Where it's gonna crash to? Where is going the capital move to when everythings going up? (except crypto apparently)
I'm not saying all this will happen. Just that capital doesn't have to "go" anywhere for a crash to occur.
So the law of supply and demand just magically reverses itself?
Claim: people will just choose to not invest capital at all
Response: that’s the opposite of what we know about supply/demand. When a supply of something (desirable investments), goes down, with demand steady, prices go up
It’s the same thing that happened during zero interest rate environment - huge supply of capital, few places to put it, so it piled into tech which drove up prices
So I guess my answer to “where will the capital go?” is “the next best thing” which drive up prices of that thing
No. Claim: People will have less capital to invest.
Most portfolios are not cash-heavy. They own assets. If they want to invest in something they borrow against the assets or sell them and get cash. If the assets' prices crash they can't get as much cash for those assets.
Cost of borrowing - which is what you're referencing from the ZIRP era - is another factor into how much people can borrow against assets. But if the assets themselves trade at an average P/E of 20 instead of 40 then people can only borrow half as much money at 1% interest rates.
This was the multi-decade problem Japan ran into after its hot economy imploded, and unleashed the "lost decade" (which became decades). It was not a marginal issue, and for year the Japanese government tried everything it could think of to get people to invest in things - to little effect.
My guesses would be "everyone's assessments go down together because OpenAI et al's predictions of their future revenue are observed to be consistently vastly overinflated vs actual performance, but everyone was previously assuming they were roughly correct" or "some political thing happens which makes OpenAI et al's services obviously much less valuable or makes them much less able to provide services".
Like with the implosion of the Japanese economy, people will just not invest, instead parking their money in low-yield bank accounts. It was, in some cases continues to be, an issue for that country.
In 2008/9 people became paranoid there was nowhere safe to go and that really screwed things up on top of everything happening in the stock market.
https://www.investopedia.com/articles/economics/09/money-mar...
So you are predicting everybody will escape into dollars. Which by themselves are extremely risky because the world is at the verge of ditching dollar as global currency.
There was already double digit inflation just because during the pandemics US overprinted dollars in relation to the size of the global economy. Imagine what the inflation will be if the dollar economic domain shrinks by half or more.
You know that the reason things bubble and burst is because speculation outpaces reality at too high a rate, ie : too much "capital" is make up of hopes and dreams.
When reality hits and the numbers make sense, all that hope and dreams go pop.
Scotty doesn't know!