The global monetary tightening trend had significant negative effects on risk markets, but now rate cuts are starting. The European Central Bank and Canada made their first rate cuts days ago. The Fed is also expected to cut rates in September. Especially after the recent inflation data, the expectation for a cut has strengthened. So, which bubble is the famous economist talking about?
Economist’s Comment
Macro strategist Henrik Zeberg examines the current state of the global economy, which directly concerns cryptocurrency investors. The renowned figure draws attention to the Market Capitalization to GDP (gross domestic product) ratio. Which bubble is he talking about?
“Where is the bubble?
Below is the Market Capitalization to GDP (gross domestic product) ratio:
1929 was a big bubble: 105%
2000 was a big bubble: 138%
2007 was a big bubble: 105%
What do you think the current 188% level represents? Then add the Crypto Bubble and the Private Equity Bubble. When the recession starts, the ‘Everything Bubble’ will burst!”
Rapid Growth and Economy
According to a report published by the Big Four accounting firm Ernst & Young, markets have grown significantly for over 10 years. The report, which describes the growth as remarkable, compares the figures from 2012 to the end of last year. Looking at the total size of assets under management, we see growth from $9.7 trillion to $24.4 trillion in about 11 years.
Zeberg wrote that central banks like the US Federal Reserve and the European Central Bank (ECB) will cut rates before an economic downturn. This means we could be moving faster towards the days when the bubble bursts.
“Are we facing Economic Expansion or Late Cycle and thus Recession?
For those struggling to understand where we are in the Business Cycle, let me simplify it.
On Thursday, the ECB chose to cut Fund Rates.
The ECB and the Fed will always try to cut rates in the late cycle to prevent the economy from entering a recession.
Now look at the graph. Are we in the Late Cycle stage? Or are we standing right before a new economic expansion? Think about it!”
