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What's up, guys? It's Graeme here. So, the market's going absolutely crazy. And this is why it's so important that we just talk openly about what's going on. Because according to Peter Granditch, we are now in the parabolic meltup phase. When and where it peaks is anyone's guess. It's also the exit phase, not enter. Just remember, it's better to be a year too early than a day too late. Obviously, this is followed up by the fact that yearover-year, the S&P 500 is up another 30%. The Schiller PE ratios reached its second highest level ever, only slightly behind the dot bubble. And if we look at concentration peaks, yeah,
AI is near the same point as 2001 tech stocks and the Japanese everything bubble. That's why I'm just going to talk objectively about what's going on, what the data actually says is happening, why risk is the highest it's been since 2021, and if this is something we should be concerned about, because even I saw this chart and was like, "Yeah, it's pretty scary." Anyway, I'm getting really tired of my highly scripted edited videos. So, I just want to talk openly about exactly what this means and the data that I found. So, if you appreciate a more laid-back approach, hit the like button, subscribe. It helps out the channel a lot. And if you don't like these videos, leave a comment and I'll do my best to respond to as many of you can. So,
thanks so much. And also, big thank you to Incogn for sponsoring this video. But more on that later. All right, so let's talk about this elusive stock market bubble. I think objectively people are just concerned because uh let's be real, the stock market makes no logical sense whatsoever. Like we're in the middle of an unresolved conflict throughout the Middle East. Gas prices are going through the roof. Everyday living expenses are skyrocketing out of control. And somehow the S&P 500 just keeps moving higher. Like I might be going out on a limb here, but I see a lot of people comparing the United States today with what happened to the United States almost a 100red years ago back in the 1929 Great Depression. In
fact, you know what's scary? I see a lot of people doing this. So, we're going to do it, too. Just to prove a point, here's the chart of the 1920s, and here's a chart of the last 30 years. You blend them together. Boom. Confirmation that we've begun the final stages of the great meltup before eventually everything goes to Or how about Japan, where their everything bubble turned into one of the greatest financial disasters in history. No, seriously. For those unaware, the stock market from 1970 to 1989 increased by more than 22% a year. There are just these non-stop articles about how we're following the exact same path with non-stop exponential growth, except updated for today. The S&P 500 would
literally be right here tracking along perfectly. See, for Japan, their bubble was caused by cheap interest rates that were flooding the economy with very inexpensive money. That allowed people to invest more in the stock market, causing it to go up even higher. That resulted in land value also going higher, which resulted in more people being able to borrow against that land to invest back into the markets, causing the land value to also go up even higher, allowing people to invest even more because they borrowed even more. And this continued for almost two decades while people thought, "Oh, this is the new normal." Until one day it wasn't. As most of us know, in 1989, their market fell 50%. And due to a
combination of a shrinking workforce, higher government spending, and increasing taxes, their economy didn't fully recover for almost 40 years. Or how about the.com bubble? It's no surprise back then, tech stocks fell about 78%. But today, we're back to the same cape ratio. We're well beyond the historical norm, and we shouldn't get ourselves. What's happening today is absolutely nuts. Like the Buffett indicator is 2.4 deviations above the historical trend. Larry Paige said he would rather go bankrupt than lose the AI race. And don't forget about the circular nature about how every company is somehow invested in every other major company. Not to mention, the top 10 stocks now make up 40% of the entire S&P
500, again exceeding the dot peak. So the question then becomes, are we in a bubble today? And is this the beginning of the great meltup where prices just keep going higher? Or is all of that completely nonsense while we watch everyone else around us get insanely rich? Well, to answer that, let's play devil's advocate first and talk about why this might be a bubble. First, there is the argument that stocks have become a lot more expensive today relative to their profits. For example, the S&P 500's price to earnings forecast currently exceeds 28, which is 2/3 higher than the 100red-year average of around 17. suggesting that companies will either need to make a lot more money or their share price will have to
fall. Second, there are some similarities to Japan with their declining birth rate. Like ever since the 1950s, the number of adults having children has dramatically fallen. And around the same time, the amount being spent on social programs has begun to rise. This means you have a lot fewer workers that are paying into a system that is costing a lot more money. This puts the burden back on the current taxpayers while the government spends a lot more than they could actually afford. So they have to raise taxes which is a detriment to the entire economy. Essentially it said that interest rates must remain low and debt must grow faster than the economy just to keep the economy from stalling out. And third, as listed out by Lance Roberts, we're seeing a decline in
organic savings, check. Aging population drawing on benefits, check. Heavily indebted economy, check. Unemployment in young people, yep. Dependence on productivity increases to offset reduced employment, yep. Essentially, this argument is that the economy is falsely propped up. The fundamentals don't support these current valuations, and eventually everything has to revert back to the mean, which would suggest that the stock market would have to fall. So, in terms of whether or not we are in a bubble, here's exactly what you need to know, exactly what the actual data says, and what you could do today to prepare no matter what happens. You're going to want to hear this. Although, before we
go into that, here's what most people don't fully understand. As more of your money in financial history moves online, so does your exposure. Like think about it. Your investments, bank accounts, and personal details are all connected. And that information is constantly being collected, bought, and resold behind the scenes by third parties, data brokers, and people who might want to target you. That's where something like our sponsor Incogn becomes really important because instead of leaving that information out there for anyone to find, they help you remove it before it could be used against you. or in this case, Incogn is able to reach out to data brokers on your behalf, request that your personal
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you could submit as many of these custom links as you want. At the end of the day, you could spend decades building your wealth, but it only takes one leak for someone else to take advantage of it. So, if you're interested in having your personal data taken down, check out Incogn by going to incogn.com/gra and use the code graham at checkout to get an extra 60% off the annual plan. The link is also down below in the description. And they are available risk-free for 30 days. So, anyone could try them out, give it a shot, and get a full refund if you're not 100% satisfied. Again, that link is down below with the code Graham. Thank you so
much. Now, let's get back to the video. All right. So, in terms of the stock market, what we are currently seeing, and if this is something to be concerned about, here's why prices might continue melting up higher. To start, it's important to acknowledge that even though yes, stocks are still expensive when compared throughout history, these companies, we have to admit, are making a lot of money, more so than ever existed during the.com bubble. And even though a larger percentage of these are making up the S&P 500, smaller companies are beginning to catch up, which should in theory reduce volatility and increase the durability of this rally. Second, speaking of market rallies, prices don't
just fall because they get too high. Usually, there's an unforeseen risk or something that comes up that causes a cascade of selling. And as of now, our 2022 bull market would be right here on this chart, years before some of the other crashes that have happened before us. The same thing applies to earnings. Back in 2001, the companies didn't make a lot, but today they make and spend a ton. For example, the Times recently ran an article saying that outside of people believing that Trump was going to juice the stock market before midterms, the Magnificent 7, mainly Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla. Can't believe I remembered all those, are doing incredibly well.
They're genuinely impressive companies and they help boost confidence that the United States is going to remain dominant throughout the world economy. Even Fidelity confirmed that so far earnings are fantastic. Cash flows exceed income. Net profits exceed its 5-year average. And when you look at forward earnings, it's still below the 2001 peak. Oh, and speaking of 2001, here's a sideby-side comparison. Before, the average price to earnings peak was 65. Today, it's just 28. On top of that, people just ask themselves like, "What's the alternative if you don't invest?" If you hold cash over the last 50 years,
you've only made an average return of 0.9%. And over the last 20 years, you'd have lost 1.8% a year in value. Meaning, your choice is either a guaranteed loss in cash or the possible loss short-term in the stock market with almost infinite upside. Now, obviously this doesn't mean that we're not in a bubble, but Fidelity says there are some warning signs that they recommend everyone be observant of. And if you're curious what those are, here you go. One, companies burning through cash while spending more than they make. Two, businesses each owning a piece of each other to the point where if one falls, they all fall. Three, debt levels are growing out of proportion to profits. Four, AI hitting a limit in
terms of how much energy it uses, which would literally cap growth. And five, if borrowing costs increase, their profits will decrease. In fact, Fidelity believes that because of AI, the stock market's going to continue moving higher for the simple fact that smaller companies will adopt it. Professional service companies, industrial firms, healthcare, and utility companies, they'll all be able to scale. Yes, when you look at the cape ratio, it's high. Okay, there's no way around it. But Ben Carlson argues that you shouldn't really be looking at the last 150 years because that's not how our economy works anymore. A better metric is just to look at the last 30 years when the internet
was widely accepted. And as you can see, the average isn't anywhere near as crazy as people make it out to be. Margins are also improving. And this suggests that stocks are expensive, but they're making so much money that eventually they're going to be fairly priced as to what they make. You could also look at a chart like this and think that everything's about to crash. Or you could compare it to valuation metrics to the last 30 years and uh there you go. It's not so scary. For this reason, he followed up by saying that earnings are remarkably strong and the stock market is really good at not thinking about today, but really what's going to happen in the future. And if the stock market
isn't making you think that it's gone absolutely crazy, it's not doing its job. Even one analyst said that if companies deliver on earnings expectations and political tensions stabilize even slightly, there remains a credible path for equities to move even higher. Now, yes, had you been an investor from 1929 to 1949 over a 20-year stretch, it went pretty much nowhere but down and sideways. But even then, had you done nothing but invest at the very peak and then never invested again, you still would have been up over 11% in profit just from dividends again, assuming you didn't invest a single dollar for the subsequent next 20 years, which realistically is just going to be impossible not to want to buy the dip.
Beyond that though, there is one more argument that's worth talking about, and that's this theory that the stock market's not going up, the dollar is just going down. Now, even though it seems like a really interesting theory to look at the M2 money supply, compare it with the stock market, and come to the conclusion that the stock market's not up that much purely because we printed too much money. As it turns out, when you look at the dollar's history throughout the last 50 plus years, we see some wild swings up and down. And as it turns out, the dollar depreciated from 2002 to 12 and then it appreciated throughout the 2010s. All during a time when the markets went up and down and
back up again, effectively showing no correlation whatsoever between the dollar's value, money printing, and the stock market going up in price. Fisher Investments also analyzed this phenomenon going back to the 1970s when the dollar was taken off the gold standard. And they found that the correlation between the trade weighted dollar index and the S&P 500 returns is only about.15 which is essentially zero. On top of that, they also found that global stocks were up 76% of the time whether the dollar was rising or falling. This means that they could be printing a lot of dollars into the economy, but other factors like interest rates and general investor enthusiasm have much more of an impact on the stock market than the
amount of money in the system. So, in terms of whether or not we are in a bubble, here's the reality. In order for us to see a repeat of what happened to Japan, earnings would have to stall out completely and the S&P 500 would need to rise to more than 14,000 for us to be at the same level. But basically, if everything stays the exact same, but the prices double on everything, then yes, we risk ending up like Japan. But as expensive as everything is and as much as there is the possibility that something happens that we haven't accounted for here and the market drops 30% as it stands right now, it looks as though the stock market might continue getting even more expensive over time.
Plus, I'm just going to say it. The fact that we're talking about a bubble gear means that to a certain degree the bubble talk might be somewhat priced in. Honestly, all of this is just to say that now is a time to be cautious. Make sure you have a steady income. Make sure you're properly diversified. Make sure you have enough to weather through a 30 to 50% crash or correction if that were to happen. And as long as you continue to keep the course, any stock market correction in the short term, it's just going to be a good buying opportunity long term. Although, in terms of what I'm doing about this, I am a huge fan of
the phrase the market can remain irrational longer than you could remain solvent. This means that as smart as you are to predict the future that think that you know better than the rest of the entire economy and the entire stock market it will constantly defy whatever you think it will do and will actually do the exact opposite. Like take a look at Isaac Newton. During the South Sea bubble of 1720, Isaac Newton famously invested and made a lot of money. He thought the market rally was unsustainable. Intelligence kept going higher and all of his friends were getting richer. So he finally said, "Well, maybe I'm wrong.
I'm going to buy back in." And so he bought back in near the peak and he thought he was a genius again because it kept going even higher until it eventually crashed and he lost everything. He sold at the very bottom. Don't let this be you. That's why I just take the approach of investing throughout the United States and international markets, making sure I'm diversified, keeping 20% on the sidelines in treasuries just in case is also a sleep at night fund. And I just keep reiterating no matter what. It's become a joke these days. People are like, "Oh, well, guess what? Graham is just gonna say again, dollar cost average into the markets. Is he just going to keep saying the same thing over
and over again?" Yes. The people who have listened to that over the last 9 years that I've been making YouTube videos have done quite well. In fact, I would argue that those people have done better just dollar cost averaging blindly into the markets than those who have tried to time everything perfectly. And this could be you too as soon as you hit the like button and subscribe if you haven't done that already. And also if you want videos like this before I release them publicly with no sponsors, no ads, as well as bonus content every single week. It means an extra video on top of everything else I'm doing at least once every week. Please join as a channel member. Helps out tremendously.
I'm posting a lot more content over there that just isn't algorithm friendly. the videos I want to make that are more laid-back, that aren't so like highly edited, and I just don't want to screw the algorithm here so I can post them to members without worrying about algorithmic consequences. So, if you want all those extra videos as well as early access to everything else I'm doing, feel free to join that membership tier. Really hope you enjoy it. Thank you so much for watching and until next
