On today’s The Financial Commute episode, Chris Galeski welcomes Wealth Advisor Bruce Tyson to discuss valuations and asset bubbles. In the past, some institutions issued fiat currencies, or notes, which were not backed by physical assets. Similarly, today, there are companies that Bruce refers to as “zombie” companies that we should be cautious about investing in because their shares are not backed by real assets or earnings. These companies are called zombie companies because their earnings are not sufficient to cover their interest obligations.

Furthermore, Bruce discusses asset bubbles, which are when assets rise in price without fundamentals to justify the price spike. For example, there was a tulip bubble in the 1600s in Holland where people would pay thousands of florins for a tulip bulb. However, one day, the tulip bubble burst as consumers stopped paying increasingly inflated prices. Earnings are what give value to stocks; without earnings, the stock might be a bubble. 

Finally, Bruce and Chris say that because interest rates have now increased, bonds are now paying a higher interest rate. Thus, Bruce encourages listeners to consider investing in bonds, as they may also carry less risk than stocks because asset bubbles can be a more prominent factor in stocks than bonds. 

General Disclosure: 

Information presented herein is for discussion and illustrative purposes only. 

The views and opinions expressed by the speakers are as of the date of the recording and are subject to change.

These views are not intended as a recommendation to buy or sell any securities, and should not be relied on as financial, tax or legal advice. 

You should consult with your financial, legal, and tax professionals before implementing any transactions and/or strategies concerning your finances.