Is crash really going to happen? OR is it made up?
I was having an heated discussion with one of my colleagues as to why I think there will be a crash. In fact, I presented the same arguments that I did in my article on this topic (Is a massive market crash around the corner? Bigger than the great depression?).
Her point of views included below arguments:
World is no longer relying on a GOLD backed currency. Currency has value because banks and Governments say it does and that is NOT going to change, as such, why should there be a crash based on currency devaluation?
World is well prepared for the home ownership crisis. We have Federal insurance on mortgages and home market is not going to fail this time.
A correction is possible but it will be minor compared to 2007 or earlier crashes because of above reasons.
These were her views.
What do you guys think? What is our basis (in terms of strong PROOF BASED arguments) to support that a crash is imminent?
@joshsigurdson any thoughts?
We're in the second longest bull market in history, so I have no doubt a correction is coming. The big question is when? It could be this year, it could be 2019. And how high will the markets rise before they correct?
As far as the next market downturn leading to another recession or even a depression, I think there are a couple of red flags:
Interest rates are still very low, which means the FED has barely any room to lower them in order to get people borrowing and spending again when the majority are holding on to everything they have. If money isn't moving, you need to be able to "grease the wheels" a bit, otherwise the economy comes to a halt.
The financial health of the majority of Americans is terrible. Our national savings rate is around 6%, student loan debt and healthcare costs are higher than ever, and over half of us can't come up with $400 in case of an emergency. How many people do you think are equipped to handle 6 months or a year of unemployment?
In short, the financial insecurity of most of the population combined with an economy that, despite boasting record stock prices, has in many ways not recovered from the Great Recession...at least in a way that works for most of the population.
If you were to attribute ONE thing to the next correction, what would that be? I know there are many things involved but what would be your number ONE pick and why?
Hmm, it's too hard to pick just one!
Hand to the fire I'd choose debt - specifically student loans, HELOCs, and auto loans. Whether the crash comes from defaults or from the millennial generation not being able to afford to spend enough to keep the economy growing (and producing a steady decline), the fact that a large part of the population is entering their prime earning and purchasing years with low wages, high debt, and the burden of the largest generation retiring and drawing social security is pretty scary.
In other words, we don't have a lot of room for error.