2024 Counter-Market Crash! A Once-In-A-Lifetime Wealth Opportunity!

2024 Market Opportunity

2024 Wealth Opportunity

Markets have ups and downs, and whether these are good or bad depends on one’s position. For most people, a market crash is a nightmare. However, there’s a less discussed, more insidious phenomenon that’s been happening for decades: the counter-market crash. This is when, amidst sudden market surges, some amass vast wealth quickly while others are left behind. This leads to the rich getting richer, the poor poorer, and the middle class vanishing.

The wealth gap in the United States has widened over the past 40 years. The wealth share of high-income groups rose from 60% in 1983 to 79% in 2016. The middle-income’s wealth share dropped from 32% to 17%, and the low-income from 7% to 4%. In Taiwan, the wealth of the top 5% was 55 times that of the bottom 5% in 2005, expanding to 113 times by 2017. Similar trends are seen in Canada and Australia. One of the main culprits is the counter-market crash.

We’ve seen this before, like in the 2000 dot-com bubble. Tech stocks that survived soared by 10,000%. In the 2008 subprime crisis, investors scooped up discounted real estate, now worth three times more. Most ordinary people missed these counter-market crashes.

Counter-Market Crash

This upcoming discussion will focus on why counter-market crashes are inevitable, the precise signals of an impending crash, and why people repeatedly make the same mistakes. We’ll explore how, with the right awareness and preparation, the next decade offers a chance for a leap in wealth class, seizing a lifetime opportunity.

This is part of a vicious cycle where the rich get richer, and the poor poorer. The middle class is rapidly shrinking, as shown in the data. Upper-income wealth has grown nearly 30%. Studies show that since the 2008 financial crisis, the typical American family’s net worth hasn’t returned to pre-crisis levels, even being lower in 2016 than in 1998. Moreover, the U.S. middle class population dropped from 61% in 1971 to 50% in 2021. Since March last year, the average wealth of the middle 40% fell by 7%, or $27,000, one of the largest drops since 2008.

The root cause is the rich’s ability to save and invest disposable income. When interest rates drop or inflation rises, their assets increase the most. This is why the wealthiest 1% earn twice as much as everyone else. So, how can you avoid being left behind in these wealth-creating counter-market crashes? Before we delve into wealth opportunities and strategies, let’s look at some historical examples of predictable patterns in counter-market crashes across different countries and periods.

Germany Market Crash (1919-1923)

In 1914, four German marks equaled one U.S. dollar, both gold-backed. By October 1923, one dollar exchanged for 4.2 trillion marks. Why did the mark devalue so rapidly? Unlike Britain, which raised taxes for war funding in 1914, Germany issued war bonds, detaching the mark from gold. The continuous printing of marks for war expenses sowed the seeds for later economic issues.

After Germany’s defeat in 1918 and the Treaty of Versailles, they lost key industrial areas and owed massive reparations. War and the flu pandemic depleted the workforce. Economic hits came from continued British blockades and colonial losses, reducing exports. Reparations further damaged the economy and morale. By 1921, the German economy was crashing, and the mark’s value plummeted. Inflation had already begun; by 1918, the dollar-to-mark rate was 1:14. In 1920, it was 1:65, and by early 1922, 1:160. By late 1922, it was 1:18,000, but 1923 saw the peak of devaluation.

In October 1923, one dollar exchanged for 253 billion marks, and by November, for 4.2 trillion. Hundreds of paper mills and printing presses worked non-stop for the banknotes. Eventually, stamps were used on 1,000-mark notes to indicate a value of 1 billion marks.

Germans felt this hyperinflation acutely in their daily lives. Protests in Munich over a slight beer price increase in November 1918 were just the beginning. By the worst stages of inflation, daily wages couldn’t keep up. Descriptions tell of workers’ spouses rushing from the factory with cartloads of cash to buy essentials before prices rose again. Trillions of marks could only buy a loaf of bread.

Zimbabwe Market Crash(2015-2023)

In 1980, when Zimbabwe gained independence, 1 U.S. dollar was equivalent to 0.68 Zimbabwean dollars. By the end of 2008, 1 dollar equaled 10 trillion Zimbabwean dollars, surpassing the devaluation seen in Germany. How did this happen? Zimbabwe, a landlocked country in southern Africa, was once known as the breadbasket of Africa and one of the richest countries on the continent before 2000. However, rapid land reform programs between 2000 and 2002, which involved seizing land from white owners to redistribute to landless black farmers, led to intensified social conflicts and sanctions from Western countries, plunging the economy into prolonged stagnation.

In 2019, Zimbabwe faced its worst famine in decades. Over half the population severely lacked food, the economic growth rate plummeted to -8.1%, and inflation rates remained high. Since early 2019, Zimbabwe’s inflation steadily climbed, reaching triple digits by June 2019 and peaking at 837.5% in July 2020. Although it subsequently declined, inflation was still a staggering 240.6% as of March 2021, far above normal levels. To combat inflation, Zimbabwe once raised its interest rate to 200%.

Imagine taking a mortgage at a 200% interest rate. Who would buy a house then? And what vitality would the economy have? At Zimbabwe’s independence in 1980, the exchange rate was 0.68 Zimbabwean dollars to 1 U.S. dollar. The currency slowly depreciated but remained within normal ranges. However, due to fiscal constraints, the government resorted to massive printing of money, leading to a steep devaluation of the Zimbabwean dollar starting November 14, 1997, and setting the stage for hyperinflation.

By mid-2003, the exchange rate neared 1,000 Zimbabwean dollars to 1 U.S. dollar. In November 2003, the printing of money intensified. By the end of 2008, the official exchange rate exceeded 10 quadrillion to one, with the black market rate even hitting a record high of more than 100 quintillion to one. The Zimbabwean government abolished the Zimbabwean dollar in early 2009, replaced it with the U.S. dollar, and only reintroduced a new Zimbabwean currency in 2019, which soon faced another round of inflation and depreciation. Zimbabwe’s stock market, which was stable with the U.S. dollar, skyrocketed from 2019, increasing by over 5,000 times. Inflation once soared to 800%, with the real interest rate in Zimbabwe reaching -18%.

Other Countries Market Crash: Argentina, Venezuela, Turkey, Iran

Similar patterns emerged in Argentina, which had endured over 70 years of military governance. A third of its population were government employees, with major national expenditures on wages, pensions, and social welfare rather than on infrastructure, education, or technology.

Over the past 13 years, Argentina continuously expanded its fiscal deficit, relying on incessant printing and borrowing, accounting for a third of the IMF’s loan portfolio, making it the IMF’s largest debtor. Recently, Argentina’s inflation rate hit 142%, with bank interest rates at 133% and real interest rates entering negative territory in 2022. The stock market rocketed, signaling a new round of counter-market crashes. The widening wealth gap led Argentina to attempt stimulating the economy by lowering interest rates, but inflation quickly caught up. In the following years, bank interest could not keep pace with inflation. Similar crises occurred in Venezuela, Turkey, and Iran, with reduced interest rates, rising inflation, and continuously negative real interest rates. This spurred stock market surges and currency devaluation, initiating counter-market crashes. Ordinary people lost wealth rapidly, while the rich adopted risk-averse and alternative investment strategies. Some amassed great wealth in their domestic stock markets, essentially from the wealth lost by the poor, as the overall wealth did not increase.

So, how do we prepare for these events and seize once-in-a-lifetime wealth opportunities? Recently, the Federal Reserve decided not to raise interest rates, interpreted as the end of the current hiking cycle.

2024 Market Opportunity

Following this, the S&P 500 surged by 6.3%. Many banks and financial institutions are now predicting when the Fed will start cutting rates. For instance, UBS predicts a recession in the U.S. economy by the second quarter of 2024, with the Fed potentially cutting rates by 275 basis points starting as early as March 2024. Once the Fed begins cutting rates, the stock market and asset markets will likely see a leap. This marks the beginning of the next counter-market crash. Wealthy individuals often benefit from these surges, but ordinary people might not. In recent decades, limited economic growth in Western countries has been mainly driven by financial and debt factors. When the economy downturns, ordinary people struggle to get by, leading to economic stimulus plans, monetary easing, and low-interest rates. Governments distribute money in various ways, but ordinary people often use it for consumer purchases, which benefits large corporations. This results in the rich getting richer through dividends and stock price increases. In times of economic stimulus, those who choose to increase consumption become poorer, while those who save don’t fare much better. With rising consumption and inflation, and low interest rates, money in the bank loses value, leading to negative real interest rates and wealth erosion.

To thrive in a counter-market crash, one must focus on controllable factors, increase financial literacy, and enhance competitive skills to avoid layoffs or quickly recover from unemployment. Starting a business might provide passive income in the future. Individual stock investing isn’t suitable for everyone, but regular investment in low-cost index funds, as advocated by John Bogle, can be a winning strategy for everyone.