Is This 2008, or is it 1929?
Stocks are recovering after a painful loss, but is this the end, or is it the beginning of the end?
This article is going to be short, as it's more just a warning (though it isn't financial advice). A lot of people were shocked by the recent events in stock market. A lot of people have never experienced anything like this. Others remember 2008 and probably think that it's come again. However, I'm not convinced that this downturn is another 2008. I think it's another 1929.
Beware the Bottom
In 1929 when the stock market crashed, a lot of "smart money" had already pulled their funds out. A lot of "smart money" had funds to spare, and so when the "bottom" came in, they dumped their money in, expecting a juicy return. Little did they know that the crash was just the beginning of the downturn in the markets.
This chart comes from a Business Insider article. It points out something very important. The 1929 crash was huge. But then we saw a significant "recovery." Between the time the market "bottomed" and mid 1930, the DJIA went from roughly 175 to roughly 300 points. While still shy of the roughly 400 high, that's a significant improvement. Or so it seemed to many who started pouring money into the markets.
And then sh*t hit the fan. While it's partially just a conjecture on my part, I would say that the financial shock finally started showing up in the economy, and the economic shock caused the true decline. I expect something similar to happen this time. We'll probably see a return to irrational exuberance, only to see the DOW drop, by the end, to only about 20% of its ATHs.
Impact on the US Dollar and other Fiat Currencies
The government is going to try throwing a ton of helicopter money at this market. It's going to do everything it can to prop it up, especially before the November election. This stimulus may increase the size of the secondary bump, bringing the SPX to roughly to 3,000. That would put it on par with the first shoulder of what could be a massive H&S pattern.
However, the flip side will be a massive increase in the supply of USD, and other fiat currencies. This action would result in inflation at a level not seen in America, at least not in recent history. And while the dollar was saved by the gold standard during the Great Depression, it will have no such savior this time around.
But hey, maybe I'm wrong. Let's hope that I am. And again, do your own research and thinking on the matter!
Differences Between Crypto and Stocks
A reader asked why crypto would be any different from stocks. It comes down to the nature of valuation for the two. Stocks are valued based on estimates of net worth of a company. On average, as the economy grows, stock market valuation grows. The foreshock of the 1929 crash resulted in a shock to the economy, which rippled through as aftershocks perpetuating the other.
Crypto's valuation is different. It's not based on the strength of the economy. The valuation for each cryptoasset varies based on the nature of that asset. If one asset is treated as a safe haven, then it'll go up during a recession, especially as people lose faith in fiat. This situation is likely to happen as the government does more and more to try to prop up the economy.
Additionally, many cryptoassets are tied, either directly or indirectly, to projects like publish0x, Belacam, Brave, etc which are likely to become more popular as the economy crumbles and people are looking for anything to do and maybe help them survive. Even play to earn games may start to seem like a safe haven for some kind of revenue generation.
Originally published on the Trading Politics Blog on publish0x