How to Get Out of a Bubble Without Selling Too Early: Jeff deGraaf Explains

Jeff deGraaf argues that higher real yields have changed the investing landscape in a meaningful way: investors no longer have to reach for equities or speculative assets to earn a return. Using Walter Bagehot’s “John Bull can’t stand 2%” framing, he says real yields in the high twos make bonds a credible alternative again, especially versus an equity market that is not cheap and still carries substantial volatility. He thinks the shift will be gradual, not abrupt, as investors slowly move back toward more balanced portfolios.

He also says the market is showing classic late-cycle stresses. Higher real rates are tightening financial conditions, which is widening credit spreads, pressuring lower-quality debt, and rotating styles toward defensives and value. DeGraaf says the semis bubble signal fired in late April, and the group peaked about two months later, illustrating his view that investors should not sell too early but should be prepared to “shoot them in the back” once a bubble has clearly matured.

On private credit, he says the post-GFC growth of shadow banking is now showing strain through gates, pay-in-kind structures, and deteriorating lower-tier credits. He calls the situation “stably deteriorating,” not systemic yet, but warns that a liquidity problem can become a solvency problem if it persists.