It wasn’t so long ago that we experienced a major economic collapse. Last time more than a year ago. The fact that US indices erased the large March decline in a few months and then reached several-year highs, raises a fundamental question. And not whether there will be another big crisis, but when.
Early 2020 and the Great Depression
As early as January 2020, there was no indication that a major crisis was coming. The coronavirus was a matter for several states, much of it China only. And few expected a global pandemic to break out in March. It pushed the price of oil, indices and other known assets up to 50%. In some cases, such as the aviation industry, this was also within 80% of the decline.
In the past, it was such a habit that it took 10 years for everything to recover and the market to reach new highs. It was only during the crisis in 2008 that the economy recovered, sometime between 2011 and 2012.
Everything is different
But this crisis is different. We have seen the economic recovery in the markets already 3 months after the beginning of the great decline. Even one of the most well-known market strength indicators, the Nasdaq 100 index returned to an all-time high after 4 months and has since made another 100%.
If a person who had never been interested in the economy looked at this chart, he would wave his hand over the chart and clearly say that there is no recession, the market is growing steadily… super!
Fears that a crisis will come
This current recession is characterized by its original structure. On the one hand, some groups of people affected by the corona crisis are on the verge of collapse. On the other hand, companies and people working mainly in the online industry have the best results in history.
This imbalance is causing a big bubble in the online industry, which will soon have to burst. Only during this summer, when measures were finally relaxed almost all over the world, many online companies started to have problems. The competition is just great and when everyone was at home, it was very easy to do business in this sector. When everything stabilizes again and returns to its original state both before the crisis, even though it may seem unrealistic, everything will return to its tracks.
It is the NASDAQ 100 that shows the performance of the predominantly online Internet giants. And it all kind of fits into the puzzle. Practically, the same thing is repeated as in the Dotcom bubble, in which even completely beginning entrepreneurs could easily get rich and then, in the face of growing competition, go bankrupt in one day.
Will rescue come?
Even the US Federal Reserve will not save the economy indefinitely. They also have their business model and think primarily of themselves, not people. When the state or a company is simply indebted, it will no longer receive new money. It will go into liquidation. And that is exactly what the world has been becoming more and more bound to in recent decades.
Therefore, the question is not whether, but when the next big crisis will come, which will be even worse than the last one.