Imagine a stock market somewhere. If it crashes, the economy crashes. By keeping it healthy the appearance of a healthy economy can be projected.
At some point, to 'save the economy', it is decided to give financial institutions a huge amount of free money. The exact amount is not known, and can't be verified.
The financial institutions, with this free money, buy up cheap stocks. The stock prices rise. Talk of economic recovery is in the air. For a while, everybody is happy.
There is just one problem. Where the stock market, under normal circumstances, has a self-correcting mechanism, allowing for prices to drop, the unspecified amount of free money handed out to these financial institutions enables them to prevent drops. When a price of a key stock drops too far, they simply buy up more. (If they bought a stock at 20, and it is now at 40, why would they sell it when it drops to 38, when they can buy more and send the price to 45 and higher?)
The eventual outcome of this bubble is inevitable. Yet, while it continues to grow, a profit can be made.
What would you do?
1) stay far away
2) buy stocks
3) short stocks
At some point, to 'save the economy', it is decided to give financial institutions a huge amount of free money. The exact amount is not known, and can't be verified.
The financial institutions, with this free money, buy up cheap stocks. The stock prices rise. Talk of economic recovery is in the air. For a while, everybody is happy.
There is just one problem. Where the stock market, under normal circumstances, has a self-correcting mechanism, allowing for prices to drop, the unspecified amount of free money handed out to these financial institutions enables them to prevent drops. When a price of a key stock drops too far, they simply buy up more. (If they bought a stock at 20, and it is now at 40, why would they sell it when it drops to 38, when they can buy more and send the price to 45 and higher?)
The eventual outcome of this bubble is inevitable. Yet, while it continues to grow, a profit can be made.
What would you do?
1) stay far away
2) buy stocks
3) short stocks