Most readers have by now already heard the news. The stock of Meta Platforms, aka Facebook, crashed over 25% after reporting shockingly dismal financial results and projections after yesterday’s close. Only yesterday it was a trillion dollar company, and when a trillion dollar company loses a quarter of its market value, you’re talking about a quarter trillion dollar loss to the stock market.
Yet you could listen to hours of coverage of the horrific numbers and read endless analysis without a glimpse of the bigger picture. A monster asset bubble is breaking.
As regular readers know, the purchasing power of world’s aggregate assets cannot be worth more than the aggregate of consumer goods and services available for purchase. The US stock market alone recently reached a valuation of over twice US gross domestic product. Now for technical reasons this alone doesn’t tell the whole story, but this figure is far higher than historical norms. Assets are indisputably overvalued relative to consumer goods and services. There are only two ways to resolve this discrepancy: Either consumer prices must rise or asset prices fall to meet them. Or some messy combination of both.
And we are seeing both. Some analysts suggest that the Federal Reserve faces a difficult task ahead in trying to slow consumer price inflation without tanking the stock market. Let’s be real. It’s an impossible task. Having inflated the bubble, best the Fed can do now is to try and engineer a soft landing for asset prices while consumer price inflation gradually declines. This is the difficult task.
The crash in Meta stock is just one pixel in a picture that we’re gradually seeing develop as as it joins many other pixels in painting this picture. To successfully navigate the investment landscape over the next year or so, investors must see the big picture.