When a market bubble isn’t the end of the story


What’s happening: The S&P 500 remains just below its all-time high, while the cryptocurrency ethereum notched a new record on Tuesday, jumping above $3,400.

That may seem like good reason for investors to consider taking money off the table, avoiding heavy exposure to a potential crash. But in new research, JPMorgan explores a different approach: What if investors choose to invest in bubbles, and not around them?

To bolster this argument, strategist John Normand makes a few key points. First, he notes that extreme valuations are fairly common — though more so for stocks and commodities than for bonds — and can sometimes last for “many years.” Second, he writes that “80% of expensive markets that crash spectacularly eventually make new all-time highs.”

This could allow some investors to argue that they’re not looking at a series of “irrational bubbles.” Instead, some price jumps could just be the result of overexcited investors who are looking at very real prospects for growth, but are getting a bit ahead of themselves.

“Markets are always forward-looking and sometimes look too far. This phenomenon creates vulnerability within a business cycle but probably vindication in the next one,” Normand said.

One example: I immediately thought of my recent story on clean energy investing, which suffered a huge bust around the Great Recession in 2008 but is now rebounding again. While investors with shorter time horizons were undoubtedly burned, those who kept pumping money into the industry look increasingly well positioned as countries, companies and Wall Street place new emphasis on fighting the climate crisis.

This does not, of course, mean that dangerous bubbles don’t form in financial markets, and that everything that drops must rebound again.

Normand recommends that investors remain selective.

A solid approach, he said, is to prioritize assets with backing from central banks, which have shown a willingness to intervene when markets get choppy.

The Federal Reserve has repeatedly provided quick support to the US economy, boosting stocks and bonds and limiting Wall Street’s risks. The central bank is unlikely to do the same for cryptocurrencies.

Big picture: If, say, ethereum prices are ultimately a bubble, then, that could lead to a tougher hangover.

Bill and Melinda Gates are getting divorced

Bill and Melinda Gates are ending their marriage after 27 years, a decision with big implications for philanthropy and global health.

The couple, who are among the wealthiest people in the world, founded their philanthropic organization, the Bill and Melinda Gates Foundation, together in 2000. Since then, the organization has spent tens of billions of dollars on initiatives to improve public health and alleviate poverty. The foundation has also been at the center of efforts to fight the Covid-19 pandemic, funneling huge sums of money into testing, treatments and vaccines.

Why it matters: News of the divorce has raised questions about the future of the foundation — and the couple’s massive fortune — even as the pair pledged to maintain a professional relationship.

“We have raised three incredible children and built a foundation that works all over the world to enable all people to lead healthy, productive lives,” the couple said in a statement on their verified Twitter accounts. “We continue to share a belief in that mission and will continue our work together at the foundation, but we no longer believe we can grow together as a couple in this next phase of our lives.”

Why is the divorce a big deal? Just take a look at these numbers:

  • $146 billion: Bill Gates’ net worth. The cofounder of Microsoft is the fourth richest person in the world, according to the Bloomberg Billionaires Index.
  • $54 billion: How much the Bill and Melinda Gates Foundation has donated over two decades.
  • $1.75 billion: The foundation’s commitment to the pandemic response, as of December.

Watch this space: Melinda Gates has filed a petition for divorce in King County, Washington. She asked a judge to dissolve the marriage based on the couple’s separation contract. No financial details were included in the publicly available documents.

The world’s largest jewelry brand is ditching mined diamonds

Copenhagen-based Pandora (PANDY) produces more jewelry than any other company in the world. And on Tuesday, it announced a major change: It won’t use any more mined diamonds in its products.

The details: The company said it’s instead shifting toward the use of diamonds created in labs, which it emphasized have the same “optical, chemical, thermal and physical characteristics.” Shares are up 6%.

Lab-grown stones have been billed as the ethical, traceable alternative to mined diamonds. They have growing appeal among consumers looking to buy products from sustainable supply chains. Pandora previously announced it will only use recycled gold and silver in its products by 2025.

Last year, Tiffany & Co. announced a tracing initiative that allows customers to find out the exact country where stones are cut, polished and set.

Pandora targets mainstream buyers, which means diamond sales accounted for just 50,000 pieces of jewelry sold last year out of a total of 85 million. Yet it’s still a significant move from a major player.

Watch this space: Pandora is trying to stay ahead of the curve, noting huge growth in demand for lab-made stones.

“In the US, and especially in China and India, younger consumers say sustainability is part of their decision-making process and could influence whether they buy diamond jewelry,” Bain & Company pointed out in a report published earlier this year.

Up next

Corsair Gaming, CVS (CVS), Ferrari (RACE) and Pfizer (PFE) report results before US markets open. Activision Blizzard (ATVI), Caesars Entertainment (CZR), Hyatt (H), Lyft (LYFT) and Zillow (Z) follow after the close.

Coming tomorrow: The ADP private payrolls report will serve as an important preview of the April jobs report due Friday.



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