Wednesday, October 28, 2020

"Huge Storm Is Here: Tech Bubble Will Trigger A Catastrophic Stock Market Crash"

"Huge Storm Is Here:
 Tech Bubble Will Trigger A Catastrophic Stock Market Crash"
by Epic Economist

"The looming stock market crash is making investors worry like never before. Strategists believe the effects of the widespread lockdowns already unleashed several catalysts that have been quietly causing the stock market crash, and now, a change in mass psychology will likely depress the markets even further. 

In addition, experts warn the huge tech bubble has already popped, and its effects will potentially act as the Black Swan event needed to boost an unprecedented crash. In this video, we analyze the coming crash on the basis of the assessment of prominent authorities in the field. 

Stock markets continue to register record-highs, even though the real economy is still suffering. Given that the sanitary outbreak reminded the world how unexpected events can crush expectations very rapidly, investors have been arguing that a black swan event is about to reveal itself.

Despite the fact that the outbreak repercussions aren’t considered the biggest threat for the markets anymore, they have sparked a number of other triggers that are already silently causing the next stock market crash.

At the stage we're in right now, it's crystal clear that our economy is lagging behind the stock markets. The crash experienced in February and March and the second quarter of 2020 has created a massive deterioration in the economy that need to be assessed before even considering a retake to previous levels.

The most optimistic prospects point that it will take at the very least until 2022 for the US economy to see a significant recovery. In spite of such projections, stock markets keep rising and having more edge over the real economy. Why do they manage to stay that way? It's what a recent article answered and we analyze in this video. 

In short, the core problem is that markets have grown not because of a better economic landscape but due to the expectation that the federal government will continue to shoot liquidity injections all over the markets. But these packages don’t do more than keeping the patient alive for the time being. 

An additional source of cash is the money market funds, which envisions to maintain a highly stable asset base through liquid investments. The inflows into money market funds have steadily escalated and after the health crisis prompted widespread lockdowns, another shift of capital happened into money market funds. That is to say, the money overflow inside the stock markets created the substantial distortions seen by the end of February. 

Furthermore, private investors demand for shares has been spiraling upwards, which makes the perfect scenario for a self-fulfilling prophecy. This parabolic investor ascent towards the top is a warning sign pointing that the stock market indeed inside of a bubble. 

A Nobel-winning economist has outlined that amid another spike in infection cases and a chaotic political scenery could "shake people up", and any resemblance between the market now and the market before previous crashes could "create a psychological sense of the risk."

According to his index, an overwhelming majority of investors said there was a greater than 10 percent probability of an imminent crash - really, a remarkable indicator that people are quite worried.  Since the market is now similarly valued as during the stages that preceded the Great Depression and the dot-com bubble, some commentators are comparing this bubble to the prior one, but bubbles will never be exactly the same.

Bubbles tend to topple under their own weight, that’s why chief strategist David Einhorn points out that the enormous tech bubble already popped on September 2, the day the S&P500 and the Nasdaq both hit an all-time high. 

When a downfall starts, the psychology shifts from greed to complacency to worry to panic. Now, investor sentiment is in the process of shifting from greed to complacency. Considering that 5 major tech companies are the ones supporting the entire market right now, the silent pop of the tech bubble might be the black swan event that will trigger a catastrophic stock market crash."

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