A market crash is a condition in which there is a continuous sell-off of securities due to negative sentiments and a lack of investor confidence. Bear markets can affect the entire economy, individual stocks, indices, or both and can often lead to market crashes.
2020 has been an interesting year so far. Starting off with the Trump administration bombings in Iraq and the downing of a passenger plane over Iraq, killing several people. As if that wasn’t enough, we have Coronavirus infecting and killing several people across the globe.
At the time of press Wuhan, in the Hubei province of China is on lockdown, the entire country of Italy is on lockdown, thousands are affected globally and several businesses are feeling the heat. Airlines have begun canceling thousands of flights, football matches have been suspended in some parts of the world, it is no wonder the charts have been red and the markets have been crashing for much of the year.
The securities market responded to all these fears, uncertainties, and panic by selling off! After all, if there is an apocalypse, you had better have money to stock up on the stuff that matters, than holding a stock in a company with dying customers.
As a result, DJIA went down 20%, wiping off billions in dollars of market value over a single day. The worse since the 2008 economic crash. The NASDAQ composite and S&P 500 all incurred losses in the magnitude of double digits this week. The US stock market has now lost over 11.5 trillion dollars, all the gains made since the last 4 years of President Trump’s presidency, in the span of the first 3 months of the year.
While Coronavirus is deadly and has been declared a pandemic, what is even more dangerous is the underlying fraudulent market economies that the world runs, and the Coronavirus would expose the world economy for the rote it has so much fought to prevent the public from knowing.
Even years before Coronavirus’ hit, the world economy wasn’t in the best of shapes. From Europe to Asia, Africa, and America’s, governments have been engaging in high-risk borrowing to fund frivolous projects, while central banks have engaged in rate cuts to encourage spending, and providing extra liquidity in the form of capital injection much of which was created out of thin air anyway.
Central Bank Response to the market crash
In the United States, Italy, and Iceland, central banks have activated emergency fiscal policies to limit the economic impact of the COVID 19 virus. In England, the interest rate had been cut to 0.25% from 0.75%. The US federal reserves have revealed similar policies and the same is expected across Europe to help bolster the stocks market.
While these emergency fiscal measures might help prop up the stocks market, it wouldn’t mean much in the long term in the fight against Coronavirus, popularly known as COVID19. You can cut rates to bolster the stocks market, but there are only as many rates the central banks can cut before there is nothing to cut off the existing rates.
You can implement all the fiscal policies you want but if cities are shutting down and customers are dying or are in lockdown, your business is literally going to bleed “tendencies” (nice way of saying, you are fucked).
The virus is destroying the global economy confidently, this makes central bank fiscal policies seem much more like a joke. When you cut rates to prop the stocks market in a pandemic, you are only putting money in the pockets of the rich. The central banks know this, yet they do it anyway because they are friends with the rich.
More importantly, COVID 19, would have a greater negative economic impact on the world primarily because the world of finance has been on steroids for many years. Even the simplest of crashes in the market are met by a myriad of stimuli by the federal reserve putting in lots of fake money. Global finance is like a man who has taken opioids and running a marathon despite being seriously ill, it is only a matter of time.
The Euro Zone sovereign debt crisis that was never solved
The Eurozone debt crisis was a period where several European countries failed to pay their debts owed creditors without resorting to third parties for assistance.
This was primarily fueled by easy access to credit facilities which led to high-risk lending, international trade imbalances, and real estate bubbles that swept over much of the global economy. Iceland had its banking system collapsed and government bonds rose to higher interest rates just to give you an idea of how dramatic the entire situation was, and how did central banks respond?
Your guess was right, rate cuts! Yes! with all the avalanche of problems to solve, central banks chose the easier way out. They offered lower rates, and in some instances even negative interest rates to force consumers to spend rather than save to stimulate the economy.
Did governments stop the high risk borrowing? No! Did the real estate bubble end? No! Has the imbalance of international trade been resolved? You guessed right, No!, the central banks gave rate cuts and went to sleep. In fact, in most of modern economic history, central banks have always responded to economic challenges by instituting what they term fiscal policies or whatever fancy name they prefer to call it, but at the very core of this, it’s rate cut! Let this sink in, as we progress.
China’s credit bubble has expanded, even while it’s GDP has slowed down.
After decades of double-digit economic growth, Chinese leaders have resorted to using debt to fuel growth. Obviously, this has led to rising debts for China.
They continue to flex their muscles in Africa and other Asian countries offering loans in excess of billions of dollars, and yet China’s own debt is 255.7% of its GDP. Yes, you read that right, I am not even making that up, head here for more details, because of this high debt to GDP ratio in China, the country is vulnerable to even the slightest economic challenges. Believe it or not, but China’s current debt situation is worse than they care to admit, or care to publicize.
China’s economy is able to sustain itself for now because of the high liquidity it gets from it’s massive exports to the world. They are basically the production house of the world.
The entire world depends on them for things such as drugs or even the simplest of tools. Coronavirus affecting the world and a global economic slowdown is the worse possible scenario that China needs at the moment.
What has the Chinese government done against these myriads of debts and economic challenges? Permit me to quote.
BEIJING — China’s economy stabilized in the first three months of the year, according to official figures released on Wednesday, after Beijing flooded the financial system with money in a whatever-it-takes approach to arrest a slowdown.https://www.nytimes.com/2019/04/16/business/china-economy-first-quarter.html
US assets are generally expensive
Software and growth stocks are mimicking the dot-com era bubble that led to the tech crash leading to losses in excess of billions of dollars.
Meanwhile, a lot of hot money escaping Europe and Asia’s problems has flowed into the USA, which likely has played a big role in fueling these extraordinary valuations. Even “value” stocks have been rather expensive. Multiples have compressed some ever since the height of the 2018 blowoff top, but this is largely just a product of money sloshing into fixed income and safe havens more than anything else.R/WSB
This same flow issue is providing an extraordinary bid for anything providing a yield, as foreign pension funds, insurance companies, and banks are starved for yielding assets, considering they can’t purchase their own sovereign bonds for positive yield.
This has forced foreign financial institutions way out of the risk curve and even with that in mind, they’re still not getting much back in terms of yield. Japanese, Taiwanese, and other foreign institutions are at severe risk if and when credit gets downgraded, or when currency starts to move against them (which it likely has already started). I can’t state how much of a risk this is systematic.
There are over 12 trillion dollars in emerging market debt denominated in dollars, and the dollar just keeps rising. The more we see financial issues in Europe, Asia, and Africa, the more this just squeezes the US dollar higher, putting even more strain on the global financial system since it gets even more difficult to repay these USD-denominated debts. This is especially negative for all EM countries and I’m not really sure what the long term solution is. There have been attempts to kick the can down the road but most of those just involved more borrowing, which just made the problem worse in the long run.r/wsb
How do you benefit from all this?
At this stage, many industries may have to hit the reset bottom and lay low until the world is able to contain the virus. Believe it or not, it has started with the airlines, and if COVID 19 continues with its existing trajectory unperturbed, many other industries are going to be severely affected and the world’s economic systems are going to be exposed for the fraud that it is.
Think of the entertainment industry, Banking industry, Insurance, Health Care, etc, all crumbling to their knees. There would be layoffs. Companies would default on their debt obligations, salaries, and pension funds of their workers. What happens, if the suppliers of some of the most basic items run out?
Fortunately, the dust would settle. Hopefully, COVID 19 wouldn’t end civilization as we know it. Businesses would pick up again, stocks would pick up again and billions more would be made than has already been lost due to the virus.
Your best move at this point is to position yourself. This wouldn’t be the greatest bear market ever, neither would this beat the greatest depression in history, but it would dispense a great deal to global economies.
Assuming you survive the onslaught of COVID 19, I sure hope you do, buy stocks for pennies on the dollar. Follow the old age adage, buy when everyone is fearful and sell when everyone is hopeful.
Buy when there is blood on the streets, even if it is your own blood. I kid you not, there is blood on the streets, and there would be more blood to come. Buy!!!! and pick a clue from this, the world would never end, thus in another 10 or 20 years, guess what? there would be another economic disaster.
If you have read this far, then you are serious about making money. Sure COVID 19 isn’t a good thing for the world, the pandemic is causing mayhem across the globe and many people are in a state of shock, but not you, you are a smart and intelligent investor looking to buy in cheap, right at the bottom.
So how exactly do you determine the bottom and enjoy the myriads of opportunities that this market would present? Join Us, buy our Dorla tokens, and let’s make money together.