Stock market crash explained by discussing Ray Dalio‘s views over the past years. I also explain how to invest in stocks for the long term.
Stock Market Crash Explained – How To Invest!
ValueWalk's Raul Panganiban interviews Dr. Kathryn Kaminski, Chief Research Strategist at AlphaSimplex, and discuss her approach to investing and the trends she is seeing in regards to quant investing and hedge funds. Q1 2021 hedge fund letters, conferences and more The following is a computer generated transcript and may contain some errors. Interview with AlphaSimplex's Read More
Good day fellow investors and welcome to the stock market news that offers a long term perspective on Fink's recently. Markets didn't do that well and many are certainly not happy about what has been going on. However we have to put a long term perspective on this and I want to go back to Dalio. Ray Dalio because he explained that constantly over the last few years what is going on and what will probably happen for things that have been a recurring topic with him our financial engineering by central banks. The ending of faith 60 percent chance of U.S. recession by 2020 and expecting zero real returns from stocks equities over the next decade which is what is happening now. So let's analyze the things that they are sharing and has been sharing with us. So there is no surprise to what's going on with the markets. Analyze those and then put them in the into a long term perspective to see what you can expect and how to invest. Let's start with financial engineering. I listened to an interview or think it was two years ago at Davos when Ray Dalio mentioned the word financial engineering at least ten times over that Bloomberg interview. Financial engineering means that central banks distort the normal way things work by in this case lowering interest rates. Interest rates have been lower after the previous recession for a few years and then the Fed increased interest rates to prevent the economy from overheating but they didn't manage to prevent the housing bubble.
Nevertheless in the last 10 years we have had nine years of lower interest rates and now the Fed has decided to increase rates some say too late. Some say they shouldn't. But never mind what the Fed is doing. Something also very important is that the European Central Bank has been constantly printing money to help markets to help the economy. So putting liquidity into the system but they are also cutting on their monthly buyback program. So these are two negatives that are impacting the way things have been working over the last few years. If we compare the central banks balance sheets in this case I have combined the Fed's balance sheet. The European central bank balance sheet and compare it to the S&P 500 the correlation is clear. Stocks have been going up because of the quantitative easing because of the monetary easing that central banks have been supplying the economy with money comes in and it has to get out somewhere does it. It gets out to buy backs to low interest rates to higher earnings etc. And that's the reason why the S&P 500 is higher. However now with stocks crashing headlines like this one on Thursday morning. Global stocks tumble on deepening fears of a Fed mistake. Who or this some Friday morning. Stocks stumble to the end of a miserable week. Markets wrap etc. However people tend to forget something something very important something crucially important. If I take the chart of the almost the last 10 years or if I go back to the low of March 2009 I think the intraday low on the day in March was 666 six points the current level of the S&P 500 is 270 percent higher than where it was 10 years ago.
So despite this current turmoil the current crash maybe we'll have a bear market 20 percent down. Who knows. It's still nothing. When poured in such a ten year perspective but the reason.