The Pending Economic Crash

First off, I'll be the first to admit I am a horrible prognosticator of the stock market and economy. I don't have an MBA or an Economics major. I don't have any insider access to the workings of the Federal Reserve or the White House. But just from my gut feeling, I feel that we are approaching a huge correction in the stock market and economy in the U.S.

Ever since the Great Recession was declared finished in the summer of 2009, most people have commented on how little of the subsequent economic growth has helped the general population. Tens of millions of people are still unemployed or underemployed. Housing prices are still falling despite the government's best attempts at keeping interest rates low. It has been widely observed that the only people who are doing well nowadays are "the rich". Not only are the rich accumulating a greater percentage of the nation's wealth. They are also the only ones spending money to keep the economy rolling. Companies that cater to the wealthy like Mercedes-Benz, BMW, Louis Vuitton, Tiffany, and Apple are doing banner business. Meanwhile, corporations that sell to the middle and lower class are struggling, like Walmart and Dollar General.

What is going to happen now with all this stock market volatility? The rich are the first ones to cut back on spending when they fear the stock market is going to decline. If the wealthy are the only ones buying non-essentials while the rest of the population have already cut back spending to the bone, what do you think will happen to the economy? That's right. With no more monetary support it is likely to suffer a painful crash. Think China can bail us out by buying our government debt? Remember they make most of their money by selling to Western consumers. They will suffer a downturn just as much as the rest of us.

If the fundamentals of the economy don't scare you, maybe some technical analysis of the market will put some fear into you. Again, I am not a stock broker or have any formal training in market analysis. However I've read my share of financial journals and there is a basic market pattern called "head and shoulders". A head and shoulders pattern depicts three peaks in the market before a fall. Check out this graphic.

This is a graph of the S&P 500 from 1991 until today. Notice the clear triple peak of a head and shoulders pattern. The first peak represents the apex of the internet bubble of the early 2000's. The middle and higher peak is the top of the real estate bubble. The final and lowest peak is the quantitative easing engineered by the Federal Reserve to keep the banking industry from collapsing. Now the Feds have run out of ideas to help the banks. The government is too broke (of money and ideas) to help the country. The people are too poor or nervous to stimulate our consumer economy. Doesn't seem like there is anything that can be done to keep our economy from washing out. How far the market will fall I can't tell. Maybe somebody with more experience with stuff like "moving averages" or "support levels" might have an answer but I don't.

Again take all this analysis with a grain of salt. I'm just a humble doctor with no formal education in stock charting. I'm just nervous as hell about what will become of our nation and ourselves.