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The Everything Bubble: How to Protect Your Wealth from the Looming Market Crash



The Everything Bubble: What Is It and How to Prepare for It

You may have heard the term “everything bubble” being used by some financial experts and commentators lately. But what does it mean, and why should you care?

The everything bubble is a term that describes the situation where almost all asset classes, such as stocks, bonds, real estate, commodities, cryptocurrencies, and even some exotic assets like non-fungible tokens (NFTs), are experiencing inflated valuations and high levels of speculation. This is largely due to the unprecedented monetary easing by the central banks, especially the Federal Reserve (Fed), which have pumped trillions of dollars into the financial system to support the economy during the coronavirus pandemic and other crises12

The problem with this situation is that it creates a disconnect between the asset prices and the underlying fundamentals of the economy. In other words, the prices are not reflecting the true value of the assets, but rather the cheap and abundant money that is chasing them. This makes the markets vulnerable to a sudden correction or crash, if something triggers a change in sentiment or expectations34

Some of the potential triggers that could pop the everything bubble are:

  • Inflation: The massive money printing and fiscal stimulus have raised concerns about rising inflation, which erodes the purchasing power of money and reduces the real returns on assets. Inflation also forces the central banks to tighten their monetary policies by raising interest rates or reducing their asset purchases, which could cause a sell-off in the bond market and spill over to other markets56
  • Recession: The global economy is facing multiple headwinds, such as the ongoing pandemic, trade wars, geopolitical tensions, and social unrest. These could weigh on the growth prospects and corporate earnings, which are already stretched by high valuations. A recession could trigger a wave of defaults and bankruptcies, especially among highly leveraged and speculative sectors, such as junk bonds, cryptocurrencies, and SPACs.
  • Regulation: The rapid rise and popularity of some new and innovative assets, such as cryptocurrencies and NFTs, have also attracted the attention of regulators and lawmakers, who may impose stricter rules or bans on them. This could limit their adoption and growth potential, or even render them worthless in some cases.

So how can you prepare for the possible bursting of the everything bubble? Here are some tips:

  • Diversify your portfolio: Don’t put all your eggs in one basket. Spread your investments across different asset classes, sectors, regions, and strategies. This will help you reduce your exposure to any single market or risk factor, and cushion your losses in case of a downturn.
  • Reduce your leverage: Don’t borrow too much money to invest in risky assets. Leverage can magnify your gains in a bull market, but it can also amplify your losses in a bear market. If you have too much debt, you may be forced to sell your assets at a loss to meet your margin calls or repayments.
  • Have some cash: Cash is king in times of uncertainty and volatility. Having some cash on hand will give you liquidity and flexibility to take advantage of any opportunities that may arise in a market crash. Cash can also act as a hedge against inflation, if you hold it in a strong currency or a stablecoin.
  • Be cautious and patient: Don’t get carried away by greed or fear. Don’t chase after bubbles or panic sell at the bottom. Be disciplined and rational in your investment decisions. Do your own research and analysis, and stick to your long-term goals and plans.

The everything bubble may not burst anytime soon, or it may not burst at all. But it is always wise to be prepared for any scenario, and to protect your wealth from any potential shocks. Remember, as Warren Buffett once said: “Be fearful when others are greedy, and greedy when others are fearful.”

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