A wild week on Wall Street could get even wilder
By now you probably understand why stock market bubbles are dangerous.
Bubbles are especially unstable when they are caused by the Federal Reserve keeping interest rates artificially low for a very prolonged period of time, which forced people into the stock market who shouldn’t be investing there and who will retreat at the first sign of trouble.
And President Trump probably now realizes why taking credit for the irrational surge in stock prices was the wrong political strategy.
If you take credit for the bubble — or are a Wall Street firm that urged clients to invest during a bubble — you also take the blame when prices fall off a cliff.
The stock market got its butt kicked again yesterday, which continued a series of butt-kickings that have even the most prestigious Wall Street firms warning customers that things could get worse.
Goldman Sachs, for one, warned clients on Wednesday that stocks could fall by another 15 percent on top of the nearly 20 percent decline that has already occurred. Next week could be even more crazy.
That’s because it’s an options and futures expiration week — a so-called Triple Witch — when stock prices often act erratically even when nothing else is going on.
And next week the Fed meets for its regularly scheduled meeting.
The financial markets are already expecting the Fed to reduce interest rates, maybe even by another 50 basis points to match the cut it did earlier this month. That’ll put the Fed about as low as it can go with rates.
And since the bond market has already pushed rates lower even without the Fed’s “permission,” that means the US central bank and all the other central banks around the world are essentially helpless to re-inflate the stock market.
Even blatant stock market manipulation, like what happened in the last hour of trading on Friday and again this Tuesday, isn’t working.
That’s why I’ve been warning — prematurely, I admit — about bubbles and how dangerous they are. (As an aside, since the market has collapsed I haven’t heard a single world of contrition from readers who’ve been giving me crap about warning people.)
Market manipulators are still going to try to reverse the major losses. Should you be buying? Only if you can ride the ups and downs without getting yourself sick and think you can sell stock positions fast enough to stay in front of the bigger dips.
And you won’t be able to move faster than the pros.
When will it be safe to get back into stocks? When the overwhelming, prevailing belief is that the stock market is much too dangerous for ordinary people. When all hope is lost, that’s when the market might rise again — but not necessarily quickly.
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