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Bad for Business? Wild Media Sector Swings Point to Overheated Equities Market


There’s no better moment to take the pulse of the investment landscape than during the annual shareholders meeting of Berkshire Hathaway, the $700 billion holding company headed by legendary investor Warren Buffett.

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Despite how frothy the broader market would appear, it’s important to note that the S&P 500 has not only rebounded from the massive hit it took a year ago when the pandemic struck, but hasn’t slid into correction territory, says Economic Cycle Research Institute co-founder Lakshman Achuthan, who specializes in analyzing business cycles. And the current upswing has prompted hedge funds to borrow more money.

“You’ve got a fundamental recovery goosed by stimulus, either monetary or fiscal, and part of the way that it gets goosed is these different funds will leverage their bets,” he says. ”So Archegos, these guys were super leveraged. And they were leveraged to the upside in big amounts.”

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“There’s just a lot of money sloshing around there, and you don’t know what’s going on,” says Achuthan. ”To the extent we have free-market capitalism — which is a separate debate — the money is going to try to find a way to make a profit, by hook or by crook. There’s all kinds of systemic imperfections that a capitalist approach is going to try to take advantage [of]. You’re pouring lots of fuel on the fire.”

What Achuthan is watching out for now are signals of a pending downturn.

“Trees don’t grow to the sky,” he says. And when the market comes off its peak and growth eases, “there’s going to be a big disconnect between the reality of growth starting to slow and the stories behind the market running up. And that’s when the risk or the likelihood is of more downside volatility in the broad market than we’ve seen in the past year.”

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