Oct. 29, 1929, also known as “Black Tuesday,” will remain infamous in the financial world as the day Wall Street crashed. The Stock Market Crash of 1929 was the most devastating economic setback in U.S. history. It led to the Great Depression, which ultimately affected citizens of all socio-economic standing. In 1933, the U.S. Senate analyzed and further implemented certain acts in order to prevent possible future market drops. However, in 2013, 80 years after the creation of initial prevention measures, some investors are predicting a market crash in the immediate future because of the all-time high in stocks.
The stock market is defined as “a particular market where stocks and bonds are traded.” CNNMoney explains stocks as a way for companies to raise capital by becoming a public entity and selling investors a stake in their business. By buying a stock, an investor becomes a part owner in the particular corporation and, as the company earnings improve, stock prices go up to parallel the company’s worth.
Currently, the stock market is reaching an all-time high. Before this record, the stock market was at a high in mid-2008, when the Great Recession was taking place. This event reaffirms that a high stock market does not always equal a booming economy. Although the present American economy is slowly recuperating, there are several reasons why stocks have quickly reached such high rates. According to research by StLouisFed.org, from 1985-2005, the stock market grew 14,000 percent. However, personal income only grew by 10 percent. Therefore, though the stock market grew rapidly, personal economic movement was only a small portion of stock prices. In addition, some investors place the blame on Chairman of the Federal Reserve Ben Bernanke and former Chairman Alan Greenspan for their use of monetary and credit policies, which these critics believe negatively affected the economy. This is because the value of the dollar has dropped within the past couple years. Investors state that the Federal Reserve is printing too much money and massive inflation is inevitable.
Furthermore, major business and economic sites such as Business Week, Daily Finance and The Market Oracle are predicting a crash and advising people to rapidly buy certain stocks. However, many billionaires are quietly dumping their stocks. Warren Buffet, a financial powerhouse who consistently supported the U.S. stock market, is taking out many of his stocks. Buffet’s holding company, Berkshire Hathaway, sold around 19 million of its shares from Johnson & Johnson. Additionally, billionaire George Soros sold over one million shares from banks such as JP Morgan Chase, Citigroup and Goldman Sachs. This trend shows that billionaires are slowly losing their faith in the stock market and many are preparing for a collapse.
In an interview with financial publisher Aaron DeHoog, economist and Robert Wiedemer, author of New York Times bestseller Aftershock, provided evidence for his prediction of a 90 percent possibility that the stock market will crash in 2013. Wiedemer is known for his correct predictions of events that ultimately paved the way for the Great Recession of 2008. In the interview, Wiedemer gave five signs that stocks will collapse, from high inflation rates to personal income. Wiedemer also included preventative measures that citizens can take to protect themselves from the crash. As stocks are rapidly increasing at an alarming rate, many individuals are predicting an eventual collapse. Some investors are afraid the future will mimic the past and America will be devastated by another Great Depression. However, hope lies with the stocks simply growing and the predictions proving to be false.