Tuesday, September 15, 2015

Stocks are about to get crushed!

There is a similar sensation of today's economy to that of 2008.

Here's the bad news:

We have very little national economic growth. The growth rate is a meager 2% and a flat as a tortilla inflation rate.

The Federal Reserve raising interest rates will strengthen the dollar even more as investors will buy more dollars as the interest rate provides higher returns.

The biggest problem with the stock market is that starting in 2008 the Fed began printed trillions of dollars by buying up all sorts of assets that inflated the price of stocks; the Fed took the nozzle off the faucet when it came to buoying the economy.

Now with little growth, and no more Fed support, deflation is a real possibility.

Deflation is what creates depressions that can trigger worldwide choas.

Why is deflation so bad? Deflation makes the dollar bill in your pocket worth more. Sounds good at first glance, right?

However, deflation also makes your debts worth more, but not to you, but for the creditor. This means in real terms it becomes harder to pay back loans as the debt is more expensive.

It also means employees becomes more expensive leading to layoffs.

Once middle and low income families default on loans of all sorts, the domino effect begins that can cause a sudden stock market crash that we all know can happen (as recently witnessed by the flash crash of 2015).

Moreover as the value of the dollar increases the prices of stocks are pushed down as the diminished prices are correlated inversely with the increase in the value of the dollar.

Let's also add in that the rest of the world is slowing down as well. We live in a global economy and if any significant market/markets implode, the deflationary cycle begins and we can expect a Dow dipping to around 10,000 before it is time to get back into the market.


P.S. Have a nice day.

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