EMBRACING HOT STOCKS AND RISKY CRYPTOS
During the pandemic, unprecedented cash infusions flowed into the hands of consumers who, stuck at home, started investing as a game, treating the markets as an adventure park. This thrill-seeking paused when the return of inflation forced the Fed to raise rates in 2022, but only briefly.
The next year, the government responded to a run on Silicon Valley Bank by guaranteeing all its deposits. Then it pumped an extra US$400 billion into the banking system to make sure the fear wouldn’t spread.
The following summer, when stocks fell for a few days and investors clamoured for a big rate cut, the Fed delivered one, despite sticky inflation. Once again, the game was on.
Far from worrying about high borrowing costs, Americans are embracing risky vehicles such as leveraged exchange traded funds (ETFs), which now offer even small investors a chance to leverage bets on individual stocks, including of course the hottest name, Nvidia. Cryptos with names like Fartcoin have been on a tear in recent months.
So how does the guiding assumption – of state support for speculative risk – change? One way is that the price of money rises further, prompted possibly by higher inflation. Another is that a fiscal crisis or some other shock leaves the government unable to afford such generous bailouts and rescues.
Until then, BTFD will remain the mantra for most investors.
