February 10, 2022 - 10:31am

Amid every financial craze throughout history, from the South Sea Bubble to the 1840s Railway Mania to the more recent Dotcom Boom, there are always pointers that exhibit the utter craziness of that period. Today, in what is undoubtedly the frothiest market bubble for some time, we’ve been graced with an abundance of bizarre products that have offered us similar signals. And perhaps the strangest product of them all is the oversized iPad attached to an exercise bike (and other pieces of gym equipment) made by Peloton.

The U.S.-based manufacturer of “unique” gym equipment offers consumers a chance to experience luxury gym sessions at home. But it comes at a hefty price: its bike, for example, starts at $1,495, reaching up to $3,035 for its Bike+ model, and for full access to “classes, live streams, leaderboards, and metrics,” you must shell out an extra $39 per month. Plus, with its competitors offering virtually the same product at a cheaper price, the only reason to pay more is for the “Peloton experience”. Whatever that means.

But with the pandemic waning and consumers vowing to return to “normal,” ditching Covid-centric activities is becoming more commonplace. In turn, Peloton’s sales have hit the brakes. The company, even during its peak, failed to turn a profit. Consequently, its stock has plunged from its December high of $151.72 to just around $38 per share, forcing the company to lay off over 3,000 of its 12,000 employees and replace its CEO this week. Now, in a classic “sources familiar with the matter” scenario, rumours of retail behemoths Amazon and Nike acquiring the struggling exercise equipment-maker have saved its stock price for now.

Peloton’s plunging share price is part of a bigger selloff of “risky assets and ventures”, a cushy idiom for overpriced junk that always attracts speculative buyers. The crypto market has lost a trillion dollars in market capitalisation; SPACs (special purpose acquisition companies), which allow companies to go public without receiving almost any scrutiny, have been dumped; and company shares within the dubious ARK “Innovation ETF” have been pummelled, with most stocks down over 50% since the height of the euphoria in October last year.

Why did it end around then? Probably because many U.S economic indicators had peaked and begun to slow. Small business sentiment started to fall, while the ISM Manufacturing and Services Indices began to slow. American consumer sentiment, then already at a low, has continued its decline.

Meanwhile, in the face of rising inflation, Federal Reserve officials are signalling their willingness to up-the-ante on interest rates, tightening monetary conditions, in order to try and prevent rising consumer prices.

Slowing growth, rising interest rates, and a Federal Reserve ending its latest bout of monetary easing. What could be worse for low-quality stocks like Peloton that have been surfing the wave of speculative hype since their very inception? Since the global financial system is now more leveraged than ever, the next financial meltdown won’t end well for the broader market, let alone stocks behind companies built on outlandish products and a slick narrative. Peloton is just the beginning.

Greg Barker is an independent journalist and quant, who also writes under the name Concoda. You can find him on Substack and Twitter at@concodanomics.