What is the real story behind last weeks market crash?
Looking at the explanations given for the last correction in the stock markets is the fear for higher inflation and interest rates.
I am asking myself if this is really the case or is this a statement that we were supposed to believe.
Specially the media and main financial institutions are telling us this story.
For a couple of decades I am more or less following the financial markets.
In the past we had more of these increases of interest rates but usually those had not a huge impact on the stock markets.
With interest rates still being on an historic low level, I see no reason for the major shock in the stock markets of last week.
So are the stories they are telling us for real?
An other good indicator for huge fear of inflation or higher interest rates would be the precious metal markets. They are traditionally the safe haven to run to in such a case.
Looking at the Silver and Gold prices we did not see any shocking fluctuations either.
This tells me something else is going on.
What we have seen over the last months is a steady climb of the stock markets to a level that is not sustainable compared to the actual company profits. In other words, a bubble. This made the markets vulnerable for market calls where investors are taking profits.
This combined with automated trading tools and strategies, based on algorithms, which act on negative impulses caused a kind of snowball effect in the rates going down.
It is my feeling this was a normal correction to a more sustainable level in the markets and some air flew out of the bubble.
Specially taken into account that the market fundamentals are not weak in the present day economic situation.
For the metals I still see a long term bull market, so accumulating a small part of your savings into these metals is still a wise thing to do.
As long as we see a low level of money velocity and no real major indicators that we reach some form of hyperinflation or stagflation, things will go on at the present levels in the markets. However a turn in those levels is always lurking around, but to my feeling not at a short term.
The only real thing that worries me is the ridiculous amount of debt that keeps on growing day by day. And the markets are addicted to this so-called free money flowing into the system. Now it seems that this strategy will come to an end, this is worrying me more than the fear of higher inflation and interest rates.
So being prepared is always a wise strategy and investing in precious metals is too!
Enjoy!
Rolf,
Something to consider that Jamie Dimon brought up back in July of 2017 is the Federal Reserve unwinding of central bank bond-buying programs.
Most telling is this statement by Dimon: "“We’ve never have had QE like this before, we’ve never had unwinding like this before,” Dimon said at a conference in Paris Tuesday. “Obviously that should say something to you about the risk that might mean, because we’ve never lived with it before.”
Here is an article link:
https://www.bloomberg.com/news/articles/2017-07-11/dimon-says-unwinding-qe-may-be-more-disruptive-than-you-think
Scaling back purchases and unwinding provide more than enough possible "impetus" to cause rates to rise.
All I know is that I am watching this very closely.
In closing, I remember another statement I heard him say, basically that he wasn't concerned about the Feds raising rates. It's the QE that most concerned him, because, we, the nation, have never faced that before.
Food for thought, but also could cause indigestion. :)
Very interesting article. Thanks for sharing!
I am not believing the story from main stream media that the 'drop' is because of fear of inflation and interest rates.
It looked like everything went down and there was 'no run to anywhere, no safe haven'. The selling occurred, the money didn't go anywhere to raise value in a 'safe haven'. So, did this occur because someone (Fed?) sold stock (or whatever) and just didn't put the money back into the system.
I like what Peter Boockvar, chief market analyst at The Lindsey Group, said back in April of 2017 when the Fed unwinding was widely discussed. He said, "I have a bridge to sell you if you think a rate hike cycle combined with a shrinking balance sheet will go smoothly. If the exit process ends up turning messy — defined as a recession and bear market in stocks — was all this easing worth it? Be bullish if you think both news stories will turn out just fine. Be very worried if they don't."
I guess @goldkey, time and transparency will reveal the truth.
When I heard the plan last April, I thought 'this will not end well' . ..
We shall see . . .
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