I’m talking about a major correction sometime in the next decade, and that’s probably being generous.
The primary basis for that concern is interest rates. Money is practically free right now. That leads to a massive increase in demand which spikes prices, particularly in real estate because the average joe can now afford to go out an buy a fourplex with an FHA loan with only 3.5% down because of how cheap the loan is. It’s easy to make a property cash flow with artificially low interest rates, especially when rents are constantly rising year after year.
The stock market is no different. Companies are getting loans for practically nothing which makes the acquisition of capital extremely cheap. Obviously this inflates the value of their stocks, but this is unsustainable economic practice.
The question of where they should be valued at is impossible to answer. It people could accurately forecast corrections then they would be immeasuarably rich. There’s just too many econometric variables and it’s impossible to come up with an accurate coefficient for each one. But you don’t need an exact value to make the argument that the market is overvalued.
Coastal cities are already losing billions of dollars in real estate as a result of climate change. Storms and wildfires have gotten worse due to increases in atmospheric temperatures. Those costs will have to be paid and they are completely externalized. If those costs aren’t forcibly internalized then we will either see ballooning debt, or massive tax increases to pay for the damage. Our entire economy is distorted by the carbon externality problem.
