Are financial markets crash-proof?

Israel attacked Iran, Trump imposed tariffs and then chickened out, markets wobbled but did not crash. What's up with this resilience?

Older investors are surprised at the resilience shown by the financial markets in the face of high-risk events like the Iran-Israel war.

Confidence in Government safety net mechanisms

The world has changed since the 2008 financial crisis, and the COVID-19 pandemic only accelerated the shift. Governments and central banks have rolled out an array of tools—direct financial aid, stimulus packages, even whispers of universal basic income—to keep economies afloat. Many in the markets now believe these measures form a robust safety net that can shield us from any future shock. This toolkit, they argue, has been studied, explored and prepared enough to be deployed against any economic shocks. Growth, thus, is now predictable and certain.

But is it? I'm not so sure.

The more I look at it, the more it feels like we're putting lipstick on a pig. Since 2008, much of the economic scaffolding—bailouts, quantitative easing, low interest rates—has been about managing symptoms, not curing the disease. The economy isn't healed; it's just been medicated to look functional. Governments have become adept at massaging statistics to paint a rosier picture than what's on the ground.

Take unemployment, for instance.

Unemployment, for example, is supposedly at historic lows. Sounds great, right? But dig deeper, and the cracks appear. Two shifts in the job market tell a different story.

First, underemployment is rampant. People work jobs that don't match their skills or pay enough to sustain a decent life. Engineers driving cabs, graduates slinging coffee—these aren't anecdotes; they're trends. Second, income polarisation has reached absurd levels. Back in the day, the ratio of a CEO's salary to the lowest-paid worker in a company was about 20:1. By 2008, it had ballooned to 200:1. Today? It's even worse.

And here's the kicker: even this metric is gamed. Companies outsource low-wage jobs—janitors, security guards—so the "lowest-paid worker" on the books isn't the absolute bottom rung. If we compared the CEO's paycheck to the janitor's, both working for the same firm, the ratio would be even more obscene. Globalisation muddies the waters further. Comparing a Nike executive's salary in New York to a Bangladeshi factory worker's wage is meaningless. Yet, no matter how you slice it, the conclusion is stark: the gap between the haves and have-nots is a chasm, and it's growing.

Then there's the issue of asset prices.

Asset prices dictate the quality of life. Housing is the most glaring example. Gone are the days when a single salary could buy a family home. In many cities, even dual-income households struggle to afford a modest place. This isn't just a financial strain—it's a demographic time bomb. Unaffordable homes mean fewer families, lower birth rates, and a shrinking population. The data backs this up: countries with skyrocketing property prices, like Canada or Australia, are seeing fertility rates plummet.

Other assets—stocks, bonds, investment properties—are no less troubling. High asset prices are a double-whammy. On the one hand, they inflate the cost of building your portfolio. At the same time, they increase the risk that this high-cost portfolio will not sustain your retirement. You're paying exorbitant prices for an inadequate stake in an uncertain tomorrow. If prices crash, your nest egg evaporates. If they don't, you're still stuck buying an overpriced future at the expense of your present.

In sum

The belief that financial markets are crash-proof stems from a dangerous complacency. The tools we've developed since 2008—fiscal stimulus, monetary gymnastics—may delay a reckoning, but they don't address the root causes: structural inequality, manipulated metrics, and an over-reliance on inflated asset values. We're not building a stronger economy; we're erecting a house of cards on a shaky foundation.

The real question isn't whether markets can crash but when. No amount of government intervention can paper over the fundamentals forever. Underemployment, income polarisation, and unaffordable assets aren't just economic quirks—they're warning lights flashing red. Ignoring them won't make the next crisis disappear; it'll only make it hit harder.

So, are financial markets crash-proof? Hardly. They're more like a patient on life support—stable for now but far from cured. The sooner we stop treating symptoms and start tackling the disease, the better.

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