Big Economic Bubbles Lead to Big Market Crashes – Expert’s Warning for 2025
Renowned US economist Harry Dent warns of a 2025 stock market crash due to the artificial bubbleinflated by excessive economic stimulus after the Covid-19 pandemic.
Dent observes that bubbles usually go unnoticed for five years before bursting. He fears that because this has been a much longer bubble, it could potentially lead to a more significant crash than the 2008 crisis.
The Ignored Time BombDent blames the impending market crash on years of excessive money printing and loose monetary policyimplemented after the 2008 crisis. These actions, he argues, inflated asset prices to unprecedented levels, creating a bubble of all bubbles.'
Government stimulus packages issued in response to the Covid-19 pandemic and rock-bottom interest rates further exacerbated the situation.
Dent predicts that the S&P will lose over 80% of its value and the Nasdaq over 90%. This means that stock prices for many large US companies, especially those in the technology sector, could plummet.
Despite this gloomy picture, the FED is being cautious in adjusting its monetary policy. The FED Funds Target Rate remained unchanged at 5.25% following Wednesday's Federal Open Market Committee (FOMC) meetingto decide whether a rate cut is necessary.
FED Stress Test - A Glimmer of Hope or False Security?The 2023 FED stress test showed all 23 US banks would be able to withstand a global recession, with enough capital on hand to continue operating even if the stock market were to dip 45%.
In fact, the biggest banks, such as JPMorgan Chase, Bank of America, and Wells Fargo, would have capital buffers exceeding the FED's 4.5% minimum requirement.
However, 2023 saw some of the largest bank collapses in the country's history. Silicon Valley Bank, Signature Bank, and First Republic Bank failures resulted in over $38B lost. Additionally, 2023 marked the collapse of two small regional banks: Heartland Tri-State Bank in July and Citizens Bank of Sac City in November.
2024 FED stress results will be released on June 26.
This year, the Fed tested 32 banks with at least $100B in total assets each.
The scenario simulates a deep global crisis with particular strain on commercial and residential property markets.
So far, only one US bank failed in 2024. Pennsylvania regulators closed the Republic First Bank in April with about $6B in total assets.
Bank failures have become significantly less common in recent years.Before 2007, the US averaged 3.57 bank failures annually, surging to 93 between 2008 and 2012. No banks collapsed in 2021 and 2022, but if Dent's predictions are correct, we may see numbers rise again next year.
The looming recession has triggered a shift in investor sentiment toward the stock market. There's an increased interest in alternative assets like crypto, particularly speculative tokens, with the potential for the highest returns.
The allure of quick riches becomes more tempting the greater the perceived risk of traditional investments. While stocks and bonds stagnate or decline, hype-driven crypto projects often outpace inflation.
This trend is evident from the ongoing bull run. Year-to-date, $BTC grew by 158%, $ETH by 1.1%, and $SOL by 877%.
However, it's meme coins that bring investors the highest gains:
- $PEPE grew by 1,210% year-to-date
- $WIF grew by 1,364% year-to-date
- $BONK grew by 8,677% year-to-date
The rise of crypto injects a novel element into the potential global crisis, unlike anything we saw in 2008. However, it's unclear whether crypto will provide a buffer or amplify volatilityduring the economic storm.
Closing ThoughtsDespite recent bank stress tests showing resilience, Dent's prediction of a major market crash causes significant concern. In these uncertain times, we stress the importance of diversifying your portfolio and doing your due diligence before investing in any asset.
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