Is the next crash inevitable or has anything changed?

BrokenArrows

Historically there has been a sequence of crash - recovery - crash - recovery

87,98,00,08,17? Plenty more going back hundreds of years.

Has anything in the markets really changed to make them less prone to another crash or are we all doomed to continue to repeat the same cycle of crashes every 10ish years.

Plenty of new rules in the banks, more oversight and regulation but the brexit vote proved the markets are still capable of massive down swings when unexpected news occurs or some strange market oddities such as the 2010 US Flash Crash.

Is another recession inducing crash inevitable in 2017,18,19?

Nody

Of course there will be another crash; remember that what drives crashes on a very high level point of view is simply that assets (i.e. shares etc.) gets overpriced and the economy slows down no longer being able to sustain that speculation. As economies grows and shrinks (and they do over time) the stock markets will go up and down as well. Now the level of fluctuation may change with rules and political actions but the general ebb and flow will never stop as long as there is any way, in any form, to speculate on the future. You can go back hundreds of years to tulip speculation, if a ship would manage to get to India for spices etc. so it's not like there's something new in that ebb and flow of value and speculation.

For ever odd

Is another recession inducing crash inevitable in 2017,18,19?

A more important sub question is - do you know what do if, and when it happens?

Nody covers this very broad spectrum nicely.

TimeToShine

Saw three mortgage adverts in one 5 minute ad break on RTE. Crash in 3 years.

The Duke of Moral Hazard

The Duke of Moral Hazard

Some very good political economy analysis here:

dxhound2005

BrokenArrows wrote: »

Historically there has been a sequence of crash - recovery - crash - recovery

87,98,00,08,17? Plenty more going back hundreds of years.

Has anything in the markets really changed to make them less prone to another crash or are we all doomed to continue to repeat the same cycle of crashes every 10ish years.

Plenty of new rules in the banks, more oversight and regulation but the brexit vote proved the markets are still capable of massive down swings when unexpected news occurs or some strange market oddities such as the 2010 US Flash Crash.

Is another recession inducing crash inevitable in 2017,18,19?

It's every 5ish. 47 crashes / recessions / depressions in the USA since 1785.

https://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States

I have never understood the concept of recovery in Ireland. Unless someone can point me to a time since 1922 that they would want to recover back to economically. We had a continuous recession from 1922 to 1997.

If anyone wants the 1997 to 2007 model back, then fair enough, but it would be bound to crash again.

BrokenArrows

The Duke of Moral Hazard wrote: »

Some very good political economy analysis here:

Sounds like the biggest crash is just ahead!

BrokenArrows

For ever odd wrote: »

A more important sub question is - do you know what do if, and when it happens?

Depends on where my investments are at the time and how quick the crash occurs.
If i obviously miss the full whack of the crash there is not much point in doing anything and just wait it to recover over the next few years.

Personally i believe something big is likely to happen in the next few years so might move my pension into a Cash fund at some point but its sitting in the gold price recovery at the moment.

The fund choices ive made have done very well the last few years so i can step away for a few years while still maintaining a very good average yearly return.
Standard life have a Cash pension fund which is guaranteed by them not to go negative. So a bit of a relaxing safe haven for a short period of time to see what happens.

Whats everyones safe haven/plan?

The Duke of Moral Hazard

Interesting reading, hard to say what the world will look like if the dollar looses its place as the world's reserve currency:

http://www.zerohedge.com/news/2016-12-27/things-make-you-go-hmm-death-petrodollar-and-what-comes-after

dxhound2005

The Duke of Moral Hazard wrote: »

Interesting reading, hard to say what the world will look like if the dollar looses its place as the world's reserve currency:

http://www.zerohedge.com/news/2016-12-27/things-make-you-go-hmm-death-petrodollar-and-what-comes-after

Interesting author, Tyler Durden, the main character in Fight Club.

http://uk.businessinsider.com/the-men-behind-zero-hedge-have-been-unmasked-2016-4

Amirani

For sure there'll be another crash.

Much of the post-crisis work has been focused on limiting the potential severity of the crash - particularly with regard to large systemically important financial institutions. Whether measures taken will be enough remains to be seen, but they should help. Still the possibility of large sovereign debt crises also that we didn't see to any great degree last time round. Far more susceptible to these now also due to the large amounts of liabilities built up in advanced economies when they bailed out their banking systems.

Prezatch

Decent article here from Dave McWilliams on the current economic outlook - http://www.davidmcwilliams.ie/2017/01/11/why-trump-and-brexit-wont-spoil-2017-for-ireland

Dohnjoe

The Duke of Moral Hazard wrote: »

Interesting reading, hard to say what the world will look like if the dollar looses its place as the world's reserve currency:

http://www.zerohedge.com/news/2016-12-27/things-make-you-go-hmm-death-petrodollar-and-what-comes-after

Zerohedge is a financial doomsday conspiracy site (there's a large market for this) unsurprisingly it's blog authors predict crashes and financial armageddon scenarios every other week

Dohnjoe

Amirani wrote: »

For sure there'll be another crash.

Much of the post-crisis work has been focused on limiting the potential severity of the crash - particularly with regard to large systemically important financial institutions. Whether measures taken will be enough remains to be seen, but they should help. Still the possibility of large sovereign debt crises also that we didn't see to any great degree last time round. Far more susceptible to these now also due to the large amounts of liabilities built up in advanced economies when they bailed out their banking systems.

Indeed. Not to say it won't happen but we are far better prepared than we were in 2007.

zpehtsfd

Quoting Zerohedge AND David McWilliams? Damn knew i should have gone all-in Long. :pac:

Boatlake

I think QE should go a long way towards buffering any crash.
That with circuit breakers and opportunistic bottom feeders taking time out to reassess entry levels.
The stock market is not as exposed now as it was in 2008.

Throw in Dodd Frank as long as its there. Basel too.

But what do I know?
What do any of us know?
Wish I had a crystal ball.

BrokenArrows

Boatlake wrote: »

I think QE should go a long way towards buffering any crash.
That with circuit breakers and opportunistic bottom feeders taking time out to reassess entry levels.
The stock market is not as exposed now as it was in 2008.

Throw in Dodd Frank as long as its there. Basel too.

But what do I know?
What do any of us know?
Wish I had a crystal ball.

There is only so much QE that can be done.
Whats going to happen when they stop or try and unload the bonds they have bought up. Thats more likely to be the cause of the crash than anything.

Boatlake

You may be right.
QE could in theory go on forever. It's an unlimited perpetual IOU.

But issuance will continue in any case and debt purchased by Central Banks
will surely be held to maturity as things stand.

Lessons have been learned even if it took the ECB a while to get on board.
A bond market sell off would in all likelihood be stock market positive.
That would be my trade.

It will be tricky when they do start to phase out QE and that might create volatility.
But it's some time away I think.

Nody

Boatlake wrote: »

I think QE should go a long way towards buffering any crash.
That with circuit breakers and opportunistic bottom feeders taking time out to reassess entry levels.
The stock market is not as exposed now as it was in 2008.

QE has been used in some form since 1940s; it does not stop the crash but simply reduce the overall negative effect of it when they happen. It also helps push for future crashes by making to much money available which goes into the bubbles.

Throw in Dodd Frank as long as its there. Basel too.

Dodd Frank is going soon; Basel will only partially protect "normal" banks but once again those where not driving the crash )see 1929 crash causing a huge credit contraction which exacerbated the issue). Remember that even during the sub prime crash the actual default rate was low (7% or so first year) but what crashed it was the lack of confidence between banks and the valuation of securities which meant no one trusted anyone's valuation on anything.

What do any of us know?
Wish I had a crystal ball.

We have had crashes for as long as we've had a financial system with possibility to guess future value of items; about the only thing that is true is that the crash will come. Before the Dot com crash for example people were talking about how we had hit a new high PE plateau which was going to last forever and PE values of 70+ was now to be considered normal. That will go as well then as it will go for us in the future; the only question is when, not if, the correction and crash comes.

It can be purely financial driven that the reports no longer motivate the high PE values (this would the nicest crash), it can be Trump driven (damage dependent on how stupid his damage is), it can be terrorist attack driven, it can be China's dodgy second hand bank sector that causes it (this one would be a world of pain event with currently 4 trillion USD in the shadow bank sector which could cause revolution and war in China) but one thing is for sure that when it hits this time it's going to be a bad one. Why? Because everyone who'd normally be more bond focused (i.e. insurance companies, pension funds etc.) have had to go stock market to get the returns the require which means more capital is invested than normally should be invested and two of the world's economies have serious legislation issues (USA and China respectively) while several smoldering pit fires (see European loan percentage France and south, see Greece still not sorted out, see Argentina & Brazil, see Japan, see ME countries etc.)

petethedrummer

Dohnjoe wrote: »

Zerohedge is a financial doomsday conspiracy site (there's a large market for this) unsurprisingly it's blog authors predict crashes and financial armageddon scenarios every other week

I love this description...

It's essentially apocalypse porn. It has accurately predicted 200 of the last 2 recessions.

http://rationalwiki.org/wiki/Zero_Hedge

The Duke of Moral Hazard

Any thoughts of the current state of the property market and how a potential down turn in the markets might impact residential property prices?


The following is suggesting we are approaching bubble territory:

The Demographia study analysed the third quarter of 2016 and placed Dublin's 'median multiple' – the median house price divided by the median household income – at 4.7, up from 3.3 in 2011. Looking ahead, it predicted that "Dublin could be headed towards the severe unaffordability reached during the housing bust in 2008".

http://www.newstalk.com/Dublin-property-heading-for-severe-unaffordability

diomed

My guess is the Dow will fall from 20,700 now to about 10,000. Cash is king. There will be plenty of bargains around 2020.

Cute Hoor

diomed wrote: »

My guess is the Dow will fall from 20,700 now to about 10,000. Cash is king. There will be plenty of bargains around 2020.

Other than the 2009 crash the Dow has been above 10,000 for the last 20 years. What makes you think it will collapse back down to 10,000. In what timeframe do you see this happening.

diomed

Cute Hoor wrote: »

Other than the 2009 crash the Dow has been above 10,000 for the last 20 years. What makes you think it will collapse back down to 10,000. In what timeframe do you see this happening.

Date Hi/Lo DJIA % move Year +/- yrs
08/08/96 low 24.36 1,896.7
17/06/01 high 57.33 135 1,901.5 4.8
09/11/03 low 30.88 -46 1,903.9 2.4
21/11/16 high 110.15 257 1,916.9 13.0
24/08/21 low 63.90 -42 1,921.7 4.8
08/09/29 high 381.17 497 1,929.8 8.1
08/07/32 low 41.22 -89 1,932.6 2.8
10/03/37 high 194.40 372 1,937.3 4.7
28/04/42 low 92.92 -52 1,943.3 6.1
29/05/46 high 212.50 129 1,946.4 3.1
13/06/49 low 161.60 -24 1,949.5 3.1
02/08/56 high 520.95 222 1,956.7 7.2
22/10/57 low 419.79 -19 1,957.8 1.2
13/12/61 high 734.91 75 1,962.0 4.2
26/06/62 low 535.76 -27 1,962.5 0.5
09/02/66 high 995.15 86 1,966.2 3.7
26/05/70 low 631.16 -37 1,970.4 4.3
11/01/73 high 1051.70 67 1,973.1 2.7
06/12/74 low 577.60 -45 1,975.0 1.9
21/09/76 high 1014.79 76 1,976.8 1.8
28/02/78 low 742.12 -27 1,978.2 1.4
27/04/81 high 1024.05 38 1,981.3 3.2
12/08/82 low 776.92 -24 1,983.7 2.3
25/08/87 high 2722.42 250 1,987.7 4.0
19/10/87 low 1738.74 -36 1,987.8 0.2
16/07/90 high 2999.75 73 1,990.6 2.8
11/10/90 low 2365.10 -21 1,990.8 0.3
17/07/98 high 9337.97 295 1,998.6 7.8
31/08/98 low 7539.07 -19 1,998.7 0.1
14/01/00 high 11722.98 55 2,000.1 1.4
09/10/02 low 7286.27 -38 2,002.8 2.8
09/10/07 high 14164.53 94 2,007.8 5.0
09/03/09 low 6547.05 -54 2,009.3 1.4
24/02/17 high 20810.32 318 2,015.4 6.2


Above is an extract from an Excel file I keep and occasionally update.
The numbers speak.

Another indicator
World Bank / data section
Market capitalization of listed domestic companies (% of GDP) USA
http://data.worldbank.org/indicator/CM.MKT.LCAP.GD.ZS?locations=US
In plain English, this is the stock market values of all USA companies compared to the GDP of the USA.
Do you buy shares when the stock market is valued more than the economy or less than the economy?

diomed

Oops the last columns should be Year 2017.3 and "+/- yrs" should be 8.0 not 6.2.

diomed

To save people doing tedious calculations:
the average market fall from highs was 37.5%
if the DJIA fell the average 37.5% from 20,810 now it would go to 12,995
if the DJIA fell the recent 53.8% from 20,810 now it would go to 9,618

if you click the World Bank data link above you will see that
in 2006 USA shares were 141.2% of GDP
in 2008 USA shares were 78.7% of GDP
in 2015 USA shares were 139.0% of GDP
(DJIA was about 18,100 in 2015, in 2017 it is 20,800 so that 139.0% could be up around 159.7%)

Question: Is the next crash inevitable or has anything changed?
My answer: Bigly

Benzino

With the aid of a FA, was going to set up a pension and lump sum investment, but not sure after reading this thread now ha!

Nody

Benzino wrote: »

With the aid of a FA, was going to set up a pension and lump sum investment, but not sure after reading this thread now ha!

Long term Benzino time in market is the most valuable thing rather than individual stocks as long as you go for a broad index fund. Trying to time if the crash comes tomorrow or in a year is impossible.

Benzino

Nody wrote: »

Long term Benzino time in market is the most valuable thing rather than individual stocks as long as you go for a broad index fund. Trying to time if the crash comes tomorrow or in a year is impossible.

Yeah that makes sense, and in fairness if I don't do it now, I never will in fear of a crash happening.

Thargor

Im sitting on 100k waiting for entry but I just cant bring myself to do it, it just feels like something is coming.

Merowig

Timing the market is a bad idea:


http://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/
http://www.cnbc.com/2015/08/27/the-inspiring-story-of-the-worst-market-timer-ever.html

Thargor

I know, this time just feels different though, need to watch what happens with QE and various other things for the next while before I decide.

arkrow

Thargor wrote: »

I know, this time just feels different though, need to watch what happens with QE and various other things for the next while before I decide.

Haven't you been holding on for years now?? Or it that someone else on here??

Thargor

Coming up on a year Id say alright. I was going to go for a house of my own instead of paying rent and get a couple of lodgers in to get the 14k rent a room tax free every year but prices have gotten out of range now and Im back to looking for other forms of return now. Cash pile increasing all the time though.

keane2097

Thargor wrote: »

Coming up on a year Id say alright. I was going to go for a house of my own instead of paying rent and get a couple of lodgers in to get the 14k rent a room tax free every year but prices have gotten out of range now and Im back to looking for other forms of return now. Cash pile increasing all the time though.

Just saying this as food for thought and not saying what you should have done/should do now, but if you had put your money in VTI a year ago it would have grown by almost 25% while you have been worrying about a crash.

The Duke of Moral Hazard

Thargor wrote: »

I know, this time just feels different though, need to watch what happens with QE and various other things for the next while before I decide.

US Debt Ceiling Shenanigans -> 15th March

Dutch Elections -> 15th March

French Elections -> April - May


Should be fun!


... and not forgetting the usual suspects: