There are a variety of reasons, both fundamental and technical, to believe that a market crash is almost upon us. This crash will affect virtually all world markets, including and especially the big Western Markets, which have thus far escaped the devastation already afflicting the developing markets.
The precipitation for the current fall in equity markets across the globe has been China’s devaluation of the Yuan which has made the market much more nervous about deflation and competitive devaluation of currencies by countries across the board.
Current market situation is a symptom of problems that have been building since January. Nothing really has changed structurally since the 2008 crisis.
The weeks ahead will give many opportunities, but right now to look for them and put money doesn’t make sense.
The slide in US stock markets is way away from temporary. As of Friday last week, S&P 500 was almost at the same level as was in 1999. This is by no means is a temporary correction for US markets.
I am not just focusing on the US markets, but they will all get taken down – European markets including the UK, and Far Eastern markets such as Hong Kong, Japan and India as well. The Sensex ended over 1,600 points down today, the biggest in over seven years.
The basic and fundamental reasons for a market crash now are big and obvious – the ravages of deflation and depression brought about by extremes of debt which must cut into corporate profits – in Japan the debt situation is now hopeless, the Sovereign debt crisis set to crush Europe and probably destroy the euro, the collapse and implosion of the monstrous debt fuelled bubble in China which is already underway, an accelerating currency crisis in the Far-East exacerbated by the recent Chinese devaluation of the Yuan, and the collapse also already underway in Emerging Markets.
Panic is stalking global markets today, fuelled by fears of a worse-than-expected slowdown in China, which is bound to have a ripple effect in an increasingly interconnected world economy.
Ace investor Warren Buffett once famously said: “Be fearful when others are greedy, and be greedy when others are fearful.” Any takers?
The Stock Markets are clearly gripped by fear, and it looks like it will grow in the days ahead.
So, should investors become greedy at this point in time and look at buying quality stocks now or on further declines? To be honest I personally believe we are entering a risk off period, it will be a good idea to wait for a risk on period.
Things have gone beyond being called a phase of correction. It is not a good situation for markets. There is reasonable pain ahead of us, it is clear that a crash of perhaps unprecedented proportions in on the cards.
The tone and tenor of the stock market changes from time to time – and now may be a good time to stay out until the current choppy climate changes.