To The Moon

We know that the Buffett index uses the total market value/GDP of stocks to explore whether the current financial market reasonably reflects fundamentals. Buffett's theory is that the total market value of stocks accounts for about 75% to 90% of GDP, which is a reasonable range, and more than 120% indicates that the stock market is overvalued. By the way, I provided a picture of the Buffett index. Before the quantitative easing was launched in 2008, this indicator was around 54, but the latest index is about 147, although the recent $SPDR S&P 500 $SQQQ(SQQQ)$. US has fallen a lot.

The chart below shows the data of the total market value of housing and stocks in the United States as a proportion of GDP. I think these two pieces can be more comprehensive when combined. At present, the total value of the housing and stock markets in the United States is about 81 trillion, while GDP is only 25 trillion. We don't dispute how much is reasonable here, but what I want to express is that the past quantitative easing and low interest rate environment has greatly raised asset prices, but GDP has actually not kept up with the pace. I don't think this is a very healthy situation. As a matter, asset prices should at least be with GDP. The trend is close to more normalization, rather than getting more and more deviating. Such a situation can also explain why the wealth gap is getting worse and worse, those with assets are getting richer and richer, and worse and poorer.

I think that after the Volcker era, we have gradually moved to low interest rates in the past few decades, resulting in explosive growth in asset prices, which is not tight. Then, coupled with the quantitative easing launched in 2008, has exacerbated this asset price bubble, which benefits people who own assets in the early years, but unfortunately, the current dilemma faced by the new generation is not easy, because they did not catch up with this wave.

However, it is worth noting that interest rates are rising at a rapid rate, which is likely to lead to the reprice of stock and real estate prices. Asset price VS interest rate is a warping relationship (as shown in the figure). I can't know when this round of tightening will stop, but if the Federal Reserve continues to raise interest rates and QT, I subjectively judge that the interest rate may eventually reach 6%. If the Federal Reserve loses weight due to QE's balance sheet, then I think this indicator will probably go. It is only healthier until 200% (housing market + total stock value/GDP). $SPDR Dow Jones Global Real Estate ETF.US$Real Estate Select Sector SPDR Fund(XLRE)$

This also means that I think that when the interest rate gradually normalizes and the effect of QT is two-pronged, I think the global asset price may go back to the price near 2008. It may seem to be a little fantasy at present, but this is indeed a potential risk worth observing in the future.

@Daily_Discussion@MillionaireTiger@TigerStars