For the past several months, I have been warning of a MAJOR stock market plunge that will likely take the major averages down by 50% or more (Stock Market Bubble: Now Even Bigger!, Stock Market Selloff Is FAR From Over!). Today, assuming the Dow Jones Industrial Average remains down by 500 points through the end of the day, my own buy/sell indicators on the market will be flashing a solid SELL signal. You can read about those indicators here: Can You Time The Market?
The Trade dispute with China is certainly a factor . It should be viewed as a “catalyst” of a market selloff, not the underlying “cause”. The underlying cause is, as I have written in the past, extreme overvaluations in the stock AND bond markets. Ultimately, these conditions are caused by wealth disparity, that only a major depression, the one we SHOULD have had 8 years ago, will cure. Is Wealth Disparity Leading To The Next Great Depression?
This next recession (depression?) will sweep across the globe very quickly and will surprise many, by both its speed and depth. This is not much unlike the 1929/1930 period when professionals everywhere were predicting indefinite prosperity. The “springs” of debt and derivatives are wound very tight, and once the economies begin to waver (as they are), those positions will unwind very quickly as wealth attempts to protect itself.
Other technical indicators are piling up as well. The market this week closed below the 200-day moving average – a bear market sign. There have been some earnings surprises to the downside. Optimism, particularly around the market, is at all time highs. Warren Buffett has even stated to “Sell when others are greedy”.
Buying GOLD is the place to be for now to keep money safe. AFTER the dollar falls through the floor, it may make sense to switch back to cash. But right now, precious metals appear appropriately valued, especially compared to stocks and bonds. Of course, you should always evaluate these ideas in light of your own financial situation and goals.