The fall of America: Economist El-Erian says this bubble has the biggest disconnect between financial markets and the real economy in history Image: AJ Cann / Flickr / Creative Commons

Stock prices have hit record highs in the past year as the coronavirus devastated the world, people lost their jobs, economic growth plunged, poverty rose, democracy collapsed and the bubble continued to grow.

The disconnect between the stock markets and the real world has a lot to do with wealth and access, wrote Farhad Manjoo in an opinion piece for the New York Times. Although just over half of Americans own stocks – perhaps in the form of a retirement fund – a huge chunk of stock value is owned by a small number of Americans.

Majoo wrote that he had found the GameStop compelling story for this reason. We’ve all seen that “Miserable online traders prey on greedy hedge funds and corrupt Silicon Valley tech brethren while saving a company (GameStop) that’s a relic of a long-awaited past.” , he wrote. “Was this the start of a real revolt against billionaires – or were billionaires likely to win no matter what, because they always do?”

Over the past week, the price of GameStop shares, AMC theaters, and silver hit their highest level in a decade, driven by small traders chatting on the Reddit forums.

Last week’s trading bears all the signs of the market mania that historically ends in big losses for small traders, regulatory inquiries, congressional hearings that drag on for years and major setbacks by the share. big investors, Ben White wrote for Politics.

So far, politicians have mostly sided with the small investor and called for hearings on platforms like Robinhood, which barred investors from buying GameStop shares. However, analysts fear that small investors will “blow up bubbles that could burst and create market turmoil” that will hurt them, the broader market and economies still struggling with covid-19, wrote White.

“We are now experiencing the greatest disconnect between financial markets and the real economy that we have ever seen,” said Mohamed A. El-Erian, president of Queens College, Cambridge in England and chief economic adviser to the German giant. the Allianz investment. “And now we have younger retail investors who have the cash on hand, who are knowledgeable about social media, and have free platforms.”

The idea that the GameStop phenomenon is fueled by a bored younger generation, teeming with extra cash from stimulus payments, isn’t for everyone.

“People really blame this on the stimulus money as people have sat on the huge $ 1200 over the course of several months just to become a day trader out of nowhere. This money has been spent, puhhhhleze, ”posted a Twitter user.

Another tweeted: “I’m old enough to remember naked credit default swaps on sub-prime mortgage tranches that no one has ever even looked at, and Gamestop is the biggest mismatch?

It’s relatively easy for brokers like Robinhood to keep raising money and for investors to keep pumping money into questionable assets that could easily collapse, White wrote.

Based in Washington, DC International Monetary Fund, which works to ensure international financial stability, sees a bubble and warned in a blog on January 27 that “the apparent disconnect between the exuberant financial markets and the still lagging economic recovery persists, it raises the specter of a possible market correction if investors reassess the economic outlook.

Mellody Hobson, President and Co-CEO of Ariel Investments, discussed her market outlook in an interview with CNBC not to mention a “bubble”. Hobosn predicts a rotation of value stocks versus growth stocks.

“We’re in nosebleed territory,” Hobson said. “We started to see a crack in Q4 and early 2021. And I think we’ll see that continue with value starting to take the lead. Value should do better in a recovering economy. We looked at 14 recessions since the Great Depression, value outperformed in each of them, each in all sectors. “

Value stocks are companies that are currently trading below their true value and are expected to outperform, according to Investopedia. Growth stocks are companies that are believed to have the potential to outperform the overall market because of their future potential.

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Dick Parsons, former chairman of Citigroup, is increasingly concerned about the bursting of a bubble, he told CNBC.

“We’re in a kind of risk-buy mode. Everything goes up and money flows into the market, driving… things even higher… there is a kind of disconnect between the growth of the market and the state of the real economy. And finally, the state of the real economy will catch up.

“I’m afraid we may see… a bubble burst and the markets crash precipitously.” This has happened before after mergers, the market is still collapsing. If it were to collapse at a time when we have other issues like the pandemic we are facing or a seriously injured global economy, it could portend many hardships for the future. “