Stock market crash check
 |
| Although the stock market is known for volatility, it was not a risky one in the 1920s. The economy was booming, and the stock market looked like a logical investment strategy. |
The end of World War I brought a new era to the United States. The era of enthusiasm, optimism and trust. This was the time when the Industrial Revolution was in full swing and new inventions, such as radio and aircraft, made anything seem possible. Capitalism was the economic model and only good times appeared on the horizon. It was this new era of optimism that attracted many to take their savings and invest in various companies and offer stocks. In the 1920s, the stock market was a promising favorite.
The largest stock market boom in history
Although the stock market is known for volatility, it was not a risky one in the 1920s. The economy was booming, and the stock market looked like a logical investment strategy.
Wall Street quickly attracted many investors. As more people invest, stock prices begin to rise. The sudden rise in prices became notable for the first time in 1925. Then between 1925 and 1926 stock prices began to fluctuate. The year 1927 brought in a strong bullish trend, or bull market, which attracted more people to invest. By 1928 the market was booming.
This booming market has completely changed the way investors view the stock market. Stocks are no longer seen as long-term investments, but rather a quick way to get rich. Investing in the stock market has become a modern city, from barber shops to parties. Stock market success stories can be heard everywhere. Newspapers and other forms of the media have mentioned the stories of ordinary people - such as teachers, construction workers, and maids, who quickly get rich outside the market. Of course, this raised the desire of the general public to invest.
Many new arrivals wanted to enter, but not everyone had the money. This, in turn, led to what is known as "buy on margin". Buying on margin means that the buyer can assign some of its own money, and borrow the rest from a broker / trader. In the 1920s, the buyer could invest 10-20% of their own money and borrow the remaining 80-90% to cover the stock price.
Now, buying on margin can be a risky attempt. If the share price falls below a certain amount, the broker / agent will issue the margin call. This means that the investor needs to get cash to pay off the loan immediately, which often means selling shares with poor performance.
In the 1920s, many people were buying shares on margin. They seemed confident in the booming falling market, but many of these speculators neglected an objective assessment of the risks they were risking and the possibility that they might eventually be asked to get cash to cover the loan to cover a call
The calm before the financial storm
By early 1929, people across the country were rushing to put their money on the market. Profits and the path of wealth seemed almost guaranteed, so many individual investors were putting their money in the shares of various companies. The Levant companies were also created with little federal or government oversight. What's worse - even some unscrupulous bankers were using their clients ’money to buy shares - without their knowledge or approval!
While the market was climbing, everything looked fine. When the big crash occurred in October, many investors were vigilant. But most people have never noticed the warning signs. how to? The market always looks better before falling.
For example; On March 25, 1929, the stock market suffered a small collapse. This was just a preview of what's coming. When prices fell, panic began to spread across the country as margin calls were issued. During this time, a banker named Charles Mitchell announced that his bank would continue to provide loans, thereby alleviating some panic. However, this was not enough to stop the inevitable collapse as fear invaded the country like a raging forest fire.
By the spring of 1929, all economic indicators indicated a massive correction in the stock market. Steel production fell, home construction slowed, and car sales dwindled.
Like today, there have also been a few reputable economists warning of an imminent big meltdown. But after several months without a crash on the horizon, those who advise caution were classified as insane and their warnings ignored.
The great summer boom of 1929
In the summer of 1929, small crash warnings and economists' warnings were forgotten for a long time as the market rose to all-time historical highs. For many, this bullish climb appears unavoidable. Then on September 3, 1929, the market reached its climax with the Dow closing at 381.17.
After only two days, the market took a turn for the worse.
Initially, there was no significant decrease. Stock prices fluctuated during September and October until that horrific day will never forget history - Black Thursday, October 24, 1929.
On Thursday morning, investors across the country woke up to see their shares drop. This led to a huge sale frenzy. Again, margin calls were made. Investors across the country watched the index as numbers fell, and revealed their financial loss.
By the afternoon, a group of bankers pooled their money to invest a large sum in the stock market, thereby easing some panic and reassuring some to stop selling.
The morning was shocking, but the recovery happened quickly. By the end of the day, people were reinvesting in what they thought was bargaining prices.
12.9 million shares were sold on Black Thursday. Double this previous record. Then, just four days later, on October 28, 1929, the stock market collapsed again.
The worst day in the history of the stock market
Black Tuesday, October 29, 1929, was the worst day in the history of the stock market. The stock index became very steeped in "sell" orders that lagged behind, and investors were forced to wait in line as their stocks continued to fall. Investors panicked because they could not sell their worthless shares quickly enough. Everyone was selling and hardly anyone was buying, so the share price collapsed.
Instead of bankers trying to persuade investors to buy more shares, the word on the street was that they were even selling. This time over 16.4 million shares were sold, setting a new record.
Free stock market
Without any ideas on how to end the massive panic that has gripped society, the decision to close the market was taken for a few days. On Friday, November 1, 1929, the market closed. The market reopened again the following Monday, but only for limited hours, then the stock price fell again. This continued until November 23, 1929, when prices appeared to be stable. But the bear market is not over. Over the next two years, stock prices fell steadily. Finally, on July 8, 1932, the market reached its lowest level when the Dow closed at 41.22.
In 1933, Congress introduced the Glass Steagall Act
Amidst the failure of commercial banks nationwide and the Great Depression, members of Congress Senator Carter Glass (D-VA) and Representative Henry Steagall (D-AL) signed their signatures on what is today known as the Glass Stigal Act (GSA). The GSA had two main provisions: the establishment of the Federal Deposit Insurance Corporation and the prevention of commercial banks from engaging in investment business.
The Glass-Steagall Act was eventually repealed during the Clinton administration by the 1999 Gramm-Leach-Bliley Act. Do many financial professionals believe that Glass-Steagall repeal contributed significantly to the 2008 financial crisis? Despite difficult lessons again I learned, not much has been done by Congress to restore public confidence, re-install safeguards, or restore the Glass Steagall Act. Compression is too much pressure to beat. And just as it did before the collapse of 1929, again, there is no firewall between major banks and investment firms with little federal oversight. It is a house of paper ready to fall again.
However, Nobel Prize winner Joseph Stiglitz of the Roosevelt Institute said:
"Commercial banks are not supposed to be high-risk projects, rather they are supposed to manage other people's money very conservatively. On the other hand, investment banks traditionally manage the money of the rich - people who can take greater risk in order to get the most returns."
In fact, when the Glass-Steagall Act was repealed, he brought together investment and commercial banks to achieve a profitable outcome. There was already a market for this pattern of high returns that required risk and high leverage. While some believe that the GSA cancellation was a contributing factor to the 2008 financial crisis, one cannot help but wonder if the agency is actually impeding the competitive advantages of financial companies.
Allen Greenspan on irrational behavior in the stock market
Allen Greenspan, former Federal Reserve Chairman in his new book, The Map and the Territory, stated that they performed all economic mathematical calculations during his tenure, but failed to account for the irrational human behavior patterns raised by strong feelings of fear, panic or desire to make gains, Which seems to be rampant in the stock market. The other side of this is ecstasy that can lead the market to unrealistic levels, such as now.
Since the 2008 financial meltdown, Greenspan has mentioned that he has been thinking a lot about bubbles. He was trying to figure out why he was not seeing, along with many other economic forecasters, the housing bubble that caused the crisis. Today, there is another housing bubble in China much larger in size than any other country, and according to economist Harry Dent, a ticking time bomb creates economic chaos all over the world when it explodes.
Approaching a working child retirement bubble (2013-2015)?
Note that 401 (k) retirement plans are relatively recent platforms. It was first introduced in the early 1980s and was mainly funded by a baby boomer generation, pushing stock prices to current levels.
As of 2013, baby boomers are retiring at an average of 10,000 children a day. In most cases, this means they are no longer working, or contributing to their plans and will be withdrawing from their 401 (k) plans, which are likely to already be carried over to individual retirement plans. Could this massive retirement wave put us at the forefront of a record-breaking stock market correction with the latest baby boomers moving into retirement?
The prominent economist, Harry Dent, is best known for predicting that Japan will suffer a financial correction that has lasted for more than a decade; This research was published years ago. It not only carefully analyzes economic data, but also demographic data.
Dent's theory of the "baby boom retirement wave" provides a disturbing truth. With 10,000 baby boomers spending and taking advantage of their retirement accounts every day, these numbers indicate that the United States is heading toward a similarly dangerous slope like Japan years ago.
Dent research shows that as consumers age, their spending patterns change. For example; When baby boomers started forming families, they spent more and the economy boomed. As their children grew and left their homes, the prosperous began to spend less, leading to a worsening economy.
The same thing happened in Japan, when the working-age population peaked in 1995.
Dent is expected by 2015, we will see a similar scenario here in the United States, when there is a disproportionate number of elderly people and far fewer young producers. With fewer people working and a larger segment of the population in the older age group, taxes are likely to increase for all of our segments of the population
Indeed, the financial devastation that the stock market crashed in 1929 was unimaginable. The vast majority of people completely lost their savings. Companies go bankrupt, and people ’trust in banks is shattered. Some people jumped to death because of the high increases after they lost their savings and were financially eliminated. Some banks collapsed, and people lost the money they deposited in the banks.
Imprisonment of banks in many companies and family farms. You can't buy a job! Soup lines formed in big cities because no one had any money, and there were no vacancies, or money to feed themselves or their families. Battles broke out due to anger, frustration and difficult circumstances.
While some regulations have added a layer of protection since then, such as federal deposit insurance for accounts up to $ 100,000. The stock market maintains its dangerous reputation. The truth is that another crash of a similar size may be around the corner as the baby boomer generation retires. The smartest thing an investor can do now is simply to understand the transformation the market and the economy go through in order to benefit from it.
Alternative asset classes are gaining popularity despite the recession in the American economy
When billionaires and billionaire investors like Warren Buffett begin adjusting their portfolios and start selling many US equity positions, it is wise to pay attention. They are accurate financial analysts and try to introduce themselves and rearrange them at all times. They are usually very ahead of the market in doing this. And more importantly, knowing the alternatives they use to grow their wealth. For example, Buffett owns a thriving company, Berkshire Hathaway, and loves to add stability to his portfolio that buys life settlement contracts, (an alternative asset class) with a total value of $ 400 million.
.png "English"){kind=small}
