Economic outlook negative : Is financial Market eyeing for a sharp crash?

A financial market bull’s rage is impossible to control and that itself signifies danger, not via alarms or panicked shrieks but like a gulping predator which seizes its prey in one lash of the tongue. It happened in 1929 when share prices fell by 11% and loss of confidence in financial market offset a Black Thursday. Then, a major like Lehmann Brothers went bankrupt with the 700 point drop in Dow on 29th September 2008, presumed to be the largest drop in NYSE history.  A crash normally occurs when the financial market loses more than 10% value in one or two days. Madness is like gravity- all it needs is a little push.  Here as well, a hint of economic instability can accelerate the sale of stocks and force people to empty their cash drawers.

Let us peacefully examine the scenario through two distinct viewpoints – one being the meteoric rise of Trump and the Whites in USA, invigorating business moguls throughout the most powerful nation, the second, being  Brexit which eliminated Britain from the European Union.

When a business tycoon cuts taxes, increases wages to almost three-folds to protect domestic sentiments and imposes stringent laws on visas to prune the immigrant population, a natural consequence is the surge in markets. The financial market is also salivating at the prospect of nice fat tax cuts from Trump. The White House will announce details of its plans shortly but they are certain to involve a hefty cut in corporation tax. Stock prices are on the increase with the American stocks being overvalued by 80%. The law of sociology which assigns greater power to a person investing less holds true here as well because a higher level of intoxication by perks can lead to a perennial debt for ambitious bidders. The global war which Trump is about to ignite is yet to begin and much before it, we have started to ascertain our benefits.

As far as Britain is concerned, much like the dip in form of Andy Murray, the business rates are uncertain after the division. Trade within Europe will be priced and article 50 regarding negotiation rates, is yet to be resolved. For several small companies with minimal revenue the regulations significantly affect business and even for multinational companies, they may have operating units and warehouses stationed in different parts of Britain.

Implementing trading curbs or circuit breakers which prevent any trade activity whatsoever for a certain period of time following a sharp decline in stock prices are an effective remedy. Large entities purchase massive quantities of stocks, essentially setting an example for individual traders and limit panic selling. As countries like Scotland still wait for the verdict of Brexit, the increasing stock rates in a chaotic political scenario would head the wise towards havens like Gold, low volatility products and high-quality stuff like Johnson and Johnson but for those not having a diversified portfolio of stocks and commodities, with closed eyes, only a murmur of the lip can succor the imminent pain – for “faith” has always been a faithful companion.

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