No. of Recommendations: 8
Here is a graphic of an ordinary market cycle. We have all seen several of these.
https://advisor.visualcapitalist.com/psychological-pitfalls-...

The old-fashioned market cycle (based on manufacturing) was usually caused by overproduction compared with orders. As inventories rose, the company would slacken production, laying off workers. The laid-off workers couldn't spend as much so orders slacked further. (On a macroeconomic scale.) The reduction in consumer spending was seen by a decline in the Velocity of M1 money stock during and after the start of recessions.

https://fred.stlouisfed.org/series/M1V

The mild recession of 2001 was caused by the 2000 dot-com bubble burst. I think this really does fit the graphic since the euphoria ("irrational exuberance") was clear.

The 2008 financial crisis was clearly fitted to the graphic. Real estate prices never go down so the derivatives based on them never go down. Also, Peak Oil. Uh-oh.

Our current crisis doesn't really fit the classic model. Yes, the stock market was very overvalued. But the Covid-19 epidemic (a Black Swan if ever there was one) was not an endogenous imbalance like the earlier recessions.

Will the descent be a long ride into the capitulation like the others? Or will this exceptionally volatile, rapid crash bounce back rapidly as soon as the epidemic is brought under control?

Wendy
Print the post  

Announcements

This is a Politics Free Board
Politically charged posts are not permitted on the Metar Board. If you make a political post, and it is alerted, the post will be removed. Thanks!
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.