Catastrophic bull market
A catastrophe boom (English: crack-up boom ) is a boom on the stock market that is only fed by fear of loss of value. Although the economic outlook for companies is very poor, their share prices rise sharply in nominal and real terms (adjusted for inflation).
The term catastrophic bull market goes back to Ludwig von Mises , one of the best-known representatives of the Austrian school of economics.
causes
If inflation gets out of control and can no longer be contained, economic agents lose confidence in the paper currency and therefore try to convert their money into real assets. When inflation is higher than interest rates , investors get a negative real interest rate . Large institutional investors in particular then begin to sell their large holdings of bonds and invest the proceeds in stocks . This means that there is a lot of money on a limited supply of shares, which is why their prices rise very sharply - even if the fundamental outlook is poor. The catastrophic bull market ushers in the final phase of a paper money system . At the end of the boom, the bankrupt state can only carry out one currency reform .
Historical examples
In Germany, the share index of the Reich Statistical Office rose from 200.00 in February 1920 to 26,890,000,000,000.00 in December 1923. The Frankfurter Zeitung's stock market code increased from 2.00 to 269,000,000,000.00 in the same period. The cost of living index increased from 8.47 in February 1920 to 1,247,000,000,000.00 in December 1923. The ratio of the stock index to the cost of living improved significantly in the final phase of hyperinflation in favor of stocks and showed a pseudo-boom because people stocks bought for the escape from the currency. A more recent example was the 2007 stock market boom in Zimbabwe . Towards the end of hyperinflation, the stock market index rose roughly three times as fast as consumer prices .
Social consequences
If prices rise sharply, social groups whose incomes do not understand the rise in prices become impoverished. This applies in particular to those receiving state transfer payments . In order to curb social upheaval, the German state had prescribed maximum rents in the 1920s. Although real estate also represents tangible assets, these had achieved far less appreciation than stocks. In addition, the legislature tried to tax the profits of the net home property created by the devaluation of the loans within the framework of the house interest tax.
Individual evidence
- ↑ http://www.godmode-trader.de/nachricht/Ein-heisser-Sommer,a2092209.html
- ↑ http://blog.mises.org/?p=010902
- ↑ http://www.digizeitschriften.de/dms/toc/?PPN=PPN514401303
- ↑ http://wnop.de/src/rpg/cthulhuzeitreihen.xls
- ^ Zimbabwe State-financed stock market boom
- ↑ Ralf Flierl : Crack-up-Boom , in: Smart Investor 4/2009, pp. 44–49 Ralf Flierl: Crack-up-Boom (pdf) ( Memento of March 8, 2014 in the Internet Archive )