Random Observation/Comment #710: If you keep calling the top, you’re bound to be right at least once.
Why this list?
The pandemic is over (at least people are treating it that way). These COVID shots will probably be yearly flu shots indefinitely. But before the next recommended booster, it’ll be like the roaring 20s again (and probably cyclically end in a similar way). The bubble will burst eventually in healthy correction, but not after a tremendous run. This isn’t investment advice, but I’m back to around 85% capital deployment. When’s the next market crash? Will it be crypto correlated? What’s safe? Swiss Francs?
More importantly, what are the indicators or possible causes for the next crash? I already have a list of global worries, so these are just compounding.
- Ineffective vaccines – Reinfection rates may cause investors to feel nervous and travel openings delayed.
- More deadly and contagious COVID variants – Viruses, like the flu, mutate normally. If this variant becomes dominant and also side steps older antibodies, then this is going to be a long struggle.
- Covid variant that impacts kids – The worst-worst case scenario is if kids under the age of 10 get sick and die. Parents would be very concerned and schools closing would be devastating to workforce with families.
- Vaccine plateau – Republicans and conspiracy theorists opt to not get the vaccine and prevent herd immunity.
- Crypto overtaking dollar in strength and adoption – There’s a mass growth of crypto from an institutional side and from QAnon supporters trying to defy the nation state. Reduced use of credit and fractional banking may lead to a death by little cuts to credit unions or smaller commercial banks.
- Crypto winter – The cycle is bound to happen and some people will get caught on the down turn. There may also be an extreme new growth of wealth and boom in companies like the dot com bubble. If we dodged the bullet with the covid bubble, could this be a DeFi bubble?
- Regulations on crypto – This was part of the cause of the last crypto winter and likely some regulation on DeFi will have consequences in immigration to other countries or reshuffling of housing to more tax friendly states – Wyoming, Florida, New Hampshire, etc
- Mass sell off due to self fulfilling prophecy – Tighter spreads and triggers based on cautious traders anticipating any negative sentiment or overly positive sentiment to be a sign. This is more on the fundamental qualitative side.
- Bot-based sell off flash crash – Technical analysis may lead to signs of choppy waters. These trends do not move by days, but in months.
- Hacks in DeFi and across Blockchains – This could happen from smart contract bugs or people finding a way to game the system when new financial primitives are added through smart contracts.
- FED printer go brrr too much – Current Quantitative Easing (QE) has worked well and propped up the REPO market through cash injections nicely. The impacts of this QE have not yet been surfaced.
- Hyperinflation – I don’t think a Venezuela scenario is possible with the dollar because there’s too many pairs and standardized uses across the world. What might happen is the common goods may cost more due to additional costs in outsourced supply chains. Strength in the dollar is also an indicator of less movement of capital in the market.
- Dollar depreciation – Over printing may also lead to a deflation stance where the dollar is worth less compared to other currencies and has cascaded impacts to global trade.
- Steep rise in interest rates – We’re at all time lows in interest rate, meaning it’s very cheap to borrow money from the government. This leads to a lot more borrowing and is used to boost economic activity. A rise in interest rates to repay some of the debt may be a signal in the market to be more conservative
- Commercial real estate crash – Due to change in habits from the workforce towards remote learning, a reduced number of rented office building contracts and fewer restaurants to support those lunch crowds will lead to devaluation of blocks in major cities. $Million+ houses in suburbs will continue to increase in price, which will change the balance of youth and family members by location. The young will flock to cities while the rich with families buy nicer houses in suburbs.
- Sub prime mortgage crisis – Due to COVID, the rich are richer and poor are poorer. The ownership of houses have decreased for those in poverty and led to more leasing. Loss of jobs may also lead to evictions. Property management for these houses may also cascade bankruptcies
- Cascades defaults of banks – If highly levered derivatives like CDSs off of real estate sees a similar 2008 crash, then banks will likely take a significant hit.
- Cascaded defaults in insurance – Another 2008 worry off of the insurance plans triggered by the CDSs can lead to a crazy unwinding of obligations.
- Spend of stimulus checks money on traveling vacations or gambling – The extra cash saved by some families may be fed into the tourism industry outside of the US. This may positively impact Mexico’s economy and any countries that reopen to US passports.
- War with Russia / China – There’s already a digital war happening through bot-based influence bubbles as weapons. I think if China ever claims number 1 as a first world country over the US, then there could be devastating consequences in morale and brand.
- Global warming causes more natural catastrophes – Global warming is the looming curve we’ll need to flatten. It’s incredibly scary the costs that will multiply for every flood, drought, earthquake, wildfire, freeze over, etc. I think we’re already passed the point of no return. This could be a single black swan event or a number of them.
- Employment plateau and slowed pace of recovery – There are jobs that are no longer needed across the industries. I think COVID circumstances have led to more women leaving the workforce to take care of family. The recovery of this will be very slow.
- Drop in GDP due to lack of exports and increased tariffs – I worry that our hardware is all outsourced. The US based manufacturing just becomes too expensive to maintain.
- Collapse of higher education institutions – Edu-tech revolution is here and large expensive universities will have their reckoning. I think Google and Coursera creating better credentials and clearer applied learnings will change how younger people treat their education and certificates. The job requirements will change and hopefully be based on hiring tests in projects rather than minimum education or only hiring from “top schools”
- Trade war with China (part 2) – When China vies for the number one spot, they could really screw us over. Their chess pieces are all setup for an economic attack if they wanted to. The US is definitely low on pieces and moves.
- Over leveraged retail trading – The past year has been abundantly clear that retail options trading can move markets. YOLO calls on meme stocks can literally blow things up. It can also lead to a gambling addiction and mental health issues.
- Mass exit of rich to non US countries due to taxes and easier remote working – It might not just be Republicans, but immigrants that came to the US for higher education would return to their countries. The highly educated leaving and pursuing opportunities in other countries would lead to a brain drain of ingenuity.
- Meme stock driving ridiculous valuations and losses from more retail investors – Hedge funds and banks will always win. They’re way smarter and have more time to trade or change the rules of the game. It’s seriously unfair and clearly will be a way for big companies to extract wealth from the common people. Another possibility is a mass buy of puts by retail investors to take advantage of the downturn, which could lead to a waterfall of exits.
- QAnon led conspiracy theory sedition events – This is domestic terrorism brought to the forefront through the digital information bubbles. I always question whether or not I’m manipulated by my own bubble and beliefs. Maybe I’m not woke at all.
- Overly positive sentiment and market optimism – When it’s all good news, then it’s bad news. Every blow-off top has a subsequent correction. The last few recessions had indicators of this overly bullish sentiment. What goes up quickly also comes down quickly.
~See Lemons Worried About a Crash