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Ask HN: What will make the market collapse?

• AnimalMuppet 9y ago
  It depends on how real you feel the current values are. Or rather, on how real everyone else feels the current values are. If everyone thinks that the values are fake (not solidly based on company fundamentals), then everyone is trying to make as much money as they can while the market goes up. But they're all ready to run for the exits at the slightest thing. In this scenario, what will make the market collapse? Anything. Any little event that makes some people sell, which makes the price dip, which makes more people sell, which makes the price dip further... If everyone thinks that the values are solid, then the market could go up for a long time. It will go up for long enough, and reliably enough, that people will borrow money to buy stocks (especially at these interest rates). That borrowed money will make stocks rise, so more people will see the stocks as a source of sure profits, and will buy more stocks with more borrowed money. This is the start of a real bubble. (I can't comment on whether the market is currently in this state - does anyone know of a measure of how much borrowed money is in the market?) This goes on until the banks aren't willing to lend any more money to buy stocks with, and then the first little thing causes everyone to run for the exits. Except in this situation, they run even faster, because as the market goes down, they can lose even more than they invested. So the market crashes very hard and very fast, and a lot of people lose money, and even some of the banks lose money, which can cause real problems for the larger economy.