Hey guys, it's sasha, everybody is talking about the upcoming 2021 stock market crash. Everyone on youtube is predicting that the market is going to collapse, and famous investors from robert kiyosaki to kathy wood are all lining up to tell you that the crash is coming and when it does it's going to be bad. This one is going to be the biggest in world history and it always happens just after the peak when we're peaking right now, every chart that you can look at out. There is saying that we're in the middle of a huge bubble - and this is the basis for most of the arguments, saying that the 2021 stock market crash is imminent.

But if you dig deeper into the numbers, things actually begin, looking very, very different. If you go a little bit further below the surface, so let me show you why we are not about to repeat the dot-com crash or the 2008 financial crisis why this time things are going to be a little bit different. First, let's talk about the buffer indicator because that's usually the first chart that everyone whips out in this argument. It shows the value of the market relative to gdp, and the argument here is that the two are correlated.

So if the chart goes too high, it will then inevitably crash back down, as we saw with the dot-com bubble in 2000, but there are some massive massive issues with this child. The first one is this: if money is going to exit the stock market, where is it going to go because money doesn't tend to sit around as cash, it will typically move between asset classes in the stock market, crash demand will drop sharply compared to supply, which Creates an imbalance and that vortex pulls money out of the stock market. Now, when money is pulled out of the stock markets, it often goes to one of two places i mean it does go into other places well, but it typically will often go into bonds or commodities, at least in part, when the stock market crashed in 2000 bond Yields were relatively high. You could, at that point, get seven percent on a 10-year treasury bond compared to a long-term market average performance of about nine percent.

So, as the market overheated, you could naturally move your money into those treasuries to avoid the overheating and, as things began, looking pretty bad. That was the natural place for money to go, and although the rates have increased relatively this year, the yield on those treasuries at the moment is just 1.3 percent. That is an incredibly incredibly low rate. If you look back at history and with it running so far below inflation, it is hard to see money moving into long-term bonds out of the market.

In fact, bond yields have an inverse relationship with demand, so when the bond market is running really hard like it is at the moment that causes the rates to actually drop. So any incremental surge in demand will actually send those yields even further down and that doesn't sound, highly probable given where we are today, so maybe, instead, the money can actually move into something robust. Maybe some commodities like let's take gold as an example. Now gold is itself at an all-time high at the moment and as an investor, you may be somewhat skeptical as to whether the price is already overvalued.

The price of gold rose substantially in the aftermath of the dot-com bubble, as money moved out, and there was an even bigger rise after the 2008 financial crash, but the start of the pandemic and the onset of the uncertainty that came with it have already set those Gold prices soaring to levels we haven't seen before and on top of that, the buffett indicator has one major flaw: it compares the us stock market to u.s gdp, which sounds kind of reasonable when you think about it. But the fact is, the world has changed. U.S companies now don't just work in the us markets; they don't just dominate us uh product spaces, but they actually work across the globe. Even looking back just 20 years to 2000, the global gdp was 34 trillion dollars with the us gdp.

At the same time, being 10.2 trillion, which was 30 of the total looking at today, the global gdp is 85 trillion dollars, with the us being about 21 trillion, that's less than 25. That is quite a substantial drop. That means the rest of the world collectively is growing higher than the us on its own, and if you apply the reduction to the buffett indicator, we actually see that the current level drops from the ridiculous levels. It is at the moment to more like 195 percent, which looks a little bit more reasonable, although it's still very high.

But the big question is how accurate is the historical growth trend line on that indicator that everybody uses? Is that one that everyone uses the best fit or could it be this? Well, it's impossible to say, but it certainly makes that indicator not as reliable. Some people would maybe say next up: let's look at the schiller ratio, and this is the one that's probably a bit more interesting. The chart takes the last 10 years of earnings for the s p 500. Then it adjusts them for inflation and then it takes that average and then there's a sort of pe ratio.

Calculation, using that average number that calculation is meant to show when the market is overvalued relative to how much the companies are actually earning on a consistent basis, and at the moment that figure is almost 38, and that is a huge spike. Second, only to the dot-com crash - and we all know what happened after that - it's actually higher than the famous 1929 black tuesday. So the argument is that we're all paying far too much for the companies that we're invested in on average. But the sheller ratio has massive blind spots and i think it's something that a lot of people are missing.

The ratio historically relies on companies having a steady rate of growth over time before they end up anywhere near the top of the s p. 500. It uses the last 10 years earnings as an indicator of that value and historically this will probably make a lot of sense, but we live at a time when technology works differently. Companies work differently.

Companies no longer need three or four decades to establish themselves. They can become big in just a few years and if we look at the s p 500 at the moment, if we look at the biggest companies that are in that s p 500 index, let's go and look at their earnings. Last 10 years, amazon has made 26.9 billion dollars over the last 12 months, but was making only 1 billion 10 years ago. Facebook has a net income of 1 billion 10 years ago, compared to 29 billion and 2020.

tesla has been losing money until the middle of last year and is only now rapidly growing its profits. This is very different to when the largest companies in the index were banks or oil companies, who would have very consistent, very steady revenues and incomes every single year year after year, and so sure, when you have a mix of companies that are the largest companies. In that index, who have those sorts of metrics, then, naturally, that index will look really really bad. It will malfunction as a result, that's not much of a surprise, but let's look at the numbers even deeper.

First, let's take a step back and consider the schiller ratio in light of the philosophy of investing in general, just bear with me. This is actually quite important over time. The world we live in is changing. We don't have all our global or major regional wars.

Every few years sure there is conflict, but not on the level, not on the same scale as we've had in the past. There is a completely different level of available information, knowledge, life expectancy and the time frames over which people make their financial planning and financial decisions. These are very, very important factors, because, when you plan to pay off your house over several decades, you also plan to get rich over several decades, rather than considerably more quickly. People are happy to invest in assets today that will take time to deliver wealth, something that wasn't really an option when life was considerably more volatile.

So now investing in a company which we would expect to get a return in 5-10 years. Time is seen as reasonable. 100 years ago, or even 50 years ago, it wasn't, you would want your fat dividend payments to start the quarter after you bought those shares and naturally early stage, companies that have the potential to earn money in a longer time horizon are beginning to attract more interest. That's not surprising the fact that the company is not profitable or maybe barely profitable right now would be a killer for its valuation in the past, but people are happy to look further into the future to assess what their potential gains are.

Next, let's look at some fiscal policy and money market details. Inflation has been relatively stable for now, so that's not a factor when you're trying to assess what the difference in economic performance was say in the 2008 or the 2000 financial crashes. It's been largely bouncing between two and five percent over this period. Now, let's look at the excess cape yield chart.

This one is really interesting. This shows the difference between the schiller index style, measure of cape and the 10-year interest yield. The situation today looks really different to the big crashes in 2019-29, which is what everyone references in fact, xscape collapsed to zero and even dipped below zero in the years leading up to those major crashes. This is because company valuations began being higher and higher the multiples on the earnings of those companies grew progressively, and that sounds very similar to what people are saying about the market today, as those multiples increased the effective return on your investment actually reduced.

So imagine if you buy a company that produces x dollars in return to you and you buy it at 15 times multiple. If the valuation the company grows and suddenly you have to buy them at a 30 times, multiple, then for the same money that you put into the company you're only going to get half the shares, and so the return on your money is going to be half As well, but despite everyone saying that the stock market is very hot right now, the excess cape measure looks very different, and if you try to compare it to past data, it looks a lot more like post-world war, one sort of time than the scenarios preceding the Market crashes, in some ways the next few years could have a very positive impact on the stock market. Over the last two years, we've had the biggest bull run in history, but that was despite many industries being hit very very hard over the past year. You could argue that this particular unprecedented time stimulated some of the industries so much that they brought the average up or you could, alternatively, argue that the bull run could have been more ridiculous.

It could have grown even further if the pandemic didn't actually happen. Now, in the last two major crashes, the u.s interest rate climbed before those crashes happened as the economy was going really well, as it was overheating and those rates were then cut in the aftermath of those crashes. At the moment that interest rate is not 0.25 percent. Now the government has been printing money like absolutely no tomorrow, and we have seen an incredible rise in the m2 money supply.

It has completely skyrocketed. This is a measure of the total amount of cash and the assets that are sort of similar to cash that are in general circulation, as fiscal policy had to take a u-turn beginning of 2020. The digital money printers went nuts and although the rate of increase has slowed down slightly in the last quarter, there's been an absolute flood of cash, essentially hitting the street we've seen stimulus checks, we've seen bears we've seen a whole load of money that is turned up Out of nowhere - and this is a tool that is usually almost always used after a major crash to bail out industries to stimulate growth. But although we did have a technical crash in the march of 2020, we haven't had any sort of sustained market collapse, which is what usually follows.

One of these major crashes. Now this tool, this money printing tool, was employed after a different kind of collapse. You know all the lockdowns industries getting hit potential job losses, all of that kind of stuff - and this is interesting because usually these types of activities are the medicine that are prescribed after a market crash happens. But here we are having taken a large gulp of that medicine before that giant market crash is supposedly going to arrive.

The million dollar question is whether that medicine works just as well at preventing or maybe delaying that crash as it does at treating the symptoms. We don't actually know, because we haven't really been in this sort of situation before the closest would probably have come to this position is after the second world war, when the government were throwing every rule book out of the window, the government was investing in massive infrastructure Projects creating unprecedented numbers of new jobs, entire industries coming out of long-term hiatus and lots of new companies starting up in exciting brand new industries. Money was being printed very very fast, and interest rates were at record lows. Does that sound familiar to you? Well? In 1949? Harry truman pushed down with uh some parts of his fair deal that he could pass through a republican-dominated congress and over the next 20 years, the stock market went up by 415 percent with the first 10 years growing at an average of 13 per year.

We're certainly in uncharted waters with our economy in 2021, but are we headed for a crash? Well, if we are it most certainly will look very, very different to maybe what some people expect. I hope you guys found this useful if you have don't forget to smash the like button for the youtube algorithm. Thank you so much for watching. I really appreciate it.

As always i'll see you guys later, you.