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Bubble 3.0: A Blast From a Bubble Past

BUBBLE 3.0: A BLAST FROM A BUBBLE PAST

“Although macroeconomic forecasting is fraught with hazards, I would not interpret the currently very flat yield curve as indicating a significant economic slowdown to come.”
–BEN BERNANKE, Former Fed Chairman in a March 20, 2006 speech

“It was popular to play down the significance of the inverted yield curve in 2000 and 2006, but on both occasions, the bond market’s warning was eventually vindicated.”
The Long View column in the Financial Times, March 30th and 31st, 2019

“Nothing sedates rationality like large doses of effortless money.”
–WARREN BUFFETT

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SUMMARY

  • The tech bubble in the late 1990s set off a chain of events that led to Bubble 2.0 in the mid-2000s, and the bubble in which we presently find ourselves
  • Recent IPOs such as Uber, Lyft and Beyond Meat underscore the rank speculation of securities valued on considerations other than profits
  • Over 80% of IPOs coming to market currently are earnings-free, the highest rate since 2000
  • One major divergence from Bubble 1.0 is that many outrageous valuations go well beyond tech
  • However, despite this fact, we are living in a two-tiered market where, just like in 2000, there are a multitude of companies that are reasonably valued
  • Additional parallels with Bubble 1.0 are the regulatory attacks on tech, the war then vs the war now, the yield curve and current economic conditions
  • Evergreen’s view is that a simple buy-and-hold approach with an S&P 500 index fund won’t cut it in this environment
  • Just as in 2000, allocating away from bubble-infested parts of today’s stock market is essential, as is selling into rallies and buying into weakness

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BUBBLE 3.0: A BLAST FROM A BUBBLE PAST

Securities highlighted or discussed in this communication are mentioned for illustrative purposes only and are not a recommendation for these securities. Evergreen actively manages client portfolios and securities discussed in this communication may or may not be held in such portfolios at any given time. Please see important disclosure following this article. 

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