Saturday, February 27, 2021

"Has The Great Shaking Of The Financial Markets Finally Begun?"

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"Has The Great Shaking Of The Financial Markets Finally Begun?"
by Epic Economist

"Volatility and chaos are sweeping across Wall Street this week, as the Nasdaq has experienced a flash crash, falling more than 5 percent and being on the path to a second consecutive weekly loss, while the bond market has registered an upsurge at levels last seen in November, with the yield on 10-year U.S. Treasuries exceeding 1.6% and set to move even higher in the coming days. Investors have been completely terrified about the idea of a sudden inflation spike since our economy is scheduled to fully reopen this year. A major sell-off has started, and market watchers are truly hoping this is only a temporary blip, otherwise, it may represent the beginning of the great shaking of the financial markets. That's what we're going to analyze in this video.

Ever since the health crisis struck in America, stock prices have continuously climbed, reaching unprecedented highs. However, in real terms, everyone already knew that wasn't going to last very long because valuations quickly started to become unsustainable and completely out of touch with our economic reality. Eventually, the market wouldn't be able to handle the pressure and overinflated prices would have to face a correction. On Thursday, we had the single worst day for stocks in 2021, as a significant surge in bond yields spooked investors, who promptly began to massively dump risk assets, causing U.S. stocks to sharply drop, especially amongst high-flying technology names.

According to recent reports, the Dow Jones Industrial Average fell 559.85 points, or 1.8%, to 31,402.01, considerably declining from a record high. While the S&P 500 dropped by 2.5%, to 3,829.34 registering its worst day since January 27. For its part, the tech-heavy Nasdaq Composite slipped 3.5% to 13,119.43, recording its biggest sell-off since October 28. All the main averages rapidly plunged, and this collapse was primarily sparked by a jump in the US government bond yields. The 10-year Treasury yield rocketed as high as 1.6%, resulting in a sudden move that some described as a “flash” crash. 

Conversely, the main reason why the 10-year US bond yield went up was because investors are fearing inflation in the U.S. will rise in the coming months. They are anticipating that as more and more Americans get vaccinated and resume their usual spending patterns, the consumer demand will increase, but the supply won't be able to meet the growing demand. As a consequence, more money would be poured into the same set of goods and services, which could potentially lead to a surge in prices in general and higher inflation. It's important to remember that a higher inflation means that interest rates all across the economy will climb just as well. 

Meanwhile, as the stock market has just started to keep up with our reality, the U.S. economy continues to fall apart all around us. Some economists were thrilled with the decline in jobless claims, but others have been highlighting that the national unemployment rate is masking how much some groups are still struggling in the current recession. 

It's important to highlight that the reinsertion in the labor market has been extremely uneven. For White workers, unemployment is much lower, at 5.7%, while the unemployment rate for Black groups was 9.2% in January, and for the Hispanic, the jobless rate was 8.6%, according to the Bureau of Labor Statistics. In the meantime, economists are alerting that the widespread business shutdowns happening in states severely hit by the ice storms could result in an increase in jobless claims filings over the next weeks. 

Just a few days ago, we learned that Fry’s Electronics would abruptly close all of its stores overnight, letting go of all of its staff, and putting an end to nearly four decades in business. With so many iconic businesses disappearing, the American economic landscape definitely won't be the same once the economy reopens. 

Our living standards are about to be even more deteriorated while every-day expenses will sharply increase. It is going to get progressively more difficult to afford to live in this country. All evidences point to a societal decay that worsens with each passing day. And, unfortunately, as economic conditions get even darker, that is just going to trigger even more civil agitation, and economic pain. The markets are shaking, the economy is shaking, and if nothing is changed soon enough, everything will implode right before our eyes." 

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