Exuberance Is Inflating a Bubble, Which Leads to Global Economic Collapse
Stock valuations are not sustainable in the medium to long term. The result could easily turn out to be a financial crisis in the United States. This would finally highlight the intensity of current international risks, raising the potential of a global economic collapse.
A financial collapse on Wall Street now would cause a massive loss of confidence worldwide. Financial valuations have served as a distraction away from other issues. Thus, if U.S. stocks fall, there will also be repercussions on European stock exchanges, not to mention the Asian ones.
Advertisement
If you need more evidence that something is odd about the Dow Jones having set another record (around 22,600), consider Tesla Inc (NASDAQ: TSLA). This company, which is adept at making electric cars and related batteries, attracts investors that are even more adept at shocking interpretations of reality. However, the latest example of this fantasyland situation might prove to be costly in the medium and long terms. The cost is nothing short of global economic collapse.
Tesla admitted that it has not produced as many “Model 3” cars as it had expected. The company missed by, oh a minor 1,240 units. Had the target been 50,000 cars, that number might have been excused with an explanation. No, Tesla’s target was merely 1,500 cars, meaning it missed its goal by almost 83%. (Source: “Tesla skids as Model 3 production actually does prove to be ‘hell’,” The Financial Post, October 3, 2017.)
Imagine if General Motors Company (NYSE:GM) or Ford Motor Company (NYSE:F) had missed producing a bread-and-butter model by that much of a percentage. It would have sunk the company. But not “Teflon” Tesla. It kept on trucking. After an initial slip, Tesla recovered. Analysts downgraded it, but to no avail. Investors want to believe a fairy tale. Tesla best encapsulates the desire—the greed—that investors have these days.
Also Read:
5 Signs of a U.S. Economic Collapse in 2017
Shrinking U.S. Jobs a Sign of Economic Collapse
It means that nobody is paying attention to the details, large and small. Everyone will be caught sleeping when the stock market crash makes its nasty appearance.
Dotcom Bubble Meets Subprime
We have entered a phase of exuberance like the one that preceded the dotcom bubble. A market crash like the one in 2000 is more than likely, The sum of risks and the amount of debt, private and public, suggests that the next major stock market crash will look like a combination of 2000 and 2008. It’s going to be a massacre.
A handful of stocks, like the notorious FAANGS—Facebook Inc (NASDAQ:FB), Apple Inc. (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN), etc.—have been driving up the market caps. Many stocks are rising on merit, but a smaller number of heavyweights are inflating a stock market bubble. This might certainly be a voice outside the choir; who would dare call out a bubble now in the middle of the floor of the New York Stock Exchange (NYSE)?
Wall Street’s assessments are unsustainable, and investors in the U.S.—as well as in Europe and China—will fall. Debt levels are unprecedented; any financial crash now would hurt deeply. All stock exchanges will be dragged down. It follows, of course, that true investment opportunities are few and far between. They must be chosen with a longer view in mind.
The race on Wall Street seems endless, and even the typical August corrections proved to be especially weak. But it might be time to worry. When things go too well, prepare for anomalies. The possibility of the markets continuing to rise at this pace seems as unlikely as it is risky. There are many challenges ahead.
The concentration of market power on a handful of stocks means the effect will be magnified when this mechanism is interrupted. The markets will fall far more than expected because the inevitable sell-off will focus on securities with the highest capitalization, spreading from there.
The risk becomes higher with every new Dow Jones record. Add to that the uncertain reaction when the Fed increases interest rates. The present picture cannot but raise concern that the stock market crash will spread like wildfire, causing global economic collapse.
