Baldinvestor.com

Insights into behavioral investing on the Australian share market

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Banks all predict correction

There are no doubts that many assets now are in huge bubbles. The US on most measures has never been more expensive and tech shares and crypto are clearly entering a mania stage, where everyone talks about investments and the profits they are making. To newcomers to the market this is all exciting, but it reveals there is not much more to go before bubbles burst.

The NASDAQ index has gained now probably about 10X from its 2001 bubble pop. This is phenomenal returns over a 20 year period and cannot continue. Bitcoin must have gained about 10X from its March correction. Bitcoin may have some value and may not, but it is not really investing and relies on someone having more confidence in its prospects than you do. Afterpay is now up 15X from its March lows and is still showing no profits – with a market cap approaching 40billion! Once something breaks loss of confidence may cause it to go to zero. The future ahead for these assets will deliver either negative returns or many years of sub par returns.

We think there are always possible good investments in a market somewhere but these involve lots of digging around. Investing in a US index at current levels will likely prove unwise.Presently everyone thinks they are wonderful investors and will be able to sell down their assets before the next person if a crash occurs. History has shown that this is rarely the case.

Many banks are starting to predict a correction is overdue and this seems clear given the state of markets now. Last night the US markets had another big rally , almost reaching 13500 on the NASDAQ. The steeper this rally gets, the more prospects for a massive fall. Holding higher levels of cash to take advantage of lower share prices would not be a bad choice. 2021-01-21
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