Come on, don’t be absurd now. The market at zero? That’s a far stretch. It will never happen.
Precisely, my friend. You did the talking on my behalf. It is outlandish, beyond belief. How on earth could someone imagine such a disastrous outcome, let alone go public with it. It takes some nerve, I tell you.
Not so fast. Just hear me out, would you? I shall get to the point and make my case.
Just common sense, if you ask me, plain and simple. You see, you would easily believe me if I were to write about the stock market doubling from its current level. And with some difficulty you could also believe me if I were to say the market will lose half its value. This is simply because we are wired to believe the good news and we are not readily willing to accept the bad news. That is why the doom bearers have to work extra hard to prove their case. They are only vindicated after the facts. However, all of this theory is thrown out of the window when I say the stock market is going to zero.
What does $0 mean? Is it the same as free? Or worthless? Bankruptcy for all?
Well, I agree that zero is not really going to happen. At least not directly; or overnight. But how about a major decline worse than the greatest depression we have seen so far. A loss of greater than 80% in stock market. Then the government steps in and nationalizes the big banks, and major companies from every industry. Effectively, pushing the many stocks to zero and the market closer to zero than we have ever seen.
You say that is just rubbish? Well, please hear me out as I list my reasons.
1- It has never happened before. Yes, you read that correctly. Because it has never happened before then it MUST happen in the future. This is the most compelling reason, I think. And when it happens, it will be the biggest and the blackest of black swans. You have heard of a black swan, right? It is the unpredicted and sudden fall of the market that catches most by surprise, including the powerful institutions. Like when the tsunami caught traders while they were enjoying their recreational swims. Lehman Brothers disappeared in fumes because of one of those!
If a ten percent decline is called a correction, 20% a bear market, and 50% decline a depression, then 100% will be called a clean slate, wiped out, or simply re-setting the count to zero.
The marketing folks will come up with flashy and catchy headlines. Actually, I take that back. There will be no headlines. Because no one will have time to write about the biggest event in the history of the market.
Everyone will be so shocked with the news that they will just sit still, and wonder if this was a trick, a false reading of the tape, a glitch maybe; or maybe it was a hack. Was the trading halted or is it over and done with. Finito. As in no more trading.
Such a state of shock assumes, of course, a sudden fall of prices to zero. If the fall is gradual, however, then there will be headlines. In fact, articles will be written in advance to explain why it fell and what to do from there. Analysts know very well how to explain the market’s actions in hindsight. They fall short at forecasting but never fail to come up with a reason why the market did what it did.
If the crash does not happen by chance, markets makers can still make it happen, perhaps, and maybe for the following reasons:
2- The United States has many enemies. Although they are our enemies, they take advantage of our democratic and financial institutions and they invest (heavily I may add) in our market. In short, foreign investors– governments and others– are hiding their wealth in our market. They are protecting their capital from their poor citizens, seeking growth, and are trying to impose some control over our economy. Holding us hostage, economically speaking. Those filthy-rich foreigners!
So what if we voluntarily set the prices to zero and this way we take all their money away? Without firing a single bullet, we can bring their economies to their knees. So you see, setting the prices to zero makes sense for national security.
3- You have heard of the social divide. Basically, the rich are getting a lot richer and the poor are falling behind faster than ever before. There used to be a middle class. No more. It disappeared. Or it is getting trampled. Most of us are barely hanging in there, hoping to stay afloat as we struggle to face minor crises when they arise.
So obviously, eliminating the middle class, the powerful engine of spending, is not good for the economy, or for the political stability of the country. No one wants any social unrest. Rioting and people revolting. To help solve the problem, the market makers will need to level up the playing field. Taking the market to zero will allow us to be equal again. As it should be. Why is it that some are born rich and others are born poor? If we are all Americans, then we should compete in fairness. No one should get a head start.
I am tempted to keep on going. But you’ve got the point my friend. There are more reasons to take the market to zero than there are to take it higher from here. I thereby rest my case and wish you well. Happy trading.