There is a prevailing view that Bubbles reflect asset price gains beyond what is justified by fundamental factors. I counter with the argument that the inflation of underlying fundamentals – revenues, earnings, cash-flow, margins, etc. – is a paramount facet of Bubble Dynamics (How abruptly did the trajectory of earnings reverse course in 2001 and 2009?).
With extremely low rates, loose corporate Credit Availability, large deficit spending, inflating asset prices and a glut of “money” sloshing about, there is bountiful fodder for spending and corporate profits. And with technology one of the more beguiling avenues to employ the cash-flow bonanza – and tech start-ups, the cloud, AI, Internet of Things, robotic, cybersecurity, etc. white-hot right now – the Gargantuan Technology Oligopoly today luxuriates at the Bubble Core.
By this time, expanding global technology capacity is a straightforward endeavor, while the industry for now enjoys booming demand and outsized margins. This confluence of extraordinary attributes provides “tech” the latitude to operate as a powerful black hole absorbing global purchasing power (throughout economies as well as financial markets). As such, it has been a case of the greater the scope of the Bubble, the more supply of “tech” available to weigh on overall goods and services pricing pressures. Central bankers continue to misconstrue this dynamic, instead perceiving irrepressible disinflationary forces that they are compelled to counter (with year after year after year of flagrant monetary stimulus).
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