Experts Believe We are Experiencing a Bubble

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Experts Believe We are Experiencing a Bubble

By Annie Reona | Saturday, July 18th, 2020

Although some market experts believe that the market is still healthy, others believe that we are actually in a bubble which will lead to huge losses when it bursts. However, proper preparation and hedging can prevent losses and actually allow an investor to gain even in a declining market. There are some of the underlying factors that have led experts to believe that we are in a bubble which will be discussed next.

Economic Turmoil and Low Oil Prices

Some experts point to these problems as being the needle that will burst the bubble. Low oil prices make it difficult for investors within the energy market to make a profit which means they tend to shy away from continuing to invest in oil. A lack of investors then puts a strain on the market as well as the economy, particularly in the United States.

Recent developments indicate that the price of oil could drop even more, which is going to scare away even more investors, or could push investors to sell the stock they have in order to look for safer investments. In addition to the problems in the oil market, there is also the Chinese market collapse and the Greek debt crisis that are making investors even more nervous.

It is possible that if enough investors begin to sell off their stock, the markets in the United States could end up getting pushed into bear mode.

Valuations that Are Too High

Because the market has been growing for the last 6 years, stocks are trading at incredibly high valuations. In fact, stocks in the United States are valued at an estimated 17 times greater than actual earnings expectations. With valuations this high, it is likely that investors aren’t going to pay any more than what they already are because the premium is too high.

Strength of the US Dollar

Because the US dollar is so strong right now, this causes a number of problems in the market. The most prevalent problems is that exports to the United States begin to struggle with the strong US dollar which then means that the United States experiences declines in their market and earns less than expected.

Time to Abandon the Market?

Often, when investors begin to see the dangers that are occurring in the market around them, they decide to completely abandon the market because they don’t know when the bubble will burst or how much they might lose in the process. But even abandoning the market will cause a loss because getting out of the market means switching your investment from stock to the US dollar. If an investor’s money is in the US dollar and the dollar collapses, it’s just as damaging as the market collapse. However, there is a way for investors to continue to make money, even in a down market.

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Idan Levitov is the Vice President of Trading at Any Option. He has spent years trading binary options and formulating strategies that will help any investor make a profit in any market. Here is what he had to say about bubble investing:

Bubble investing is very challenging because understanding when the bubble is going to burst is very difficult, even for the seasoned professional. Intervention from Central Banks has been the driving force behind the valuation of financial assets over the past few years as they attempt to reflate the bubble. However, there are many concerns they have gone too far. The warnings are dire and the predictions unpleasant, but that does not mean a losing proposition for binary options traders. The beauty of binary options is being able to profit from increases or decreases in financial markets.

Aside from the ability to trade directionally in the event of a bubble environment that could potentially pop, binary options affords investors the ability to hedge positions. Let’s say an investment portfolio holding the S&P 500 as a core position needed to be hedged with options. An investor could conceivably take an offsetting short position in an equivalent amount of binary options. The investor might see the value of the S&P 500 position decline, but would be able to capitalize on the gains from the binary options position. By utilizing this strategy, the investor has lost no money dispite the downside in the core S&P 500 position.”

Although the bubble in the market may be scary for investors right now, there are still options that will help investors to continue to make money even if there is a down turn in the market through smart trading of binary options. Whether experts are correct or not that we are experiencing a bubble, there are ways to hedge your investments so that investors don’t have to worry too much about losses when or if the bubble bursts.

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Commentators known to spread disinformation on climate change are using the COVID-19 pandemic to downplay the threat of environmental crises and undermine action, DeSmog.

In Senate Hearing, Economic Experts Warn Climate Crisis Could Spur Financial Crash Like 2008

By Dana Drugmand • Thursday, March 12, 2020 – 16:53

Could the climate crisis precipitate a financial crash akin to or even greater than the one in 2008? With markets currently in turmoil due to the coronavirus pandemic, experts testified Thursday that there is high risk for an even larger economic crisis absent urgent climate policy.

A panel of economic experts brought this message to a handful of senators on Capitol Hill during a March 12 hearing convened by the Senate Democrats’ Special Committee on the Climate Crisis. This hearing on the economic risks of climate change delivered a clear warning that continued inaction on climate will result in enormous economic and societal consequences.

“ If we ignore climate change, we in essence destroy the economy,” Sarah Bloom Raskin, former member of the Federal Reserve Board of Governors, said during the question-and-answer period of the hearing. Another witness, Frédéric Samama, said simply, “we are putting humanity at risk.”

Heading for Another Financial Crash?

Witness after witness — including an investor who accurately forecasted the 2008 mortgage crisis — referenced the 2008 crash as they described the current risks posed by the impacts of a rapidly warming globe.

[email protected] has an amazing group of witnesses testifying now including one of the investors who called the 2008 mortgage crisis. Like that crisis, the warning signs of an economic crisis are right in front of us, this time triggered by climate change:https://t.co/CivGa2j8XH

“ I bring up the financial crisis because like the belated and sudden devaluation that occurred in the context of subprime mortgages, one can imagine the effects of a belated and sudden devaluation that could occur in the context of mispriced carbon-dependent financial assets,” Raskin noted in her written testimony. “Climate change constitutes a material financial stability risk.”

“ Think about what caused the last financial crisis. That was a classic case where we didn’t price the systematic risk in mortgages. Too much risk was created, and it blew up on us,” Bob Litterman, Chair of the Commodity Futures Trading Commission’s Climate Risk Working Group, wrote in his testimony. “We are not pricing climate risk; not creating appropriate incentives to reduce emissions: a tragic and potentially catastrophic mistake.”

Dave Burt, the investor who predicted the last financial crisis and who currently focuses on measuring the impact of climate risk on real estate markets, warned of another impending crash — this one climate-related. “I believe we are experiencing a similar value bubble today driven by the market’s failure to consider the increasing risk of damages resulting from climate change,” Burt said in his written testimony. This bubble of overpriced home values, he explained, leads to a sense of complacency and further increases risk.

“ The complacency continues as we march towards a horrible climate outcome for future generations,” Burt said during the hearing.

Samama, head of responsible investment at the European asset manager Amundi and co-author of a recent “Green Swan” report on central banks and financial stability, explained that central banks are now sounding the alarm on climate risk.

“ Central banks now recognize that climate change threatens financial stability,” he said. He warned that the climate crisis is an example of a “green swan,” which he defined as a “highly certain event with multiple non-linear and interacting causes that threatens life on Earth.”

How Bad Will It Get?

Not just the economy but the health and lives of people across the globe are at risk. Senator Sheldon Whitehouse (D- RI ), who chaired the hearing, posed a question to the witnesses: considering extreme but plausible impacts, how bad might it get and how soon might it come?

According to Raskin, overall impacts could be “extremely bad,” and they are already starting to happen. “We are in the midst of the extraordinary destruction and deterioration of our economy now,” she said.

“ The impacts on human health of climate change could be very dramatic,” Litterman added. “The melting of the tundra could release viruses that haven’t been seen for tens of thousands of years. So you can imagine pandemics … and there are the national security issues, and just in terms of the science there’s tipping points.”

The witnesses and senators agreed that policy change will be necessary to avoid complete calamity. Witnesses pointed to several policies that could help alleviate the economic risk, like carbon pricing, requiring firms to do climate “stress tests,” and mandating climate risk disclosure. But so far the federal government has largely failed in its political response to the climate crisis.

“ I hope we don’t reach that point where we have to have the equivalent of a pandemic in climate terms in order to trigger that kind of policy change,” Senator Chris Van Hollen (D- MD ) said.

Senator Rebukes Fossil Fuel Obstruction in Congress, Calls for Counterforce from Other Industries

In his closing remarks, Sen. Whitehouse called out the fossil fuel industry and its allies for continued obstruction of climate policy.

“ At the moment, what I want to share with the panel and with the world, is that while some of the worst behavior of the fossil fuel industry has been moderated or obscured through deniable intermediaries, and while in my opinion evil institutions like the Heartland Institute appear to be suffering a collapse which could not be more helpful, nevertheless the prevailing political weight of the fossil fuel industry on this body, both directly and through its vast array of intermediary front groups, remains completely opposed to any serious climate legislation,” Whitehouse said.

“ The fossil fuel industry is a persistent, determined, and remorseless obstructor of action today,” @SenWhitehouse at today’s Senate Hearing on the Economic and Financial Risks of Climate Change.

Given this powerful force of obstruction, he explained that a political counterforce is needed from other parts of the private sector. The rest of corporate America, Whitehouse said, needs to “show up” and align its political action with its stated values on climate action.

“ In my world, the hydraulic pressure of the rest of corporate America to push back on the fossil fuel industry has not arrived,” he said. “If you can break the back of the fossil fuel industry’s lying and denial apparatus by putting an opposing force up against it, and the financial community easily has the wherewithal and the political knowledge to be that opposing force, as does Big Ag, then we’re in a whole new world in Congress.”

Main image: Senate Democrats’ Special Committee on the Climate Crisis Hearing March 12, 2020. Credit: Senate Democrats on YouTube

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