Stock Market time for a crash?

[Tony71]

I have read that the market has a major correction or a crash every 3 to 5 years.
The last one was fall of 2008 with the housing market which drove the stock market down, that was over 5 years ago. I'm wondering if we are overdue for one? The Fed keeps printing money and yet I don't see much improvement in the economy other than what the media is telling us.

 

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[Deleted21704]

It's interesting you bring up the topic. Of course, it's almost impossible to predict these things, but this tweet from Eddy Elfenbein is relevant. Here's the text:

The 1982-87 bull market lasted 5 years, 13 days. The 2002-07 bull market was 5 years, 0 days. Current bull's 5th birthday is in 2 weeks.

Ultimately everyone has their own opinions. Personally, I think when the stock market values FB at $180b, a correction is due.

 

[Tony71]

One thing I noticed it has always happened in September or October, some sort of crisis triggers the sell off.
At first I thought maybe it was the Ukraine crises but I don't feel it could be the trigger but who knows maybe by fall we will see
some kind of war? I have been reading this book on how this guy took advantage of the crash in 2008 by buying PUTS options and made
a killing, but it all comes down to timing and luck..

 

[Deleted21704]

If you buy a long-term PUT on the S&P, say expiring in 2015 or 2016, you should be straight.

 

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[Jonleehacker]

If you predict the market is going to crash on a regular basis, eventually you'll be right.

 

[Jake]

Yes..but the $ is as well. $ down, stocks up? I'm not in any stocks and very few $'s at the moment fwiw

 

[rkmalo1]

As Seth Klarman (in my mind, the greatest investor of this generation) says:

"While noting that he could not predict exactly when a significant market correction would occur, Mr Klarman wrote in a private letter to clients: “When the markets reverse, everything investors thought they knew will be turned upside down and inside out. ‘Buy the dips’ will be replaced with ‘what was I thinking?’ . . .  Anyone who is poorly positioned and ill-prepared will find there’s a long way to fall. Few, if any, will escape unscathed.”

“Any year in which the S&P 500 jumps 32 per cent and the Nasdaq 40 per cent while corporate earnings barely increase should be a cause for concern, not for further exuberance,” Mr Klarman wrote.

“On almost any metric, the US equity market is historically quite expensive. A sceptic would have to be blind not to see bubbles inflating in junk bond issuance, credit quality, and yields, not to mention the nosebleed stock market valuations of fashionable companies like Netflix and Tesla Motors,” he wrote. The Baupost Group declined to comment.

 

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[Deleted21704]

If you predict the market is going to crash on a regular basis, eventually you'll be right.

True. Market-timing is futile. But valuations are pretty frothy now, and combined with the typical bull-market run, it's not out of question to expect a crash soon. I'm not saying that should dictate where you put your money, but it's something to consider.

 

[DeletedUser2]

2 more years till a correction.

(I promise that's what my crystal ball said!)

or maybe it was 6 weeks more of winter....

Z

 

[Deleted21704]

2 more years till a correction.

(I promise that's what my crystal ball said!)

or maybe it was 6 weeks more of winter....

Z

Really, none of this matters (at least with regards to becoming fast-lane...if you're already there, maybe it's a different story). If you stay focused on building real value, you should succeed regardless of the direction of the stock market. I'm actually surprised there's a section for trading the markets on this forum.

 

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[Matt B]

A correction is one thing, but what terrifies me is the housing bubble in China.....

 

[OliverR]

A correction is one thing, but what terrifies me is the housing bubble in China.....

Hi Matt,

Care to elaborate on your fears?

Oliver

 

[Matt B]

Hi Matt,

Care to elaborate on your fears?

Oliver

Hi Oliver, do you mean on the housing bubble or on its consequences? I suppose you could fill books with that, but in a nutshell:

- housing bubble
Basically two things:

1. Political (growth) interests lead to a state-driven surge in the construction industry, resulting in so called "ghost cities".

2. In the US or EU this would lead to a significant drop in prices for properties due to an oversupply. But in this particular market, houses etc. are very often overvalued (again, mainly due to political interests) and then speculated with by a small fraction of the population. This means a large portion of the population still can't afford a property and the homes remain empty. Apart from the social explosiveness, it is a huge bubble as the real value is significantly lower than the current prices.

I found this video which illustrates the situation quite well:

Now concerning what happens when the bubble bursts and the Chinese economy gets a dent, you just have to take a look at the US crisis or (recently) Spain and consider that the situation in China is on a completely different scale (admittedly, the situation is different than in the examples I mentioned, but they help illustrating the point).
Since I'm on my mobile right now I'd like to keep this short, but if you'd like to know anything in particular, just let me know.

 

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[OliverR]

Hi Oliver, do you mean on the housing bubble or on its consequences? I suppose you could fill books with that, but in a nutshell:

- housing bubble
Basically two things:

1. Political (growth) interests lead to a state-driven surge in the construction industry, resulting in so called "ghost cities".

2. In the US or EU this would lead to a significant drop in prices for properties due to an oversupply. But in this particular market, houses etc. are very often overvalued (again, mainly due to political interests) and then speculated with by a small fraction of the population. This means a large portion of the population still can't afford a property and the homes remain empty. Apart from the social explosiveness, it is a huge bubble as the real value is significantly lower than the current prices.

I found this video which illustrates the situation quite well:

Now concerning what happens when the bubble bursts and the Chinese economy gets a dent, you just have to take a look at the US crisis or (recently) Spain and consider that the situation in China is on a completely different scale (admittedly, the situation is different than in the examples I mentioned, but they help illustrating the point).
Since I'm on my mobile right now I'd like to keep this short, but if you'd like to know anything in particular, just let me know.

1. This is spot on. The Chinese government is using questionable tactics to keep GDP growth going. The demand is there, but prices of apartments keep the average Chinese from buying. I lived in china 2011/2012 when there was a correction in the property market. Housing prices went down 30%. Leading to small riots with people who lost their equity overnight. (people who bought an apartment in a new building with 20-30% down bank loan, saw that in the same building unsold apartments go for 30% less than they bought it for).

But the Chinese put quick measures to cool the bubble down. Restricting banks from lending to property buyers and raising the down payment minimum.

2. I don't see how oversupply in China would effect property prices outside China as it's not a global commodity. There has been oversupply due to high prices in China for a while now and the 30% correction in prices late 2011 early 2012 didn't have any effect on property prices in the west.

The main problem in the US and Spain was that private individuals were very heavily invested in property speculation. This is not the case in China, every "cab" driver is not a property "investor". And Chinese economy has other industry which balances it more.

In Spain people don't have a good work ethic, years under a rule of a socialist party has done it's work where people expect that they are entitled to money from the government and other nonsense.

The Chinese don't have a safety net in terms of social security. They are hustlers in the purest form and will find a way to survive.

A bigger concern for China is the rising wages. As they are still mainly a manufacturing nation and already companies are moving manufacturing resource away from China to places where it is still relatively cheaper to produce goods with cheap labor.

But the next 5 year plan for China is going to focus on developing it's domestic market and rely less on export.
And they still have about 2 trillion USD in reserves. So they'll be fine for a while more.

As you said you could write several books on this subject, and different scenarios with different outcomes. Who really knows what might happen or when.

Right now the biggest threat to the world economy is Russian activity in Ukraine. The threat of a civil war bordering the EU is of great concern economically, and the Chinese are worried too as EU is it's biggest export market.

 

[Jake]

2. I don't see how oversupply in China would effect property prices outside China as it's not a global commodity. There has been oversupply due to high prices in China for a while now and the 30% correction in prices late 2011 early 2012 didn't have any effect on property prices in the west.

"Chinese purchasers bought over $10 billion of U.S. real estate in 2011 and account for 9% of foreign U.S. house buyers, "

http://www.forbes.com/sites/kenrapoza/2013/07/10/chinese-to-spend-billions-on-american-real-estate/

 

[Matt B]

1. This is spot on. The Chinese government is using questionable tactics to keep GDP growth going. The demand is there, but prices of apartments keep the average Chinese from buying. I lived in china 2011/2012 when there was a correction in the property market. Housing prices went down 30%. Leading to small riots with people who lost their equity overnight. (people who bought an apartment in a new building with 20-30% down bank loan, saw that in the same building unsold apartments go for 30% less than they bought it for).

But the Chinese put quick measures to cool the bubble down. Restricting banks from lending to property buyers and raising the down payment minimum.

2. I don't see how oversupply in China would effect property prices outside China as it's not a global commodity. There has been oversupply due to high prices in China for a while now and the 30% correction in prices late 2011 early 2012 didn't have any effect on property prices in the west.

The main problem in the US and Spain was that private individuals were very heavily invested in property speculation. This is not the case in China, every "cab" driver is not a property "investor". And Chinese economy has other industry which balances it more.

In Spain people don't have a good work ethic, years under a rule of a socialist party has done it's work where people expect that they are entitled to money from the government and other nonsense.

The Chinese don't have a safety net in terms of social security. They are hustlers in the purest form and will find a way to survive.

A bigger concern for China is the rising wages. As they are still mainly a manufacturing nation and already companies are moving manufacturing resource away from China to places where it is still relatively cheaper to produce goods with cheap labor.

But the next 5 year plan for China is going to focus on developing it's domestic market and rely less on export.
And they still have about 2 trillion USD in reserves. So they'll be fine for a while more.

As you said you could write several books on this subject, and different scenarios with different outcomes. Who really knows what might happen or when.

Right now the biggest threat to the world economy is Russian activity in Ukraine. The threat of a civil war bordering the EU is of great concern economically, and the Chinese are worried too as EU is it's biggest export market.

I agree with you on all points, but the point is not that the global property prices drop, but that the Chinese economy still highly depends on these overvaluations as a growth driver (9% of GDP is in construction, about 60% of private wealth is in real estate). Therefore I don't believe the bubble has cooled off.

 

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[OliverR]

I agree with you on all points, but the point is not that the global property prices drop, but that the Chinese economy still highly depends on these overvaluations as a growth driver (9% of GDP is in construction, about 60% of private wealth is in real estate). Therefore I don't believe the bubble has cooled off.

It's definitely still a bubble, with the 2011/2012 situation it was close to bursting, so the government stepped in to let the air out a little so they could ride the wave longer. The main question still is when will it finally burst.

 

[OliverR]

"Chinese purchasers bought over $10 billion of U.S. real estate in 2011 and account for 9% of foreign U.S. house buyers, "

http://www.forbes.com/sites/kenrapoza/2013/07/10/chinese-to-spend-billions-on-american-real-estate/

This is due to the investment programs of different countries. As any wealthy chinamen will tell you, the minute they have enough money they will move their family out from China. And countries with good standards of living and favourable investment programs for foreigners in exchange for living permits reap the benefits. The number 1 destination for those property as an investment/living permit deals for Chinese is Australia followed by Canada and the US.

Obviously this inflow of capital is not sustainable in the long run. When the Chinese economy slows down the inflow to other countries will slow down.

 

[OliverR]

Totally forgot that this is a stock market crash thread...sorry for the detour

 

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[Tony71]

Don't worry, give us your prediction when it will crash and we will forgive you.

 

[Tony71]

One more thing, I know the crisis with Russia is still on going and US now is about to slap Russia with sanctions, I feel the missing airline may cause of down turn in the market and if they find out what has happened and it maybe huge that may drop the market a little but till now I feel both of these news are not the major trigger for the big downfall.

I looked at the graphs for the S&P index and it seems the big drops where in April, July and Sept-Oct. Will be on alert during these months.

 

[DBertlin]

Interesting subject, I read an article in a Swedish newspaper entitled "seven signs that a stock market crash is near".

Here is the link if any Swedes read this or if you want to google translate your way through it: http://www.di.se/artiklar/2014/3/10/sju-tecken-att-borsraset-ar-nara/

I will try to translate at least the seven signs and if you want more your welcome to contact me.

1. Private investors are literally pouring money into the U.S. mutual fund market. The fear of missing upturn is approaching the mania that we saw in 1999.

2. The study "The Investor 's Intelligence " is disturbing. It says that the proportion who baissar (swedish word that means to try and lower the price) stock market is below 20 percent, the lowest level since just before the stock market crash of 1987.

3. Key sentiment indicators are pessimistic. Volatility index VIX - " fear index" shows that many investors are too comfortable. Many expect to be rescued by the U.S. central bank, the Fed, or fund manager in a crisis scenario.

4. The market ignores the fundamentals. Ridiculously high p/e ratio is combined with flexible interpretations of the economy. When fundamentals are not living up to expectations, people blame it on the weather.

5. We have forgotten the stock market crash of 2008.

6. Nasdaq rises to the skies.

7. Fear and greed are taking over. Investors and brokers buy "anything that moves".

I think that while this article may have made some valid points it forgets that we (at least in Sweden) have interest rates almost record low. They are so low that the banks should actually, if they followed their normal models, demand money from people who wants the banks to keep them. They will for obvious reasons never do this but its still interesting.

This is my first post here on the Fast Lane Forum so forgive me if I missed on following any rules, spoken or unspoken

 

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[ddinnov]

As Seth Klarman (in my mind, the greatest investor of this generation) says:

"While noting that he could not predict exactly when a significant market correction would occur, Mr Klarman wrote in a private letter to clients: “When the markets reverse, everything investors thought they knew will be turned upside down and inside out. ‘Buy the dips’ will be replaced with ‘what was I thinking?’ . . .  Anyone who is poorly positioned and ill-prepared will find there’s a long way to fall. Few, if any, will escape unscathed.”

“Any year in which the S&P 500 jumps 32 per cent and the Nasdaq 40 per cent while corporate earnings barely increase should be a cause for concern, not for further exuberance,” Mr Klarman wrote.

“On almost any metric, the US equity market is historically quite expensive. A sceptic would have to be blind not to see bubbles inflating in junk bond issuance, credit quality, and yields, not to mention the nosebleed stock market valuations of fashionable companies like Netflix and Tesla Motors,” he wrote. The Baupost Group declined to comment.

Here is another article and video that quotes Seth Klarman as well:

http://www.elliottwave.com/freeupda...Few-Will-Escape-Unscathed-.aspx#axzz2wJnXABKc

This bear is getting ready to crap all over those woods

 

[randomnumber314]

Oooh a gambling thread. I bet $100 on red.

 

[ddinnov]

Oooh a gambling thread. I bet $100 on red.

Good call - don't bet on green whatever you do...

 

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[OliverR]

Don't worry, give us your prediction when it will crash and we will forgive you.

Well the stock market is not rational and is based on expectations and fears.

I think the next weeks/months will be critical and depends on what Russia does in response to the sanctions implemented by the west.
Trade with Russia is bound to decrease in the short term slowing down growth/recovery in the EU. And if Russia tries to force hand by using its natural gas card the EU will have some short term problems. If economic growth in the EU slows down then China, whose number 1 export partner is EU will experience a decrease in growth. So right now European, Russian and Chinese stock markets may get hit having a domino effect on the other markets because of fear.

But, the defence industry might have some inflation of stock prices.

Tip: If you can manage the currency risk, then Brazilian banks have good interest rates for long term deposits (1 year+) of up to 1%/month. Right now the Euro is still strong relative to the Brazilian Real. And the upcoming World Cup and Olympics are keeping the Brazilian economy from taking any major dips. And looks like the Euro will make a downturn if the Russian threat continues to escalate. So if you have the capital then theres a good opportunity to make passive cashflow.

 

[AubreyJ]

I think that it could very well be time for a major correction, I wouldn't consider it a "crash" though. All of the capitol I am using to start my business is money that I made from the stock market, and just this morning I sold 85% of the investments in my portfolio because I am concerned that a correction is coming and I don't want to lose my business capitol in the correction....It's coming, it's just a matter of how soon