A September Stock Market Crash?
Many of us have been waiting to see what surprises the month of September would bring, and it appears that a stock market crash may be one of them. Even the most ardent market optimists were admitting that the absurd bubble that had developed over the course of the summer was completely unsustainable, and the only real debate was over when it would finally burst. So is this it? Stock prices have certainly plunged quite dramatically over the last several trading sessions, but it is always possible that things could stabilize for a little while. But whether it happens in September, October, November, December or next year, the truth is that everyone knows that a crash is coming.
On Tuesday, the Dow Jones Industrial Average fell another 632 points, but that wasn’t the real story. Far more noteworthy was the fact that the Nasdaq was down another 4.1 percent, and that means that it has now dropped a total of more than 10 percent since it hit a brand new record high last week.
Only two times since 2001 has the Nasdaq fallen more rapidly over three trading sessions. The index is now officially in correction territory, and the losses have been staggering. In particular, the six largest tech stocks have collectively lost more than a trillion dollars in value during this three day stretch…
A trillion dollars is a serious amount of money.
If you had started spending a million dollars every single day when Jesus was born, you still wouldn’t have spent a trillion dollars by now. So we are talking about a giant pile of money that is almost unimaginable.
Apple has the largest market cap of any of the tech giants, and over the past three trading days it is down a total of more than 14 percent. That is the worst three day stretch for Apple since October 2008.
But if you want to see a real disaster, just look at what has been happening to Tesla’s stock price. Do you remember a few days ago when I said that it would still be overvalued if it went down 90 percent? Well, after Tuesday we only have 69 percent more to go before that actually happens…
It was widely assumed that Tesla would be added to the S&P 500 on Friday, and when that didn’t happen it was “a big disappointment for investors”…
But the bigger disappointment for Tesla investors will come when the general public finally realizes that a company that sold less than 100,000 vehicles and actually lost 862 million dollars last year is simply not worth 307 billion dollars.
I understand that people like to make money flipping Tesla stock, but to me the entire company is a giant mirage that will eventually collapse in spectacular fashion.
As for the market as a whole, I am not too excited about this current downturn just yet. When CNBC asked Kristina Hooper about what we are seeing, she simply labeled it “a healthy period of consolidation after a dramatic run-up”…
Yes, it is still entirely possible that this could turn into the big crash that everyone has been waiting for.
But I think that I will wait until the Dow falls below 25,000 before I start hyperventilating.
Of course I am among those that are entirely convinced that a stock market crash is definitely coming at some point. At this moment in history, stock prices are absurdly overvalued. Back in 1990, the total value of all U.S. stocks was sitting at a level that was approximately 60 percent of U.S. GDP, and these days that number has been hovering around 200 percent…
So that would seem to imply that stock prices could ultimately fall by more than two-thirds, although I believe in the long-term they will go a whole lot lower than that.
In the short-term, we will see what happens. 10 of the 20 worst single day percentage declines in stock market history have happened during the months of September and October, and it wouldn’t surprise me at all to see some huge waves of volatility during the weeks ahead.
But it is probably going to take some sort of a “trigger event” for the really big crash to happen.
That “trigger event” could happen tomorrow, or it may not happen for quite some time. But without a doubt the market is perfectly primed for a major disaster, and it certainly won’t take too much to push it over the edge.
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