Is the Market on the Brink of Another 1929 Crash?
Why Second‐Level Thinking Often Reveals More Nuanced Realities
Recently, a tweet from market commentator Henrik Zeberg kicked off a wave of debate and reached more than 300,000 people on X. He shared a long‐term, inflation‐adjusted chart of the S&P 500 stretching back over a century.
His message? We’re in a bubble—on the cusp of the largest recession and bear market since 1929—and headed for a final “blow‐off top.”
If you glance at the chart he provided, it’s easy to see why someone might think that.
On a linear scale, the S&P 500’s recent climb looks like a near‐vertical surge into the stratosphere.
But is it really time to panic?
Before buying into dire predictions, it helps to consider what Howard Marks calls “second‐level thinking.” Rather than simply accepting an initial, surface‐level impression (“The chart looks scary, sell everything!”), second‐level thinking pushes us to ask: Why does it look scary? Are there underlying shifts in market structure, globalization, or measurement methods that might give a different perspective?
In this blog post, I’ll break down Henrik’s chart and arguments. I’ll look at the pitfalls of using linear scales for multi‐decade charts, discuss the notorious “Buffett indicator,” and examine how changes in business models and globalization can impact “fair” valuations.
By the end, you should have a better sense of how to view “bubble” warnings with a healthy dose of nuance.
First‐Level vs. Second‐Level Thinking
If you’ve seen or read anything by Howard Marks (a prominent investor and co‐founder of Oaktree Capital), you’ll know he often discusses first‐level vs. second‐level thinking.
First‐Level Thinking is straightforward, reactive, and often triggered by alarming headlines or charts. It says: “That chart is vertical, we must be in a bubble.”
Second‐Level Thinking peels back the layers: Why might the chart be vertical? What metrics and scales are being used? Are we making apples‐to‐apples comparisons with the past?
It’s not that second‐level thinkers dismiss the possibility of a bubble. Rather, they look beneath the surface data points to assess whether the market’s underlying fundamentals really warrant panic.