Tesla's stock fell a lot, so did Facebook's. Many information technology companies like GoPro, Zynga, Group On suffered large drops in their stock prices in recent years. In the last week S&P 500, DJIA and Nasdaq, especially, fell a lot.
Sooner or later, the equities bull market will end. What will happen afterwards?
Since this is already the longest bull market in history, it will be followed by shallow, but prolonged recession and a long and ultimately deep bear market, which will resemble the one during the Great Depression.
Why do I think that? The US, European and other advanced nations authorities seem to try to engineer a stable growth environment. It is either that or simply we are in a low growth state of the economy. I actually think it is a combination of both. The Keynesian macroeconomics the Western governments are embracing will end badly. The economic expansion has been shallow, but went far too long. Slowly, but surely a stock market bubble built up, especially for technology stocks. A real estate bubble in major economies is already obvious. The large growth of leveraged loans, although obscure part of the financial system, is also a cause of concern.
In my opinion, these bubbles will pop somewhere in 2020 and/or 2021. The bear market that ensues will be a prolonged one, akin to the one in the Great Recession. Due to the world's aging population, automation and the increased size of the global economy, currently the world economy is not so agile, so as to bounce back quickly as it did after the bursting of the Dot Com Bubble in 2001 and partly after 2009. What is more, central banks now have much less ammunition to counter the coming recession. The Federal Reserve(Fed) has started shrinking its balance sheet and raised the reference rate, but the Fed's balance sheet is several times larger that it was in 2008. There is still time until 2021, though. This time around, however, the Debt/GDP ratio of USA is very high at 105.4% as of end 2017. So there is not much room to maneuver on the fiscal side, i.e. start issuing new government bonds and increasing government spending.
Bit if I have to name one economy that will survive best the coming long economic recession and bear market, it will have to be the USA. The US has some room on its monetary(the Fed) side and the (still) embedded dynamism of the US economy with its purest capitalist system will ensure the USA will weather the coming crisis and thrive again after that.
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Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!
Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!
Kind regards,
Petar Posledovich
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