Why The Eventual Stock Market Correction Will Be Brutal

Hey Jesstock traders

The stock market has been on a rampage for the last few years in what seems like a bull market for over a decade. Even with all the economic destruction from the lockdowns that have caused widespread defaults and job losses, the stock market continues to rise.

Governments continue to pump newly printed money to keep their various stock markets afloat, and none can match that of the US stock market. It has long become completely separate from economic factors such as the macro events we're experiencing or the fundamentals.

As many people now are stuck at home and looking for ways to earn money from home trading has become even more popular wit people either risking their income or stimulus cheques and continuing to flood the market trying to make gains.

As all this money continues to flow into these assets and companies we've seen bankrupt companies like Hertz shares spike; this is how nuts things have become in these times.

Why the stock market needs to keep going up

In a healthy economy, the stock market can be a great indicator of the performance and effeminacy of the economy, and the majority of people still think that is the case.

However, in a dysfunctional economy like the one we have, which is manipulated by government money printing it can use to drive consumer confidence for investors, it can keep jobs, and it maintains the pension funds all invested in these major companies.

It is a combination of cronyism and our unwillingness as a people to accept that money doesn't mean improved standard of living, price is such a core focus, that we do not see that nominal gains do not always matter if inflation eats into it just as fast.

Taking a deeper look at the numbers

When looking at the stock market as a whole, it seems to be going up as an index, but on deeper review, we can see commodity stocks like gold and oil not doing too well. Banking stocks are tanking, airline stocks and travel stocks too and the majority of growth is coming from technology stocks.

The stock market isn't as rosy as it seems, and there is a lot of consolidation going on.

Greed + the hot hand fallacy

As the stock market continues to rise through the help of stimulus and retail investors piling in to make a quick buck, we see greed set in.

To keep this rally going, it's taking more and more money, and we can see that by the fact that 5 trillion dollars of new money has been printed since lockdowns and I can tell you not much fo that is reaching the hands of the people on the ground.

As stocks continue to go up, it suckers in more retail investors in the Ponzi scheme thinking they're geniuses at making money. The thing is that as we get closer to the edge, people become blind to the possibility of a downturn.

How do you tell someone who is making money that they are wrong?

A game of chances

As retail investors continue to pile in thinking they are going to make gains, they fall for the hot hand fallacy, that things will continue on as they are always. It's like walking across the street every day and the one day you become complacent you're hit by a car.

Each time the stock market increase, it takes more money to push it higher so the chances of it going higher take exponentially more money and makes the margin for growth ever smaller and at all-time highs, there's not much left to go.

Volatility is never destroyed

Governments have removed the boom-bust cycles through quantitive easing and because of this, they've moved volatility out of the market, but volatility is a force of nature, it can't be destroyed only moved on.

Once the money printing cannot continue or cannot push prices higher due to the theory of diminishing returns, the volatility to the downside works even harder.

Fear and greed

Markets, regardless of all the technical analysis, are made up of fear and greed. During the upside, greed takes over and pushes markets higher, but there will always be people willing to take profits on the way up.

However, when it comes to fear, fewer people are thinking rationally, and things tend to drive down harder. NOw with an overinflated stock market and no fundamentals to keep it up once the bubble bursts, thinking 30% downturn will be child play.

The way I see it is once it turns to the downside I can't even see it recovering it, even after its big crash we could see a gradual decline for years as fundamentals eventually take hold.

These are the reasons why I am not playing in the stock market.

Have your say

What do you good people of HIVE think?

So have at it my Jessies! If you don't have something to comment, comment "I am a Jessie."

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