Bubbles popping?

[Cardboard]

To your question, one poster mentioned earlier about some sort of repeat of the 87 crash. I do believe instead that the risk is more of a repeat of 1973-1974.

 

Why?

 

There is a chance that Democrats retake control of both the Senate and House in the Fall. They would do all they could to impeach Trump. In any case, it would be gridlock on a scale never seen before.

 

Then I see the probability of rising inflation as almost a given. You have wages that will see a nice bump due to tax cuts, along with very low employment, a severe underinvestment in commodities since the bust of the commodity super cycle and a Fed that is behind on rising rates IMO.

 

Of course, not all conditions are similar but, there are some similarities. So even if they do all they can not to pop it, markets will force their hand.

 

Cardboard

[rb]

Dow futures down 3%, FTSE futures down 7%. Looks like tomorrow will be interesting as well.

[Guest Cameron]

Dow futures down 3%, FTSE futures down 7%. Looks like tomorrow will be interesting as well.

 

Nikkei down 5.5% I think the circuit breaker is 8%

[Guest cherzeca]

To your question, one poster mentioned earlier about some sort of repeat of the 87 crash. I do believe instead that the risk is more of a repeat of 1973-1974.

 

Why?

 

There is a chance that Democrats retake control of both the Senate and House in the Fall. They would do all they could to impeach Trump. In any case, it would be gridlock on a scale never seen before.

 

Then I see the probability of rising inflation as almost a given. You have wages that will see a nice bump due to tax cuts, along with very low employment, a severe underinvestment in commodities since the bust of the commodity super cycle and a Fed that is behind on rising rates IMO.

 

Of course, not all conditions are similar but, there are some similarities. So even if they do all they can not to pop it, markets will force their hand.

 

Cardboard

 

gridlock? yes political gridlock, not economic.

 

73-74 was stagflation as i recall.  not what i expect over next 12 months.

 

today's wsj:  "The paradox of the equity-market correction is that it’s taking place even as the real economy looks stronger than it’s been since at least 2005 and maybe 1999. The ISM non-manufacturing index for January rolled in at 59.9 on Monday, which means a near-boom in the service economy. The new orders index surged to 62.7 from 54.5 in December and the employment index hit 61.6 from 56.3."

 

 

[investmd]

This bubble popping is like a shot of adrenaline to my investor instincts.  Still no great opportunities but some things are crashing more than others so at least now there is hope.  Still need another 5% drop or so before I will be able to buy.

 

Well, No Free Lunch, the next trading day provided you with your 5% drop you were wanting. Did you buy? :)

 

[no_free_lunch]

No, I haven't taken advantage of it, it's beautiful to watch though.  I had a really good look at my watchlist and everything was so high that even now I don't find anything too compelling.  S&P500 is printing $110 in earnings so we are still at 23-24 PE, it's tough. 

 

cherzeca, I agree that political deadlock is a great thing.  I'm a bit libertarian so government unable to function seems okay.  Not sure what that will mean for fannie but that's another thread.

 

Much as I would like it to be otherwise, this whole crash feels artificial.  The economy is doing just fine, global economies are recovering and there must be huge pent up demand outside of the US.  I feel it's just the valuation was ahead of itself.

[Patmo]

Wake me up in 6-8 months, then we'll make the big bucks baby

[rb]

No, I haven't taken advantage of it, it's beautiful to watch though.  I had a really good look at my watchlist and everything was so high that even now I don't find anything too compelling.  S&P500 is printing $110 in earnings so we are still at 23-24 PE, it's tough. 

 

cherzeca, I agree that political deadlock is a great thing.  I'm a bit libertarian so government unable to function seems okay.  Not sure what that will mean for fannie but that's another thread.

 

Much as I would like it to be otherwise, this whole crash feels artificial.  The economy is doing just fine, global economies are recovering and there must be huge pent up demand outside of the US.  I feel it's just the valuation was ahead of itself.

I don't really know why the the state of the economy or what the government is doing is so relevant here.

 

Can't stock prices go down just because stock prices are too high? The S&P took a 30% dive in 2002 and the economy was doing just fine.

[Spekulatius]

 

 

Can't stock prices go down just because stock prices are too high? The S&P took a 30% dive in 2002 and the economy was doing just fine.

 

The economy was anything but fine in 2002. The tech bubble had burst, the utility sector was in shambles, 9/11 aftermath and a decent credit crunch with high spreads (not as bad as 2008, but still significant).

[rb]

 

 

Can't stock prices go down just because stock prices are too high? The S&P took a 30% dive in 2002 and the economy was doing just fine.

 

The economy was anything but fine in 2002. The tech bubble had burst, the utility sector was in shambles, 9/11 aftermath and a decent credit crunch with high spreads (not as bad as 2008, but still significant).

In 2002 the economy just came out of a mild recession and was picking up steam, house prices were going up, and the fed just cut rates by A LOT. Does that sound like a bad environment for equities?

[LC]

We got indirectly lucky, were forced to sell a good chuck of the portfolio about 3  weeks ago to fund a house purchase. I am hoping prices decline so I can re-buy over the next 3 months.

[no_free_lunch]

 

I don't really know why the the state of the economy or what the government is doing is so relevant here.

 

Can't stock prices go down just because stock prices are too high? The S&P took a 30% dive in 2002 and the economy was doing just fine.

 

We are kind of on the same page here.  I just don't think a 30% drop would be an issue so long as the economy is solid.  The only time I was scared in my investing career was 08/09 and it was fear of the economic situation not the huge losses in my portfolio.

[JanSvenda]

 

I don't really know why the the state of the economy or what the government is doing is so relevant here.

 

Can't stock prices go down just because stock prices are too high? The S&P took a 30% dive in 2002 and the economy was doing just fine.

 

We are kind of on the same page here.  I just don't think a 30% drop would be an issue so long as the economy is solid.  The only time I was scared in my investing career was 08/09 and it was fear of the economic situation not the huge losses in my portfolio.

 

I do not know if the economy is doing well or not, but some factors such as central banks do not seem to be handling the situation well, especially when one looks at debt. Perhaps a nice overview of this is the following video -

 

Mind you Mr. Williams is probably a gold bug (at least from his Real Vision project) and has his own biases about the economy, but he makes solid points. Especially regarding ECB, because Draghi and his purchase program of corporate debt is indeed ludicrous.

[tombgrt]

Found this on the hilarious subreddit r/bitcoin. Catchy!

 

 

 

If this continues, I wonder whether we will see a suicide spike for males in the age group 18-35 in the western world? Big believers that experience their first crash after obtaining considerable paper wealth? Yeah, that is going to sting. Probably feels worse than for those multi-millionaires in 2008 who merely lost half of their fortune and would have been able to recuperate over time, and felt that was enough to jump out the window of a Wall Street skycraper. Below age 25, you generally shouldn't expect too much rationality from male adults...

[tombgrt]

Also want to point out that a VXO above 40 has historically been a great buy signal (max fear). We might see that sooner than most expect.

 

[Spekulatius]

It almost hurts to say it, but the FANG stocks GOOG and FB almost look cheap at low to mid twenties projected earnings for Y2018. They are cheaper than the index, considering their growth rates, superior profitability and financials and dominant market positions, IMO.

[chrispy]

I am eyeing Google as well.

[abyli]

It almost hurts to say it, but the FANG stocks GOOG and FB almost look cheap at low to mid twenties projected earnings for Y2018. They are cheaper than the index, considering their growth rates, superior profitability and financials and dominant market positions, IMO.

 

Keep it quiet please.....

[SharperDingaan]

Found this on the hilarious subreddit r/bitcoin. Catchy!

 

 

 

If this continues, I wonder whether we will see a suicide spike for males in the age group 18-35 in the western world? Big believers that experience their first crash after obtaining considerable paper wealth? Yeah, that is going to sting. Probably feels worse than for those multi-millionaires in 2008 who merely lost half of their fortune and would have been able to recuperate over time, and felt that was enough to jump out the window of a Wall Street skycraper. Below age 25, you generally shouldn't expect too much rationality from male adults...

 

Sh1te that's good - thanks for posting!

 

SD

 

 

[Paarslaars]

Wake me up in 6-8 months, then we'll make the big bucks baby

 

Exactly what I was thinking... expecting to invest a big bonus by then ^^.

[mattee2264]

 

  A correction is healthy and probably inevitable after such a strong start to the year. But basically we've just retraced the 2018 gains and are back to where we were at the end of 2017. And predictably we are already starting to see the "buy the dips" mentality kick in. After strong returns in 2016 and 2017 it wouldn't be surprising if the S&P 500 went sideways this year with more volatility than we've been used to. But unless inflation really kicks off or growth really disappoints it is difficult to see anything resembling a market crash. Even if interest rates drift up towards 4-5% that would still support a PE ratio of around 20 and by the time interest rates get there S&P 500 earnings will probably be more like 120-130 so I can't see us drifting too far from the current level of 2600-2700.

 

 

 

 

 

[rkbabang]

Found this on the hilarious subreddit r/bitcoin. Catchy!

 

 

 

If this continues, I wonder whether we will see a suicide spike for males in the age group 18-35 in the western world? Big believers that experience their first crash after obtaining considerable paper wealth? Yeah, that is going to sting. Probably feels worse than for those multi-millionaires in 2008 who merely lost half of their fortune and would have been able to recuperate over time, and felt that was enough to jump out the window of a Wall Street skycraper. Below age 25, you generally shouldn't expect too much rationality from male adults...

 

Another good video

 

 

[Spekulatius]

It almost hurts to say it, but the FANG stocks GOOG and FB almost look cheap at low to mid twenties projected earnings for Y2018. They are cheaper than the index, considering their growth rates, superior profitability and financials and dominant market positions, IMO.

 

Keep it quiet please.....

I don‘t think that postings in an obscure finance message board will move the tape for $500+ billion market cap companies  :o

[Cigarbutt]

"A correction is healthy and probably inevitable after such a strong start to the year. But basically we've just retraced the 2018 gains and are back to where we were at the end of 2017. And predictably we are already starting to see the "buy the dips" mentality kick in. After strong returns in 2016 and 2017 it wouldn't be surprising if the S&P 500 went sideways this year with more volatility than we've been used to. But unless inflation really kicks off or growth really disappoints it is difficult to see anything resembling a market crash. Even if interest rates drift up towards 4-5% that would still support a PE ratio of around 20 and by the time interest rates get there S&P 500 earnings will probably be more like 120-130 so I can't see us drifting too far from the current level of 2600-2700."

 

mattee2264,

 

Thanks for the comment and guidance. I wish I could show this degree of confidence for the short term outlook.

 

I respect what you mention but have to reconcile with the following quote from Professor Shiller:

"Stock prices are likely to be among the prices that are relatively vulnerable to purely social movements because there is no accepted theory by which to understand the worth of stocks….investors have no model or at best a very incomplete model of behavior of prices, dividend, or earnings, of speculative assets."

 

I guess this is why value investing is so fascinating.

[Sharad]

https://www.cnbc.com/2018/02/08/cramer-blames-this-weeks-crazy-market-on-a-group-of-morons.html

 

This guy always makes me laugh. The first level thinking CNBC presents is beyond me. I'm still a believer that we are basically replaying the 1987 playbook, except we are in the early years of a secular bear market for bonds. The market shrugged off the Friday through Tuesday morning drop, and who would blame them? It was barely 10%. But markets are very expensive, and we don't need an economic decline or disappointment for stocks to fall. 1987 is the proof of that. Bear markets in stocks happen more often than recessions. It's just something people haven't seen in 30+ years.