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Signposts of the end
In addition to 12 years of a consistent, strong bull market and the price/earnings ratio at an all-time high, there are other familiar signposts of the end. Towards the end of a stock bull market, questionable assets appreciate with abandon. There are many examples now:
- Tech stocks: Tesla trades at 949x earnings (4/19/2021) and has a market cap (company value) nearly as great (87% on 4/19/2021) as the seven other big car companies combined; Toyota, Volkswagen, Daimler, GM, BMW, Honda, and Ford.
- Meme stocks: investors came together on popular anonymous social media platform Reddit to drive the price of GameStop, a shrinking brick and mortar retailer of video games, up more than 8x in January. It now trades at less than half of that (4/19/2021).
- Crypto-currencies: Bitcoin is up 1,026% (or 11.3x) since the low in March last year (3/16/2020 – 4/19/2021).
- Non-fungible tokens (NFTs), which facilitate an immutable transfer of ownership for a digital file, have traded at “double-take” levels. For instance, digital artist Beeple sold a collage of his art that anyone else can see (albeit without official ownership or full resolution) in a Christie’s auction for $69.3 million on 3/11/2021. This was the third most expensive piece of art ever sold by a living artist and it isn’t tangible.
- Special purpose acquisition companies (SPACs) are an investment vehicle that serves as a loophole to take a company public before it meets the standards it would need to go public by itself. It has created a frenzy in companies raising funds from eager investors without meeting the standards of an individual stock listing.
- Sporadic blowups: The $10bn family office Archegos lost all of its money and more when large leveraged holdings Viacom (VIAC) and Discovery (DISCA) quickly lost half of their value in March. Some think this is just a harbinger of future similar incidents.
