The stock market has been a bloodbath this week. There was red everywhere you looked. Tesla was down lower than when they entered the S&P500. Some were down closer to 20%. Even crypto followed suit and dropped to levels not seen since 2017. It was a nightmare for investors and the volatile market made it almost impossible to do any trading.
It was good for me because I’m in the process of building up my portfolio. So the prices were nice and cheap to pick up.
Am I worried about the sudden drop in stock prices? No, not at all. We were due for a correction on all fronts and at the rate we were climbing to all-time highs, I even thought it would be coming sooner.
But why did it crash? There had been a lot of finger pointing, but it all comes down to worries of inflation and unstable increase in call options backed by nothing but debt and inexperience. Let’s break it down.
Michael Burry’s Prediction of Collapse
Michael Burry from the movie in the Big Short came out with another prediction of collapse. Last time he predicted the crash of the real estate market, so when he predicts another fall, we should listen. He claimed the “rampant speculation and widespread gambling with borrowed money have driven the stock market to the brink of collapse.”
The massive surge in bullish call options and dancing day traders on social media have caused the recent spike in the markets. This was an unstable promotion not backed by anything of substance. It was only a matter of time before the market corrected itself.
Michael is seen as the boy who cried wolf, always shouting about the end of the world, who eventually got one thing right. However, I find his claims always sound reasonable and backed by data. It makes you wonder if he may be right.
There has been a huge influx of day traders dancing on Tiktok influencing young people to find ways to get rich fast instead of relying on compound interest. People are taking on debt to fund their call options and it’s piling up to concerning numbers.
He may be on to something, and I plan to keep my eye on it.
Cryptocurrency Decline
The crypto plunged was to be expected. There have been massive gains pushing past all-time highs. A correction was bound to come building up support for further growth. The bull market is nowhere near finished. We are just starting.
We had seen drops down to around $44k, falling over $14k since reaching it’s all-time high last week. We haven’t seen Bitcoin this low since 2 weeks ago. You almost have to laugh at that.
As of Wednesday morning, we are finally starting to see some green. Bitcoin has broken into the $50k range once again and Ethereum over $1600. Many people were scared and shouting out the Bear market. They were panic selling and predicting the end of the world.
During declines like this, remember to do some research to get to the bottom of this and prepare yourself mentally. Crypto is known for their occasional correctional periods. But when it’s over, it skyrockets to new ATHs. Don’t panic sell without taking the time to investigate.
Inflation Concerns
Another cause of worry weighing down the market was growing concerns for increased inflation. Stocks hitting unprecedented highs, real estate hitting ridiculous prices and the cost of everyday life growing to stupid amounts have left some pondering what is to come.
There has been so much uncertainty, a decline in the market was inevitable. We are seeing an increase in price of goods and other commodities, but the Government telling us there is no inflation. You can understand what the back and forth does to a stock market.
Rising bond yields and growing concerns for the tech sector only fueled the flames of concern. It seemed like it was one large domino effect. One concern turned into several and they all pushed the stock market down.
Voice of Reason
Jerome Powell came on to calm investors today, firmly stating there is nothing to be worried about concerning inflation. His speech seemed to work as the market saw signs of recovery close to closing.
It was his usual speech, proclaiming there is nothing to be concerned about. Our worries are nothing and to go back to sleep. Then he takes out his money gun and lets it rip. But in all seriousness, him coming on seemed to put a stop to the volatile markets yesterday. Let’s hope that carries into the rest of the week.
Final Thoughts
I’m still wary of increasing inflation, but for now I’m taking this opportunity to go shopping. It’s almost like going down the discount aisle, picking up cheap stocks to build my portfolio. I was able to pick up some Tesla stock that had dropped 10%. What a steal!
There does seem to be inflation, but I have no idea of the scale at which it is rising. I have a crypto portfolio sitting on the sidelines ready to play if interest rates start to skyrocket. I’m relying on my decentralized portfolio to offset any declines my stocks will suffer if inflation numbers do rise. But that could be years from now. I guess we’ll see. But in the meantime, I’ll be going shopping.
