There are long term trends developing. The problem is not a trading war or China. What worries me is that the FED also seems to be surprised by weakness – although our indicators showed that already in early 2018.
Frightened sellers commonly cause a crash. An unexpected economic event, catastrophe, or crisis triggers the panic. For example, the market crash of 2008 began on September 29, 2008.
Crashes generally occur at the end of an extended bull market. That’s when irrational exuberance or greed has driven stock prices to unsustainable levels. At that point, the prices are above the real worth of the companies as measured by earnings. The price to earnings ratio is higher than historical averages.
A new technical development called quantitative trading has caused recent crashes. “Quant analysts” used mathematical algorithms in computer programs to trade stocks. Sophisticated investment and hedge funds with thousands of computers were programmed to sell when certain events occurred. Program trading has grown to the point where it’s replaced individual investors, greed, and panic as causes of crashes.
Crashes can lead to a bear market. That’s when the market falls another 10 percent, for a total decline of 20 percent or more. It typically lasts 18 months. Bear markets usually occur with a recession.
A stock market crash can cause a recession. How? Stocks are how corporations get cash to grow their businesses. If stock prices fall dramatically, corporations have less ability to grow. Firms that don’t produce will eventually lay off workers to stay solvent. As workers are laid off, they spend less. A drop in demand means less revenue. That means more layoffs. As the decline continues, the economy contracts, creating a recession. In the past, stock market crashes preceded the Great Depression, the 2001 recession, and the Great Recession of 2008.
What Not to Do in a Crash
During a crash, don’t give in to the temptation to sell. It’s like trying to catch a falling knife. A stock market crash will make the individual investor sell at rock-bottom prices. That’s precisely the wrong thing to do. Why? The stock market usually makes up the losses in three months or so. When the market turns up, they are afraid to buy again. As a result, they lock in their losses. Most crashes are over in a day or two. In most cases, sit tight. If you sell during the crash, you will probably not buy in time to make up your losses.
Your best bet is to sell before the crash. How can you tell when the market is about to crash? There’s a feeling of “I’ve got to get in now, or I’ll miss the profits,” which leads to panicked buying. But most investors wind up buying right at the market peak. Emotion, not financials drive them.
If the economy does enter a recession, continued rebalancing means you will buy stocks when the prices are down. When they go up again, as they always do, you will profit from the upswing in stock prices. Rebalancing a diversified portfolio is the best way to protect yourself from a crash. Even the most sophisticated investor finds it difficult to recognize a stock market crash until it is too late.
The reality is that no one really know what will happen until it happens.
My personal opinion is that we are in the beginning stages of a collapse, and have been on the brink a few times in recent history. My main concern is that the more the powers that be continue to put a band aid on a bullet wound, the worse it’s going to be when that wound bursts open.
An economic collapse could be a complete breakdown of society, or it could be like the great depression, although because we are a more dependent society these days it is likely to be much worse.
Recessions in the United States occur on a regular basis. In fact, stock market crashes have occurred once or twice each decade since WWII. There are important lessons to learn before we pass through another unavoidable recession or stock market decline. These lessons helped me and my business survive a tough time, and internalizing these lessons will help each of us be more prepared for inevitable future crises that will occur.
Prepare
Preparation is key. The best time to react to any potential market crash is before it occurs. Not after. Reacting in the moment can lead to expensive and costly mistakes. For example, if you saw that socks were on sale, you’d be more interested in buying socks. However, when it comes to stocks, people take a different view. When stocks are on sale, as can occur in a market crash, then often investors’ instincts are to run away. Thinking about your strategy ahead of time and writing it down, just in a couple of paragraphs, can be key. Then if the markets do crash, make sure to look at that document before you act.
In a sense, it’s understandable why panic occurs. In fact, one key ingredient for crashes is often panicked investors. First off, there is typically something big and scary associated with a crash. Yet, it’s often temporary. It’s important to remember that the markets have endured world wars, nuclear weapons, disease epidemics, inflation spikes, mass unemployment and presidential assassinations and in each case global markets have generally come back to make new highs.
Preparing for Economic Collapse
VIA : by FerFAL
How can I prepare for an economic collapse? is one of the most common questions I get. It usually takes me a second to start to explain how complex such a question is. It’s like asking an auto mechanic, Say, how do you build a car? or asking a computer engineer, What’s all that stuff inside my laptop?
I do have some first-hand experience in this matter, though. The economy in my country, Argentina, has gone through various crises, but none as large as when the economy collapsed in 2001 after a decade of apparent prosperity. The currency devaluated, and Argentina defaulted on its USD$132 billion debt, the largest default ever. The middle class took to the streets after bank accounts were frozen, and the president was forced to resign, escaping the presidential building in a helicopter.
What I’ll do is provide five quick foundational steps, based on what I know, for you to follow so as to be better prepared if something like what happened in my country ever happens in yours.
LOT MORE,,,,,,,,,,,,,,,,,,,,,,
http://www.investmentwatchblog.com/charles-nenner-prepare-for-a-70-market-drop-its-gonna-be-murder/
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