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Why The Stock Market Hasn't Crashed Yet - What Banks Don't Want You To Know - YouTube
Channel: Proactive Thinker
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When you look at the history of the stock
market, there are a lot of ups and downs,
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but the trend is generally upward.
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It doesn't matter at what point of the market
you have invested, in the long run, you have
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multiplied your investment.
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Even if you have invested at the peak of 2007
or 1999, the market didn't just recover but
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have grown substantially.
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Especially since 2011, the market has been
growing faster than ever.
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Just take a look at the s&p500.
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The growth has been unstoppable.
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Guess why?
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Because since 2008, the fed realised that
instead of just letting the market correct
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itself and recover, it can literally print
trillions of dollars, throw it into the economy,
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and it's going to recover much faster, which
has worked pretty good for the last two crises.
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But what stands out in the history of the
stock market is February and march of 2020
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when the market collapsed.
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Never in the history of the stock market has
it collapsed so suddenly and so severely.
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What makes this particular crash different
from everything that has ever happened is
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the fact that it instantly recovered, and
since then, it has been on a rollercoaster.
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That's why a lot of analysts expect the market
to crash again since it's not normal.
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The market can't just, out of nothing, rise
that much, especially when it's fuelled by
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cheap money.
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But the question is, why the crash hasn't
happened yet?
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Why it's still growing, and when exactly will
it crash?
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If you are ready, give this video a thumbs
up, and here is a little disclaimer, this
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is not financial advice, and everything that's
said in this video is for educational and
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entertainment purposes and now let's dive
in.
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If you have been paying attention, there was
a correction last month, and if you were smart
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enough, you probably took advantage out of
it.
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That was the time to buy, but it wasn't the
first correction.
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Every few months, we are experiencing a correction,
and each time it feels like the market is
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going to crash further, but it never did and
seems like it's not going to happen in the
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coming future.
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What we have to understand is that, for the
last year or so, we have been during the boom
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period.
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It's the time when the economy recovers grows
exponentially.
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Remember the economic cycle we have talked
about in one of the previous videos.
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The economy starts growing to the point where
it reaches its maximum potential, and then
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it slows down.
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Inflation rises faster than the economy, so
the fed raises interest rates to their maximum
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in order to keep inflation under control,
but it limits the supply of money into the
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economy, so the economy barely grows and kinda
grows enough to coupe with inflation.
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At some point, the bubble bursts, the economy
crashes like a domino effect.
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It happened in 2008, in 1999, and in 2020.
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That's when the fed steps in with cheap money
to help the economy recover faster by lowering
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rates and buying both corporate and government
bonds.
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In the first year or two, usually, the economy
recovers to its pre-crisis level.
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Then it goes through the boom period where
everything explodes until it reaches the peak
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again, where it slows down until it crashes
again.
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Judging by this graph, it's clear where the
economy is standing right now.
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Of course, no one knows the future, and we
can't say that's it isn't going to crash,
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but there are usually a lot of indicators
that point out what direction the economy
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is headed to.
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When the fed lowered the rates to almost 0
percent, people expected that as a temporary
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measure because our economy is a consumer-based
economy.
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The economic wheel turns around because people
spend.
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The moment they stop, everything stops.
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It just collapses.
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Turning the wheel again is much harder, so
the fed took an easier path by artificially
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keeping the wheel turning while we are getting
out of the pandemic, which seems like it did
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a pretty good job, but it never said anything
concrete about when will it raise the rates.
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All they said is, they will do everything
possible to save the economy, and it turns
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out that means keeping the rates low not for
just a few months or a year but a few years,
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until we fully recover from everything.
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So while the growth has slowed down, with
these kinds of rates, it's impossible for
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it to crash.
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A lot of analysts expect the rates to be raised
only in 2023, and that seems very reasonable.
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Of course, anything could happen by then,
but that's so far the most realistic scenario.
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The fed definitely wants to raise rates.
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No one likes this inflation.
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In fact, the fed kept saying that inflation
is under control to calm everyone down when
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in reality, inflation was much higher than
feds expectations.
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The growth that has happened in the last few
years wasn't free.
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It was at the expense of inflation.
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Prices have soared all across the world, especially
on real estate.
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House prices don't randomly soar by 20 or
30 percent.
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That's not normal.
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That's literally ten times higher than their
usual rate.
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What happened in the last one and half years
was a huge experiment!We have never printed
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so much money in such a short period of time.
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And it's not just about the US but worldwide.
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That's why it's difficult to make any predictions
about how it could potentially end when we
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don't have any similar examples to look at.
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On top of that, the growing fear about the
Chinese real estate market is also worrying
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investors about how it could potentially influence
the world.
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China is not an isolated economy.
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Literally, every country in the world is connected
economically to china, especially the US.
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So if china falls into a recession, it's definitely
going to impact the US and the world in general.
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You probably have seen pictures of Chinese
ghost towns.
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The problem with china is that there aren't
many investing tools available.
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Yes, they have a stock market and huge multinational
corporations like Alibaba, Tencent and so
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on, but they are heavily regulated by the
state which makes their future unpredictable.
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Today they are growing, tomorrow their CEO
gets into a conflict with the communist party
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and a crackdown would begin.
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Take the most famous Chinese entrepreneur
Jack Ma.
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He disappeared after criticising the regime
and his fortune was reduced to just 50 billion
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dollars losing over 11 billion dollars in
the process.
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So most people in china throw their savings
at real estate because it looks like the most
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reliable investment.
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Real estate prices rise, they are immune to
inflation and they could be turned into a
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source of passive income.
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However that strategy has backfired since
they have built far more houses than they
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country needs which created a huge oversupply
of homes in the country.
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Almost 25 percent of houses are empty, that's
a record number and in some places, entire
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buildings are destroyed since they have been
around for years and no one has occupied them.
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People in chine are buying their third house
as often as they buy their first house which
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reminds me of something that has happened
in the US not that long ago.
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Exactly, low interest rates and loose regulations
allowed people to buy multiple homes that
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they couldn't afford which led to the 2008
market crash.
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Of course that's an over simplification, but
that's what happened in short.
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And the same could happened in china which
would drag down with it the world economy,
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but that's just speculation because no one
really knows when that bubble is going to
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burst and how deadly it's going to impact
the economy.
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Theoretically, it doesn't seem like we are
about to witness a crash and didn't happened
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in the last year or so because of the reasons
we have discussed earlier.
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It's impossible to predict the crash, the
best strategy is to just dollar cost average.
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Thanks for watching and until next.
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