We are facing a market correction

A market correction is long overdue

Anyone who consults analysts and scrolls through statistics knows that the next correction on the stock exchanges is long overdue. On average, the markets correct every seven years so as not to overheat. Whether through geopolitical events, the Lehman bankruptcy or the bursting of the Internet bubble at the time of the New Market. At some point, share prices inevitably fall and, with them, not infrequently the entire fate of investors.

In the meantime, however, share prices have been rising for around nine years, and in the past few days and months we have seen again and again that the markets don't want to go down. Although the DAX repeatedly tests the 12,000 point mark, it has so far been able to swim free again and again.

I would have long expected a correction, a market adjustment, which, by the way, is quite healthy. Especially with the geopolitical difficulties that we are currently experiencing. Not only the big issue of Turkey or Italy, no, Donald Trump's protectionism and the trade war with China are certainly not good news. So one would think that the stock exchange traders are on the retreat and are acting cautiously. But the contra-indicator is simply too strong: there is too much money in circulation due to the extremely low key interest rates worldwide, and investors lack alternatives to the stock market.

Be careful on all sides

Because real estate is simply too expensive and gold is often out of the question as an investment with good performance, only the stock market remains for investments. To put it bluntly: money is constantly looking for the highest possible return opportunities; it wants to be invested profitably.

So how big is the risk of another stock market quake like after the Lehman bankruptcy? Fortunately, the supervisory authorities in Europe and overseas have since at least learned to adjust and tighten their regulations. Nevertheless, it is of course not just the Lehman papers that were driven like a pig through the stock exchange village and sold at the time. In recent years, it was binary options, i.e. risky financial bets, that were banned at the beginning of July. Or the “contracts for difference” (CFDs), highly speculative derivatives that are repeatedly under the supervision of the senior controllers.

More caution is also being exercised at the institutional level, at least on the part of the US Federal Reserve. For example, three European banks (including Deutsche Bank and the major Swiss bank UBS) have to develop a so-called crisis plan by 2020 in which they explain to the FED how they would react to insolvency.

So you approach the banks with great caution, which does not mean that we have contained all risks. This is especially true for the European institutes. The main reasons for particular concern there are political crises such as those in Italy, Spain and the geopolitical hot spot in Turkey. Italian and French banks in particular have given a large number of loans there.

The markets will simmer

So it will come, the next crisis, the next correction. There is no such thing as a stock market that just goes up. We will again and again experience uncertainty and setbacks. And to be honest, I even hope so. After all, a correction is also an opportunity for investors. You can then say: Okay, the stocks are cheaper now, I'll get in. For example, anyone who bought into the DAX in July 2009 with an index level of 5000 points has, in retrospect, achieved a sensational return. A financial crisis can also be financially worthwhile.

There will be a lot more to come on the markets in the coming months and years. Nevertheless, I advise you to be calm. Price losses due to corrections are quite normal in the stock markets, and if you are a little careful you can even find favorable entry opportunities through them. And I think fear of a mega crash is exaggerated. Because let's be honest: If the world crashes so violently that entire economies really collapse, then no shares, no gold and no other investment will be of any use to me.

If you are really afraid of this, I like to advise with a wink: Do me a favor, visit the nearest supermarket and buy a pallet of vodka there. You can always exchange them for a few potatoes if necessary. And when the going gets tough and the world actually ends - then you can at least experience it intoxicated.

Discuss with us, dear readers: Are we facing another stock market crash? Or will the markets be able to expand their all-time highs further, so that a market correction is far from in sight? We are excited for your opinion!