Extremely easy access to cheap money. That’s what inflated the dotcom blimp in the late 1990s. That’s what pumped up the housing balloon in the 2000s. And that’s what is responsible for the “Everything Bubble” today.

How frothy? Here are three charts that delineate the obscene particulars:

(1) No Profits, No Problem. The history of stock returns comes in at around 9.5% annualized. Throughout most of that time, profitable entities served up dividends that provided about two-fifths of the total return. Year-over-year price appreciation might have been responsible for 5.5% of the 9.5%.

Over the last year, technology companies that lose money hand over fist did not merely gain 5.5%. They did not merely match the 16% gains for the broader S&P 500. No, they catapulted nearly 250% from mid-February 2020 to mid-February 2021.

(2) The Trashier, The Better. Junk bonds represent corporations with the weakest balance sheets. Some of them, affectionately named “zombies,” struggle to earn enough income to pay the interest on obligations, let alone pay off debts in their entirety.

Yet investors feel they have no choice. They are starved for income with few options that earn a positive, inflation-adjusted, return. Consequently, highly indebted corporations with the poorest prospects are getting away with offering market participants sub-4% yielding securities.

(3) Crypto Craziness. What really justifies a 500% gain over six months? A hedge against the loss of purchasing power for the U.S. dollar? The likelihood of widespread bitcoin adaptation in the future?

Regardless of whether crypto is or is not a viable store of value, parabolic moves rarely reflect common sense. This asset’s meteoric explosion speaks more to the endless money printing liquidity by the Federal Reserve and the crypto-pumping tweets by Elon Musk than to rational price movement.


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The Unrestrained Reflation of Today's Stock Bubble