble.
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What comes after the Everything Bubble has burst?
The big question investors now face is what central banks and governments will do in response to the bursting of their bubble. Will they try to inflate a new one to try and kickstart markets? Or will they prioritise inflation and allow the bubble to burst?
Markets are already pricing in interest-rate cuts and a recession – the reversal of the tight monetary policy that popped the Everything Bubble. But this is the same policy mix that inflates bubbles in the first place.
The question is, which assets will be part of the next bubble? Because those are the ones you should invest in.
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