5 reasons why Stock Market could easily crash 20-35% in 2018.
1. Do you know why the market crashed in 1929?
For being the biggest crash in the United States History, surprisingly, not many people remember why it happened.
The main reason: High Level of Margin Debt.
Banks were lending like crazy and people were borrowing like crazy!
The economy of the "roaring 20's" was doing great and the stock market just kept rising.
Buying stocks and collecting quick profits became a "sure thing" in the eyes of many. Everyone was convinced: Stocks could go nowhere but up!
So people went out and bought stocks with margin debt (borrowed money)!
Not only that, the bankers themselves used customers deposits and bought stocks with that money!
When the fresh earnings reports came out on "Black Thursday" they were nowhere as good as everyone expected. The selling frenzy began, people were screaming, crying and weeping as the most devastating crash in the history of the market was taking place as thousands of people gathered outside of the stock exchange.
People lost their fortunes when they least expected it.
After the crash people rushed to the banks to get their deposits, but just like them, the banks lost it all in the crash. Some were lucky to get 10 cents on the dollar for their deposits.
Take a wild guess as where the level of margin debt is now?
Level of Margin Debt is the highest in the entire history of the United States. Almost twice higher then it was
before the market crash in 2007, 2008 and almost 3 times higher then in the market crash of 2000.
2. Could the bubble in cryptocurrencies spill over to
other financial markets?
Current situation in cryptocurrencies is getting out of control (or may be that's the new norm, they are decentralized, right?:)
It's not really funny. There are some valid cryptos out there and it's hard to measure their value.
However there are many others that are simply trying to take advantage of the overheated cryptocurrency markets. Everyone wants to get it.
Juice companies turn themselves into crypto currencies overnight!
Even some biotech companies turn themselves into "crypto related businesses" overnight!
Their prices sky rocket, but they have no relation to cryptos in any shape or form, besides their name change, that is!
So what do you think is going to happen?
In the words of a classical economist Alfred Marshall:
"The evils of reckless trading are always apt to spread beyond the per- sons immediately concerned . . . when rumors attach to a bank’s credit, they make a wild stampede to exchange any of its notes which they may hold; their trust has been ignorant, their distrust was ignorance and fierce. Such a rush often caused a bank to fail which might have paid them gradually. The failure of one caused distrust to rage around others and to bring down banks that were really solid; as a fire spreads from one wooden house to another until even fireproof buildings succumb to the blaze of a great conflagration."
Just change the word "bank" in his statement from over 120 years ago with cryptocurrency, or cryptocurrency exchange and you will see the current picture.
Simply put, those bad apples may rotten the good fruit and bring down the rest of the cryptocurrencies, cryptocurrency exchanges and cryptocurrency platforms and systems.
It can happen relatively quick.
So when it does, how much of the damage will this have on the stock market?
Will the stock market simply shrugg it off like it did everything else in the last couple of years?
Or could the the crypto currencies bubble pop be the signal for the rest of the markets?
Inevitably, harsh regulation is about to hit the cryptocurrency market.
It is destined to decline rapidly and drastically for various reasons: high level of speculation, fraud, deception, ease of ICO offerings, security issues-astronomical chart says it won't end well.