Five Reasons The Global Stock Markets Are At Risk Of Imploding

From the Dot-com bubble bursting in March 10, 2000, when investors feared most of the share value of Internet companies was based on speculation rather than fundamentals to the Housing bubble bursting in early 2008, when subprime mortgages started defaulting in massive numbers as owners realised the equity of their homes was far less than the amount owed to the banks, to the current international financial crises which is tied to instability in Greece, as well as politico-global instability caused by the rise of IS, the stock market — long-term and short-term — is not a guaranteed safe haven.

Like the rumored asteroid which will, apparently, strike Earth on September 14, 2015, the stock market is based sometimes only on rumor, with no verifiable evidence to support these fears. However, there are the “big five” indicators listed here which, when taken together, cause panic selling, which is no good for anyone, as even short traders will be stopped from profit-taking once the markets get below a certain threshold. One cannot hope to explain the entire workings of the stock market in an article, as that would like take hundreds of thousands of pages of detailed micro- and macro-economic analysis. Rather, a survey of the main overarching causes currently causing instability and threatening global economic implosion is more feasible.

Greece and the IMF bailout

Greece, unlike Great Britain, has not squeezed its poor and public services to make up for the shortfall of government funds. To answer the 2008 economic crises mentioned above, the EU and the IMF agreed to cut public spending, reduce public sector wages and pensions, and cut the public sector workforce. What this all means is that everyone in society was expected to tighten their belt for the greater good — the word “austerity” was used in the media, but leaders such as Germany’s Chancellor Angela Merkel tried to re-frame this 19th Century term.

“Austerity makes it sound evil, I call it balancing the budget.”

Although the people of Greece most recently voted against austerity, they had to accept making concessions of $13 billion of cuts to its public services in order to satisfy requirements allowing the release of EU and IMF funds for its immediate bailout of banks.

The rise of IS

The Islamic “caliphate” in Syria and Iraq are exploding the ancient ruins of Palmyra, which is nicknamed the “Venice of the Sands” due to its rich cultural and historical global significance. This seemingly-uncontrolled virus spreading throughout the Middle East has everyone worried, because their members have no morality. They rape young girls and sell them as slaves, butcher anyone who is not a member of their fundamentalist extremist Muslim sect, and recruit members from all over the world to fight their battles, locally and in their respective countries of citizenship. It does not bode well for global stock markets to have such a chaotic order as Islamic State killing and destroying everything without a plan in place to stop them.

China

Over the last few weeks, billions of dollars have been wiped off the Chinese stock market. Since the 1970s, China’s economy has grown on average of ten percent every year. This unwavering dependability of growth was fuelled by the big box stores such as Walmart, whose low prices were the result of cheaply produced goods coming from China. The capitalist dream of infinite growth seemed real, as China’s labour market (and that of its neighbor, India) seemed to provide an endless reserve of cheap labour and, therefore, cheap processed goods. But now, failing markets in these regions are having the opposite effect. The fact is that the old model of China’s economic success — that of cheap labour — is moving toward sustainability, such as China’s mass investment in solar panels and other renewables.

“There is no question that this giant economy is struggling with a transition from the investment-and-export-led boom of the last generation toward something more sustainable.”

China cuts main interest rate after two days of stock market turmoil http://t.co/nUVKDMnBH5 pic.twitter.com/CL8MUuBgAS

— BBC Breaking News (@BBCBreaking) August 25, 2015

Oil prices

In March 2015, the IEA warned there would be continued oil price volatility. Oil is currently trading at $45/barrel. This price may mean better value at the pumps, but it also means that countries which rely on oil for their balance of payments are struggling. This has a knock on effect, as all the industries based on profiting from high oil prices are doing poorly. The drop in oil prices are inevitable, as countries move toward sustainable economies, which means that low oil prices can incentivise growth in fossil fuels. However, it is inevitable that sustainability will overtake the oil industry and this means — at least in the short term — the stock markets will fall.

Ken Rogoff on oil prices http://t.co/k7jNBzMPdG — BBC Newsnight (@BBCNewsnight) August 24, 2015

The price of commodities

As a logical progression from number three and four above, commodity prices are falling. Of course, as is the case for all markets, the more people sell, the greater availability and, due to the “supply and demand” effect, prices drop. The recent selling over the last three months may be caused by emotion, i.e. fear, but the reality is that the price of gold, an overall indicator of commodity trading, is experiencing a dramatic slip as its surging bubble appears to have been burst.

The above represent the big five indicators of the current economic crises which does not consist of any one overriding factor, but with factors which, like dominoes, move all of the others forward, leading in some cases to a global recession, depression, or all out implosion, which is always a possibility as the stock markets are primarily based on speculation of the future.

[Images via Getty, Social Media Commons, Bullion By Post Worksheet]