Financial markets have always been extremely volatile- but only few years after the devastating stock market crash of 2008, it has risen to heights that raise fear in economists. Inflated market might lead to a “bubble”, where over-valuation of stocks lead to unrealistic demands. The danger with this, (as we have seen from history) is that when the price doesn’t meet the actual value of a stock, and the investors realize this? The demand for stock can rapidly (in units of seconds, even) disappear- leaving a void of financial investment for firms.

In Micheal Babad’s article, it is mentioned that the low interest rates can justify the high stock prices somewhat. This logic can be explained by the judgment of present value learnt in class. Since the future value is in ration to interest rate (so opportunity cost of investing this money), the price of assets are inversely related to interest rates.

Will we ever learn? Just as the stock market recovers from its latest downward spiral, already analysts sense inflation on the rise- especially with the sequential IPO’s of new tech companies (that suffered from over-valuation).