What many people are finding strange is that
in the middle of so much chaos that's happening
in the US or around the world you can see
the stock market is rising fast.
Millions of people have lost their jobs and
dozens of millions of people have applied
for unemployment benefits while there is a
pandemic.
It's not clear where the economy is heading
to and what's going to happen in the future
and if you count the current demonstrations
and the problems that are happening in the
street.
It seems like the economy should be in a horrible
shape, and it doesn't make sense that the
stock market is rising since the economy is
sinking.
In fact some experts are warning that we might
slide into a depression that's going to be
long and painful since we are already in a
recession.
Why would the stock market rise when the economy
is in recession and has a possibility of sliding
into a depression.
Look at the S&P 500 just in March it was down
by over 30% and right now it has almost recovered,
and it seems like it will grow much further.
Almost every company that suffered in this
pandemic has completely recovered and is hitting
a new record.
But let me assure you that what's happening
now is nothing unusual.
It is entirely normal, and we will explore
what exactly is happening in this video.
1.
The market isn't the economy
The stock market is all about what investors
think is going to happen in the future.
It is not a good indicator of the current
situation in the economy.
Let me just give you a very simple example,
you invest in the stock market in hopes that
you're going to make more money in the future
so when we are talking about this pandemic.
Sooner or later we all know that it's going
to end since we know how to solve it.
It is not a long-term thing.
The vaccine is going to be created and life
will get back to normal.
Even if the vaccine wont be created in the
foreseeable future, most companies will still
in some form get back to business, so it will
be business as usual.
When most investors believe that the market
is undervalued, they are going to invest since
in that case the market will rise.
And when there is so much demand in the market.
It starts rising.
So if you want to predict where the stock
market is headed to, you have to understand
what is going to happen in the future or at
least what it seems is going to happen.
If investors would predict a depression, if
everybody is going to think that we are going
to slide into a long-term economic decline,
in that case a lot of investors would start
pulling out their investment and the market
will crush as it happened just a few month
ago.
But right now it seems like investors have
a lot of faith in the market.
But that's not all.
The problem with the stock market is that
few companies make up a large portion of the
market like Apple, Microsoft, Alphabet, and
a few others with over or close to $1 trillion
valuations.
They have massive influence over the direction
of the market.
They are stable, strong and regardless of
what happens they're going to rise.
Investors are confident to put their money
into these companies.
Major airlines that are traded in the stock
market are valued at around 50 billion dollars.
that's not even 1/10 of microsoft, or apple
or amazon.
so, they not going to have a massive influence
over the market even if they go bankrupt and
the same applies to many other industries.
This means that a lot of businesses go broke
and thousands can lose their jobs but the
stock market won't be affected.
The stock market isn't the economy.
Almost 50% of all Americans work in small
businesses, and you know what, not a single
small business, is listed on the stock market
because they're not big enough to be traded
there.
The pandemic pushed many small businesses
to close down, such as restaurants moles barbershops
cinemas and so on.
Which means, the fact that Millions of Americans
lost their job has nothing to do with the
stock market.
Of course, all of these giant corporations
also lost a lot of their operations and had
to fire a lot of people but many of these
companies are so big that they are diversifying
their business models in different ways especially
the tech companies and are finding new ways
to build different streams of income, so they
haven't suffered as much as small businesses
that had to shut down completely.
2.
The role of the fed
The current crisis is different from all the
crises we had before, you can't compare it
to the 2008 crash or 2001.com bubble or even
the great depression.
Of course, an economic crisis is inevitable,
and it will happen sooner or later, but the
job of the federal reserve is to keep the
economy growing even slowly and prevent it
from sliding into a recession.
The FED has multiple tools to do that, such
as lowering interest rates or printing money
and distributing it to companies, people,
or even small businesses to keep them alive.
We are not going to go into the details of
how central banks work because we have done
that in a video in the in the second channel
but in short, the federal reserve has lowered
interest rates to 0%, which means businesses
can borrow money for free.
The FED is also buying corporate debt which
means corporations can issue debt and sell
them to the federal reserve because they will
buy it for sure just to help these companies
is to survive this pandemic.
On the other side, The government is borrowing
$4.5 trillion and spend it to keep the economy
running, By provided everyone with a $1200
stimulus check.
People are going to take this money and spend
it on goods and services that they need to
keep on with their lives, which means this
money is going to go into the pockets of these
companies and eventually help the economy
to keep growing.
3.
The market is probably overvalued - The Bubble
Will Burst
The stock market is probably overvalued since
the government and the FED have inflated it
by pouring trillions of dollars.
What's going to happen probably is that sooner
or later it will burst and a lot of companies
would go bankrupt in the coming future, primarily
the airlines.
Secondly, oil and gas companies because the
pandemic already pushed oil prices to fall
significantly.
We even saw negative oil prices recently.
These two industries are going to suffer tremendously
and might take down many other businesses
with hem.
