When you look at the history of the stock market, there are a lot of ups and downs,
but the trend is generally upward.
It doesn't matter at what point of the market you have invested, in the long run, you have
multiplied your investment.
Even if you have invested at the peak of 2007 or 1999, the market didn't just recover but
have grown substantially.
Especially since 2011, the market has been growing faster than ever.
Just take a look at the s&p500.
The growth has been unstoppable.
Guess why?
Because since 2008, the fed realised that instead of just letting the market correct
itself and recover, it can literally print trillions of dollars, throw it into the economy,
and it's going to recover much faster, which has worked pretty good for the last two crises.
But what stands out in the history of the stock market is February and march of 2020
when the market collapsed.
Never in the history of the stock market has it collapsed so suddenly and so severely.
What makes this particular crash different from everything that has ever happened is
the fact that it instantly recovered, and since then, it has been on a rollercoaster.
That's why a lot of analysts expect the market to crash again since it's not normal.
The market can't just, out of nothing, rise that much, especially when it's fuelled by
cheap money.
But the question is, why the crash hasn't happened yet?
Why it's still growing, and when exactly will it crash?
If you are ready, give this video a thumbs up, and here is a little disclaimer, this
is not financial advice, and everything that's said in this video is for educational and
entertainment purposes and now let's dive in.
If you have been paying attention, there was a correction last month, and if you were smart
enough, you probably took advantage out of it.
That was the time to buy, but it wasn't the first correction.
Every few months, we are experiencing a correction, and each time it feels like the market is
going to crash further, but it never did and seems like it's not going to happen in the
coming future.
What we have to understand is that, for the last year or so, we have been during the boom
period.
It's the time when the economy recovers grows exponentially.
Remember the economic cycle we have talked about in one of the previous videos.
The economy starts growing to the point where it reaches its maximum potential, and then
it slows down.
Inflation rises faster than the economy, so the fed raises interest rates to their maximum
in order to keep inflation under control, but it limits the supply of money into the
economy, so the economy barely grows and kinda grows enough to coupe with inflation.
At some point, the bubble bursts, the economy crashes like a domino effect.
It happened in 2008, in 1999, and in 2020.
That's when the fed steps in with cheap money to help the economy recover faster by lowering
rates and buying both corporate and government bonds.
In the first year or two, usually, the economy recovers to its pre-crisis level.
Then it goes through the boom period where everything explodes until it reaches the peak
again, where it slows down until it crashes again.
Judging by this graph, it's clear where the economy is standing right now.
Of course, no one knows the future, and we can't say that's it isn't going to crash,
but there are usually a lot of indicators that point out what direction the economy
is headed to.
When the fed lowered the rates to almost 0 percent, people expected that as a temporary
measure because our economy is a consumer-based economy.
The economic wheel turns around because people spend.
The moment they stop, everything stops.
It just collapses.
Turning the wheel again is much harder, so the fed took an easier path by artificially
keeping the wheel turning while we are getting out of the pandemic, which seems like it did
a pretty good job, but it never said anything concrete about when will it raise the rates.
All they said is, they will do everything possible to save the economy, and it turns
out that means keeping the rates low not for just a few months or a year but a few years,
until we fully recover from everything.
So while the growth has slowed down, with these kinds of rates, it's impossible for
it to crash.
A lot of analysts expect the rates to be raised only in 2023, and that seems very reasonable.
Of course, anything could happen by then, but that's so far the most realistic scenario.
The fed definitely wants to raise rates.
No one likes this inflation.
In fact, the fed kept saying that inflation is under control to calm everyone down when
in reality, inflation was much higher than feds expectations.
The growth that has happened in the last few years wasn't free.
It was at the expense of inflation.
Prices have soared all across the world, especially on real estate.
House prices don't randomly soar by 20 or 30 percent.
That's not normal.
That's literally ten times higher than their usual rate.
What happened in the last one and half years was a huge experiment!We have never printed
so much money in such a short period of time.
And it's not just about the US but worldwide.
That's why it's difficult to make any predictions about how it could potentially end when we
don't have any similar examples to look at.
On top of that, the growing fear about the Chinese real estate market is also worrying
investors about how it could potentially influence the world.
China is not an isolated economy.
Literally, every country in the world is connected economically to china, especially the US.
So if china falls into a recession, it's definitely going to impact the US and the world in general.
You probably have seen pictures of Chinese ghost towns.
The problem with china is that there aren't many investing tools available.
Yes, they have a stock market and huge multinational corporations like Alibaba, Tencent and so
on, but they are heavily regulated by the state which makes their future unpredictable.
Today they are growing, tomorrow their CEO gets into a conflict with the communist party
and a crackdown would begin.
Take the most famous Chinese entrepreneur Jack Ma.
He disappeared after criticising the regime and his fortune was reduced to just 50 billion
dollars losing over 11 billion dollars in the process.
So most people in china throw their savings at real estate because it looks like the most
reliable investment.
Real estate prices rise, they are immune to inflation and they could be turned into a
source of passive income.
However that strategy has backfired since they have built far more houses than they
country needs which created a huge oversupply of homes in the country.
Almost 25 percent of houses are empty, that's a record number and in some places, entire
buildings are destroyed since they have been around for years and no one has occupied them.
People in chine are buying their third house as often as they buy their first house which
reminds me of something that has happened in the US not that long ago.
Exactly, low interest rates and loose regulations allowed people to buy multiple homes that
they couldn't afford which led to the 2008 market crash.
Of course that's an over simplification, but that's what happened in short.
And the same could happened in china which would drag down with it the world economy,
but that's just speculation because no one really knows when that bubble is going to
burst and how deadly it's going to impact the economy.
Theoretically, it doesn't seem like we are about to witness a crash and didn't happened
in the last year or so because of the reasons we have discussed earlier.
It's impossible to predict the crash, the best strategy is to just dollar cost average.
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