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As big moves in both Bitcoin and equities lead investors to question whether market bubbles are about to burst, macro investor Raoul Pal says he’s looking at things from a different angle.
In a new video, Pal says questions about bubbles may miss a bigger picture of what’s happening in certain sectors of the economy.
“As you know there’s an incredible amount going on and it’s becoming increasingly difficult to make sense of it all. What’s real, what’s not. And the question we’re all asking is ‘Is this a bubble?’ And I don’t even know if that’s the right question to ask…
Our own perceptions can become our investment biases as well, where ‘I don’t like crypto, therefore it’s a bubble,’ or ‘I don’t like US equities because they’re very expensive right now. They’re a bubble.’ But mostly, these things are shades of grey and many reflexive trades that many identify as bubbles can go on a lot longer than many of us can imagine or maybe we’re at secular shifts. Those things happen too.”
The Real Vision Finance co-founder notes that in the past, there have also been many market conditions that looked like classic bubbles. Eventually though, such as with Amazon, what looked like a bubble was just a genuine paradigm shift in capital.
“We’ve seen the massive explosion of the rise of companies like Tesla off P/E ratios that were unprecedented. But then again in the past, Amazon traded off P/E ratios of 800 and it never really corrected. The business caught up. So I don’t know how much is speculation is how much is a true shift, how much is the game changing.”
Pal also says markets are getting natural boosts from millions of millennials who are now entering the investment world.
“It could be speculative activity just because of the sheer numbers of millennials entering the investment place means that the numbers go up anyway.
Because before, it was traditionally the baby boomers who were driving the activity and now you’ve just brought in another 80 million people into the investment world so maybe valuation is changing again on demographics.”
Featured Image: Shutterstock/Tithi Luadthong