Investing

Worldwide market crash is coming

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  • Aug 13th, 2017 12:33 pm
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Deal Addict
Jun 27, 2007
3048 posts
485 upvotes
porticoman wrote:
Aug 5th, 2017 9:11 am
if it's all tied to oil & I honestly don't understand that, you'll have investors looking at how they can speculate (gamble) their hard earned dollars in major oil companies such as Suncor' in Canada or Exxon in the US.
there is no other major commodity that correlates close enough to our dollar. IMO, dollar depends on a trade balance (imports vs exports), rate expectations and overall strength of the economy.
USO is good trading vehicle short term as it invests in front month futures. MER is pretty high and constant roll drags performance. Companies such as XOM, BP, RDS, TOT are great oil proxies, just be aware of their debt load.
I am staying clear of oil right now. Biotech/healthcare and financials could be more interesting plays as money flowing out of tech need to find new home.

Dow to GDP ratio chart

Buffet Indicator
After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: it never was my thinking that made the big money for me. It was always my sitting. Got that? My sitting tight!
Deal Fanatic
Jul 1, 2007
7839 posts
679 upvotes
Historically, market highs tend to be followed by higher market highs.
Money Smarts Blog wrote:
Nov 29th, 2010 11:18 am
I agree with the previous posters, especially Thalo. {And} Thalo's advice is spot on.
Member
Jan 19, 2017
328 posts
95 upvotes
BiegeToyota wrote:
Aug 3rd, 2017 7:34 am
Valuations are extremely out of proportion. I think way more than half of so-called "blue chip" companies are trading at ridiculous pe ratios. It will start with Ponzi digital currencies, then Amazon and Apple. Watch this space. If I'm wrong I'll just change my username.
Like they say, a broken clock will be right twice a day. The market will go down eventually if you wait or predict long enough.
Deal Addict
Jul 3, 2006
1044 posts
157 upvotes
lol 2017 and 2018 first half should still be good for company earnings as trump will deliver tax cuts and companies like AAPL will bring back there $ to the US. Hold $FFH if you’re really scared. It should do well during market downtrend or uptrend... They still have their CPI derivatives
Sr. Member
Oct 21, 2014
579 posts
337 upvotes
Burlington, ON
Wavelet wrote:
Aug 5th, 2017 8:38 am
I've never heard of relating the market cap of the Dow to GDP, but relating the Market Cap of the Total Market Index (all US exchanges) to US GDP is a well-known indicator of Warren Buffett.

Buffett famously claimed in 2001 that it's "probably the best single measure of where valuations stand at any given moment." He suggested that any time the ratio is over 100%, it's time to be wary of common stock valuations. Currently, the ratio is at 134%.
The closest index to this would probably be the Dow. If GDP is running at ~2% per year, and the annual return of the Dow is about 8.2%/annum over the last 40 years how can such a statement be valid? Shouldn't both go up at approximately the same rate?
Jr. Member
Jun 28, 2016
182 posts
67 upvotes
Gungnir wrote:
Aug 7th, 2017 2:28 pm
The closest index to this would probably be the Dow. If GDP is running at ~2% per year, and the annual return of the Dow is about 8.2%/annum over the last 40 years how can such a statement be valid? Shouldn't both go up at approximately the same rate?
No. The Dow is not even close. The Dow is price-weighted (not market-cap weighted) and only covers 30 companies. Market Cap/GDP is computed using the Wiltshire 5000 Index, which is a market-cap weighted index of all stocks actively traded in the US.

As for GDP growth, it has averaged 3.2% since 1947. Most forward-looking predictions suggest it will be closer to 2% in the future. If we take 3.2% + 3.4% (average inflation since 1947) + the average dividend yield of about 2.5%, then the total return of US stocks should be around 9.1% since the late 1940s. If growth will be 2% going forward (and inflation will also be around the Fed's 2% target) and (as we're starting from a lower yield going forward from today, since the market is more highly valued, the yield is around 2%) then the future is more likely to be something like 2% + 2% + 2% = 6%. This is why you're always hearing retirement advisors talking about preparing for lower future returns.
Deal Addict
Dec 11, 2007
1701 posts
278 upvotes
Markham
Buffett also said (much more recently) that the most important thing is future interest rates. Specifically, that stocks are dirt cheap compared to interest rates.

"Now, if interest rates were 7 or 8 percent then these prices would look exceptionally high. But you have to measure, you know, you measure everything against: interest rates, basically, and interest rates act like gravity on valuation. So when interest rates were 15 percent in 1982 they'd pull down the value of any asset. So, what's the sense of buying a farm on a 4 percent yield basis if you can get 15 percent in government's? But measured against interest rates, stocks actually are on the cheap side compared to historic valuations. But the risk always is, is that — that interest rates go up a lot, and that brings stocks down. But I would say this, if the ten-year stays at 230, and they would stay there for ten years, you would regret very much not having bought stocks now." - Feb 27, 2017

for what its worth, as of today (6 months later), the 10 year stands at 225
Deal Addict
Nov 9, 2013
1730 posts
536 upvotes
Edmonton, AB
Cerenity wrote:
Aug 8th, 2017 9:02 am
Buffett also said (much more recently) that the most important thing is future interest rates. Specifically, that stocks are dirt cheap compared to interest rates.

"Now, if interest rates were 7 or 8 percent then these prices would look exceptionally high. But you have to measure, you know, you measure everything against: interest rates, basically, and interest rates act like gravity on valuation. So when interest rates were 15 percent in 1982 they'd pull down the value of any asset. So, what's the sense of buying a farm on a 4 percent yield basis if you can get 15 percent in government's? But measured against interest rates, stocks actually are on the cheap side compared to historic valuations. But the risk always is, is that — that interest rates go up a lot, and that brings stocks down. But I would say this, if the ten-year stays at 230, and they would stay there for ten years, you would regret very much not having bought stocks now." - Feb 27, 2017

for what its worth, as of today (6 months later), the 10 year stands at 225
Totally agree - "Investment is the discipline of relative selection".
Sr. Member
User avatar
Apr 23, 2009
776 posts
113 upvotes
that is if the rates stayed low..............
Cerenity wrote:
Aug 8th, 2017 9:02 am
Buffett also said (much more recently) that the most important thing is future interest rates. Specifically, that stocks are dirt cheap compared to interest rates.

"Now, if interest rates were 7 or 8 percent then these prices would look exceptionally high. But you have to measure, you know, you measure everything against: interest rates, basically, and interest rates act like gravity on valuation. So when interest rates were 15 percent in 1982 they'd pull down the value of any asset. So, what's the sense of buying a farm on a 4 percent yield basis if you can get 15 percent in government's? But measured against interest rates, stocks actually are on the cheap side compared to historic valuations. But the risk always is, is that — that interest rates go up a lot, and that brings stocks down. But I would say this, if the ten-year stays at 230, and they would stay there for ten years, you would regret very much not having bought stocks now." - Feb 27, 2017

for what its worth, as of today (6 months later), the 10 year stands at 225
Deal Addict
Jun 27, 2007
3048 posts
485 upvotes
we "might" have market reversal on our hands.
S&P opened lower, raced to all time highs only to stall and get sold.
it's about time we have some bear partySmiling Face With Open Mouth
After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: it never was my thinking that made the big money for me. It was always my sitting. Got that? My sitting tight!
Sr. Member
Jun 15, 2012
709 posts
48 upvotes
MB
https://www.bloomberg.com/news/articles ... -of-crisis

U.S. consumer credit-card debt just passed an ominous milestone, beating a record set just before the global financial system almost collapsed in 2008.
"I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful."
- Warren Buffett
Deal Addict
Nov 9, 2013
1730 posts
536 upvotes
Edmonton, AB
I think there is no doubt we are in the latter half of an expansion phase of the credit cycle. With interest rates so low though how long can the expansion last?
Newbie
Jul 27, 2017
92 posts
21 upvotes
GTA
dlhunter wrote:
Aug 8th, 2017 3:28 pm
we "might" have market reversal on our hands.
S&P opened lower, raced to all time highs only to stall and get sold.
it's about time we have some bear partySmiling Face With Open Mouth
My view on this is to monitor the next 30 days US/N.Korea mess

The S&P isn't correcting too much, the market isn't in a bear, it's the VIX that needs to be watched, especially the leveraged & inverse short-term futures ETF's.

Should North Korea do the test bomb drop, then the market will react downwards, gold pops, with the short futures VIX goes mad & the US dollar keeps on dropping

China being the saving grace doesn't want to see it's US investments go to pot
My crystal ball is broken
Sr. Member
Oct 21, 2014
579 posts
337 upvotes
Burlington, ON
porticoman wrote:
Aug 12th, 2017 9:13 am
Should North Korea do the test bomb drop, then the market will react downwards, gold pops, with the short futures VIX goes mad & the US dollar keeps on dropping
Right, but if US, Japan or South Korea shoots down the missiles with any of their multiple layers of missile defense, the only threat that NK has will be negated. If they have any sense at all, the US will then be able to blockade NK without fear of reprisal until the regime capitulates, without the need of invasion, and will have the support of the international community to do so. Within a few months of no food or money coming in the country should collapse and cause Kim to flee.

I can't see Kim firing missiles at Guam, as it leaves two terrifying options for him, and neither advances his goals.

If the missiles get through, it could trigger the US to change the NK regime as they will have both the ability and willingness to attack US soil with nuclear weapons. If they get shot down, he's as powerless as I think he is and will be unable to stop the US from changing his regime. No sovereign has attempted to attack a US base since WWII. Guam is hugely important to the US and they will not allow it to be threatened.

I predict a whole lot of talking, and no action.

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