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The biggest stock market bubble of all time is ready to burst and this week’s events are signaling that a major correction has already started. We have seen stock prices go on meteoric rises over the past year, even stocks of bankrupt companies and meme stocks have seen prices skyrocketing by 300% in what some may call the craziest bull market run in history. Now, we can definitely say we are witnessing the largest stock market bubble ever, but this bubble will end the way most bubbles do, which means an epic burst is coming and the recent market activity can prove so. Sell-off signs have been spreading across Wall Street for weeks, and on Monday we could see an eruption of full-blown fear amongst investors and big financial institutions. The Dow Jones Industrial Average fell by 725 points, marking the worst day for the index since last October. But that alone isn’t an indication of a crisis, what is, though, is the fact that a series of individual stocks have started to plunge to bear market territory as veteran investors seem to have become spooked with the growing risks.
Many are pointing to the rapid spread of the Delta variant as the factor responsible for triggering a market plunge yesterday. That’s precisely why investors are concerned. Any worsening of the health crisis threatens to crash the high prices stocks have gained over the past year. Investors are expecting the economy to fully recover and forecasting a record growth in economic activity, even though many market veterans have been warning that these rosy expectations may lead to bitter disappointment.
In any case, now that the market has started to go down, some experts are warning that the crash could be quite substantial. For instance, one Morgan Stanley expert believes we could see a “correction” of 10 to 20 percent. “The market appears ready to take on a more defensive character as we experience a meaningful deceleration in earnings and economic growth,” Morgan Stanley chief U.S. equity strategist Mike Wilson said in a note Monday. “Market breadth has been deteriorating for months and is just another confirmation of the mid-cycle transition, in our view. It usually ends with a material 10-20% index level correction.”
Actually, if that is the worst-case scenario we would be quite lucky. The truth is that we might be headed to a much sharper correction because the mood on Wall Street has dramatically shifted in recent days. According to the CNN Fear & Greed Index, the market is now sitting at 17, which represents “extreme fear”, while the VIX has been soaring. The last time we witnessed this much fear on Wall Street, the S&P 500 was down by 40%. So that’s a remarkable sign, to say the least. But while warning signs are emerging pretty much everywhere one can look, our leaders continue shrugging off predictions regarding the consequences of the current monetary policies in collapsing stocks amid rising inflation fears and economic concerns. They keep insisting that a wonderful new era of great prosperity is just ahead.
We all would love to see a massive economic boom after so much time of pain, chaos, and desperation. But sadly, it’s very unlikely that things will run as smoothly as he believes. In reality, we are fast approaching some of the most difficult economic times that we have ever seen. Our politicians and policymakers cannot artificially prop markets up forever. This immense bubble is simply unsustainable and the laws of economics cannot be overlooked for much longer. We have to remember that the federal government is already 28 trillion dollars in debt, while our corporations are in the midst of the greatest debt binge of all time, and U.S. consumers continue to go into debt without any fear of the consequences. But a reckoning day always arrives and our “tomorrow” will be far more apocalyptic than most people would dare to imagine.