Author Topic: The market doesnt HAVE to crash  (Read 12052 times)

boarder42

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The market doesnt HAVE to crash
« on: April 27, 2017, 02:52:56 PM »
Just wanted to put this out there see what other ideas of are ways the market can come back to earth without a real crash.

Some i've heard thrown around here and some i've thought of

1. earnings grow faster than the market prices
2. 2008 and 2009 - terrible PE years artificially inflating the shiller come off the books the next 2 years on the 10 year shiller look back
3. the market could just go flat for a year with stable to up earnings and the indicators all come back in line
4. their is piles of money still sitting in bonds that is coming back to the market still
5.  As indexing grows in popularity wild market swings become less of a norm.

what do you guys think..

i'd like a crash to see how i react when 500k drops to 300k but stable growth over time works too

TheAnonOne

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Re: The market doesnt HAVE to crash
« Reply #1 on: April 27, 2017, 02:58:27 PM »
Presumably, it could sit flat for 15 years, there is no reason to assume panic will take over and the market will tank.

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sirdoug007

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Re: The market doesnt HAVE to crash
« Reply #2 on: April 27, 2017, 03:57:37 PM »
6. Massive corporate tax cuts provide major boost to corporate earnings.

I've heard there are some politicians interested in making this happen.


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secondcor521

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Re: The market doesnt HAVE to crash
« Reply #3 on: April 27, 2017, 04:03:40 PM »
Regarding #5, if indexing increases in popularity, that would increase, not decrease the volatility of the market.  I don't think that's going to happen, though, so I don't worry about it.

Another possibility:

7.  The market continues to go up for a while longer because the market dips around August 2015 and January 2016 represent an unheralded correction/reset and we are only about a year into the "next" bull market.(1)  This is my preferred analysis but I haven't seen anyone else suggest it.  This goes against the standard view that the "current" bull market dates back to March 2009 and thus is "long in the tooth" or "tired".

My 2 cents.

(1) This next bull market may be fueled by the new economic policies being proposed / enacted by the current federal government, as described by the previous poster.  I think this is more likely than not to be true.

SwordGuy

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Re: The market doesnt HAVE to crash
« Reply #4 on: April 27, 2017, 04:09:05 PM »
6. Massive corporate tax cuts provide major boost to corporate earnings.

I've heard there are some politicians interested in making this happen.


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Erosion of labor protections cause wages to plummet, offsetting any corporate profits from lower taxes.

sirdoug007

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The market doesnt HAVE to crash
« Reply #5 on: April 27, 2017, 04:13:21 PM »
6. Massive corporate tax cuts provide major boost to corporate earnings.

I've heard there are some politicians interested in making this happen.


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Erosion of labor protections cause wages to plummet, offsetting any corporate profits from lower taxes.

Wouldn't lower labor costs be good for corporate profits? 

Maybe bad for the economy but the economy and the stock market do not always move together.

Also I'm not saying any of the proposed policy is good or bad just that it is being actively pursued.


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bacchi

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Re: The market doesnt HAVE to crash
« Reply #6 on: April 27, 2017, 09:23:31 PM »
Wouldn't lower labor costs be good for corporate profits? 

Maybe bad for the economy but the economy and the stock market do not always move together.

Lower wages means people buy fewer consumables. Companies like Apple and Samsung and Amazon feel the pinch, causing decreases in corporate revenue, causing the market to slide.

AdrianC

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Re: The market doesnt HAVE to crash
« Reply #7 on: April 28, 2017, 05:25:28 AM »
2. 2008 and 2009 - terrible PE years artificially inflating the shiller come off the books the next 2 years on the 10 year shiller look back

If we do an 8-year CAPE we are still over 30. About what it was in '29.

https://dqydj.com/shiller-pe-cape-ratio-calculator/

Perhaps we are at a "permanently high plateau" as far as valuations go. But that does mean forward returns have to be lower than we have come to expect, unless growth is much higher than we have seen for a long time.

Real Returns = Shareholder yield + growth + change in valuation = 2 + 2 + 0 = 4% real.

Substitute your own numbers...





JAYSLOL

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Re: The market doesnt HAVE to crash
« Reply #8 on: April 28, 2017, 06:56:13 AM »
2. 2008 and 2009 - terrible PE years artificially inflating the shiller come off the books the next 2 years on the 10 year shiller look back


Real Returns = Shareholder yield + growth + change in valuation = 2 + 2 + 0 = 4% real.

Substitute your own numbers...


10 + 12 + 8 = 30%

I substituted some random numbers

boarder42

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Re: The market doesnt HAVE to crash
« Reply #9 on: April 28, 2017, 07:20:34 AM »
2. 2008 and 2009 - terrible PE years artificially inflating the shiller come off the books the next 2 years on the 10 year shiller look back


Real Returns = Shareholder yield + growth + change in valuation = 2 + 2 + 0 = 4% real.

Substitute your own numbers...


10 + 12 + 8 = 30%

I substituted some random numbers

holy shit

time to go sell all my shit and live in a van down by the river.  gotta get in on those gains.

DavidAnnArbor

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Re: The market doesnt HAVE to crash
« Reply #10 on: April 28, 2017, 08:10:33 AM »
If there is a tax holiday for repatriation of corporate cash outside the US, that cash would likely lead to a stock buy back which puts upward pressure on stock prices.

talltexan

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Re: The market doesnt HAVE to crash
« Reply #11 on: April 28, 2017, 08:12:24 AM »
posting to follow...good luck, guys!

boarder42

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Re: The market doesnt HAVE to crash
« Reply #12 on: April 28, 2017, 09:02:29 AM »
adrian thats a cool calculator i didnt know exisited.  doing a 7 year look back it drops substantially to 27PE.  which is over 50% less inflated than we are right now assuming 25 to be a norm based on kitces work with the shiller PE and comparing it to SWRs.

PathtoFIRE

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Re: The market doesnt HAVE to crash
« Reply #13 on: April 28, 2017, 09:37:04 AM »
Can't remember where I read it, probably on a post in this forum, but weren't corporate earning unusually low in 2008/2009? That accounts for at least a portion of the elevated CAPE 10, and once the Great Recession years drop to more than 10 years in the past, without changing any of the inputs in the equation, CAPE 10 will come down somewhat.


DavidAnnArbor

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Re: The market doesnt HAVE to crash
« Reply #14 on: April 28, 2017, 11:02:12 AM »
2. 2008 and 2009 - terrible PE years artificially inflating the shiller come off the books the next 2 years on the 10 year shiller look back

If we do an 8-year CAPE we are still over 30. About what it was in '29.

https://dqydj.com/shiller-pe-cape-ratio-calculator/

Perhaps we are at a "permanently high plateau" as far as valuations go. But that does mean forward returns have to be lower than we have come to expect, unless growth is much higher than we have seen for a long time.

Real Returns = Shareholder yield + growth + change in valuation = 2 + 2 + 0 = 4% real.

Substitute your own numbers...

Re: the calculator.  Are we sure the numbers and underlying data that it uses are correct.  I plugged in 1 year, and got a PE ratio of 50.34.  I thought the PE ratio (ttm) for the S& P 500 was about 25 right now.  Thoughts?  Inflation has been really low of the past year so I don't think inflation adjustment would change the PE that much.

Wow that does seem extreme !

Monkey Uncle

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Re: The market doesnt HAVE to crash
« Reply #15 on: April 29, 2017, 05:12:01 AM »

7.  The market continues to go up for a while longer because the market dips around August 2015 and January 2016 represent an unheralded correction/reset and we are only about a year into the "next" bull market.(1)  This is my preferred analysis but I haven't seen anyone else suggest it.  This goes against the standard view that the "current" bull market dates back to March 2009 and thus is "long in the tooth" or "tired".


I've had that same thought.  US small caps and many non-US equity markets experienced a bona-fide bear market during that time frame.

boarder42

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Re: The market doesnt HAVE to crash
« Reply #16 on: April 29, 2017, 09:28:09 AM »

7.  The market continues to go up for a while longer because the market dips around August 2015 and January 2016 represent an unheralded correction/reset and we are only about a year into the "next" bull market.(1)  This is my preferred analysis but I haven't seen anyone else suggest it.  This goes against the standard view that the "current" bull market dates back to March 2009 and thus is "long in the tooth" or "tired".


I've had that same thought.  US small caps and many non-US equity markets experienced a bona-fide bear market during that time frame.

I like this thought I've had it cross my mind as well

AdrianC

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Re: The market doesnt HAVE to crash
« Reply #17 on: April 30, 2017, 08:58:42 PM »
2. 2008 and 2009 - terrible PE years artificially inflating the shiller come off the books the next 2 years on the 10 year shiller look back


Real Returns = Shareholder yield + growth + change in valuation = 2 + 2 + 0 = 4% real.

Substitute your own numbers...


10 + 12 + 8 = 30%

I substituted some random numbers

Yes, I see that!

Now, why not try putting in some justifiable numbers and see the result?

I assume that you can't justify a 10% shareholder yield, for example.

kenaces

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Re: The market doesnt HAVE to crash
« Reply #18 on: April 30, 2017, 10:32:12 PM »

i'd like a crash to see how i react when 500k drops to 300k but stable growth over time works too

Lots of better ways to test your mental toughness :)

Most investor don't do well in these big bears especially the one who aren't diversified.

As far as the market - I don't have a clue

talltexan

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Re: The market doesnt HAVE to crash
« Reply #19 on: May 01, 2017, 09:09:28 AM »
Large businesses benefit from a strong economy, but they also benefit from regulatory favoritism and cronyism that allow them to market up prices and transfer well-being from customers. Consumers are worse off in this world, while share prices are increasing.

jjcamembert

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Re: The market doesnt HAVE to crash
« Reply #20 on: May 01, 2017, 12:45:42 PM »
If the market's moves are represented in a normal distribution then it will, given enough time, make down moves (i.e. crashes) outside of 1 standard deviation 16% of the time, and can expect 2 standard deviation down moves 2% of the time, etc.

So the market doesn't have to crash (now), but it will about 2% of the time. But it could also rise heavily 2% of the time. To me, this really simplifies the question of "will the market crash" because I have trouble keeping up with, understanding, or knowing the relevance of all the ratios and measures out there.

I just found this article which details how many of each standard deviation moves the market has had, and it actually argues that a normal distribution isn't a good fit; we've actually had more big moves than expected in a normal distribution. https://sixfigureinvesting.com/2016/03/modeling-stock-market-returns-with-laplace-distribution-instead-of-normal/

taiwwa

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Re: The market doesnt HAVE to crash
« Reply #21 on: May 07, 2017, 08:30:18 AM »
In my opinion the thinking in this thread confuses somewhat the cause and effect of stock prices, the economy, and earnings and how they interrelate.

Everytime is see a post that implies stocks are overvalued because the market is at a high or because of some outdated notion of what a 'good PE' is I cringe a little.

Stocks are valued at what the market thinks future earnings will deliver to shareholders.  They are neither cheap, nor expensive.  They are priced exactly at the point where buyers and sellers agree.  This is by definition.

What can change stock prices is not one single thing, it is the condition of the world's business economy.   Profit will not exactly track to expectations, so the prices will constantly adjust, as information about the world appears.  So avoiding a crash means avoiding volatility of the future, because it is future reality which shapes markets, not some invisible random number generator.

So, yes there are thousands of reasons to be optimistic.  Huge oil reserves can be discovered, new tech invented.  There are also thousands of reasons to be pessimistic.  Global climate change, war, trade laws, etc.

Absent these, american managed companies tend to be decently managed (decent governance plus b-school type mgmt skills) and earn a steady profit above the cost of capital or are shut down.   In aggregate this earns the average growth we observe in markets, plus the spikes from innovators who grow fast.

What is the future?  No one knows, but we can all speculate.

I think that if the stock market were entirely made up of domestic US investors who intuitively are familiar with the society here, the rational price would apply. But there are a lot of foreign investors who put money in for reasons other than rational analysis of market conditions.

taiwwa

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Re: The market doesnt HAVE to crash
« Reply #22 on: May 08, 2017, 02:31:59 PM »

I think that if the stock market were entirely made up of domestic US investors who intuitively are familiar with the society here, the rational price would apply. But there are a lot of foreign investors who put money in for reasons other than rational analysis of market conditions.
True.  But doesnt te surplus capital of foreign investors represent a valid force?  Because they have capital and are seeking perceived value, they are willing to pay a higher valuation.  Their valuation is a rational one, hence the price rises.  Sad for a local investor if they feel they are 'priced out of stocks due to high PE ratio, but it is like Toronto RE.  Dont buy the foreign goods if you dont want the profits coming back as investor capital.

That said, the genie is out if the bottle in terms of capital markets being global.  Thats been a done deal since the 70s.

No, surplus capital of foreign investors is often seeking safe haven. Case in point is TenCent buying Tesla stock. The big story of the past five years is how capital is fleeing China for political reasons. While I'm sure TenCent might justify the purchase of Tesla stock as an astute investment, also a factor likely is getting money out of the Chinese market however possible.

Yes, Genie is out of the bottle. I remember when Dow Jones 1000 was a big deal. Still, it seems like money seeking safe haven in the United States has accelerated since the 2000's.

BreakTheChains

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Re: The market doesnt HAVE to crash
« Reply #23 on: May 09, 2017, 10:16:50 AM »

I think that if the stock market were entirely made up of domestic US investors who intuitively are familiar with the society here, the rational price would apply. But there are a lot of foreign investors who put money in for reasons other than rational analysis of market conditions.
True.  But doesnt te surplus capital of foreign investors represent a valid force?  Because they have capital and are seeking perceived value, they are willing to pay a higher valuation.  Their valuation is a rational one, hence the price rises.  Sad for a local investor if they feel they are 'priced out of stocks due to high PE ratio, but it is like Toronto RE.  Dont buy the foreign goods if you dont want the profits coming back as investor capital.

That said, the genie is out if the bottle in terms of capital markets being global.  Thats been a done deal since the 70s.

No, surplus capital of foreign investors is often seeking safe haven. Case in point is TenCent buying Tesla stock. The big story of the past five years is how capital is fleeing China for political reasons. While I'm sure TenCent might justify the purchase of Tesla stock as an astute investment, also a factor likely is getting money out of the Chinese market however possible.

Yes, Genie is out of the bottle. I remember when Dow Jones 1000 was a big deal. Still, it seems like money seeking safe haven in the United States has accelerated since the 2000's.
Maybe I dont understand your point.

The global economy creates wealth through economic activity. 

The surplus capital (wealth above what is needed to reinvest in operations) seeks to be applied productively, so it acquires attractive assets, including stocks.  This creates buyers in the market and if folks are willing to sell transactions occur.

How are wealthy Chinese any different from Jethro from The Beverly Hillbillies? Oil money from Arab Sheiks, banking money from London Financial Traders, South African Diamond money, Russian Maffia profits from software hackers, Natendos Pokemon Go windfall profits, The Gates Foundation seeking to invest its capital, etc.  It all gets thrown into the mix.

Of course Chinese seek to diversify their wealth.  They are now buying into the global economy, funded by their growth, and it is about time.  Good for them.  That was one if the goals of their reorganized economy:  wealth creation, growing economic influence, etc. (i was there when the first western management consulting firm set up shop in Bejing...its been planned for decades).  A good read is The Wealth of Nations by Adam Smith.  Throw in Triad Power by one of my old bosses.  These books are a bit dated, but the fundamentals remain the same.  Capital is like water seeking its level.  A force. 

These booms, followed by  distributions into equities are not anomolies, they are our global system (for good or ill).  This is how the economy works. 

Frankly, i would be worried is Chinese were not buying.  By buying we cement together our mutual interests in a way that dramatically reduces the risk of global war, the one event that truely tends to tank economies and destroy assets.

Beautiful post. One counterpoint I'd like to add regarding "foreign safe harbor investments distorting market prices". IF people are saying that this investment is driving stock prices to be "overvalued" (whatever that means), an efficient market would mean that other rational investments would sell / short the stock in equal numbers, generating profits that would be invested elsewhere in undervalued assets. Hence the "leveling" effect of the market. Does this happen perfectly? No, but over time this lumpiness tends to correct itself.

ChpBstrd

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Re: The market doesnt HAVE to crash
« Reply #24 on: May 10, 2017, 02:21:35 PM »
Low interest rates and the availability of index funds have driven bond investors into stocks. That's more or less the entire story. If you've ever heard of the CAPM, you know that stock valuation is a function of interest rates. At a 2% discount rate, the equation returns today's valuations.

Great Orange Leader is doing all he can to stoke inflation: threatening government shutdowns and debt defaults (er... "renegotiation"), attempting to start wars, and promising to fund government and a North American Great Wall of China with entirely borrowed money. Meanwhile, employment had risen to almost full-employment levels before G.O.L. ever came along, and rising wages are alleged to be on the way.

Rates will rise someday. And the effect on stocks will be significant.

taiwwa

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Re: The market doesnt HAVE to crash
« Reply #25 on: May 10, 2017, 03:25:25 PM »

I think that if the stock market were entirely made up of domestic US investors who intuitively are familiar with the society here, the rational price would apply. But there are a lot of foreign investors who put money in for reasons other than rational analysis of market conditions.
True.  But doesnt te surplus capital of foreign investors represent a valid force?  Because they have capital and are seeking perceived value, they are willing to pay a higher valuation.  Their valuation is a rational one, hence the price rises.  Sad for a local investor if they feel they are 'priced out of stocks due to high PE ratio, but it is like Toronto RE.  Dont buy the foreign goods if you dont want the profits coming back as investor capital.

That said, the genie is out if the bottle in terms of capital markets being global.  Thats been a done deal since the 70s.

No, surplus capital of foreign investors is often seeking safe haven. Case in point is TenCent buying Tesla stock. The big story of the past five years is how capital is fleeing China for political reasons. While I'm sure TenCent might justify the purchase of Tesla stock as an astute investment, also a factor likely is getting money out of the Chinese market however possible.

Yes, Genie is out of the bottle. I remember when Dow Jones 1000 was a big deal. Still, it seems like money seeking safe haven in the United States has accelerated since the 2000's.
Maybe I dont understand your point.

The global economy creates wealth through economic activity. 

The surplus capital (wealth above what is needed to reinvest in operations) seeks to be applied productively, so it acquires attractive assets, including stocks.  This creates buyers in the market and if folks are willing to sell transactions occur.

How are wealthy Chinese any different from Jethro from The Beverly Hillbillies? Oil money from Arab Sheiks, banking money from London Financial Traders, South African Diamond money, Russian Maffia profits from software hackers, Natendos Pokemon Go windfall profits, The Gates Foundation seeking to invest its capital, etc.  It all gets thrown into the mix.

Of course Chinese seek to diversify their wealth.  They are now buying into the global economy, funded by their growth, and it is about time.  Good for them.  That was one if the goals of their reorganized economy:  wealth creation, growing economic influence, etc. (i was there when the first western management consulting firm set up shop in Bejing...its been planned for decades).  A good read is The Wealth of Nations by Adam Smith.  Throw in Triad Power by one of my old bosses.  These books are a bit dated, but the fundamentals remain the same.  Capital is like water seeking its level.  A force. 

These booms, followed by  distributions into equities are not anomolies, they are our global system (for good or ill).  This is how the economy works. 

Frankly, i would be worried is Chinese were not buying.  By buying we cement together our mutual interests in a way that dramatically reduces the risk of global war, the one event that truely tends to tank economies and destroy assets.

Beautiful post. One counterpoint I'd like to add regarding "foreign safe harbor investments distorting market prices". IF people are saying that this investment is driving stock prices to be "overvalued" (whatever that means), an efficient market would mean that other rational investments would sell / short the stock in equal numbers, generating profits that would be invested elsewhere in undervalued assets. Hence the "leveling" effect of the market. Does this happen perfectly? No, but over time this lumpiness tends to correct itself.

While the definition of "corruption" is pliable, generally I do believe that there is simply so much foreign money coming into the United States that it kind of overwhelms any countervailing rational action.

In China, since Xi Jinping has taken office, there has been a humongous crackdown on "corruption" in China. Much of it is indeed embezzlement, much of it is less so, much is hazy. Nonetheless, China, and elsewhere, the inflows from the elite of those countries has a significant effect on the valuation in my opinion.

Which is fine. I'd argue it is in the national interest of the United States to have this huge stock market valuation where foreigners throw their capital. It is in the national interest for the United States to be a playground for the rich. But most students I talk to about the stock market simply don't see the rationality in valuations. Something else is going on here.

There are also other factors which I am omitting. Zero percent interest rates for the period after 2008 resulted in the money going to the stock market. Reinflating it was the strategy for recovery by the central bank. But all combined, and the traditional value investor who dutifully pores over number tables doesn't work now like it did in the past.

ChpBstrd

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Re: The market doesnt HAVE to crash
« Reply #26 on: May 10, 2017, 08:38:42 PM »
Low interest rates and the availability of index funds have driven bond investors into stocks. That's more or less the entire story. If you've ever heard of the CAPM, you know that stock valuation is a function of interest rates. At a 2% discount rate, the equation returns today's valuations.

Great Orange Leader is doing all he can to stoke inflation: threatening government shutdowns and debt defaults (er... "renegotiation"), attempting to start wars, and promising to fund government and a North American Great Wall of China with entirely borrowed money. Meanwhile, employment had risen to almost full-employment levels before G.O.L. ever came along, and rising wages are alleged to be on the way.

Rates will rise someday. And the effect on stocks will be significant.

So will the effect on bonds.
A valid perspective, but the doom and gloom for markets is in a foot race with productivity gains and windfall value creation via technology, communications, energy, materials, biotech, and process innovations.

Who knows how it plays out?
..which is why I'm concerned about the minimal amount spent on R&D these days. Productivity has been relatively flat since the personal computer entered the market. Where will the productivity gains come from? The next big puppy photo / sexting app? The iphone 10?

International trade was once the other rationale, but the international rise of protectionism seems to counter that narrative.

secondcor521

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Re: The market doesnt HAVE to crash
« Reply #27 on: May 10, 2017, 10:37:30 PM »
Productivity has been relatively flat since the personal computer entered the market.  Where will the productivity gains come from?

Cite?

OECD data indicate that from 1981 (introduction of the IBM PC) to 2015 US productivity has gone from a level of 60 to over 100, which is about a 67% increase.

https://data.oecd.org/lprdty/gdp-per-hour-worked.htm

My answer to your second question, not that I really have a dog in the fight, is that technology will continue to permeate additional industries and geographies and populations for the next 60 to 100 years.  Medicine.  Transportation.  Agriculture.  Retail.  India.  China.  South America.  Central America and Africa, eventually.  To the degree that US companies provide those technologies and products, they're going to pay off.

talltexan

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Re: The market doesnt HAVE to crash
« Reply #28 on: May 11, 2017, 08:42:55 AM »
There are deep thinkers who agree that--absent some new unforeseen innovation--growth will slow in the near future: see https://www.ted.com/talks/robert_gordon_the_death_of_innovation_the_end_of_growth

Robert Gordon is a Macroeconomics Professor at Northwestern, very much in the mainstream. (disclosure: I TA'd for Dr. Gordon years ago, there is no way he would ever remember who I was)

Scortius

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Re: The market doesnt HAVE to crash
« Reply #29 on: May 11, 2017, 10:49:15 AM »
Maybe a stupid question, but hasn't the phrase "absent some unforeseen innovation" always been the case?  Hell, 20 years ago we barely had the Internet.

talltexan

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Re: The market doesnt HAVE to crash
« Reply #30 on: May 12, 2017, 07:09:15 AM »
I agree with your point, but your 20-year figure is slightly off...https://en.wikipedia.org/wiki/High_Performance_Computing_Act_of_1991


PDXTabs

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Re: The market doesnt HAVE to crash
« Reply #31 on: May 17, 2017, 08:56:52 AM »
Please find attached one graph from www.yardeni.com/pub/stmkteqmardebt.pdf.

It's going to crash, the only question is when, and how much higher it will go first.

flyersman

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Re: The market doesnt HAVE to crash
« Reply #32 on: May 17, 2017, 10:43:33 AM »
Please find attached one graph from www.yardeni.com/pub/stmkteqmardebt.pdf.

It's going to crash, the only question is when, and how much higher it will go first.
Can you explain the graph?

fattest_foot

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Re: The market doesnt HAVE to crash
« Reply #33 on: May 17, 2017, 11:49:40 AM »
It's going to crash, the only question is when, and how much higher it will go first.

I mean, this is kind of a easy statement to make, since it's just how the market works.

What in the hell is that graph supposed to be telling me though? I'm having trouble drawing any meaningful conclusions from it.

secondcor521

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Re: The market doesnt HAVE to crash
« Reply #34 on: May 17, 2017, 01:01:46 PM »
It's going to crash, the only question is when, and how much higher it will go first.

I mean, this is kind of a easy statement to make, since it's just how the market works.

What in the hell is that graph supposed to be telling me though? I'm having trouble drawing any meaningful conclusions from it.

It's obvious.  The red line and blue line are friends.  Possibly drunk.

acroy

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Re: The market doesnt HAVE to crash
« Reply #35 on: May 17, 2017, 01:32:00 PM »
The market takes the escalator up, and the elevator down. Mr Market suffers from irrational exuberance, complacency, followed by neurosis.
Bring on the crash - one more bust & boom, and I'm set!

DavidAnnArbor

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Re: The market doesnt HAVE to crash
« Reply #36 on: May 17, 2017, 01:38:00 PM »
The bust might be starting today.

PDXTabs

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Re: The market doesnt HAVE to crash
« Reply #37 on: May 17, 2017, 09:39:18 PM »
I mean, this is kind of a easy statement to make, since it's just how the market works.

Please see title of post.

What in the hell is that graph supposed to be telling me though? I'm having trouble drawing any meaningful conclusions from it.

That the SP 500 is at a record high, but so it the amount of SP 500 that has been purchased on margin. There is ~40% more margin debt than in 2007, right before the last big crash.

Monkey Uncle

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Re: The market doesnt HAVE to crash
« Reply #38 on: May 18, 2017, 04:34:16 AM »
I mean, this is kind of a easy statement to make, since it's just how the market works.

Please see title of post.

What in the hell is that graph supposed to be telling me though? I'm having trouble drawing any meaningful conclusions from it.

That the SP 500 is at a record high, but so it the amount of SP 500 that has been purchased on margin. There is ~40% more margin debt than in 2007, right before the last big crash.

And the index level is about 50% higher than it was in 2007.  The only thing the graph shows is that people take on more margin debt while the market is rising, and they reduce margin debt while the market is falling.  One would expect margin debt to be higher now than it was in 2007, because the index is also higher.  If you were to express margin debt as a percent of total market cap, and then show that it reached X percent right before the last three crashes, that might have some predictive power.  But as it stands now, the graph has no predictive power at all.

boarder42

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Re: The market doesnt HAVE to crash
« Reply #39 on: May 18, 2017, 06:28:44 AM »
I mean, this is kind of a easy statement to make, since it's just how the market works.

Please see title of post.

What in the hell is that graph supposed to be telling me though? I'm having trouble drawing any meaningful conclusions from it.

That the SP 500 is at a record high, but so it the amount of SP 500 that has been purchased on margin. There is ~40% more margin debt than in 2007, right before the last big crash.

And the index level is about 50% higher than it was in 2007.  The only thing the graph shows is that people take on more margin debt while the market is rising, and they reduce margin debt while the market is falling.  One would expect margin debt to be higher now than it was in 2007, because the index is also higher.  If you were to express margin debt as a percent of total market cap, and then show that it reached X percent right before the last three crashes, that might have some predictive power.  But as it stands now, the graph has no predictive power at all.

plus 2007 was a crash due to the housing mortgage crisis not due to high valuations.

PDXTabs

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Re: The market doesnt HAVE to crash
« Reply #40 on: May 18, 2017, 07:55:51 AM »
And the index level is about 50% higher than it was in 2007.  The only thing the graph shows is that people take on more margin debt while the market is rising, and they reduce margin debt while the market is falling.  One would expect margin debt to be higher now than it was in 2007, because the index is also higher.  If you were to express margin debt as a percent of total market cap, and then show that it reached X percent right before the last three crashes, that might have some predictive power.  But as it stands now, the graph has no predictive power at all.

Well, if you click on the link that I posted you will find a graph of the Wilshire 5000 as a percentage of the index. For the Wilshire 5000 we have surpassed margin debt from the .com bubble and are close to matching 2007 debt levels. I'm not sure about the SP 500.

PS - I'm still buying stocks, but I fully expect them to go down a lot in the next 3 years.
PPS - Using margin debt to predict when the market is over-bought is very new and we only have two real data points to look at (.com and 2007). Give it 28 more crashes and we'll know more.
« Last Edit: May 18, 2017, 08:04:30 AM by PDXTabs »

PDXTabs

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Re: The market doesnt HAVE to crash
« Reply #41 on: May 18, 2017, 08:34:14 AM »
The chart is a nonsequetor.  Its like saying when home sales increase total outstanding korgage debt increases.

But surely as part of the business cycle you reach a point of debt saturation, be it consumer, business, or margin debt? You don't have to agree with me, but consumer debt just passed 2008 levels at around the same time as margin debt. I'm not saying the correction will come tomorrow, but I am saying that this cycle is getting long in the tooth.

boarder42

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Re: The market doesnt HAVE to crash
« Reply #42 on: May 18, 2017, 10:23:26 AM »
The chart is a nonsequetor.  Its like saying when home sales increase total outstanding korgage debt increases.

But surely as part of the business cycle you reach a point of debt saturation, be it consumer, business, or margin debt? You don't have to agree with me, but consumer debt just passed 2008 levels at around the same time as margin debt. I'm not saying the correction will come tomorrow, but I am saying that this cycle is getting long in the tooth.

or it doesnt have to correct.  2015 was a semi correction ... could just be flat for the next 12 months and that would line everything back up.  or war could start with korea and we get a crash. or war could start with korea and the market goes up.

Monkey Uncle

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Re: The market doesnt HAVE to crash
« Reply #43 on: May 18, 2017, 07:13:13 PM »
And the index level is about 50% higher than it was in 2007.  The only thing the graph shows is that people take on more margin debt while the market is rising, and they reduce margin debt while the market is falling.  One would expect margin debt to be higher now than it was in 2007, because the index is also higher.  If you were to express margin debt as a percent of total market cap, and then show that it reached X percent right before the last three crashes, that might have some predictive power.  But as it stands now, the graph has no predictive power at all.

Well, if you click on the link that I posted you will find a graph of the Wilshire 5000 as a percentage of the index. For the Wilshire 5000 we have surpassed margin debt from the .com bubble and are close to matching 2007 debt levels. I'm not sure about the SP 500.

PS - I'm still buying stocks, but I fully expect them to go down a lot in the next 3 years.
PPS - Using margin debt to predict when the market is over-bought is very new and we only have two real data points to look at (.com and 2007). Give it 28 more crashes and we'll know more.

If you're referring to figure 2 in the article (margin debt as a percent of the Wilshire 5000), that graph also appears to have no predictive power.  The level of that graph at the bear market bottom in early 2009 was approximately the same as it was at the top of the bubble in 2000.  And it has stayed higher than the level of the 2000 bubble ever since, except for a brief trough in late 2012.

I don't see any actionable patterns in any of the other graphs at that link, either.  While they all show peaks corresponding to the 2000 and 2007 market tops, they've also given false "crash" signals a couple of times since.