Bubbles, blowouts, and bailouts

15 March 2022

Bubbles, blowouts, and bailouts

We are witnessing one of the greatest bubbles in history unfold. Valuations in financial markets have reached extreme levels due to especially three factors 1) central banks, 2) passive investment funds (investment management buying typically indices at any given market price), and 3) individual investors (like you). Central banks are pumping immense amounts of liquidity (money) into financial markets. We are seeing historically high participation of individual investors and passive investment funds in investment activities.

  • Institutions are bailed out if they lose money. What do you do if we enter a longer downturn in financial markets?
  • The central banks, passive investment funds, and individual investors are blowing up a historical bubble.

“The party that’s just getting started...”

Everyone is having a blast in financial markets. Since the COVID lockdown was manifested in our lives, you could do no wrong when investing your money. Every person in the street has become an investment expert and mocks Warren Buffett and his ‘lower’ returns. It is a highly peculiar situation amid one of the worst economic crises in history. Bankruptcies of small- and medium-sized businesses are starting to roll. It is important to understand that our economy is carried by small- and medium-sized companies and not large companies.

Why have the financial markets and the economy become so disconnected? And how can Astro.io help individual investors in this situation?

Central banks meltdown

Long story short, central banks led by the Fed (the central bank of the United States) have been running their quantitative easing experiment (stimulating i.e. pumping liquidity into financial markets) since the mid-1990s. After the financial crisis in 2008, the central banks have gone nuts to keep financial markets afloat. Playing gods, central banks tend to believe that they can prevent a crisis. Extreme stimulus means extreme debt. Extreme debt often means crisis or at least a highly delicate economy.

Passive investment fund ignorance

Today, there are passive investment funds all over the place. Everyone with a minimal understanding of financial markets wants to create a passive investment fund because “it is just so simple and cheap for individual investors...”. Still, few realize the enormous consequences of having so many passive investment funds participating in the markets. Passive investment funds do not actively analyze financial markets nor -assets. They simply buy and sell (mostly buy) at whatever given market valuation. This is a huge blow to the efficiency of the financial markets. Ultimately the passive investment funds’ participation contributes to artificially high market valuations.

Individual investors left by themselves

Since March last year, individual investors have been flocking to the financial markets led on by neo-investment platforms. At Astro.io, we cheer for the higher participation of individual investors. But we do not cheer for individuals taking on unnecessary high risk because they do not fully understand what to look for when investing. Individual investors have been chasing many of the same investments the past year. Consumer favorite products and companies have been heavily soaring.

How the Astro.io app helps you

The Astro.io app will help you understand the risks of investing your money and how external factors like the central banks may affect your investments. We give you complete control of your investments and reduce the dependency on passive investment funds. Astro.io equips you to feel more comfortable about investing your own money on your terms by mapping out insights while you invest. The Astro.io mobile investment app will help you avoid taking on unnecessary risks when investing.

Manage your money carefully. No one will bail you out.

All the best.

\Rasmus & Astro.io team