A rolling bubble gathers no moss

Tony Sutton

Sintra Capital

Over the last 400 years, there has been no shortage of bubbles in various markets, ranging from Tulips in Amsterdam (1600s) to US dot.com stocks (2000). Thankfully, global markets consistently demonstrate remarkable durability and resilience in picking themselves up off the canvas and moving on to the next hot concept.

We can never really be certain of a bubble until it actually bursts, despite how obvious it seems in hindsight. Here, we provide a list of 6 current potential bubbles that we believe might just be that little bit too stretched. Please feel free to comment below and suggest any others you think we have missed.


After falling dramatically from its peak in December 2017, one could easily argue that this is one bubble that has already burst. Bitcoin should not be confused with the underlying blockchain technology, upon which it is based, that does have genuine real-world applications. Cryptocurrencies however, without central bank support, a genuine ‘legal’ purpose or tangible intrinsic value is a bubble and any price greater than zero is too high.


The recent IPO of ride-sharing titan Uber and smaller competitor Lyft provided a unique insight into industry fundamentals. In 2018, they generated a combined revenue of US$13.4bn for a combined net loss of -US$3.8bn. At a combined market capitalisation of US$86.4bn, some very healthy assumptions about future growth need to be made. While appreciating that the Total Addressable Market (TAM) is massive, we believe the underlying business model of subsidising driver earnings to keep fares low is not sustainable. 

When prices do eventually rise and their competitive advantage deteriorates, this bubble is sure to pop.

Buy Now, Pay Later

Despite the concept of lay-by being around for decades, this modern variation is more of an Australian phenomenon. We don’t hear much about this space from offshore, except for when Australian companies are expanding their geographic footprint. AfterPay, the most well-known player, has seen its share price nearly double in 2019 alone. Exponential growth in transaction values and on-boarding of new merchants provides sufficient fodder to keep the bulls roaring, but ultimately it will be a combination of regulation, bad debts and competition that they should fear most.

Bond Prices

It wasn’t long ago that folk were saying bond yields could never go negative… it just doesn’t make any sense. Then they did in Japan, Germany and Switzerland. This effectively means that depositors will pay the bank to hold funds on their behalf. A bit like paying to store gold. While the rest of the world has seen bond yields falling to record lows. 

The avalanche of central bank buying has most certainly contributed to these outcomes and standing under it has proven unforgiving. 

But at what point does the system break? Surely a limit exists for how negative yields can go? Eventually they will have to return to more ‘normal’ levels… one would surely think. Just please don’t ask when that will be.

Meatless Burgers

The recent US IPO of Beyond Meat, a developer of plant-based protein food products, has lit a fuse under the concept of meatless burgers. Sales of their secretly formulated “meat built directly from plants” will need to grow exponentially from their current base of US$88m in 2018 to justify today’s stratospheric valuation of US$4.8bn. Not to be outdone, McDonalds is also joining the meatless burger trend in Germany. The meatless patty for the “Big Vegan TS” is being manufactured by Nestlé. Competition is clearly heating up and will most likely continue to intensify. Similar to the North American cannabis sector, the underlying thematic is reasonable, but hype can only carry a stock so far. When expectations catch up with reality, we see a negative outcome for plant-based protein stocks like Beyond Meat.

Index Investing

Stock market indices have existed for over 100 years. In contrast, making the index your investment strategy is a relatively modern phenomenon, only really taking off in the 2000s. The strategy works well when markets in general are rising, as they have done for most of the past decade. By definition, indices allocate capital to companies in proportion to their size, implying that bigger is better. We would argue that better is better, and when the tide goes out, it will be easy to see who is swimming naked.

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Portfolio Manager
Sintra Capital

Tony has extensive experience in international equities having worked in both London and Australia. Tony was formerly senior portfolio manager and head of international equities at K2 Asset Management (2016-2022). Prior broader market roles...

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