Author Topic: markets to drop 50% more?  (Read 5223 times)

mistymoney

  • Handlebar Stache
  • *****
  • Posts: 2417
markets to drop 50% more?
« on: June 18, 2022, 06:15:12 PM »
Quote
Jeremy Grantham, Michael Burry, and other market gurus expects stocks to fall further.
Grantham and Burry both forecast the S&P 500 will drop by at least another 50%.
David Rosenberg expects a 19% fall in the benchmark index from its current level.

https://www.msn.com/en-us/money/markets/the-stock-market-s-nightmare-scenario-of-a-50-drop-is-now-more-likely-after-the-stubborn-fed-s-biggest-rate-hike-in-decades-hedge-fund-strategist-says/ar-AAYBCtk

so that on top of already bear market would be an even steeper drop than 2008/9.....and that took till 13 to regain the top....

Any expecting that much of a decline?

wageslave23

  • Handlebar Stache
  • *****
  • Posts: 1755
  • Location: Midwest
Re: markets to drop 50% more?
« Reply #1 on: June 18, 2022, 06:55:26 PM »
My guess would be 20% more. But that's all anybody is doing.  I can't stand when I see people are saying "stocks are on sale". Yeah maybe, but you have been saying that all the way down.  They are off their highs, but sale implies a good deal. Maybe they were massiveoverpriced and are now only moderately overpriced.  This doesn't feel like a bottom yet. Unless I nflation magically starts declining.

maizefolk

  • Walrus Stache
  • *******
  • Posts: 7400
Re: markets to drop 50% more?
« Reply #2 on: June 18, 2022, 07:08:42 PM »
We're down about 25% already. So another 50% from here would mean a -62.5% drop peak to trough.

For context, that'd make it the worst crash since the great depression (-89%), although more comparable to the great recession (-57%) or the bear market of the 1970s (-48%).

It could happen. It could not happen. But I wouldn't lose much sleep or spend much time worrying about what Grantham and Burry are predicting. They always predict major crashes. Usually the stock market doesn't crash. Sometimes it does.

I'm gonna take a walk this evening, listen to some birds and see the sun set over a lake. And it'll be equally fun regardless of whether the stock market have 10% more to fall or 90% more to fall (or turns around and starts increasing on Monday).

markbike528CBX

  • Handlebar Stache
  • *****
  • Posts: 1899
  • Location: the Everbrown part of the Evergreen State (WA)
Re: markets to drop 50% more?
« Reply #3 on: June 18, 2022, 07:22:06 PM »
...snip.... 
I'm gonna take a walk this evening, listen to some birds and see the sun set over a lake. And it'll be equally fun regardless of whether the stock market have 10% more to fall or 90% more to fall (or turns around and starts increasing on Monday).

My preference is rose smelling :-)  although we do have magnificent sunsets here.

Totally agreed with the snipped part though.

JAYSLOL

  • Handlebar Stache
  • *****
  • Posts: 2138
Re: markets to drop 50% more?
« Reply #4 on: June 18, 2022, 07:35:27 PM »
Well, I bought tickets for the ride, might as well go on it.  Still in accumulation phase, and DW and I have jobs, and I’ve got the MMM forum to keep me sane and motivated, so bring on the roller coaster. 

clarkfan1979

  • Magnum Stache
  • ******
  • Posts: 3352
  • Age: 44
  • Location: Pueblo West, CO
Re: markets to drop 50% more?
« Reply #5 on: June 18, 2022, 09:17:02 PM »
Quote
Jeremy Grantham, Michael Burry, and other market gurus expects stocks to fall further.
Grantham and Burry both forecast the S&P 500 will drop by at least another 50%.
David Rosenberg expects a 19% fall in the benchmark index from its current level.

https://www.msn.com/en-us/money/markets/the-stock-market-s-nightmare-scenario-of-a-50-drop-is-now-more-likely-after-the-stubborn-fed-s-biggest-rate-hike-in-decades-hedge-fund-strategist-says/ar-AAYBCtk

so that on top of already bear market would be an even steeper drop than 2008/9.....and that took till 13 to regain the top....

Any expecting that much of a decline?

For me personally, I agree that it doesn't feel like the bottom. It's crazy how much emotion plays into these types of situations.

When does the report come out to tell us that we are officially in a recession?

Here is my prediction. If we are -25% right now, we go another -5% until the report comes out. Then after the report comes out that officially declares a recession we go another -10% over the next 4-5 months and then it starts to rebound. The official drop from top to bottom is -40% (around 11 months total). 

You heard it here first.


Wintergreen78

  • Pencil Stache
  • ****
  • Posts: 620
Re: markets to drop 50% more?
« Reply #6 on: June 18, 2022, 09:30:41 PM »
I tried googling “the market is about to go up” and I didn’t find any articles predicting that. So I’d say another 50% drop is likely.

PDXTabs

  • Walrus Stache
  • *******
  • Posts: 5160
  • Age: 40
  • Location: Vancouver, WA, USA
Re: markets to drop 50% more?
« Reply #7 on: June 18, 2022, 11:43:39 PM »
Maybe they were massiveoverpriced and are now only moderately overpriced.

Or maybe the stock market is priced as a forward looking ratio of future profits compared to the risk free rate of return and it was always correctly priced, but the risk free rate (and possibly future profits) is now changing? IDK.

We're down about 25% already. So another 50% from here would mean a -62.5% drop peak to trough.

For context, that'd make it the worst crash since the great depression (-89%), although more comparable to the great recession (-57%) or the bear market of the 1970s (-48%).

It does seem like the early 80s is the most analogous conditions to right now (~33%). Unless you want to count starting in 1976 then it is ~41%. But I only have monthly data in front of me.
https://www.macrotrends.net/2015/fed-funds-rate-historical-chart
https://www.macrotrends.net/2324/sp-500-historical-chart-data

I tried googling “the market is about to go up” and I didn’t find any articles predicting that. So I’d say another 50% drop is likely.

Does that mean that the bottom is in?

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 6633
Re: markets to drop 50% more?
« Reply #8 on: June 19, 2022, 02:54:57 AM »
We're down about 25% already. So another 50% from here would mean a -62.5% drop peak to trough.

For context, that'd make it the worst crash since the great depression (-89%), although more comparable to the great recession (-57%) or the bear market of the 1970s (-48%).
It sounds like you're using a better source of drawdowns, can you share that source?

I've been using portfolio visualizer, which only shows monthly returns.  So for 2020 it shows a maximum drawdown of -21%, where the actual drawdown was -35%.  Because the market dropped in March, but then started to recover, the maximum drawdown gets truncated.

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 6633
Re: markets to drop 50% more?
« Reply #9 on: June 19, 2022, 03:11:16 AM »
Quote
Jeremy Grantham, Michael Burry, and other market gurus expects stocks to fall further.
Grantham and Burry both forecast the S&P 500 will drop by at least another 50%.
David Rosenberg expects a 19% fall in the benchmark index from its current level.

https://www.msn.com/en-us/money/markets/the-stock-market-s-nightmare-scenario-of-a-50-drop-is-now-more-likely-after-the-stubborn-fed-s-biggest-rate-hike-in-decades-hedge-fund-strategist-says/ar-AAYBCtk
The journalist writing that article claims to be a "Certified Market Technician".  Even if that's easy to obtain, I think that puts them above 80% of the financial journalists out there, so that's a good start.  Jeremy Grantham's prediction is stated correctly, also.  I'm not aware of Michael Burry's prediction, but given the higher quality of journalist and a prediction matching what I know, I'm willing to assume the article's quotes are accurate.

The three deepest crashes in the past 50 years were the global financial crisis (2007-9), oil embargo (1973-4), and dot-com crash (2000-2).  The oil embargo triggered gasoline rationing, and crashed markets - probably the closest match of the three.  As a bonus, it's the median crash... of -46% according to Portfolio Visualizer (which truncates to the monthly performance, so could be an underestimate).

S&P 500 ETF (SPY) peaked at $480, so a rerun of the 1973-4 crash would drop it to $260/sh.  Since SPY is currently $366/share, I calculate ($260 / 366 =) .71 which suggests a 29% drop from here.  That would put us slightly over halfway there (-24% so far).  But predictions aren't precise down the last decimal point.  So rounding that prediction a bit, I'd say the market drops 1/4th to 1/3rd from here.

(shorter)  https://energyhistory.yale.edu/units/oil-shocks-1970s
(more detail)  https://en.wikipedia.org/wiki/1970s_energy_crisis

vand

  • Handlebar Stache
  • *****
  • Posts: 2305
  • Location: UK
Re: markets to drop 50% more?
« Reply #10 on: June 19, 2022, 03:19:56 AM »
Nobody knows - not Grantham, Burry or anyone else.

I don't think the bear market has run its full course yet simply due to the time it takes to play out - 6 months isn't very long when you're talking about major cycles - but I do think that we're probably close to the end of the first act. Wouldn't surprise me to see a more sustained rally from here as everyone is very bearish now (as evidenced by this thread).


Viking Thor

  • Stubble
  • **
  • Posts: 186
Re: markets to drop 50% more?
« Reply #11 on: June 19, 2022, 09:37:56 PM »
I don't know what will happen but Grantham has been predicting a dire crash for over 10 years. And will keep predicting it.

So I don't care what he says.  I mean eventually we will have a major crash but I wouldn't look to Grantham.

He has been wrong constantly for a.dozen years and people would be much poorer for taking his advice. eventually he will be right just like broken clock.

Maybe this will finally be the time. Regardless I'll stay invested and buy the stocks on sale if we see a huge drop.

Affable Bear

  • Stubble
  • **
  • Posts: 102
  • Location: UK
  • Only if you run
Re: markets to drop 50% more?
« Reply #12 on: June 20, 2022, 01:39:32 AM »
Luckily still in the accumulation part of our journey but its the first time for us to experience a crash since we started investing so it certainly will be an experience. Graduated in the middle of the banking crisis and the hardest thing was getting a job let alone a career back then but hoping to take advantage of the dip provided our jobs stay intact, gonna be fun!

With the oil prices and money printing I do wonder if its going to be a repeat of stagflation where stocks did nothing for 10 years, I am undecided as to whether this would be a good thing as we probably have about 13-15 years to go and would mean stocks will be low for a large part of that but it would come with a lot of drawbacks too. Hopefully it is 18 months of low and then continuing growth..





reeshau

  • Magnum Stache
  • ******
  • Posts: 2510
  • Location: Houston, TX
  • Former locations: Detroit, Indianapolis, Dublin
Re: markets to drop 50% more?
« Reply #13 on: June 20, 2022, 01:57:16 AM »
I tried googling “the market is about to go up” and I didn’t find any articles predicting that. So I’d say another 50% drop is likely.

Actually, under the same theory that when the shoe-shine boy gives stock advice, you should sell--this would seem to be a sign it's time to buy.


Seriously, though: I don't think we've reached a point of capitulation.  And with the contribution of geopolitics currently involved, I think it's even harder than usual to try and predict.  But I am sure that in 20 years I will be happy I am in the market.

FLBiker

  • Handlebar Stache
  • *****
  • Posts: 1786
  • Age: 47
  • Location: Canada
    • Chop Wood Carry FIRE
Re: markets to drop 50% more?
« Reply #14 on: June 20, 2022, 05:15:22 AM »
Of course, I have no idea what's going to happen in the markets, but I will say this -- I'd been thinking about transitioning to part-time work this summer, easing into retirement in a year or two.  I'm going to stick full-time for now.

brandon1827

  • Pencil Stache
  • ****
  • Posts: 522
  • Location: Tennessee
Re: markets to drop 50% more?
« Reply #15 on: June 20, 2022, 07:57:42 AM »
Still have approximately 10-15 years on the horizon, so I'm okay if it does drop a bit more and gives me an opportunity to take advantage of the discount

Loud Noises

  • 5 O'Clock Shadow
  • *
  • Posts: 73
Re: markets to drop 50% more?
« Reply #16 on: June 20, 2022, 08:28:02 AM »
Markets will continue to fluctuate.

I don't see the kind of excesses and systemic issues which would lead to a total drop greater than 08/09.  But nobody, and I mean NOBODY knows the future with markets.  I am welcoming the opportunity to buy at lower prices than I otherwise would.  Call it on sale, call it still pricey, it doesn't matter.  Any buyer of stocks is better off now than 6 months ago.

ChpBstrd

  • Walrus Stache
  • *******
  • Posts: 6662
  • Location: A poor and backward Southern state known as minimum wage country
Re: markets to drop 50% more?
« Reply #17 on: June 20, 2022, 09:30:10 AM »
Let's evaluate the possibilities with some quick math and a thought experiment.

Current stock market PE ratio: 18.57
https://www.multpl.com/s-p-500-pe-ratio

Price falls 20%, earnings flat: PE = ~15
Price falls 50%, earnings flat: PE =  ~9

Price falls 20%, earnings fall 20%: PE = ~18
Price falls 50%, earnings fall 20%: PE = ~11

Note that I'm only modeling no-recession or  mild-recession scenarios. S&P 500 earnings fell over 82% between 2006 and 2008. That's why basically all earnings-based stock valuation methods go in the trash during a severe recession; you're just chasing an earnings number down and stock prices look more and more expensive as the price falls.

This dynamic leads to all sorts of "stocks are still too expensive" claims in the financial media, even near the bottom. IMO, the thing to do in such cases is to look at the latest pre-recession year for earnings, and ask if you would want to buy the index at today's price if earnings were still that number. Granted, it may take 5 years to get back to that earnings number, but it'll happen. If a purchase today will be seen as a bargain 5 years from now, then today is the time to buy. 

Back to those hypothetical PE ratios. Under what circumstances would the market be unwilling to buy stocks for a PE ratio in the low teens or even single digits? Under what circumstances would we be unwilling to buy? I might pass on the opportunity to buy stocks at a PE of 15 if I could instead earn 7-8% in ten year or twenty year treasuries. The earnings yield minus the risk-free rate would be too low to pass on that opportunity. Another scenario I can think of is civil war or the overthrow of the US government, which would send me into the Euro and Yen.

To me, that's the gist of it. The forecasters need to assume long-term interest rates are going from 3.25% to about 7.25% if valuations are going to drop to the levels they're talking about. It does not make sense to own stocks if you think rates are rising in that direction. Likewise, it does not make sense to predict 20-50% price drops from here if you don't think rates are going waaaay up. Hence the importance of the discussion at https://forum.mrmoneymustache.com/investor-alley/inflation-interest-rates-share-your-data-sources-models-and-assumptions/

vand

  • Handlebar Stache
  • *****
  • Posts: 2305
  • Location: UK
Re: markets to drop 50% more?
« Reply #18 on: June 20, 2022, 09:53:17 AM »
Let's evaluate the possibilities with some quick math and a thought experiment.

Current stock market PE ratio: 18.57
https://www.multpl.com/s-p-500-pe-ratio

Price falls 20%, earnings flat: PE = ~15
Price falls 50%, earnings flat: PE =  ~9

Price falls 20%, earnings fall 20%: PE = ~18
Price falls 50%, earnings fall 20%: PE = ~11

Note that I'm only modeling no-recession or  mild-recession scenarios. S&P 500 earnings fell over 82% between 2006 and 2008. That's why basically all earnings-based stock valuation methods go in the trash during a severe recession; you're just chasing an earnings number down and stock prices look more and more expensive as the price falls.

This dynamic leads to all sorts of "stocks are still too expensive" claims in the financial media, even near the bottom. IMO, the thing to do in such cases is to look at the latest pre-recession year for earnings, and ask if you would want to buy the index at today's price if earnings were still that number. Granted, it may take 5 years to get back to that earnings number, but it'll happen. If a purchase today will be seen as a bargain 5 years from now, then today is the time to buy. 

Back to those hypothetical PE ratios. Under what circumstances would the market be unwilling to buy stocks for a PE ratio in the low teens or even single digits? Under what circumstances would we be unwilling to buy? I might pass on the opportunity to buy stocks at a PE of 15 if I could instead earn 7-8% in ten year or twenty year treasuries. The earnings yield minus the risk-free rate would be too low to pass on that opportunity. Another scenario I can think of is civil war or the overthrow of the US government, which would send me into the Euro and Yen.

To me, that's the gist of it. The forecasters need to assume long-term interest rates are going from 3.25% to about 7.25% if valuations are going to drop to the levels they're talking about. It does not make sense to own stocks if you think rates are rising in that direction. Likewise, it does not make sense to predict 20-50% price drops from here if you don't think rates are going waaaay up. Hence the importance of the discussion at https://forum.mrmoneymustache.com/investor-alley/inflation-interest-rates-share-your-data-sources-models-and-assumptions/

Profit margins have never been higher, and its likely they will mean-revert to some degree as inflation kicks in and interest rates increase the the cost of capital to businesses.
So while current/backward market P/E may seem sensible, they may not continue to be as the denominator in the P/E number takes a nosedive...

wageslave23

  • Handlebar Stache
  • *****
  • Posts: 1755
  • Location: Midwest
Re: markets to drop 50% more?
« Reply #19 on: June 20, 2022, 10:33:13 AM »
Let's evaluate the possibilities with some quick math and a thought experiment.

Current stock market PE ratio: 18.57
https://www.multpl.com/s-p-500-pe-ratio

Price falls 20%, earnings flat: PE = ~15
Price falls 50%, earnings flat: PE =  ~9

Price falls 20%, earnings fall 20%: PE = ~18
Price falls 50%, earnings fall 20%: PE = ~11

Note that I'm only modeling no-recession or  mild-recession scenarios. S&P 500 earnings fell over 82% between 2006 and 2008. That's why basically all earnings-based stock valuation methods go in the trash during a severe recession; you're just chasing an earnings number down and stock prices look more and more expensive as the price falls.

This dynamic leads to all sorts of "stocks are still too expensive" claims in the financial media, even near the bottom. IMO, the thing to do in such cases is to look at the latest pre-recession year for earnings, and ask if you would want to buy the index at today's price if earnings were still that number. Granted, it may take 5 years to get back to that earnings number, but it'll happen. If a purchase today will be seen as a bargain 5 years from now, then today is the time to buy. 

Back to those hypothetical PE ratios. Under what circumstances would the market be unwilling to buy stocks for a PE ratio in the low teens or even single digits? Under what circumstances would we be unwilling to buy? I might pass on the opportunity to buy stocks at a PE of 15 if I could instead earn 7-8% in ten year or twenty year treasuries. The earnings yield minus the risk-free rate would be too low to pass on that opportunity. Another scenario I can think of is civil war or the overthrow of the US government, which would send me into the Euro and Yen.

To me, that's the gist of it. The forecasters need to assume long-term interest rates are going from 3.25% to about 7.25% if valuations are going to drop to the levels they're talking about. It does not make sense to own stocks if you think rates are rising in that direction. Likewise, it does not make sense to predict 20-50% price drops from here if you don't think rates are going waaaay up. Hence the importance of the discussion at https://forum.mrmoneymustache.com/investor-alley/inflation-interest-rates-share-your-data-sources-models-and-assumptions/

Profit margins have never been higher, and its likely they will mean-revert to some degree as inflation kicks in and interest rates increase the the cost of capital to businesses.
So while current/backward market P/E may seem sensible, they may not continue to be as the denominator in the P/E number takes a nosedive...

So are you leaning more towards scenario 3 in ChpBstrd's post?  I think that seems likely.

Financial.Velociraptor

  • Handlebar Stache
  • *****
  • Posts: 2148
  • Age: 51
  • Location: Houston TX
  • Devour your prey raptors!
    • Living Universe Foundation
Re: markets to drop 50% more?
« Reply #20 on: June 20, 2022, 11:27:44 AM »
There was a concept in undergrad (Economics) and grad school (Finance) that there is an "equity risk premium".  That is, equity is inherently  more risky than say 10  year Treasuries and investors demand a return premium to hold them and this is one of the main things driving pricing in the markets.

You can calculate that premium by getting the "earnings yield" (that is the inverse of the P/E ratio) and deducting the yield on the 10 year T.  The risk premium goes up and down over time but assuming around the historical premium AND interest rates top out about where the futures markets predict, an academically robust answer for where the market "should" be is another 35-50% down from here. 

Note that very few Finance and Economics professors are billionaires however...  And neither am I...

I am personally roughly market neutral with a mix of value longs and short positions in what I call the "falling knives".


PDXTabs

  • Walrus Stache
  • *******
  • Posts: 5160
  • Age: 40
  • Location: Vancouver, WA, USA
Re: markets to drop 50% more?
« Reply #21 on: June 20, 2022, 11:44:45 AM »
There was a concept in undergrad (Economics) and grad school (Finance) that there is an "equity risk premium".  That is, equity is inherently  more risky than say 10  year Treasuries and investors demand a return premium to hold them and this is one of the main things driving pricing in the markets.

That is true. David Blitz just published a paper titled Expected Stock Returns When Interest Rates Are Low in The Journal of Portfolio Management. The conclusion states:

We examined empirically whether expected stock returns increase with the level of the
risk-free return, as expected if the equity risk premium is a stable reward on top of the
prevailing risk-free return. Using long-term historical data for the US equity market our
statistical tests strongly reject the hypothesis that a higher risk-free return implies higher
total expected stock returns. Instead, total expected stock returns appear to be unrelated
(or perhaps even inversely related) to the level of the risk-free return, which implies that
the equity risk premium is much higher when the risk-free return is low than when it is
high. This conclusion is robust to including various control factors and over subsamples.
« Last Edit: June 20, 2022, 11:59:01 AM by PDXTabs »

talltexan

  • Walrus Stache
  • *******
  • Posts: 5344
Re: markets to drop 50% more?
« Reply #22 on: June 20, 2022, 12:29:30 PM »
There was a concept in undergrad (Economics) and grad school (Finance) that there is an "equity risk premium".  That is, equity is inherently  more risky than say 10  year Treasuries and investors demand a return premium to hold them and this is one of the main things driving pricing in the markets.

You can calculate that premium by getting the "earnings yield" (that is the inverse of the P/E ratio) and deducting the yield on the 10 year T.  The risk premium goes up and down over time but assuming around the historical premium AND interest rates top out about where the futures markets predict, an academically robust answer for where the market "should" be is another 35-50% down from here. 

Note that very few Finance and Economics professors are billionaires however...  And neither am I...

I am personally roughly market neutral with a mix of value longs and short positions in what I call the "falling knives".

I seem to recall a finance titan asking an economics professor why he thought he was so smart when he wasn't a billionaire.

The economics professor meanwhile was wondering how this other guy could have made $Billions when he was so dumb.

dividendman

  • Handlebar Stache
  • *****
  • Posts: 1901
Re: markets to drop 50% more?
« Reply #23 on: June 20, 2022, 01:58:57 PM »
There was a concept in undergrad (Economics) and grad school (Finance) that there is an "equity risk premium".  That is, equity is inherently  more risky than say 10  year Treasuries and investors demand a return premium to hold them and this is one of the main things driving pricing in the markets.

You can calculate that premium by getting the "earnings yield" (that is the inverse of the P/E ratio) and deducting the yield on the 10 year T.  The risk premium goes up and down over time but assuming around the historical premium AND interest rates top out about where the futures markets predict, an academically robust answer for where the market "should" be is another 35-50% down from here. 

Note that very few Finance and Economics professors are billionaires however...  And neither am I...

I am personally roughly market neutral with a mix of value longs and short positions in what I call the "falling knives".

I seem to recall a finance titan asking an economics professor why he thought he was so smart when he wasn't a billionaire.

The economics professor meanwhile was wondering how this other guy could have made $Billions when he was so dumb.

Being smart is a small factor in making billions, that's why. Being lucky is the key factor.

Dicey

  • Senior Mustachian
  • ********
  • Posts: 22321
  • Age: 66
  • Location: NorCal
Re: markets to drop 50% more?
« Reply #24 on: June 20, 2022, 02:30:57 PM »
Related:

Dicey: Ooh, the markets are down 20%! Let's fund our 2022 Roths today.

Mr. Dicey: Nah, the markets are going to go down more.

[Dicey bangs head.]

EscapeVelocity2020

  • Magnum Stache
  • ******
  • Posts: 4815
  • Age: 50
  • Location: Houston
    • EscapeVelocity2020
Re: markets to drop 50% more?
« Reply #25 on: June 20, 2022, 02:49:24 PM »
Let's evaluate the possibilities with some quick math and a thought experiment.

Current stock market PE ratio: 18.57
https://www.multpl.com/s-p-500-pe-ratio

Price falls 20%, earnings flat: PE = ~15
Price falls 50%, earnings flat: PE =  ~9

Price falls 20%, earnings fall 20%: PE = ~18
Price falls 50%, earnings fall 20%: PE = ~11
...

I prefer CAPE - https://www.multpl.com/shiller-pe

Prices could drop ~40% for current CAPE of 28 to reach the mean / median ~16.

I also get worried by all these young investors blindly buying the dip.  I had to learn the hard way in March 2000 not to fight the Fed.

Radagast

  • Magnum Stache
  • ******
  • Posts: 2541
  • One Does Not Simply Work Into Mordor
Re: markets to drop 50% more?
« Reply #26 on: June 20, 2022, 08:06:40 PM »
Wow, I have been kinda following market news, I know I am down to maybe $650k from $750k at the peak, excluding new contributions and recent dividends. So maybe a 12% loss? I thought this year had been completely non-eventful in the markets. And then I look at MMM and people are running around screaming!

Going by CAPE10, I think 18-25 is an appropriate new normal range, so could be another 10%-35% drop. But if inflation is 9% annually for 2 years, that could also make CAPE catch up in a flat market.

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 6633
Re: markets to drop 50% more?
« Reply #27 on: June 21, 2022, 06:48:40 AM »
I don't know what will happen but Grantham has been predicting a dire crash for over 10 years. And will keep predicting it.
It's 2022 now, so over 10 years ago means 2011 or before, which is around the time of the great financial crisis.  Yes, Jeremey Grantham predicted that 2007-2009 crash... but I would call that accurate rather than criticizing him when he's right.


So I don't care what he says.  I mean eventually we will have a major crash but I wouldn't look to Grantham.
He also predicted the Japan asset bubble back in the 1980s and the dot-com crash of 2000-2002.  It's not like he's continously wrong - he's predicted each major crash.


He has been wrong constantly for a.dozen years and people would be much poorer for taking his advice. eventually he will be right just like broken clock.
Do you have evidence he has "been wrong constantly for a.dozen years"?
You're saying he predicted a crash in 2010, or are you confusing his correct prediction of the 2007-2009 crash with something else?
Someone staying in cash and waiting for the -51% drop could have made +100% by timing the crash perfectly, which leaves a lot of room to profit even without timing it perfectly.


Maybe this will finally be the time. Regardless I'll stay invested and buy the stocks on sale if we see a huge drop.
Finally?  After Japan in the 1980s, the dot-com crash, and the global financial crisis... you seem to be ignoring everything he's called correctly.

J.R. Ewing

  • 5 O'Clock Shadow
  • *
  • Posts: 72
  • Location: Houston, TX
Re: markets to drop 50% more?
« Reply #28 on: June 21, 2022, 07:47:40 AM »
Quote
Jeremy Grantham, Michael Burry, and other market gurus expects stocks to fall further.
Grantham and Burry both forecast the S&P 500 will drop by at least another 50%.
David Rosenberg expects a 19% fall in the benchmark index from its current level.

https://www.msn.com/en-us/money/markets/the-stock-market-s-nightmare-scenario-of-a-50-drop-is-now-more-likely-after-the-stubborn-fed-s-biggest-rate-hike-in-decades-hedge-fund-strategist-says/ar-AAYBCtk
The journalist writing that article claims to be a "Certified Market Technician".  Even if that's easy to obtain, I think that puts them above 80% of the financial journalists out there, so that's a good start.  Jeremy Grantham's prediction is stated correctly, also.  I'm not aware of Michael Burry's prediction, but given the higher quality of journalist and a prediction matching what I know, I'm willing to assume the article's quotes are accurate.

The three deepest crashes in the past 50 years were the global financial crisis (2007-9), oil embargo (1973-4), and dot-com crash (2000-2).  The oil embargo triggered gasoline rationing, and crashed markets - probably the closest match of the three.  As a bonus, it's the median crash... of -46% according to Portfolio Visualizer (which truncates to the monthly performance, so could be an underestimate).

S&P 500 ETF (SPY) peaked at $480, so a rerun of the 1973-4 crash would drop it to $260/sh.  Since SPY is currently $366/share, I calculate ($260 / 366 =) .71 which suggests a 29% drop from here.  That would put us slightly over halfway there (-24% so far).  But predictions aren't precise down the last decimal point.  So rounding that prediction a bit, I'd say the market drops 1/4th to 1/3rd from here.

(shorter)  https://energyhistory.yale.edu/units/oil-shocks-1970s
(more detail)  https://en.wikipedia.org/wiki/1970s_energy_crisis

The important thing is that the Fed slashed rated in all those crashes to soften the blow.  Not gonna happen this time. 

ChpBstrd

  • Walrus Stache
  • *******
  • Posts: 6662
  • Location: A poor and backward Southern state known as minimum wage country
Re: markets to drop 50% more?
« Reply #29 on: June 21, 2022, 07:59:47 AM »
Quote
Jeremy Grantham, Michael Burry, and other market gurus expects stocks to fall further.
Grantham and Burry both forecast the S&P 500 will drop by at least another 50%.
David Rosenberg expects a 19% fall in the benchmark index from its current level.

https://www.msn.com/en-us/money/markets/the-stock-market-s-nightmare-scenario-of-a-50-drop-is-now-more-likely-after-the-stubborn-fed-s-biggest-rate-hike-in-decades-hedge-fund-strategist-says/ar-AAYBCtk
The journalist writing that article claims to be a "Certified Market Technician".  Even if that's easy to obtain, I think that puts them above 80% of the financial journalists out there, so that's a good start.  Jeremy Grantham's prediction is stated correctly, also.  I'm not aware of Michael Burry's prediction, but given the higher quality of journalist and a prediction matching what I know, I'm willing to assume the article's quotes are accurate.

The three deepest crashes in the past 50 years were the global financial crisis (2007-9), oil embargo (1973-4), and dot-com crash (2000-2).  The oil embargo triggered gasoline rationing, and crashed markets - probably the closest match of the three.  As a bonus, it's the median crash... of -46% according to Portfolio Visualizer (which truncates to the monthly performance, so could be an underestimate).

S&P 500 ETF (SPY) peaked at $480, so a rerun of the 1973-4 crash would drop it to $260/sh.  Since SPY is currently $366/share, I calculate ($260 / 366 =) .71 which suggests a 29% drop from here.  That would put us slightly over halfway there (-24% so far).  But predictions aren't precise down the last decimal point.  So rounding that prediction a bit, I'd say the market drops 1/4th to 1/3rd from here.

(shorter)  https://energyhistory.yale.edu/units/oil-shocks-1970s
(more detail)  https://en.wikipedia.org/wiki/1970s_energy_crisis

The important thing is that the Fed slashed rated in all those crashes to soften the blow.  Not gonna happen this time.

Never say never. In 1948 inflation started falling from higher than today's levels. The US went into deflation only ten months later, in May 1949. A recession occurred.

Inflation peaked again in July 2008, at 5.5%. By December 2008, the US was in a deflation episode that lasted until October 2009. A big recession caused this rapid swing within a matter of months.

Basically, things could be so different a year from now that we could be talking about rate cuts and QE again.


talltexan

  • Walrus Stache
  • *******
  • Posts: 5344
Re: markets to drop 50% more?
« Reply #30 on: June 21, 2022, 08:02:46 AM »
What you describe in 2009...how did the new unemployment filings look during summer of 2008? We are still under 250,000 for that today.

ChpBstrd

  • Walrus Stache
  • *******
  • Posts: 6662
  • Location: A poor and backward Southern state known as minimum wage country
Re: markets to drop 50% more?
« Reply #31 on: June 21, 2022, 09:54:50 AM »
What you describe in 2009...how did the new unemployment filings look during summer of 2008? We are still under 250,000 for that today.

June 2008:     381k
July 2008:      385k
August 2008:  424k

https://fred.stlouisfed.org/series/ICSA

We saw numbers in that range last summer.

talltexan

  • Walrus Stache
  • *******
  • Posts: 5344
Re: markets to drop 50% more?
« Reply #32 on: June 21, 2022, 12:56:30 PM »
The numbers you've posted make me find our current situation more re-assuring.

Viking Thor

  • Stubble
  • **
  • Posts: 186
Re: markets to drop 50% more?
« Reply #33 on: June 21, 2022, 08:51:11 PM »
I don't know what will happen but Grantham has been predicting a dire crash for over 10 years. And will keep predicting it.
It's 2022 now, so over 10 years ago means 2011 or before, which is around the time of the great financial crisis.  Yes, Jeremey Grantham predicted that 2007-2009 crash... but I would call that accurate rather than criticizing him when he's right.


So I don't care what he says.  I mean eventually we will have a major crash but I wouldn't look to Grantham.
He also predicted the Japan asset bubble back in the 1980s and the dot-com crash of 2000-2002.  It's not like he's continously wrong - he's predicted each major crash.


He has been wrong constantly for a.dozen years and people would be much poorer for taking his advice. eventually he will be right just like broken clock.
Do you have evidence he has "been wrong constantly for a.dozen years"?
You're saying he predicted a crash in 2010, or are you confusing his correct prediction of the 2007-2009 crash with something else?
Someone staying in cash and waiting for the -51% drop could have made +100% by timing the crash perfectly, which leaves a lot of room to profit even without timing it perfectly.


Maybe this will finally be the time. Regardless I'll stay invested and buy the stocks on sale if we see a huge drop.
Finally?  After Japan in the 1980s, the dot-com crash, and the global financial crisis... you seem to be ignoring everything he's called correctly.

Grantham has been bearish since Nov 2010. I’m not going to get into a back and forth, you are betting bear and would take me on for 1000 posts and back Grantham since he is bearish so I see no purpose in that.

There are constantly bearish statements from famous investors and permabears in good times and bad times.

Right now everyone is fearful and someone like Warren Buffet who is arguably the best investor of all time would tell you to be greedy (when others are fearful).

In my case I will stay the course and stay invested. We could have already hit the low point, have another 10% drop or have another huge drop. No one knows. I will aim to stay employed and investing new money until the market takes off again we’ll into a new bull.

Lastly, I wouldn’t do whatever someone preached regardless of performance but it looks like his funds performance has been terrible over the last 10+ years
https://finance.yahoo.com/quote/GMWAX/performance/
https://www.institutionalinvestor.com/article/b1hjlb0qs4c807/GMO-Is-Feeling-Pain-Reminiscent-of-the-Late-1990s
« Last Edit: June 21, 2022, 09:16:25 PM by Viking Thor »

Affable Bear

  • Stubble
  • **
  • Posts: 102
  • Location: UK
  • Only if you run
Re: markets to drop 50% more?
« Reply #34 on: June 22, 2022, 01:39:10 AM »
In my case I will stay the course and stay invested. We could have already hit the low point, have another 10% drop or have another huge drop. No one knows. I will aim to stay employed and investing new money until the market takes off again we’ll into a new bull.

Thats the crux of the matter, the key is staying employed so you can continue buying the market. I think it only truly matters if you are on the cusp of or have recently just FIRE'd as it could hit your stash, I plan to do what I was doing last year and every year before that and put as much as I can in every month!

I do love the graphs, keep them coming :D

talltexan

  • Walrus Stache
  • *******
  • Posts: 5344
Re: markets to drop 50% more?
« Reply #35 on: June 22, 2022, 07:31:35 AM »
What you articulate here is the fragility around the moment of retirement. Normally, I'd say meeting that fragility with a higher bond % is the way to go, but it feels like bonds have gotten hammered over the last nine months because of rising interest rates.

bacchi

  • Walrus Stache
  • *******
  • Posts: 7056
Re: markets to drop 50% more?
« Reply #36 on: June 22, 2022, 07:58:33 AM »
What you articulate here is the fragility around the moment of retirement. Normally, I'd say meeting that fragility with a higher bond % is the way to go, but it feels like bonds have gotten hammered over the last nine months because of rising interest rates.

BND is down 12.8% but VTIP is down 3.7% and VGSH (short term treasuries) is down 4.4%. My portfolio can handle a withdrawal from that type of loss. It beats withdrawing from VTI with a 14.4% loss.

Adventine

  • Handlebar Stache
  • *****
  • Posts: 2424
  • Location: Memphis, USA
Re: markets to drop 50% more?
« Reply #37 on: June 22, 2022, 10:18:39 AM »
Related:

Dicey: Ooh, the markets are down 20%! Let's fund our 2022 Roths today.

Mr. Dicey: Nah, the markets are going to go down more.

[Dicey bangs head.]


Oh, Mr. Dicey! So when do you think he'll agree?

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 6633
Re: markets to drop 50% more?
« Reply #38 on: June 22, 2022, 11:32:42 AM »
I don't know what will happen but Grantham has been predicting a dire crash for over 10 years. And will keep predicting it.
It's 2022 now, so over 10 years ago means 2011 or before, which is around the time of the great financial crisis.  Yes, Jeremey Grantham predicted that 2007-2009 crash... but I would call that accurate rather than criticizing him when he's right.


So I don't care what he says.  I mean eventually we will have a major crash but I wouldn't look to Grantham.
He also predicted the Japan asset bubble back in the 1980s and the dot-com crash of 2000-2002.  It's not like he's continously wrong - he's predicted each major crash.


He has been wrong constantly for a.dozen years and people would be much poorer for taking his advice. eventually he will be right just like broken clock.
Do you have evidence he has "been wrong constantly for a.dozen years"?
You're saying he predicted a crash in 2010, or are you confusing his correct prediction of the 2007-2009 crash with something else?
Someone staying in cash and waiting for the -51% drop could have made +100% by timing the crash perfectly, which leaves a lot of room to profit even without timing it perfectly.


Maybe this will finally be the time. Regardless I'll stay invested and buy the stocks on sale if we see a huge drop.
Finally?  After Japan in the 1980s, the dot-com crash, and the global financial crisis... you seem to be ignoring everything he's called correctly.
Grantham has been bearish since Nov 2010. I’m not going to get into a back and forth, you are betting bear and would take me on for 1000 posts and back Grantham since he is bearish so I see no purpose in that.
Regarding your comment "you are a betting bear", the forum rules say "attack an argument not a person".  Make it about me personally and I'll report you for ignoring these forum rules.
https://forum.mrmoneymustache.com/forum-information-faqs/forum-rules/

Nov 2010 was less than a dozen years ago, but you claimed:
He has been wrong constantly for a.dozen years and people would be much poorer for taking his advice. eventually he will be right just like broken clock.

I'm asking you for evidence for your claims, like both that Grantham has been bearish "over 10 years" and evidence that Grantham has been bearish since Nov 2010.

PDXTabs

  • Walrus Stache
  • *******
  • Posts: 5160
  • Age: 40
  • Location: Vancouver, WA, USA
Re: markets to drop 50% more?
« Reply #39 on: June 22, 2022, 12:00:50 PM »
Regarding your comment "you are a betting bear", the forum rules say "attack an argument not a person".  Make it about me personally and I'll report you for ignoring these forum rules.
https://forum.mrmoneymustache.com/forum-information-faqs/forum-rules/

Asking you if you have made a bearish bet isn't attacking you, IMHO.


I'm asking you for evidence for your claims, like both that Grantham has been bearish "over 10 years" and evidence that Grantham has been bearish since Nov 2010.

Will you accept a New Yorker article calling him a "Perma-bear?"
https://www.newyorker.com/news/our-columnists/is-the-plunge-in-the-nasdaq-and-bitcoin-the-end-of-a-superbubble

EDITed to add (from above): Since at least 2011, he has been warning about a possible collapse in the S. & P. 500, which was then at about thirteen hundred.

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 6633
Re: markets to drop 50% more?
« Reply #40 on: June 22, 2022, 01:03:14 PM »
Regarding your comment "you are a betting bear", the forum rules say "attack an argument not a person".  Make it about me personally and I'll report you for ignoring these forum rules.
https://forum.mrmoneymustache.com/forum-information-faqs/forum-rules/
Asking you if you have made a bearish bet isn't attacking you, IMHO.
You deleted the context:
I’m not going to get into a back and forth, you are betting bear and would take me on for 1000 posts and back Grantham since he is bearish so I see no purpose in that.
How is that attacking an argument?


I'm asking you for evidence for your claims, like both that Grantham has been bearish "over 10 years" and evidence that Grantham has been bearish since Nov 2010.

Will you accept a New Yorker article calling him a "Perma-bear?"
https://www.newyorker.com/news/our-columnists/is-the-plunge-in-the-nasdaq-and-bitcoin-the-end-of-a-superbubble

EDITed to add (from above): Since at least 2011, he has been warning about a possible collapse in the S. & P. 500, which was then at about thirteen hundred.
Ah, that's interesting - that's what I was looking for, thanks.
That might start to explain why Mr Gratham retired...

I had previously only heard about his 2015-2016 prediction, which was wrong for the same reason he was wrong in 2021: the Fed.  When the Fed literally pumps trillions into the stock market, you don't get a crash until the money gets taken out.
Quote
In 2015, he said that the market was “ripe for a major decline” in 2016, a year in which the Dow Jones Industrial Average rose 13.4 per cent despite a rocky start

As the end of 2021 neared, I had leveraged exposure to the S&P 500 and bitcoin - I think it's fair to say I was bullish.  But I saw signs of trouble in Dec 2021, and sold off both.  From Nov 2021 to March 2022 I lost 7%, and then came across Mr Grantham's predictions 3 months ago, right after the yield curve inverted very, very briefly.  For whatever reason, Mr Grantham ignored Fed QE that was running from March 2020 to March 2022, and predicted a crash in 2021.

I've been bearish roughly 3 months.   I'm fine missing out on 2022 returns while I wait for a crash, which has made me +20% since turning bearish versus -10% for the S&P 500.  I think it's important to track against a benchmark, but my returns will probably slow down now that I have half my portfolio in cash again.

For me, the next two key events are (1) September Fed meeting and/or (2) the market falls 15% further from here (S&P 500 ETF "SPY" at $320/sh).  The Grantham prediction of 50% from here is possible but seems too unlikely for me to stay bearishly invested that far.

Viking Thor

  • Stubble
  • **
  • Posts: 186
Re: markets to drop 50% more?
« Reply #41 on: June 22, 2022, 01:47:10 PM »
I don't know what will happen but Grantham has been predicting a dire crash for over 10 years. And will keep predicting it.
It's 2022 now, so over 10 years ago means 2011 or before, which is around the time of the great financial crisis.  Yes, Jeremey Grantham predicted that 2007-2009 crash... but I would call that accurate rather than criticizing him when he's right.


So I don't care what he says.  I mean eventually we will have a major crash but I wouldn't look to Grantham.
He also predicted the Japan asset bubble back in the 1980s and the dot-com crash of 2000-2002.  It's not like he's continously wrong - he's predicted each major crash.


He has been wrong constantly for a.dozen years and people would be much poorer for taking his advice. eventually he will be right just like broken clock.
Do you have evidence he has "been wrong constantly for a.dozen years"?
You're saying he predicted a crash in 2010, or are you confusing his correct prediction of the 2007-2009 crash with something else?
Someone staying in cash and waiting for the -51% drop could have made +100% by timing the crash perfectly, which leaves a lot of room to profit even without timing it perfectly.


Maybe this will finally be the time. Regardless I'll stay invested and buy the stocks on sale if we see a huge drop.
Finally?  After Japan in the 1980s, the dot-com crash, and the global financial crisis... you seem to be ignoring everything he's called correctly.
Grantham has been bearish since Nov 2010. I’m not going to get into a back and forth, you are betting bear and would take me on for 1000 posts and back Grantham since he is bearish so I see no purpose in that.
Regarding your comment "you are a betting bear", the forum rules say "attack an argument not a person".  Make it about me personally and I'll report you for ignoring these forum rules.
https://forum.mrmoneymustache.com/forum-information-faqs/forum-rules/

Nov 2010 was less than a dozen years ago, but you claimed:
He has been wrong constantly for a.dozen years and people would be much poorer for taking his advice. eventually he will be right just like broken clock.

I'm asking you for evidence for your claims, like both that Grantham has been bearish "over 10 years" and evidence that Grantham has been bearish since Nov 2010.

You have numerous posts describing how you are betting on a bear market, unless I misunderstood.If this is not accurate that you are currently betting on a bear market I apologize. Either way it was not meant to be a personal attack.

There are numerous articles online describing Grantham as a permabear and the underpermance of his fund. One which PDX tabs pointed out, another I linked to in my previous post, and this one below with him telling people to have cash in Nov 2011 because the market is overvalued. I am not going to spend time gathering more. Essentially that is as my original point of someone is consistently bearish over many years  its not surprising that they now predict a crash.
https://www.cnbc.com/amp/2010/11/11/have-cash-wait-for-stocks-to-fall-jeremy-grantham.html

clifp

  • Pencil Stache
  • ****
  • Posts: 890
Re: markets to drop 50% more?
« Reply #42 on: June 22, 2022, 02:34:01 PM »
I don't know what will happen but Grantham has been predicting a dire crash for over 10 years. And will keep predicting it.
It's 2022 now, so over 10 years ago means 2011 or before, which is around the time of the great financial crisis.  Yes, Jeremey Grantham predicted that 2007-2009 crash... but I would call that accurate rather than criticizing him when he's right.


So I don't care what he says.  I mean eventually we will have a major crash but I wouldn't look to Grantham.
He also predicted the Japan asset bubble back in the 1980s and the dot-com crash of 2000-2002.  It's not like he's continously wrong - he's predicted each major crash.


He has been wrong constantly for a.dozen years and people would be much poorer for taking his advice. eventually he will be right just like broken clock.
Do you have evidence he has "been wrong constantly for a.dozen years"?
You're saying he predicted a crash in 2010, or are you confusing his correct prediction of the 2007-2009 crash with something else?
Someone staying in cash and waiting for the -51% drop could have made +100% by timing the crash perfectly, which leaves a lot of room to profit even without timing it perfectly.


Maybe this will finally be the time. Regardless I'll stay invested and buy the stocks on sale if we see a huge drop.
Finally?  After Japan in the 1980s, the dot-com crash, and the global financial crisis... you seem to be ignoring everything he's called correctly.

Grantham been a permabear as long as I've been aware of him in the 1990s.  You are correct his predictions have been good, the problem is if he ever changed to a bull, I sure missed it. I think what passes for bullish sentiment in Grantham, was IIRC  in 2009 he stopped predicting the market would drop 50% soon.

Let's compare that to Warren Buffett, he was very bearish starting in 1999, bullish around 2003.  I believe, he like I, completely missed the housing crisis.  He was very bullish starting in 2008, and I was very bullish in 2009.  Buffett become a bond bear, a decade ago with his "bonds are return-free risk", and cautious about the market for the last several years.

If you follow Grantham, and a friend of mine did, you have a lot of gold, and while you've missed all the bear markets, you've also missed the bull markets.  If you follow Buffett, you got out of tech stocks in 2000, the best move I've made in my life.  You got into real estate around 2011.  Warren specifically said beaten down markets, Florida, Vegas, the Inland Empire,  and you've been out of bonds for the last decade.  But for the most part, you've been fully invested.

Berkshire Hathaway has not been a fabulous investment in the last 20 years, but it does well in bear markets, and good enough in bull markets, since he took over the company, from 1965 to the end of 2021, 20.1% CAGR.   This is not a fluke, especially when he was younger.

roomtempmayo

  • Handlebar Stache
  • *****
  • Posts: 1142
Re: markets to drop 50% more?
« Reply #43 on: June 22, 2022, 02:58:31 PM »

Will you accept a New Yorker article calling him a "Perma-bear?"
https://www.newyorker.com/news/our-columnists/is-the-plunge-in-the-nasdaq-and-bitcoin-the-end-of-a-superbubble


I find the arguments that the financialization of the economy starting in the 80s and really accelerating over the past 20 years is inherently unsustainable interesting, even if I'm not sure they're right.

Rana Foroohar at the Financial Times has long been making the argument that the present paradigm is running out of room to run in compelling and accessible ways.  She just did an interview with Ezra Klein that's good listening: https://www.nytimes.com/2022/06/17/opinion/ezra-klein-podcast-rana-foroohar.html

The question her arguments imply to me is whether we're just in a garden variety market correction, or whether the Fed isn't going to backstop markets this time, and valuations return back to fundamentals where earnings aren't juiced by buybacks and other cheap money interventions.  I don't know the answer, but a world of a correction followed by a quick rebound seems much different than a decade of 6%+ interest rates, earnings declining by 25-50%, and stocks then lingering below a PE of 15.

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 6633
Re: markets to drop 50% more?
« Reply #44 on: June 23, 2022, 10:03:49 AM »
I don't know what will happen but Grantham has been predicting a dire crash for over 10 years. And will keep predicting it.
It's 2022 now, so over 10 years ago means 2011 or before, which is around the time of the great financial crisis.  Yes, Jeremey Grantham predicted that 2007-2009 crash... but I would call that accurate rather than criticizing him when he's right.


So I don't care what he says.  I mean eventually we will have a major crash but I wouldn't look to Grantham.
He also predicted the Japan asset bubble back in the 1980s and the dot-com crash of 2000-2002.  It's not like he's continously wrong - he's predicted each major crash.


He has been wrong constantly for a.dozen years and people would be much poorer for taking his advice. eventually he will be right just like broken clock.
Do you have evidence he has "been wrong constantly for a.dozen years"?
You're saying he predicted a crash in 2010, or are you confusing his correct prediction of the 2007-2009 crash with something else?
Someone staying in cash and waiting for the -51% drop could have made +100% by timing the crash perfectly, which leaves a lot of room to profit even without timing it perfectly.


Maybe this will finally be the time. Regardless I'll stay invested and buy the stocks on sale if we see a huge drop.
Finally?  After Japan in the 1980s, the dot-com crash, and the global financial crisis... you seem to be ignoring everything he's called correctly.
Grantham has been bearish since Nov 2010. I’m not going to get into a back and forth, you are betting bear and would take me on for 1000 posts and back Grantham since he is bearish so I see no purpose in that.
Regarding your comment "you are a betting bear", the forum rules say "attack an argument not a person".  Make it about me personally and I'll report you for ignoring these forum rules.
https://forum.mrmoneymustache.com/forum-information-faqs/forum-rules/

Nov 2010 was less than a dozen years ago, but you claimed:
He has been wrong constantly for a.dozen years and people would be much poorer for taking his advice. eventually he will be right just like broken clock.

I'm asking you for evidence for your claims, like both that Grantham has been bearish "over 10 years" and evidence that Grantham has been bearish since Nov 2010.

You have numerous posts describing how you are betting on a bear market, unless I misunderstood.If this is not accurate that you are currently betting on a bear market I apologize. Either way it was not meant to be a personal attack.

There are numerous articles online describing Grantham as a permabear and the underpermance of his fund. One which PDX tabs pointed out, another I linked to in my previous post, and this one below with him telling people to have cash in Nov 2011 because the market is overvalued. I am not going to spend time gathering more. Essentially that is as my original point of someone is consistently bearish over many years  its not surprising that they now predict a crash.
https://www.cnbc.com/amp/2010/11/11/have-cash-wait-for-stocks-to-fall-jeremy-grantham.html
I hoped the focus was on the evidence rather than me, but I apologize since that was an  exaggeration on my part.  I find Mr Grantham interesting and his claims worth considering, but I value contrary evidence even more.

I really appreciate the article - it was more painful than I realized.  Yes, he was predicting a crash in 2010, but his comments focused on the Fed.  For him to ignore the power of Fed money after comments like that is really disappointing:

“The Fed has spent most of the last 15, 20 years manipulating the stock market, whenever they feel the economy needs a bit of a kick,”
(from that link)

In 2010 the Fed was still firmly in QE mode, meaning any crash would have to fight the Fed.  What I thought was an oversight on his part now looks more like a blind spot for the money the Fed injects into markets.  And I'll flip on Mr Grantham and criticize him for 2020-2021: he knew the Fed & Congress saved the economy - and the markets - from a crash.  He knew the power of Fed bond buying ("quantitative easing")... and yet he predicted a crash for most of 2021.

In light of the above, I'm afraid my view of Mr Grantham changes.
To quote from the Shawshank Redemption:
Quote
Andy Dufresne: How can you be so obtuse?
Warden Samuel Norton: What? What did you call me?
Andy Dufresne: Obtuse. Is it deliberate?
https://www.imdb.com/title/tt0111161/quotes/qt0470707

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 6633
Re: markets to drop 50% more?
« Reply #45 on: June 23, 2022, 10:18:55 AM »
Grantham been a permabear as long as I've been aware of him in the 1990s.  You are correct his predictions have been good, the problem is if he ever changed to a bull, I sure missed it. I think what passes for bullish sentiment in Grantham, was IIRC  in 2009 he stopped predicting the market would drop 50% soon.

Let's compare that to Warren Buffett, he was very bearish starting in 1999, bullish around 2003.  I believe, he like I, completely missed the housing crisis.  He was very bullish starting in 2008, and I was very bullish in 2009.  Buffett become a bond bear, a decade ago with his "bonds are return-free risk", and cautious about the market for the last several years.

If you follow Grantham, and a friend of mine did, you have a lot of gold, and while you've missed all the bear markets, you've also missed the bull markets.  If you follow Buffett, you got out of tech stocks in 2000, the best move I've made in my life.  You got into real estate around 2011.  Warren specifically said beaten down markets, Florida, Vegas, the Inland Empire,  and you've been out of bonds for the last decade.  But for the most part, you've been fully invested.

Berkshire Hathaway has not been a fabulous investment in the last 20 years, but it does well in bear markets, and good enough in bull markets, since he took over the company, from 1965 to the end of 2021, 20.1% CAGR.   This is not a fluke, especially when he was younger.
If you'll permit me to remove context, my views on Mr Grantham changed as a result of this thread, so I'm making a fresh start.  Until I stumble across information that says when Mr Grantham was buying equities, it's reasonable to assume he's been permanently bearish.

Warren Buffet is a very skilled investing legend who beat the S&P 500 for decades.  One of the top investment models in academia is the "five factor model", where two of the factors come from closely observing how Warren buffet invests.  If academics are using factors of small, value, Buffet and Munger - that's certainly an achievement for the duo.

I have two criticisms of Buffet, neither of which should matter to someone with Berkshire shares.  I've encoutered a few articles which conclude Buffet is effectively investing with leverage around 1.6x, which should be factored in when praising Buffet.  It's not 100% security selection, but also leverage which creates those returns.  A mitigating factor is that he's had about 1.6x leverage for decades, so he's clearly quite responsible with leverage.

The other problem I have being I can't decipher what he's doing from what he says.  After the March 2020 crash, I assumed Buffet was buying up distressed stocks like I was, and Buffet even said something like "never bet against America".  He's an investor, and I assumed that meant keep investing in American stocks... but it didn't.  He dumped his entire 9% ownership of United Airlines at a significant loss.  His cash position grew... I don't understand how to reconcile his statements with his actions, so for purposes of information, I can't listen to what Warren Buffet says to make active investment decisions.

For me, it was much more profitable following my own advice to buy beaten up stocks after the -35% drawdown from Feb to Mar 2020.  Some retail & travel stocks lost over 2/3rds of their value, while tech stocks benefitted from everyone spending more time online.  I made a very good profit on Spirit Airlines (SAVE) call options, for example - meaning I was buying near the time when Buffet was selling.  So for me in 2020-2021, the best investment decision of my life was investing in the opposite direction to Warren Buffet.

Affable Bear

  • Stubble
  • **
  • Posts: 102
  • Location: UK
  • Only if you run
Re: markets to drop 50% more?
« Reply #46 on: June 24, 2022, 03:30:07 AM »
For me, it was much more profitable following my own advice to buy beaten up stocks after the -35% drawdown from Feb to Mar 2020.  Some retail & travel stocks lost over 2/3rds of their value, while tech stocks benefitted from everyone spending more time online.  I made a very good profit on Spirit Airlines (SAVE) call options, for example - meaning I was buying near the time when Buffet was selling.  So for me in 2020-2021, the best investment decision of my life was investing in the opposite direction to Warren Buffet.

I agree that whilst useful to listen to any famed investor you should always base your investment choices based on your own research, beliefs and personal circumstances. Buffet is a positive force in encouraging people to open up to investing but I wouldnt copy or base my decisions on what he or anybody else says or does.

I'm not one for keeping up with large trades, although I did see Buffet dropping his 9% stake in the news. I guess to see the full picture it would be useful to see what he did with that cash and did it result in a better return than if he had held United Airlines. In the UK the travel sector is still suffering, shortage of workers, cancelled flights and massive queues in airports etc... Not sure what its like in the US but I imagine there will be volitility here in the UK for a while.

vand

  • Handlebar Stache
  • *****
  • Posts: 2305
  • Location: UK
Re: markets to drop 50% more?
« Reply #47 on: June 24, 2022, 03:55:19 AM »
Let's evaluate the possibilities with some quick math and a thought experiment.

Current stock market PE ratio: 18.57
https://www.multpl.com/s-p-500-pe-ratio

Price falls 20%, earnings flat: PE = ~15
Price falls 50%, earnings flat: PE =  ~9

Price falls 20%, earnings fall 20%: PE = ~18
Price falls 50%, earnings fall 20%: PE = ~11

Note that I'm only modeling no-recession or  mild-recession scenarios. S&P 500 earnings fell over 82% between 2006 and 2008. That's why basically all earnings-based stock valuation methods go in the trash during a severe recession; you're just chasing an earnings number down and stock prices look more and more expensive as the price falls.

This dynamic leads to all sorts of "stocks are still too expensive" claims in the financial media, even near the bottom. IMO, the thing to do in such cases is to look at the latest pre-recession year for earnings, and ask if you would want to buy the index at today's price if earnings were still that number. Granted, it may take 5 years to get back to that earnings number, but it'll happen. If a purchase today will be seen as a bargain 5 years from now, then today is the time to buy. 

Back to those hypothetical PE ratios. Under what circumstances would the market be unwilling to buy stocks for a PE ratio in the low teens or even single digits? Under what circumstances would we be unwilling to buy? I might pass on the opportunity to buy stocks at a PE of 15 if I could instead earn 7-8% in ten year or twenty year treasuries. The earnings yield minus the risk-free rate would be too low to pass on that opportunity. Another scenario I can think of is civil war or the overthrow of the US government, which would send me into the Euro and Yen.

To me, that's the gist of it. The forecasters need to assume long-term interest rates are going from 3.25% to about 7.25% if valuations are going to drop to the levels they're talking about. It does not make sense to own stocks if you think rates are rising in that direction. Likewise, it does not make sense to predict 20-50% price drops from here if you don't think rates are going waaaay up. Hence the importance of the discussion at https://forum.mrmoneymustache.com/investor-alley/inflation-interest-rates-share-your-data-sources-models-and-assumptions/

Profit margins have never been higher, and its likely they will mean-revert to some degree as inflation kicks in and interest rates increase the the cost of capital to businesses.
So while current/backward market P/E may seem sensible, they may not continue to be as the denominator in the P/E number takes a nosedive...

So are you leaning more towards scenario 3 in ChpBstrd's post?  I think that seems likely.

Probably, yeah, but I don't think we need a further 50% correction from our current position to whack things back in line (although I wouldn't rule it out either), as companies can and will offset falling margins by growing their sales volumes.

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 6633
Re: markets to drop 50% more?
« Reply #48 on: June 25, 2022, 04:38:32 AM »
For me, it was much more profitable following my own advice to buy beaten up stocks after the -35% drawdown from Feb to Mar 2020.  Some retail & travel stocks lost over 2/3rds of their value, while tech stocks benefitted from everyone spending more time online.  I made a very good profit on Spirit Airlines (SAVE) call options, for example - meaning I was buying near the time when Buffet was selling.  So for me in 2020-2021, the best investment decision of my life was investing in the opposite direction to Warren Buffet.

I agree that whilst useful to listen to any famed investor you should always base your investment choices based on your own research, beliefs and personal circumstances. Buffet is a positive force in encouraging people to open up to investing but I wouldnt copy or base my decisions on what he or anybody else says or does.

I'm not one for keeping up with large trades, although I did see Buffet dropping his 9% stake in the news. I guess to see the full picture it would be useful to see what he did with that cash and did it result in a better return than if he had held United Airlines. In the UK the travel sector is still suffering, shortage of workers, cancelled flights and massive queues in airports etc... Not sure what its like in the US but I imagine there will be volitility here in the UK for a while.

https://finance.yahoo.com/news/warren-buffet-berkshire-hathaway-divests-104213818.html
https://www.cnbc.com/2020/05/02/warren-buffett-says-berkshire-sold-its-entire-position-in-airlines-because-of-the-coronavirus.html

Berkshire announced it had sold 1/6th of its Delta Airlines stake in early April, and by the end of April had sold all its airline holdings.  I'll be generous and use the highest closing price in April, on April 15.

stock, April 15 price ... now
UAL 31.86   ("United") ... 38.51 = +20.9%
DAL 24.35 ("Delta") ... 31.20 = +28.1%
LUV 32.82 ("Southwest") ... 37.73 = +15.0%
BRK-A 283,750.00 ("Berkshire") ... 417,401.00 = +47.1%

Someone who bought UAL, DAL or LUV on April 15 2020 did much worse than someone who bought Berkshire shares.  Not actually what I expected, but interesting still.

Wow... just checked on Spirit Airlines (SAVE), April 15 2020 to now:
SAVE 13.76 ("Spirit Airlines") ... 24.52 = +78.2%

EscapeVelocity2020

  • Magnum Stache
  • ******
  • Posts: 4815
  • Age: 50
  • Location: Houston
    • EscapeVelocity2020
Re: markets to drop 50% more?
« Reply #49 on: June 25, 2022, 12:29:04 PM »
Let's evaluate the possibilities with some quick math and a thought experiment.

Current stock market PE ratio: 18.57
https://www.multpl.com/s-p-500-pe-ratio

Price falls 20%, earnings flat: PE = ~15
Price falls 50%, earnings flat: PE =  ~9

Price falls 20%, earnings fall 20%: PE = ~18
Price falls 50%, earnings fall 20%: PE = ~11
...

I prefer CAPE - https://www.multpl.com/shiller-pe

Prices could drop ~40% for current CAPE of 28 to reach the mean / median ~16.

I also get worried by all these young investors blindly buying the dip.  I had to learn the hard way in March 2000 not to fight the Fed.

Another week of significant gains - short term Yay!  Longer term, nothing has changed.  I think this sucks for young investors that want to buy in at a potentially reasonable discount...  When the Fed allows markets to stay near their high, younger less sophisticated investors suffer, which isn't good for the system.  Just my 2 cents.

 

Wow, a phone plan for fifteen bucks!