Filenews 19 November 2025 - by Brandon Kochkodin
You can smell the "bubbles" in the assets. Stocks have excessive profits. Junk bonds look like "bargains". When you see a recovery, there is also concern. Does the smoke detector "ring" because its battery ran out or because it caught fire?
The S&P 500 is at 6,700 points, which means it has almost doubled its performance compared to 5 years ago. The "Magnificient-7" tech giants are the fuel for the "launch", since their value represents 40% of the index and they bet trillions of dollars that artificial intelligence will change the world.
It's not just stock outperformance. Gold is moving near its all-time highs, as is coffee. Bitcoin has run a rally of over 130% since joining exchange-traded funds in January 2024. House prices are rising further making the real estate market more difficult for those interested. Even high-risk bonds trade as if nothing bad can happen.
Economist John Kenneth Galbraith wrote that "bubbles" form in the same way every time. A new concept is the "spell". Credit is increasing. Prices are going up. Everyone feels smarter. Then, the "bubble" bursts, reality returns and everything collapses. Galbraith argued that the real fuel is not credit, but boundless hope and fleeting memory. Each generation convinces itself that this time it is different.
Of course, no one rings an "alarm bell" when things are up. Even reliable smoke detectors can sound the wrong alarm.
The yield curve was inverted from June 2022 to August 2024. This usually portends a recession within 24 months. According to this rule, the slowdown should have already begun.
However, investors who sold on this "signal" missed out on the second-strongest rally start in fifty years. And you can blame AI for that. Deutsche Bank argues that without the investment in AI infrastructure, the US would already be in recession.
This is one of the reasons they have deregulated the market.
Perhaps that's why gold is near historic highs, which rarely happens alongside the rise in stocks. One move reflects optimism, the other fear. It may just be that the market is hedging its investments. Or maybe it's a sign that some investors have grasped the risk before all of us.
The "smoke detectors"
CAPE Shiller
Index The CAPE Index, created by Nobel Prize-winning economist Robert Shiller, compares stock prices to 10-year inflation-adjusted earnings. Now the index is close to 40, below the high of 44 during the "dot com bubble", but well above the average of 28 in 1995.
Gold, inflation-adjusted
Gold prices, adjusted for inflation, have doubled since 2023, surpassing $4,000 an ounce for the first time. Investors are rushing to buy "hard" assets, a sign that confidence in "paper" wealth may be declining, even as markets continue to climb to new highs.
Cost of margin as % of GDP
The cost paid by investors to borrow money to buy assets is now equal to 0.35% of nominal GDP, the highest rate since at least 1995. As Jim Stack, CEO of Stack Financial Management, says, leverage doesn't cause markets to fall, but it strengthens them.
S&P Cryptocurrency
Index The S&P Cryptocurrency Index has more than doubled since 2023 and has returned near historic highs. Cryptocurrencies have now been integrated into the mainstream financial market through ETFs, making their fluctuations significant for the broader market.
The Housing Price/Income
Ratio The average U.S. home price is now 5x the average household income, up from 4x in the 1990s. The limited supply partly explains this phenomenon, but suggests that buyers are at their limits and that the housing market may be losing touch with reality.
High Yield
Margin The ICE BofA High Yield Index Margin shows that investors accept unusually low premiums for riskier debts. When high-risk bonds trade like blue chips, this is usually a sign that markets are "indifferent" to the possibility of default.
Coffee
prices Coffee futures reached $4 a pound for the first time, driven by drought in growing regions, Trump's tariffs and inflation. Such large increases in commodity prices are a reminder that bubbles are not limited to Wall Street. "Bubbles" can also be created in your kitchen.
Morningstar PitchBook Unicorn 30
Index The Morningstar PitchBook Unicorn 30 index tracks big names in the private market, such as OpenAI, SpaceX, and Stripe. It returned to historically high levels after a 50% slump in 2022. Artificial intelligence is giving a boost to listed companies, but the collapse can start from private ones.
