No. of Recommendations: 8
Here is a graphic of an ordinary market cycle. We have all seen several of these.

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.

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?

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