It Started: The Reverse Market Crash Of 2024

What's up, Graham? It's Guys here. So, when it comes to the market, we've got some good news and some bad news, and depending on where you stand, you're about to either make or lose a whole lot of money.

Case in point, this video from Patrick B. David, who describes a scenario you probably haven't thought of until now: a reverse market crash. This occurs when prices suddenly balloon upwards, allowing some to build a substantial amount of wealth while everyone else gets left behind. After all, we already saw something similar happen after the 2011 .com bubble when surviving tech stocks turned into 10,000% gainers or the 2008 mortgage crisis as investors scooped up foreclosures. Most recently, in 2020, before asset prices doubled or even tripled.

So given the fact that most people completely miss out on these record-setting reverse crashes, let's talk about exactly what's going on, what you need to look out for, the biggest mistakes that people make, and why Patrick believes this next decade could provide some once-in-a-lifetime opportunities. As soon as you reverse the like button for the YouTube algorithm, subscribe if you haven't done that already, since it does help with the channel tremendously. I'm also going to be linking Patrick's video down below in the description for anybody who wants to check it out.

And now, with that said, let's begin. All right, so to start, according to ValueTainment, all of this is part of a vicious cycle where the rich get richer and the poor get poorer. After all, according to this chart here, the middle class is shrinking at an alarming rate. As you can see, middle class wealth has shrunk by nearly 50% during the same time that upper income wealth increased by almost 30%.

Separately, the same study also found that the median household wealth had yet to recover after the 2008 financial crisis, with the typical American family having a lower net worth in 2016 than they had in 1998. On top of that, a recent report also discovered that the total population of the middle class here in the US has dropped from 61% in 1971 to 50% in 2021. If you thought that was bad, the average wealth of the middle 40% had dropped by 7% or $27,000 since March of last year, which equates to one of the largest drops on record since the 2008 financial crisis.

As far as why this is happening, when you really get down to it, wealthy people have the disposable income to save and invest. When interest rates are lowered or inflation is high, those assets are the ones that go up the most in price. Hence, why the richest 1% make twice as much as the rest of the world.

So what does this mean for the future of a reverse stock market crash, and how do you make sure you don't get left behind? Well, according to Patrick, all of these reverse crashes happen for roughly the same reason. Here’s what they are: he first starts by giving an example of Germany in 1914. Four German marks equaled $1 US, or basically, every Mark was equal to 25 cents. However, shortly afterward, Germany lost World War I. They were forced to pay tens of billions of dollars in reparations for civilian damages, and as a result, their economy was in shambles.

This meant that they had to print so much money that by the time they were done, instead of it taking four marks to buy one US dollar, it required one trillion marks to buy one US dollar. In fact, inflation occurred so quickly that, in 1919, a student ordered a cup of coffee at a cafe. The price on the menu was 5,000 marks. He had two cups. When the bill came, it was for 14,000 marks. He was told, "If you want to save money and you want two cups of coffee, you should order them both at the same time."

After that, we have one of the most well-known reverse crashes in history, and that would be Zimbabwe. This was the country famously known for printing $100 trillion notes that were worth only 40 cents here in the US. How did this happen? Well, their country was extremely mismanaged and subject to political exploitation. In addition to that, their government printed vast sums of money to finance military operations and ramp up food production. But as it turned out, they lied about this and underreported their money printing activities by $20 million a month while subsequently calling inflation illegal.

This led to a complete loss of confidence in Zimbabwe's currency and caused all of their asset prices to skyrocket. Or how about another one? We got Argentina. In fact, just a few days ago, it was found that Argentina's inflation rate came in at 142%. If you thought that was bad, since 1950, the average inflation comes out to 206% per year.

How? Well, to start, they've defaulted on their national debt almost a dozen times. They printed so much money that, in the last 10 years, the Argentine peso has lost 99% of its value against the dollar. Confidence in their currency is also falling, resulting in less economic investment and even worse outcomes. However, because of these high currency devaluations, their stock market has increased by 165% since 2020.

In addition to that, there's also Turkey, with record-high inflation, and record-high stock prices. In Iran, inflation reached a high of more than 50% and shortly after, even higher stock prices. Finally, Patrick mentions that even Venezuela saw the exact same trajectory as inflation correlated with a reverse stock market crash upwards. Because of that, by all measures, Patrick implies that the same thing could also be happening here in the United States.

So could it? Well, before we answer that question, I just want to say that if you want additional details that I'm not usually able to provide here in a YouTube video, feel free to check out my newsletter. It's down below in the description or it'll be the pinned comment. Sometimes, I just have to cut these videos down on YouTube to save some time, so I highly recommend you sign up for it if you want additional context or sometimes, more information, or bonus information. The link is down below and it's totally free.

Anyway, as far as whether or not this could happen here in the United States, it's really important that you understand the difference between nominal and real rates of inflation because I promise this is going to help explain a lot. See, on a broad scale, most of us are familiar with nominal interest rates. This is simply the interest rate set by the Federal Reserve, and it affects everything from how expensive a mortgage is to how much you get paid in the savings account or the yield on a treasury.

Think of this kind of like if the Fed keeps interest rates at 5.25%, then the nominal interest rate is 5.25%. Although when you really get down to it, that's still not the entire picture. That’s because interest rates are often affected by the amount of inflation in the economy. So the real rate of inflation is when you take the nominal rate, subtract inflation, and what you're left with is a much more reliable indicator of what you're actually paying.

So this becomes the real rate of interest. Now, even though you might certainly think that today's interest rates are high, when you look back historically, you'll see that over the last 20 years, when accounting for inflation, they've actually been incredibly low. For example, in April of 2001, real interest rates were only 2.2%. After the 2008 Great Financial Crisis, real rates briefly went negative. This was even more pronounced during the 2020 shutdown when real rates went as low as half a percent, meaning you effectively made $5,000 a year in profit for every million dollars that you borrowed, which is insane.

Of course, in terms of how this relates to the overall context of a reverse market crash, Patrick makes the point that every other economic catastrophe was eventually induced by periods of negative interest rates, like Zimbabwe, Argentina, Turkey, and Iran. Patrick also makes the point that in all of those scenarios, there's an abundance of borrowing and money printing. The government steps in to regulate and enact price control, and there's a loss of confidence in the economy, somewhat like we're seeing here.

So in terms of whether or not this is actually something to worry about, here's what I think. In terms of the middle class actually shrinking, first of all, some people actually interpret this chart completely differently. According to the Brookings Institute, the middle class is not disappearing; it's just getting better. They say the bottom one-fifth has 25% more income in 2007 than they did in 1979 when you account for government transfers, the value of health insurance, and the decline in household size.

They also found that the middle fifth increased by 37% throughout that exact same time frame, and that the middle class of today is a lot better off than the middle class of the 1970s when you account for government programs and assistance. A completely separate study has also confirmed that yes, the middle class is shrinking, but only because they're moving into higher income groups.

Somewhat like you see here, even though this might sound incredibly difficult to believe, objectively, there is some truth to these findings. Like from 1971 through 2021, the middle class shrunk as a disproportionate amount became upper class. Now sure, lower incomes did increase, but not as much as those who wound up doing even better. It's also true that while the United States has the smallest middle class of similar nations, we also have the largest affluent class and poverty class, suggesting that either people are just getting richer, or they're getting poorer.

That's why even though we could clearly see that aggregate wealth is declining for the middle class, a portion of that drop is simply due to people becoming wealthier and making more money, at least depending on how you interpret the data. Second, even though countries like 1920s Germany, Zimbabwe, Argentina, Turkey, Venezuela, and Iran were absolutely ravaged by high inflation and soaring stock values, let's put that into perspective with the United States.

For Germany, their market increased 600% in three years, but relative to the US dollar, their market actually declined by over 80%, completely negating any profits that were seemingly made on paper. Now Zimbabwe is even more extreme; their market increased by 1,000% to now 553,000, but again, relative to the US dollar, their market actually crashed more than 90%. The same thing also applies to Argentina; again, you see a huge stock market spike, but that actually equates to a 61% loss in purchasing power when converted to US dollars.

Something similar could also be said about Venezuela, Turkey, and Iran. In each of those cases, high stock values were not correlated with increasing purchasing power. Instead, even though it helps to have your money in appreciating assets, they still all lost value when compared to what you could buy in US dollars. In addition to that, almost all of those countries were severely impacted by war, corruption, famine, and/or sanctions that severely impacted their ability to quickly recover.

Of course, that's not to say the United States doesn't have its own problems because we have a $33 trillion national debt. Parties are becoming more and more politically divided, and inflation remains somewhat higher than the Fed would like, even though it's coming down. But it's also worth considering that both inflation and interest rates have been higher in the past, GDP has been incredibly consistent for the last 50 years, and the US holds the reserve currency status of the entire world.

Now sure, anything could happen, and to expect this to be the case for the next 200 years without any interruption could be quite a stretch. But in the big picture, I don't think it's a fair comparison to infer that the United States could face a similar outcome to other countries that see 200% annual inflation and a 10,000% reverse stock market crash upwards. Systemically, I just think there are so many fundamental differences where if that were to happen here, we'd have much bigger problems to face, and the only things of value would probably be guns, ammo, and food.

Of course, I don't want to imply that this can't happen here in the United States on a smaller scale, because in a way, it's already happened. Inflation increased, interest rates were lowered, and people either made or lost a lot of money. That's why I tend to think that it's not so much of an income gap that's contributing to the inequality of wealth, but instead, an investment gap.

For instance, when the Federal Reserve first lowered interest rates and stocks plummeted, the ones who could take advantage of that the most are the ones who already had the investments and disposable income to begin with. Everyone else was left out while inflation reduced the purchasing power of their money. On top of that, wealthy investors also tend to have the willingness to take on more risk for higher returns because they could afford to ride out any short-term fluctuations in price.

In comparison, someone working paycheck to paycheck can't afford those risks, and any extra income they have is taken up by higher-priced goods that are becoming necessities. That's why given all of this, as far as what you could do to put yourself in the best position possible to come out ahead, the boring basics still hold true: save more than you spend, invest in a diversified portfolio long-term, don't panic sell, stay invested, and focus on what you can control, like your overhead, job skills, your employability, and whether or not you follow my newsletter down below in the description because that's totally free.

Also, be sure to hit the like button and subscribe. So with that said, you guys, thank you so much for watching. As always, if you appreciate the videos, feel free to also add me on Instagram. And don't forget that you could get some free stocks, all the way up to a few thousand, when you make any deposit using a paid affiliate link down below in the description. Let me know which free stocks you get. Thank you so much, and until next time!