For a decade I was schooled in this utter tripe and now it’s my turn to school the Ayn Rand-loving herd that pontificates this FALSE RELIGION to the masses to reinforce the current manic peak of collective bipolar insanity we’re in the midst of (yes Professor Langlois, I ended that sentence with a preposition!). He also accurately predicted four previous stock market crashes to the precise date and time. And, as I detailed at greater length in my column earlier this week, past M&A waves have all ended with a precipitous decline in stock prices. But we don’t like the idea of having more than 40% of a portfolio allocated to stocks, and we definitely wouldn’t put new money into the market. Eventually dreams and reality have to be reconciled, and that means some kind of crash. When the stock market is increasing, average beliefs become more optimistic and conversely.
This is similar to the present crash, which I believe was due to, primarily, actions of private market actors. People who actually understand how stock markets function have been saying that there was no justification for this year’s long rally and, at best, that the rise in prices was a bull rally in a bear market. Specialists were installed at particular locations on the trading floor to facilitate stock trade.
Even with the Dow Jones Industrial Average reaching the 17,000 milestone, investors are leaving stock mutual funds , not buying them. Stock prices are higher than they’re historic norm, but they aren’t at extremes like the dot-com bubble. The first is that prices started falling weeks before the actual stock market crash occurred.
The knock on effect of loss of value then permeates to the banking and insurance sectors, causing the value of stock in those companies to fall. Because of the ongoing and continuous market manipulation, predicting the timing on the next stock market collapse is impossible. Note that potential heterogeneity in the effect of the crash implies that the average effect could go either way. It is quite difficult to determine the next stock market crash without being an insider. The initial crash was typical after major bull markets, and many would not have foreseen a severe depression based on the crash alone.
If all investors try to sell their shares at once and no one is willing to buy, the value of the market shrinks. The fraction of fifty-fifty probability answers in the past is a strong predictor of uncertainty about stock market returns. The panic began again on Black Monday (October 28), with the market closing down 12.8 percent. However, the market dropped another 13% on Black Monday, despite the bankers’ attempts to stop the panic. Because fear is much easier to predict than greed therefore the market moves quicker.