Anything’s possible, but it’s extremely unlikely that the rules of the game have changed. At the end of the day, asset prices only go as high as people are willing to pay for them. The definition of a bubble is when prices reach levels that don’t seem to make sense, yet people keep buying simply because they feel prices will continue to rise. Rationale for why values are going up gets thinner and thinner.
At some point, investors realize that what they’re considering for purchase has an underlying value that’s much less than what the price reflects. Whether this is stock in a company that has no profit and a weak business plan, a bond that is paying less interest than the rate of inflation, or a house with a payment that represents half of one’s disposable income, eventually investors get to the point where they decide not to make the purchase at all. This is the moment that represents the turn.
History is littered with them and this time won’t be any different. Exact turning points are impossible to predict based on factors that are unique to every situation, but they ultimately always happen when this general attitude or sentiment shifts. It’s around the time when most begin to think the rules have changed that we’re often reminded that they haven’t.
