- Home
- >
- Market Rumours
- >
- The $12 trillion reckoning of the market could accelerate the next stock crash
The $12 trillion reckoning of the market could accelerate the next stock crash
Rating:
Loading...Global markets have a $12 trillion problem getting closer.
A recent report warned that deficits will total $11.6 trillion — or 4.4% of gross domestic product — between 2020 and 2029. That's much higher than the historical average of 2.9% over the past 50 years.
The Federal Reserve and foreign central banks — historically the most reliable purchasers of newly issued debt — are selling right now. While the Fed has slashed Treasury holdings by $260 billion since October 2017, their foreign counterparts have sold almost $1 trillion over the past four years.
And who's left to take the new debt in the market? The responsibility will go to retail investors and pension funds.
While they've proven themselves capable of buying newly created debt, they're running out of money. Cash holdings are at historically low levels, so they'll have to sell out some existing positions — like owning stocks so they can fund their purchases.
It's not the best time for an equity landscape that's still recovering after almost getting into a bear market in December. Many of the same overhangs are still present — such as the trade war and slowing economic growth that's helping recession fears. That's why any additional negative pressure could make the market crash again.
The investors which can replace Fed and foreign central banks as the marginal buyer of Treasuries are already fully invested and in this case equities will have to be sold.
Trader Georgi Bozhidarov Read more:
If you think, we can improve that section,
please comment. Your oppinion is imortant for us.
