Over the past one or two months, we have had one of the best times for investors to join the stock market after the initial stock market crash at the beginning of the 2020 calendar year. Stocks have risen to over twenty-five percent since then. This is good news for those investing in stocks no doubt, but it is not all smiles for the economic side of things.
Businesses have been shut down for lack of profits, unemployment rates have shot through the roof, airline companies are at an all-time low, oil barrels have sold for less than a dollar for the first time in history, and other bad things have been happening economically. So, on the one hand, we have the stock market prices rising significantly, making it good for investments, and on the other hand, the economy is taking a giant tumble.
Hello viewers, my name is Antoaneta, and I want to share the thoughts of two of the biggest investment experts, not necessarily fears, about the 2020 stock market crash.
This whole scenario begs the question, are we going to see another stock market crash in 2020? Whenever I get to these points where we need to make difficult choices, it is always better to go with what the experts are saying. They are the ones who know their way around the stock market, and among experts, there are also supreme experts. One of those experts amongst experts is Warren Buffet, and I want to discuss what he has been doing. Recently, he held his annual shareholders’ meeting, where he talked about his views and investments in the stock market. But, something was a little off because his voice held more caution than it usually would.
He said you could bet on America but with a little more care and caution because no one has an idea of what is going to happen tomorrow. The Warren Buffet we have been used to will always say buy shares, hold shares, acquire more, invest and all that. But, this year, in his annual shareholders’ meeting, he was more on the pessimistic side. But as they say, “Actions speak louder than words”, so let us look at his actions and forget about his words for a minute.
The 2020 Stock Market Crash and Warren Buffet
First, Warren Buffet sold all his shares in the airline companies across America. These airlines include Delta Airlines, Southwest Airlines, American Airlines, and United airlines.
The next thing I noticed was he did not buy a single stock this year. This action was not due to financial reasons since he has a free cash estimate of $137 million, and he has been known to love investments.
The last thing I want to point out concerning his actions in the stock market now is the Buffet indicator. This indicator is a graph that he uses to see where we are in the stock market. He hailed this graph as the best way of evaluating where market values are at any given time. The indicator measures GDP to corporate equities.
Using the indicator, anything under 50% is undervalued, between 75–90% is good, and anything over 115% is over-valued. Now, using this indicator to measure the current stock market, values are well over 115%, and that means the market is being overvalued. And, this is not a great sign of what might be inevitable in the market, especially coming from the expert of experts.
I believe this is because he did not see any investment that was worth his while. But that is Warren Buffet’s decision, let us discuss another investing expert, Ray Dalio.
How Ray Dalio handled the 2020 stock market crash?
He is famous for being able to read market cycles and predict trends of what is to come in the stock markets. He is sharing the same opinion to Warren Buffet. He has even come out openly to say that the 2020 stock market crash might be more significant than the one that happened in 2008, comparing the predicted crash to the great depression of the 1930s. Here are some of the reasons Dalio is saying this.
First, the current pile of debt America is currently sitting on. It is double the amount of debt accumulated in the 2008 economic crisis, and if the GDP keeps slowing down like it is, there will be an inevitable struggle to clear these high levels of debt.
Another thing Dalio talked about is the high unemployment rates. About 22 million Americans have filed for unemployment in the last couple of months. At the start of the year, the unemployment rates were at 3.5%, but it is predicted to reach around 16% after the first half of the year. This spike in unemployment rates happened in 1930, and we all knew the outcome of it, a massive stock market crash.
There is also the wealth gap, according to Dalio, because there will always be income inequality. There is a massive gap between the poor and the rich during this economic crisis, and the gap seems to be getting wider. It is similar to what happened in 1930 also, and this is an indication that the wealthy, business people and the investors could lose some of their capital.
The last reason Dalio believes things might get worse is the principle of the debt cycle. For some of you who know economic history, you will notice that recessions and market crashes tend to occur after every eight to ten years. But, it has been twelve years since the last one occurred, and that is not a good sign going by our history. Looking at the short term debt cycle, we are overdue for one. The long term debt cycle lasts around 50–75 years, and the current one we are in started in 1945, meaning we are also due according to the long term debt cycle.
In the last month or two, investors have been seeing positive changes and are now believing that we are over the worst. But what they do not see are the long term effects that Buffet and Dalio see. It will take some time to truly grasp the damage this virus has done to the economy.
Do we have an impending stock market crash? No one knows for sure, not even me. But, looking at the data and analysis from the experts, we should probably prepare for the worst. We need to tread with more caution at this time and hope for the best.
Thank you all for reading. Stay green and motivated!