Do stock-market crashes share similarities that can be recognized in advance? Some say yes, and claim the signs are there for everyone to see. Just as market signals can indicate a stock price shift, analysts are now claiming they will be able to predict with accuracy the next crash. According to these financial experts, the next collapse is not yet on the horizon, but recognizing the signs in advance is what every investor is working on with little to no success, so what is it these analysts think they know?
One sign that things are going to go belly up is when the market goes strong. Just like a balloon or bubble, massive expansion weakens the overall structure to the point where collapse is inevitable. Capitalism requires constant growth in order to function correctly, so a crash is in fact a natural cyclic process that restores equilibrium to the system. There will be another one sooner or later, and recognizing the precursors can make all the difference.
Another trigger is when an unpredictable and massive cost appears without warning. Acts of nature such as hurricanes, floods, volcanoes, and earthquakes make for unexpected catalysts, but there are other less dramatic causes. In the 80s, the insurance bubble was the catalyst, in the 2000s it was mortgage-backed securities and trading manipulations. What’s next?
There’s always someone looking for an angle, weakness, or untapped opportunity, and these often cause an imbalance that has dire consequences in the months and immediate years that follow. The balance always returns so what goes up, must come down, but remember, what does down usually dies and gets replaced… usually!
As they say, it’s not “what goes around comes around”, it’s “What goes around, really goes around,’ so the next time you see something making millionaires by the buss-load, tighten your belt for the fallout that follows and watch out for signs of expansion and unpredictable costs. When the trifecta hits, you’ll be ready, and like those in the past who were prepared, you might actually profit from the crisis.