“Only in hindsight, after the bubble burst, can you look back and say: »Boy, this really got out of hand«” – emphasized Gary Shilling.
The 88-year-old economist expressed concern about the high concentration of investors' money in the shares of the “Magnificent Seven”, the value of which constitutes more than one third of the capitalization of companies from the S&P 500 index.
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“It is not the heart of the economy, but only its decoration” — that's what Shilling called AI and cryptocurrency stocks. “That's what usually happens when there's extreme speculation at the end of the cycle,” he added.
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Examples? The expert drew attention to Nvidia, which has seen a 13-fold increase over the past five years, becoming the most valuable company in the world with a market capitalization of $4.4 trillion. Additionally, Apple and Microsoft more than doubled their market value during the same period, exceeding $3.8 trillion. In turn, the most popular cryptocurrency, bitcoin, increased in value more than eight times.
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“The S&P 500 index dropped by 30%. is practically the norm. All gains from the beginning of 2024 would be wiped out” said Gary Shilling.
When will the speculative bubble burst?
Shilling said that signals from “harbingers” such as the leading economic climate index and the U.S. Treasury yield curve “look very much like an impending recession.” But a recession could occur anytime “within months or years”.
He noted that “the longer it goes on, the more speculation there is, the more the belief grows that we will never see another crisis, the worse it will get.“.
