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Stock Market Crash?

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29K views 160 replies 45 participants last post by  ChadBarton26  
#1 ·
#2 ·
I think it is bound to happen eventually. The stock market is a house of cards waiting to collapse. That said, they have done a good job of propping it up for years and it just keeps getting bigger. The problem with that is as we all know the bigger something is, the harder it can fall.

My strategy, invest in material goods that will be worth something in a SHTF world.
 
#3 ·
Watch junk bonds, and the emerging markets.

Depending on what you read (and believe) global debt is around 250T.

As a whole EM's have a debt to GDP raito of 3.5:1 and about 65T of total debt in those nations.

Those debts are serviced in US dollars. As the dollar strengthens, that will make servicing those debts more difficult.

Where JNK comes in is the fed is going to start unwinding its assets that its been collecting since 2008. Those assets are lots of treasuries and stocks... As treasuries enter the market, that will push up yields. Do you want to get paid 5% for JNK, or 4% for US bonds?

When junk bonds start to unwind, that signals a credit crisis....

the question is why are the markets discounting rates so much?
 
#4 ·
Crash, I don't know about. That implies a panic and precipitate plunge that has people jumping out of skyscraper windows.

Major bear market, where prices keep dropping and there is prolonged despair: Oh yeah. In fact, Trump himself predicted during the campaign we'd get that during the term of the next President and that meant whoever was elected had to know what to do. He used that as an argument for himself. So I'd say, it's coming. But 'when' and 'How bad' are the questions.

As for strategies, that depends on the investor, and their risk tolerance. For those who think "It's only money" and have confidence, bear markets are great! You can pick up stock cheap, knowing that in a few years it will be worth much more. For those more timid / pessimistic, or with shorter time lines, the thing to do once you're convinced a major downturn is coming is, get out. Sell, switch your 401k plan to bonds, flee the market NOW. Yes, you'll lose paper profits as the market continues going up. You'll also avoid losing your actual profits when the market starts going down and freefalls past the point where we are, now. Cash, bonds, maybe some gold are what those want. If you don't want to leave the market entirely perhaps value stocks like Google, or mutual funds can be a refuge. But keep in mind, in a bear market, all stocks tend to do badly.

Also keep in mind, free investment advice is worth what you pay for it. :thumb:
 
W
#7 ·
No one has been able to reliably predict which direction the market will go. Nobody. So don't bother.

If you're uncomfortable with taking on stock risk, then you have three options:
  1. Don't invest in stocks.
  2. Reduce the proportion of stocks in your portfolio.
  3. Using a technique like trend following to reduce your downside risk (this is what I do).
 
#34 ·
Trump suspended the debt ceiling last month, allowing the government to borrow an unlimited amount this next year. For the first time, US national debt just hit $21 trillion.

While the propaganda apparatus in corporate media is filling the airwaves with he-said she-said and left-right polarization, the bottom-line is that the Republicrats control both the Legislative AND Executive Branches and THEY want to borrow an unlimited amount of money.

Whatever happened to the fiscally responsible conservative? If a Dim wanted unlimited ability to borrow, people would be all over him.

Anyway, the damage of this guaranteed to hit the stock market sooner or later. Someone will have to pony up, and they usually kick the can down the road on younger people, or dramatically hike taxes on the working/middle-class. They won't close off-shoring tax loopholes or dial back the wars, that much is certain. So consumer spending + borrowing is going to take a hit.
 
#38 ·
aramchek said:
Trump suspended the debt ceiling last month, allowing the government to borrow an unlimited amount this next year. For the first time, US national debt just hit $21 trillion.
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I have mixed feelings on this, but. The problem is that most have not adjusted to the idea of fiat money. The paradigms of payment and debt limits are from days of hard currency such as gold standards. There is no limit to the amount of debt the government can issue.

The concern that always comes up, that the next generation will pay for this is a fallacy. For one, it has not happened. The other, since a government doesn't die like a person, that next generation is never held accountable.

I don't like this ever increasing debt burden, but if you go back to the 80's the discussions were the same, with smaller numbers, but here we are a generation and a half later...

aramchek said:
Whatever happened to the fiscally responsible conservative? If a Dim wanted unlimited ability to borrow, people would be all over him.
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I agree 100%. Congress needs to make a budget. I also am tired of them taking my earned money and spending it on things I don't agree with.

aramchek said:
Anyway, the damage of this guaranteed to hit the stock market sooner or later.
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It all ready has. It is seen in inflated share prices. When you look at the ledger, if there is a debt there is also a deposit some place else. If the government is writing checks, where do you think all that money is? It's not magic it has to balance out -21T from the government = +21 T to the private sector accounts.


aramchek said:
Someone will have to pony up, and they usually kick the can down the road on younger people, or dramatically hike taxes on the working/middle-class.
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When people wrap their heads around the concept of fiat, they can mint a hockey puck sized coin and stamp it $21T dollars, and mail it to China... Then the only way that payment has any usefulness for China is to send it back to the US for goods and services.

For reference the US consumer debt is around 13T and mortgage debt 8T. So if one were to be concerned with inflation in the fiat market that would happen by paying off debts, then one would need to look no further than the fractional reserve system and how little inflation exists today.

However, since most still don't understand fiat, they will elect those who don't understand it, and encourage some likely default like altering the Social Security age requirements, just as they did in the past.


EDIT: It's not the bust you should fear, but the boom. The boom leads to malinvesetment which ends in a bust.
 
#45 ·
I don't think you answered the asymmetrical problem. They supposedly can print up funny money at-will, but they still feel the need to tax REAL labor/wealth.

The answer is that there are limits to their fiat debt, and inflation is a possibility. As for taxing real money (based on labor inputs by real human beings, not arbitrary fiat printed money supply), it could be that George Orwell hit it upon the head. They want people to have enough energy to run on the treadmill, to keep them just at the edge of debt, so they continue to work -- and borrow. Permanently in debt, if possible.

If most people were genuine capitalists, and therefore had no need to trade their labor for wealth generation, then they'd be difficult to control.

From my generation's perspective (Gen-X), most of us have no pension -- but rely on institutional mutual funds. I have very little choice in where to invest through my employer's plan, mainly just Fidelity and Vanguard in slightly different balances of the same dinosaur Fortune-500 companies. No bear funds, and no ability to short individual stocks.

So other asymmetry with fiat vs. the stock market is that most people who rely heavily on their employer's plans cannot profit from a bear/short situation. There are people well-positioned for pump-and-dump, short-and-distort gimmickry, so one man's crash and loss of his life's savings -- is a windfall to outfits like Goldman-Sachs.
 
#46 ·
What you write holds a lot of truth, but I did answer the question. it has to do with a lack of understanding of fiat.

There is a need to pay back the debt, but there is no need to continue borrowing. We are still stuck in the old paradigm of a gold/silver standard but we are using fiat currency.

The effect of debt repayment is reduction of the money supply.

Every dollar in society is based on the back of debt.

Every dollar paid back, is one less dollar able to be used to buy goods and services.

Interest when priced fairly is the statistical chance of default

Interest on loans keeps inflation at bay because default does not allow for the shrinking of the money supply. Therefore the little extra everyone else pays allows for the destruction of the dollars created through a default loan.

As interest increases, it removes more money from circulation through the destruction of money and a reduced desire to take out a load and create money.

Now the real question you need to consider is the federal cycle of money...

Treasury needs money. Treasury issues bonds. Fed holds the auction. Private sector takes $98 and give it to the FED. Fed passes money to the treasury. Private sector holds the loan note + Interest. Then the treasury repays $100. Then repeat cycle. The same person keeps given the government $98, and keeps paying back $100. The same dollar keeps getting recycled with interest. How is a government able to repay a debt that is always larger than the total available loanable funds in the monetary system?

See you incorrectly believe the government fiat is making the money, but what you need to understand is each dollar is based on a base loan + interest (Private and Govt). With each cycle the loaned money is fewer in numerical value than the dollar amount repaid.

If you are against my idea of printing the trillion dollar coin, then how do you propose paying off a debt, that is always more than the total money in the system?


PS/EDIT:
Forgot to mention the other half of the equation you wanted answered... taxes are also the destruction of the dollar. to contain inflation. Government spending has no correlation to taxes (revenue). When taxes increase, it draws money out of the system, when taxes decrease it allows more money to stay in the system. When inflation seems to be taking hold, taxes increase, when stimulus is needed, taxes are reduced. The purpose of taxes is to curb inflation.
 
W
#48 ·
If you're looking for a reason not to invest in stocks, you'll always find one.

The single best predictor of whether stocks will go into a bear market is whether we're in a recession, and the single best predictor of recessions is the unemployment rate. Currently, we're still below the 12 month moving average for unemployment, indicating a high likelihood that we are not in a recession. Stocks may still be volatile, but it's very unlikely that we'll see a 30-50% drop outside of a recession.

Another excellent early-warning signal of recessions is the Conference Board Leading Economic Index, which takes ten different variables into account. It's been used for decades with success by trend followers.

The Conference Board Leading Economic Index® (LEI)for theU.S. increased 0.6 percent in February to 108.7 (2016 = 100), following a 0.8 percent increase in January, and a 0.7 percent increase in December.

“The U.S. LEI rose again, despite a sharp downturn in stock markets and weakness in housing construction in February,” said Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board. “The LEI points to robust economic growth throughout 2018. Its six-month growth rate has not been this high since the first quarter of 2011. While the Federal Reserve is on track to continue raising its benchmark rate for the rest of the year, the recent weakness in residential construction and stock prices – important leading indicators - should be monitored closely.”
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https://www.conference-board.org/data/bcicountry.cfm?cid=1
 
#60 ·
Stocks don't seem to be reacting kindly to the idea of a trade war, though the Fortune-100 decoupled somewhat from the reality of Main Street a couple decades ago. So many of these companies rely on communist labor/factories, sweatshops, India, etc. that their plight and ours may or may not be directly correlated. Maybe even inversely related in some cases.

That said, if American consumers have to pay more at the Big Box for Chinese imports, that'll also mean more sales tax collected -- a function of the price per transaction. Very interesting times ahead.
 
#64 ·
aramchek said:
Stocks don't seem to be reacting kindly to the idea of a trade war,
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We've been in a trade war for many years... Only now that we're hitting back it it's a problem.

We can live without a new Iphone, but China can't live without the revenue.

aramchek said:
So many of these companies rely on communist labor/factories, sweatshops, India, etc. that their plight and ours may or may not be directly correlated.
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Correct. We buy a lot more than we sell to those countries.

aramchek said:
That said, if American consumers have to pay more at the Big Box for Chinese imports, that'll also mean more sales tax collected -- a function of the price per transaction.
Click to expand...
Prior to income tax, this is how the government generated revenue... import taxes and tariffs. It worked well for a few hundred years, globalization is what ushered in the change.

aramchek said:
Very interesting times ahead.
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Agreed. Through all this ITA is up about 1% when the market is down 1%.... things that make ya go hummm.

Keep your eye on JNK ... that's going to go bust when EM's can't pay back their loans...
 
N
#68 ·
Over the years I've learned several things about the stock market:

1. It always goes up or down

2. Nobody can reliably predict big moves either direction, except after a crash (see #3)

3. Market crashes (small to medium ones) are usually followed (a year or two later) by big gains, which may be the only reasonably sure way to make big money from crashes. Namely stay out until after a crash happens, then buy in.

4. #3 is also known as, "Buy low, sell high".
 
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