Why 2017 Was a Great Year for Investors, and Why This Should Terrify Us

With the end of 2017 fast approaching, I think it is fair to say that the investors had a great year: they were fearless and determined, eager to invest in risky endeavors. In 2017, it seemed as if nothing could stop the heavy flow of investments. Political changes and uncertainties, such as Brexit, NAFTA, China, and a possible nuclear World War III instigated by North Korea, did not discourage the stock markets’ stability. Even Bitcoin, which at this point is arguably a gambling tool ready to collapse and devalue at any second, did not affect investor confidence. In fact, the volatility has been exceptional this year:

There have only been three days this year when the MSCI All-Country World Index was up or down more than one percent, and none over two percent. The stock market was calmer than Tom Brady in the fourth quarter.

Furthermore, we saw low, hyper-stimulative interest rates, incentivizing anyone who had a slight desire to borrow and invest to do so easily. Risky, high yield bonds from low-rated businesses and governments did not seem to cause much concern, with Argentina, which has most recently defaulted in 2014, its fifth time this century, releasing 100-year bonds which ended up being oversubscribed by over three times. Indeed, many chose to not have their money sitting around aimlessly in their bank accounts, with “cash held in Merrill Lynch accounts Being at the lowest level (10 percent) since 2007.”

These factors, to name a few, have led to a big year in investing. Yet, Warren Buffett seems concerned, as his ‘Fear versus Greed’ meter has shifted to Greed. Maybe he is trying to tell us something. Maybe we are too greedy, too uncareful, and maybe even too confident in our high-risk actions? Are we investing too freely and are we disdaining clear risks? Can this investing pattern be accompanied by a dramatic collapse?

Referring back to the low cash levels in Merrill Lynch accounts. Last time the rate was at 10%, it was 2007. Next year, in 2008, we witnessed one of the largest financial crashes in modern history. Will history repeat itself? We have not had a big crisis in almost a decade. Will we get a 10th year of bullish behavior or will our 2017 experience lead to a humbling financial disaster? Finally, will Bitcoin or high borrowing and high-risk investments play a role in this collapse?