Losses on the stock market The stock market slide is a happy state
Falling prices are bad for shareholders, but good for the world as a whole. Because behind it is a positive cause: rising interest rates.
The triple A (Triple-A) actually bodes well in the financial world: It’s the best rating rating agencies give companies and states. It stands for the highest credit rating of a debtor and signals to an investor that his money is fairly safe there. At the moment, however, there is another threefold A, a very negative one in the financial markets: crash, fear, alarm.
For nine years, equities have rallied almost uninterruptedly, with prices plummeting over the past week. Thus, the perception has changed: It’s such nervousness and uncertainty, it is also the time of the doomsayers who say they have it always said things would end badly. Until recently, a word with G was the most commonly used in professional circles: Goldilocks, that named after the fairy tale “gold blocks” paradisiacal state in which everything fits exactly – strong economy, low interest rates, moderate inflation, booming stock markets. But suddenly the view of the financial markets is extremely negative.
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That’s why it’s time to look at what’s behind this crash and where it might lead. Then it turns out that the restlessness has a positive cause and can develop beneficial effects.
The cause was a word that does not start with A, but Z: interest rate fear. Suddenly, financial market players are finding that interest rates may soon rise, perhaps even more clearly than one would expect. In fact, people got used to the zero interest rate, to the policy of cheap money, with which central banks averted the total crash after the financial crisis broke out in 2008 and from which they have hardly come down since then – only slightly in the US and not at all in Europe. They were not, and one must say, not unsuccessful: economic activity is booming in all industrial regions, in the emerging economies, in the USA, even in troubled Europe. Booming economy at low interest rates is the climate in which stocks thrive.
Low interest rates with negative consequences
But now suddenly interest rate fear: The US economy is on the verge of overheating, wages do not rise as in years, it threatens rising inflation, to which the US Federal Reserve would have to respond with faster rising interest rates. This makes loans more expensive for companies and burdens their profits, while at the same time bonds become attractive again compared to equities. Hence the price falls, hence the bad mood.
But is not it really good when interest rates go up? Does not it end a condition that lasts far too long and has many negative consequences? The zero interest rate policy of the central banks is responsible for ensuring that safe investments such as government and corporate bonds of good debtors (with triple A!) No longer yield returns, that savers no longer receive interest for their money at the bank, that banks and large investors for short term Invested money must pay the absurd establishment of a negative interest that investors plunge to permanent values such as real estate, which in turn means that in conurbations normal earners can no longer afford home ownership.
High time for the interest rate turnaround
As interest rates rise, this also means that the unnatural state of recent years will be weakened. This is in many ways positive news that you do not have to deal with with fear and alarm. Bad is the slump only for equity investors, but not for the world as a whole. After the boom of recent years, shareholders can cope with the correction, provided that it does not grow into a veritable noise. But this does not indicate anything at the moment.
When, if not now, as the economy is booming everywhere, can interest rates be raised? The central banks will be careful enough in braking anyway and will not scare the markets. It is high time for the interest rate reversal. The economy is at its peak, and when it slows down, central banks also need a buffer to cut interest rates and boost the economy. The low interest rates have allowed the indebtedness of the states to continue to grow, also there it is time for a turnaround.
The price for this is that the stock market is going to be a bit grubby in the future, that prices fluctuate more, that they also fall sharply. It is a price that should be accepted. You have to imagine the crash as a happy state.
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