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Prelude to Crisis

Prelude to Crisis

“The Federal Reserve is running the risk of fomenting an eventual financial crisis by easing banking regulations at the same time that it’s cut interest rates…say some former Fed officials, including ex-Vice Chairman Alan Blinder and financial stability experts Daniel Tarullo and Nellie Liang.”
– Bloomberg article on December 17th, 2019

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INTRODUCTION

When we published the first edition of our Bubble 3.0 series in December 2017, the S&P 500 had ballooned to then-record-highs. Most pundits at the time turned a blind eye to some of the more concerning aspects of the market, and our view of a pending implosion was very much in the minority. Fast-forwarding a few quarters, and several corners of the market that looked unstoppable in late-2017 did in fact collapse. The poster child for the flushing out that we forewarned about was Bitcoin, whose price fell from nearly $20,000 to just over $3,000 in less than twelve months.

Source: Bloomberg, Evergreen Gavekal

But the fringe investment that gained incredible steam at the end of 2017 wasn’t the only corner of the market to melt down in less than a year. The S&P 500 also fell by almost 20% toward the end of 2018, teetering on the cusp of – and barely avoiding – the first bear market in nearly a decade.

Source: Bloomberg, Evergreen Gavekal

It was at this point that we encouraged readers to begin methodically accumulating shares of high-quality companies. As most market observers are aware, the US stock market reversed course soon after, breaking through several key resistance points and reaching new highs time and time again over the course of the last twelve months. This happened despite escalating conflict in the Middle East, ballooning corporate and sovereign debt, the impeachment of President Donald Trump, global fears of a widespread coronavirus outbreak, and deepening tensions amongst some of the world’s most influential and well-armed superpowers.

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Olduvai IV: Courage
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Olduvai II: Exodus
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