There is a lot of talk in the news today that we might see another stock market crash real soon. Lots of people are saying yes and a lot of people are saying no. So which one is it? Will the stock market crash soon?
With this post I want to try and answer that question.
I think a good way to look at stock market crashes is to look at historical data. To try and predict exactly what minute a stock market crash will happen is more for the day traders. Here we will look at what history has to say about it. Because history usually repeats itself.
No, this is not a conspiracy theory.
Often when you say that there will be a crash in the economy soon people like to discredit your arguments saying that your a conspiracy theorist. That you’re a tinfoil hat or a doom and gloomer.
So first lets have a look at some recent headlines in the news to see that people are actually concerned that there will be a stock market crash soon. To show you that this is not just something that I’m talking about.
Debt, defaults, and devaluations: why this market crash is like nothing we’ve seen before
Sell everything ahead of stock market crash, say RBS economists
Okey, so we know that the fear of a stock market crash soon is a valid concern. Lets have a look at some arguments for why I think that the question is not if there will be a stock market crash. It’s more of when we will have a crash. In my mind it’s inevitable.
Wilshire 5000 long term chart
Okey Marcus. This heading doesn’t make any sense, might be what you’re thinking right now. And fair enough, not yet but stay with me and I will explain exactly what it means and how it can help us understand if there is going to be a stock market crash or not.
First, lets have a look at the definition for what Wilshire 5000 is
Wilshire 5000 is a market-capitalization-weighted index of the market value of all stocks actively traded in the United States.
This sounds more complicated than it is. Basically Wilshire 5000 is a index created by Wilshire & Associates that track the value of all the stocks in the United States. When the index is high that means that the stock market is high, because the value of all the stocks are high, and vice versa.
Have a look at the chart below that’s from 1970 until today. Look how the value of the stocks are rising in the late 1990s just to come crashing down in the early 2000s. This became known as the dot-com stock market crash.
After the dot-com bubble burst you can see that a new bubble was started and rose all the way up until 2008 just to come crashing down again. This became known as the great recession that was caused by a housing market bubble in the United States.
You do not have to be an expert to see the pattern in the chart. Again the stock market has been blown up and it will crash just like all the other ones have done. The biggest question is what we’re going to call the crash this time. Do you have a suggestion?
From this chart I hope that you see that the stock market today is overvalued. Every time the stock market is overvalued it will come back down to normal levels. That always happens in the form of a stock market crash, just like it did for the dot-com bubble and the great recession.
I mean we can flip the question. If there is not going to be a stock market crash that means that this index will have to keep on rising indefinitely. I can’t see that happen and neither can history.
Hang on, there is a bigger economic storm coming
The chart above should definitely make you concerned about being invested in the stock market today. If you don’t know exactly what you’re doing you can be waking up one morning just to see that your entire portfolio has been wiped out.
Just like it did for millions of people during the dot-com and great recession crashes. You should read my article about why gold is a safe investment where I talk about how gold will save you from the coming economic problems.
This time around I do not think that we will see a crash and then a new bubble form just like we did after the dot-com bubble and the great recession. This time around I think we will see a currency crisis in the US dollar which is a lot more painful than a stock market crash.
Why would there be a currency crisis?
It all starts with our current monetary policy. All the way up until 1971 every US dollar was backed up my physical gold held in the treasury. This meant that you could walk into any bank and put down your paper currency (dollar) and get physical gold in return.
Have a look at this old $20 currency note. As you can see it says “20 dollars in gold coins payable to the bearer on demand“.
As you can see the dollar was just a certificate for the gold in the treasury. The real money is not the paper dollars that you have in your wallet. The real money was the gold and we invented paper money as a certificate just so we didn’t have to carry around the gold with us.
Then in 1971 President Richard Nixon took the US off the gold standard. Now you could no longer redeem your paper for gold. This meant that there was nothing backing up the dollar anymore. The only difference between the dollar and monopoly money is that the people have confidence in the dollar.
You know that you can take this dollar into a store and purchase goods and services for it. But other than that they are both just a piece of paper.
A piece of paper that is backed up by nothing is called a fiat currency.
Before people had confidence in the dollar because they knew that the paper dollars was backed up by physical hard metals stored at the vaults in Fort Knox. If the government wanted to print more money they first had to buy gold and put in the vaults. This meant that the government could not print a bunch of money to pay for their bills.
Like I said, the only reason today why the dollar has any value is because we as people believe that the dollar has value. As soon as that confidence goes away the dollar is not worth more than the paper it’s printed on. I mean, do you think the paper in a $100 bill is worth $100? Obviously not.
The confidence in the US dollar is getting worse and worse for every day. People are starting to realize that the US is bankrupt. The US federal debt at the time of writing is 19.2 TRILLION dollars (let that sink in) and every year they go deeper and deeper into debt. This is hurting the confidence and people are starting to wake up to the ponzi scheme.
Have a look at this link where you can see how much debt the US is currently at, and how fast it is increasing. Do you think that is sustainable for the long term?
No Fiat currency has ever survived
I know that this might have been a lot of information at the same time. Please leave comments below if there is something that is unclear or if you just don’t agree at all with what I’m saying. I would love to hear from you either way.
The most important thing to take away is that throughout history there has been thousands of fiat currencies, paper that is not backed up my some hard asset like gold, silver or oil.
They all have one thing in common: Every single one has gone to ZERO.
Because the government can print an infinite amount of these rectangular papers with numbers on them people loose confidence in the value of the paper. When the confidence is gone, the dollar will be worth as much as the paper it is printed on.
Just like it did in Weimar Republic (old Germany) in the early 1920s. Where you needed a wheel barrel to carry all your paper notes to go buy a piece of bread.
So what should you do?
If you agree with me that the current money system that we are on is not sustainable you need to start putting your money away from the current money system.
We can’t keep on printing more and more money to pay for our bills and go deeper and deeper into debt indefinitely. If we keep going down that path you will need a wheel barrel carrying you cash when you go grocery shopping.
If you read monetary history you will see that the best type of investment that you can do in this environment is hard assets. With hard assets I mean things that the government can’t print. Things like land, real estate, gold, silver, art and so on. These things are a very good hedge against inflation and will keep their value even though the paper is coming off the printing presses at record speeds.
The easiest way to protect yourself from the coming economic storm is to invest in precious metals like gold and silver. Every time in history that a fiat currency has collapsed gold and silver has gained tremendous amounts in value. The reason why is because it’s seen as true money and the government can’t print gold.
I hope I have answered some of the questions you had when you searched for: will the stock market crash soon. Maybe I have been able to open up your mind to the bigger problem that’s ahead of us. Make sure you have a look at my top 3 reasons to invest in physical gold to protect yourself from the coming economic collapse.