”IF THE ECONOMY IS NOT DOING WELL, WHY DO THE STOCK MARKETS KEEP RECORDING NEW HIGHS”
Often times, my friends keep asking me a question, “If the economy is not doing well, why do the Stock Markets keep recording new highs” or in other words, why do the share prices keep going up. A very valid and a logical question. Let me give you the truth behind this phenomenon.
1. History tells us that just before a major market crash, stock prices always keep registering a sharp increase. This is like the “brightest flicker of a wick lamp, just before it suddenly dies down”.This is applicable globally and across all markets.I will give you 3 examples to convey this reality, while there are 100 s more.
2. In 1929, just before the Stock Market crash which resulted in Great Depression that lasted 7 years, the Dow Jones of US, like the Sensex in India, was at an unbelievable high. It was not supported by any of the Economic Fundamentals, like GDP growth of US, Employment being at satisfying levels, Retail Stores doing brisk business and the like. In fact, in every aspect, the economic indicators were very weak. Perfect recipe for crash.
3. These prices at such times are driven by a group of Traders, generally called as Bulls. They artificially jack up the prices by pushing up the share prices, with a very small volume of trade, like buying 100 shares at a ridiculously high price. They know that not only can they recover their losses but will end up making handsome profits. I have explained below as to how this dirty game works.
4. When this “rogue cartel of traders” push up the price, the “uninformed gullible retail investors” enter the market and start buying shares at such ridiculous high prices expecting them to go up further. At this juncture, the cartel of traders, who originally drove the markets up, sell off their holdings, make a profit and just vanish.
5. Consequently, every time when there is a stock market crash, it is the ordinary retail investors who bear the brunt and nearly lose their pants. In 1929, when markets crashed by over 86%, over 3000 people committed suicide in just 4 days. Not only had they lost all their wealth, they also got into deep debts. Many of them had taken loans to invest in shares and there was no way for them to exit. They were totally bankrupt with no foreseeable solution.
6. Exactly a similar trend was witnessed during 2000, when we saw the “Dot Com Crash”, when the shares of many Dot Com companies crashed by 97% of its value. This happened yet again in 2008, when the market crashed, with share prices at an unreasonable high, just prior to the crash.
7. The smart cookies, sell off all their holdings, while common man loses everything. We are experiencing a similar trend now. Jobs are lost. Many retail shops are shutting down or about to, which is a real give-away of the ground reality. Wherever you live, go to a Shopping Mall and observe carefully the following things.
8. You don’t need any economic reports to understand this. Just look for “how many shops have their shutters pulled down”. How many people are inside the shops buying whatever. How busy are the sales people inside the shop. Are they talking to customers or generally loitering around.
9. Look at some 50 shops in different floors of the mall. The branded shops are now having really a tough time. Like Nike, Bennettons, Gitanjali Diamonds, ACER Laptops, shops selling expensive crystals and jewellery and such others. You can make your own inferences, when you see that there are hardly any takers.
10. Get smart. Don’t be fooled by Govt. claims and the lies of the Presstitutes from the Media. They keep dishing out fakes after taking a hefty cheque from Govt. which is doled out from the Taxpayers’ money.These are applicable universally & applicable to all Governments.
11. I will give you a simple example to help you understand this point better. Let us say that there is a dilapidated building with cracks and seepage in Mumbai. A smart house owner (like the rogue traders referred above) paints his apartment nicely. When a potential buyer walks in, the owner of the house will ensure that the potential buyer is kept busy largely inside the house.
12. And if some intelligent buyer asks him a question “but the building is so run down. Some say it can even fall anytime”. To this the owner would say, “they have been saying this since the last 5 years. They are all envious that people like you will walk away with a damn good deal”. And our buyer will end up buying it. The owner will walk away with a hefty profit. The building then would crash and our new buyer would be left holding the can.
13. Politicians, Bankers and the Businessmen loot the people all over the world. It is your life and it is up to you to take care of them. No one can help you if you don’t put in the basic efforts to protect your interests. Ignorance is certainly not a bliss. The only thing is, just no one can predict the date on which the dilapidated building would fall. That is an eternal mystery which no one can ever crack.
If you need further clarification, let me know your point. I shall give you an honest answer, within the realm of my understanding.