Hey guys, it's sasha, we have a big problem. This problem is going to cost a lot of investors, a lot of money and the reason a lot of investors are going to lose. A lot of money is because we are in a very unique kind of bubble, like we have not seen before, and this bubble will eventually burst and that burst may well be bigger than the dot-com crash in 2000 and remember the tech stocks that crashed in 2000 Took 17 years to recover, on average, 17 years to just break even the problem, with the bubble that we're in right now is that it isn't focused on a specific industry or sector. This bubble is a lot more complex in nature.

It has to do with behavioral issues. This bubble is based on one core fundamental flaw that we're seeing over and over investors are choosing to invest their money into opium instead of actual assets, make no mistakes. We are in a huge opium bubble and this one will not end well. First, let me explain exactly what i mean by investment and opium and how actual assets are different.

When you invest money into an asset, there are three ways in which you can make your investment pay off. The first way that you can make return is, through future cash flows from that asset that you are invested in back to you. This is the way the fundamentals based investors would be making their decisions. You invest money into a company or a business, or something else that you reasonably expect to generate positive future cash flows.

So you go and put a hundred dollars into a company, and your research and analysis indicates to you that you think that company will be earning you 10 per year in return. So after 10 years you have made back your original investment, but you continue owning your share of the business and are all future profits as well. So then, the 10 that you earn in the 11th year becomes profit on top of your investment, and then you continue making profits in the 12th and 13th year and so on and so on. When you invest in a rental property, the theory is roughly the same.

You put up a load of money up front, potentially leverage through a mortgage, and then you go and collect future cash flows in the form of rent, and you hope that you will collect more in rent than, however much it cost you to buy the property. And then maintain it now, the second way that an investor can decide that investment is worth. It is if they get utility from the asset that, in their opinion, is worth more than the cost of the asset. So if you decide to go and buy an expensive tv, you might justify your investment by valuing your enjoyment of watching movies, with particularly deep blacks or maybe sports, with an exceptionally crisp refresh rate.

And if you buy a house to live in, you are placing value on the relative comfort and enjoyment, and maybe practicality that you will take from being able to live there. You might decide that you would get twice the level of practicality, comfort and enjoyment from one house compared to another, and therefore you may be prepared to pay twice as much money for it. Some people might place utility on art and other objects like fine wine, where the utility could be subjective, but the decision is still being made on that particular person's assessment of utility in their own way of valuing it and their value of that utility may be different To mine or yours, so the first reason for investing is expecting to generate a return on your investment through future cash flows. And the second is by expecting to collect utility from the asset to the value of your investment or more.

But there is also a third reason why you might make an investment, and this reason is where we have a problem, because the third reason is the expectation that you will be able to dispose of the asset for a greater value than you purchased it. For independent of a change in the first two reasons - and it is really critical to understand that last bit, because that last bit is what's created at the bubble that we are sitting in in the last few years. Investing has shifted from a steady long-term process of gathering wealth over long periods of time, investing in good companies based on the company's fundamentals. Now in an age of twitter and tick tock, the investment mentality has fundamentally shifted.

Investors now want instant gratification waiting five years or 10 years or 20 years to make a return is no longer good enough. Our time scales suddenly operate in much shorter time spans. It is all about catching the latest stock price movement. It is all about months or weeks or even days, we're obsessed with the precise wording of the minutes of last month's federal reserve monetary policy committee to a point where large companies will lose over five percent of their value.

Because of the specific words someone uttered in that meeting, the advent of the retail investor with a hundred dollars in their pocket using a free, app to buy gamestop and join the apes on their journey to the moon has fundamentally shifted. The narrative investing is no longer about making 10 or even 20 percent in a year. It is a world of go big or go home, and this has had a very profound effect on investing in the stock market. This new culture calls for investing in companies, irrespective of fundamentals based on macroeconomic factors based on industry, based on gut feel joe biden went and said something about sanctions last night, so we better go and find some american oil companies to invest in.

Oh wait. Two minutes later, the germans said that they'll keep buying russian oil, so scrap that invest in german manufacturing sector. Instead, that need for instant gratification means. Investors are chasing quick returns and chasing fast.

Money is a process that does not care for the future cash flows or for the utility of an asset that you are buying. Your only objective is to catch the wave and ride it remembering to jump off at the precise right moment and as a result, we have interesting misnomers, like rivian becoming the third largest car company in the world by market capitalization in november last year, without actually having Sold any cars or famous people tripping over each other to sell meaningless jpegs for hundreds of thousands of dollars. The explosion in things like nfts and crypto tokens is a symptom of this bubble. People are investing in an asset which is a unique entry in one specific blockchain out of the many thousands out there that are easily replicable.

That links you to a publicly available image. Remember that the image is completely fungible and can be replicated an infinite number of times, unlike the token on the blockchain, which is the asset that is being purchased. There is no expectation of a future cash flow from an entry in a distributed ledger, and there is no utility value in being able to look at an image of a monkey in exactly the same way as someone who didn't part with a hundred thousand dollars. Like you did can so the reason for investment here is simply in hope that you will be able to sell that particular asset to somebody else for a higher price than you paid for it, without the reason for that price increasing being based on the change in The utility or a change in the fundamentals now i know a few of you - have already started.

Writing a comment saying that the stock market works in the same way because you buy shares and then you sell those shares for a higher price in the future. Except there is one really important difference. The share price is the average of the collective set of expectations for the value of that company's future. Cash flows and the market dynamics mean that, in theory, the share price will go up for one reason and one reason alone, that being the collective assessment of the future cash flows of that company becoming more positive, i.e, people start thinking that the company might do better Commercially in the future than they used to think, and the difference is that opium based investment does not expect the future value to increase because of any kind of rational assessment of anything.

In fact, if you invest in a company based on fundamentals, you are under no obligation to ever sell the stock. The theory is that you can recoup your investment by just holding on and collecting those future cash flows, investing in something without having an expectation of the reason for why the price should go up other than speculation is the literal dictionary definition of a market bubble, and We are right in the middle of maybe the worst one we have ever seen. People are putting their money into ponzi schemes and hoping based asset classes at a rate that has not been encountered before, and this is a problem that is not somehow endemic to just the world of crypto. It has very much spilled over into other markets too.

The stock market is trading at a very high, sustained level of volatility. Daily gains and drops of a few percent in the stock market are highly unusual and they certainly used to be, but we seem to be having those days a few times a week. The vix volatility index, which shows expected stock market volatility based on option contract pricing, has only been this high twice in the last 30 years. During the financial crisis and the dot-com crash in march 2018, the international accounting standards board completed its revision of the framework from financial reporting and in chapter four of that update, they changed the definition of what an asset means.

It used to mean a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity. So the definition used to imply that, in a financial sense, an asset is something where you might expect that asset to generate you, some form of a return on your investment, but in 2018 the entire reference to the economic benefits was literally deleted. So now an asset is just an economic resource that you own, with no expectation of anything. This is very much a sign of the times.

It is now customary on youtube social media and tv to talk about investing as a function of gauging public opinion. Many new investors make investing decisions purely based on sentiment and their specific perception of macroeconomic variables. However limited the extent of that perception may be, and as a result, we have a bloated stock market. The democratization of investing that has brought it from the realm of super rich to the masses over the last few decades has caused a very unique problem.

The number of publicly listed companies in the united states has collapsed since the 1980s and 1990s, but the inflow of capital into the market and the number of investors has dramatically increased. At the same time, we have a historically high oversupply of investor money for a reduced pool of investment opportunities and at the same time, we have this unprecedented focus on short-term gains, and that creates a unique concoction where the money is chasing. The latest fad investors are happy to invest their money well outside their circle of competence. Money is being plunged in speculative companies with absolutely zero understanding of the fundamentals of how the company operates or any ability to commercially value their product or service.

One day the hottest ticket in town is some random biotech company that will apparently, in a few years, solve some very specific ailment. You go and read an article about or maybe watch a random guy on youtube say so and bang goes your one thousand dollar investment into opium. The concept of fair value and target prices is irrelevant, and the issue is that when this bubble begins to burst, maybe it already has started with a correction that we saw in january we're going to have a major case of collateral damage. Now, just because we have this and bubble does not necessarily mean that every stock is overvalued.

That is not the point. I'm making the whole stock market is not by any means doomed. In fact, i think there are plenty of companies out there today that are still undervalued, despite this bubble forming, but once the realization kicks in, amongst the huge numbers of investors who have come on board in the last two years. During the biggest bull run in the history of the stock market, once those people realize that the market doesn't just go and post you 100 return per year and once the realization sets in the opium based investments like the dutch tulips eventually run out of runway, then We may see a broader pullback of money departing the stock market relatively sharply and taking the whole thing down with it.

The good news is that opportunities like the endless crypto tokens and nfts have largely acted as a useful sponge to soak up this inflow of fast money chasing retail investor cash, which has prevented that cash from blowing up the stock market, potentially even faster. And perhaps there is an argument that, because the sponge seems to just keep on growing and growing as the supply of money into it is growing, it can forever absorb the increasing demand from ho-beam investors. But history and basic common sense will tell you that these things don't have a habit of resolving just by themselves in risk management. This is known as the speed boat effect.

You take all the risk that you know you have on your ship and you stick it on a small speedboat and send it off to the horizon. The speedboat sails ahead faster than the ship and in the short term. You know that you got rid of all your risk and you can't see it, but at the back of your mind you know that eventually the speedboat is going to run out of fuel and then your ship is going to catch up with it and when it Does you're going to be in for a very rude awakening? The big question is: how long have we got until we hit the speedboat you.