On The Brink Of The Next Huge Collapse?

There are wolves out there. 1. Stock prices are showing frightening patterns, and 2. if they crash, cryptos can follow them.

Don’t you think? Watch my table and my graph I brought you today. The table shows some important stock market indexes as of Thursday, and how much they have fallen from the recent highs (mostly end of January).

Correction or bear market?

As I wrote some days earlier, 10 percent fall in stock prices means only a correction. If the fall is bigger than 20 percent, investors are talking about bear market:

Although figures vary, a downturn of 20 percent or more from a peak in multiple broad market indexes, such as the Dow Jones Industrial Average (DJIA) or Standard & Poor's 500 Index (S&P 500), over a two-month period is considered an entry into a bear market. Investopedia

The big risk now

As you see in the table, US-indexes not even are reaching the correction state, but Chinese stock market, yes, with 23 percent down, although in much more than two months. The general emerging market index (with about 32 percent exposure in Chinese stocks) is almost 17 percent down, nearing to the bear market barrier.

Important is, that emerging markets can suffer really bad this year with a reason. Many third-world countries are heavily indebted, and in the last decade, mostly in US Dollars. The interest rate hikes of the Fed, and the possible strengthening of the dollar can affect them badly. Completing this with a recession, emerging markets can crash and can affect developed stock markets, also.
US stocks are surging many years now, a real correction can be no surprise for anyone.

And what have the cryptos to do with?

I know, everybody here in this community likes to read sentences like “cryptos are skyrocketing”, “this is a totally new world, this will be independent from the old one”, “forget fiat, our cryptos will win”, and “to the moon”. But look at the graph, and tell me: are cryptos really independent from “old” stock market?

This year, the capitalization of the crypto market and the value of MSCI World global stock market index were moving side by side. Ctyptos topped on January 7th, and stocks January 26th, but later they were moving more parallel. I could search for more indexes, but this seems to be revealing, also. (May be the Chinese Shanghai Composite index was a better choice.)

About the Chinese

I think this is a surprising similarity. So don’t tell me brave new crypto-world is totally independent from the old one, and don’t tell people are searching for shelter in cryptos to avoid the next financial collapse. Not yet, or not now.

Cryptos are important in developing countries, like China, and if there are many people loosing mountains of money in stock markets, I don’t think they will have the fiat to invest in cryptos instead.

The worst wolf case

But there are good hopes, also. If markets are crashing, it is very probably that national banks, like the Fed or ECB will try to stabilize them. They can make a break in the interest rate rising line, and if it gets worst, and recession, huge crash, real big wolves are coming, may be they could start with QE again.

Disclaimer:

I am not a financial advisor and this content in this article is not a financial or investment advice. It is for informative purposes only, or simply to make you think, entertain. Consult your advisers before making any decision.

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(Photo: Pixabay)