Skeptical Insight #21

If we’re in bubble territory, we should study previous bubbles to see if we find any similarities.  

Let’s look at Japan before its stock market bubble burst in 1989.  

Poor little bugger still hasn’t recovered in 3 decades and proves that up-only isn’t always up...only.  

And that works until.. the buyers disappear.  

Then poof, it’s gone. 50% of the value was erased in 6 months.  

Japan’s GDP at the height of the bubble was around 15.5% of the worlds GDP and the value of the stock market was 45% of the world index.  

The trade was easy in hindsight – sell Japan and buy US.  

Below I show the SPX/NIKKEI with the dotted vertical line being the bubble pop – you’ll see this chart later. 

The US went on to outperform the NIKKEI over the next 30 years by 3,331% as the NIKKEI dropped 82% to levels where it fell in 2009.  

We know how well the S&P has performed since then.. up 2,400% since ’89.  

I have the NIKKEI on the top and the SPX on the bottom.  

Don’t squint because you may end up seeing the same thing.. 

And I get it – it feels safe everyone wants to own US stocks, and I don’t blame them. It seems the FED can continue printing money to kick the can down the road. 

Until the can can't get kicked any further.

Let’s see what AI has to say about the situation:  

Now let’s re-read that with our investment goggles on and replace 'Japan' with the 'US'..  

Fishy in-it? 

It’s all very well studying past cycles but if we don’t have any practical application, it is worthless.  

So, let's look into the future. Who is the next likely power?  

China. And if you’re not careful, they’ll buy your kids.  

The US’s GDP is 14.5% of the world economy but the stock market weighting is around 64% of the global stock market. 

China is sitting with a GDP of 18.8% and a stock market of 11.5%.