Will the stock market crash (June 24 2016 Update)?

[Frenns Liquor Depot]

Perhaps, but there is much more clarity now than there was 2 weeks ago.

I would argue there is rightfully a lot less hysteria. 

In my opinion there isn't much more clarity on what happens economically in Europe.  Of course Europe and the UK are not going away - the pathway and details of Brexit execution though could still cause some undesirable economic events to occur - that may or may not be priced into the market. 

Just my opinion, but claiming hysteria or stability from a short term view of the market are conclusions rooted in very similar logic.

[MU82]

As I said ... Brezzzzzzzzzzzit.

http://finance.yahoo.com/news/fed-bullard-says-brexit-close-163932119.html

Federal Reserve Bank of St. Louis President James Bullard said he thought the U.K.’s vote to leave the European Union wouldn’t have a lasting effect on the U.S. economy, joining Cleveland Fed chief Loretta Mester in playing down the threat Brexit poses to the U.S.

“Now that the markets have had some chance to digest the move, I think the ultimate impact on the U.S. economy will be close to zero,” Bullard told reporters Tuesday following a speech in St. Louis.

[brandx]

As I said ... Brezzzzzzzzzzzit.

http://finance.yahoo.com/news/fed-bullard-says-brexit-close-163932119.html

Federal Reserve Bank of St. Louis President James Bullard said he thought the U.K.’s vote to leave the European Union wouldn’t have a lasting effect on the U.S. economy, joining Cleveland Fed chief Loretta Mester in playing down the threat Brexit poses to the U.S.

“Now that the markets have had some chance to digest the move, I think the ultimate impact on the U.S. economy will be close to zero,” Bullard told reporters Tuesday following a speech in St. Louis.

They may be out of the EU, but over the next year or two, many agreements will be signed extending trade deals and defining the relationship that the British will have with the EU. The British economy may be the only one that is actually affected adversely - and even that may only last for a couple years.

[MU Fan in Connecticut]

Yeah, but someone said..............

[Warriors, Come Out and Playeeyay]

Thoughts on the Nintendo stock with Poke'mania going on?  Yet to be globalized but all the rage in the US.

[GooooMarquette]

They may be out of the EU, but over the next year or two, many agreements will be signed extending trade deals and defining the relationship that the British will have with the EU. The British economy may be the only one that is actually affected adversely - and even that may only last for a couple years.

My guess - after a bunch of negotiations, the U.K. and EU sign treaties to allow relatively free flow of goods (including € and £), services and people across borders.  And in the end, the U.K. is "officially" out of the EU, but the relationships will be largely unchanged.

Ultimately, May will be able to say she respected the vote by proceeding to get the U.K out of the EU, saved the U.K. economy...and for the unhappy folks who wanted to close the borders, she'll be able to say the compromises in the treaties were the only way she could she could save the economy while leaving the EU.

A divorced couple that still lives and sleeps together....

[Coleman]

My guess - after a bunch of negotiations, the U.K. and EU sign treaties to allow relatively free flow of goods (including € and £), services and people across borders.  And in the end, the U.K. is "officially" out of the EU, but the relationships will be largely unchanged.

Ultimately, May will be able to say she respected the vote by proceeding to get the U.K out of the EU, saved the U.K. economy...and for the unhappy folks who wanted to close the borders, she'll be able to say the compromises in the treaties were the only way she could she could save the economy while leaving the EU.

A divorced couple that still lives and sleeps together....

Yup.

Very little will change. Not ever being tied to the euro makes it even more possible.

[Lennys Tap]

My guess - after a bunch of negotiations, the U.K. and EU sign treaties to allow relatively free flow of goods (including € and £), services and people across borders.  And in the end, the U.K. is "officially" out of the EU, but the relationships will be largely unchanged.

Ultimately, May will be able to say she respected the vote by proceeding to get the U.K out of the EU, saved the U.K. economy...and for the unhappy folks who wanted to close the borders, she'll be able to say the compromises in the treaties were the only way she could she could save the economy while leaving the EU.

A divorced couple that still lives and sleeps together....

Pretty much agree. England will get a little sovereignty back (or at least the appearance of it) but not much will really change.

[Tugg Speedman]

True about the non-binding vote, but the new PM (who opposed the Brexit) stated yesterday that the Brexit will happen...and yet stocks are rising today.

IMHO the markets have now priced the assumption that the Brexit will happen, so the actual effects when it (gradually) occurs will be muted.  Kind of like the Greek default - everyone (including notably Heisenberg/Livermore) thought the bottom would drop out.  It ended up being a couple-day blip, then a bounce, then business as usual.  The Brexit might not be quite that smooth, but I don't think there will be huge longer-term effects in the US market.

Trading BRexit as if it was a bad news in the bond, currency and gold markets has been a winner.  BRexit has been devastatingly bad for European banks.

If you looked at these markets alone, you would conclude something major just happened and it not necessarily good.


But if you looked at the US stock market, something else is happening.  It caused it to go up.  BRexit has panicked central banks, the BoE is expected to cut rates later today for the first time since 2009, the ECB is expected to cut rates or add other forms of stimulus soon, the BoJ is openly talking about "helicopter money" (where the central bank bypass the financial system and injects money directly into the economy) and the Fed rate hikes are on hold for years.

Stocks are junkies for cheap central bank money and BRexit is a classic "bad news is good news" story for stocks.  The worse things get the more central banks throw money out the window to take care of stock owners. 

http://www.wsj.com/articles/the-feds-new-froth-problem-1468436349


-------------------

2007 - the housing market peaked (in late 2006), credit market were stressed, Bear Stearns mortgage fund collapsed, BNP money market funds closed (causing a near panic in August 2007), interest rates were collapsing, the Fed was concerned (Cramer's famous rant that were "nuts" for not throwing money out the window to stop the impeding crisis).

Meanwhile the stock market keeps powering ahead making one new high after another through October 2007, long after ever other market turned.   Stock investors ridiculed the subprime market and how worry warts that suggested it was a big deal were wrong.

Then 2008 happened and stock investors lost half their money.  Turns out the stock market was the "last to get it."

2016 is starting to have this feel.  While the stock market is making new highs, I'm worried this is really bad and I'm playing this as it is bad news.  I'm long treasuries,  gold and silver while holding a short the pound, euro, European banks.  Also have a short in US stocks that have hurt.  Overall this positioning for bad things is working really well.

So why is it when you keep saying BRexit is nothing, cassandras like me that are positioned for coming problems are up nearly 25% this year (as in the last 6 months).  Why am I doing so well if my outlook is all wrong?  Why are markets letting me make a lot of money with this view? 

[Tugg Speedman]

My guess - after a bunch of negotiations, the U.K. and EU sign treaties to allow relatively free flow of goods (including € and £), services and people across borders.  And in the end, the U.K. is "officially" out of the EU, but the relationships will be largely unchanged.

Ultimately, May will be able to say she respected the vote by proceeding to get the U.K out of the EU, saved the U.K. economy...and for the unhappy folks who wanted to close the borders, she'll be able to say the compromises in the treaties were the only way she could she could save the economy while leaving the EU.

A divorced couple that still lives and sleeps together....

If this happens, why won't everyone leave and effectively ending the EU?

May just named Boris Johnson foreign secretary.  Still think this is all for show and a meaningless non-binding vote? (posters that keeping point BRexit was a non-binding vote really do not understand what just happened ... I laid t out about 5 pages ago.)

Remember May was a remain but never campiagned for it suggesting she was really a closet leaver.  Boris' appointment underscores this believe.

[mu03eng]

If this happens, why won't everyone leave and effectively ending the EU?

May just named Boris Johnson foreign secretary.  Still think this is all for show and a meaningless non-binding vote? (posters that keeping point BRexit was a non-binding vote really do not understand what just happened ... I laid t out about 5 pages ago.)

Remember May was a remain but never campiagned for it suggesting she was really a closet leaver.  Boris' appointment underscores this believe.

Boris is foreign secretary but he has no power over the Brexit as May has generated a separate cabinet position for Brexit. The Brexit secretary and Chancellor of the Exchequer are the critical positions and are both filled by solidly moderate individuals (David Davis and Philip Hammond respectively).

The only thing that Boris's appointment signifies is that other than the EU, Theresa May doesn't give a shyte about the rest of the world.

[GooooMarquette]

So why is it when you keep saying BRexit is nothing, cassandras like me that are positioned for coming problems are up nearly 25% this year (as in the last 6 months).  Why am I doing so well if my outlook is all wrong?  Why are markets letting me make a lot of money with this view?

I could ask you the same question:  If Brexit is the Armageddon you act like it is, why am I doing so well?  I have done nothing but continue my dollar cost averaging of a well diversified portfolio, and my investment balances continue to climb from one record high to another.

So you act like the sky is falling, constantly panic...and make money.  I relax and keep my accounts on autopilot...and make money.  Personally, I find relaxation much more enjoyable than panic.

And yes, I did the same thing in 2008.  Even though the numbers in my account went down, I didn't panic and sell, and those paper losses turned to huge gains over time.  Patience, grasshopper....

[Coleman]

While Brexit has passed, the debate now will be "hard Brexit" (economic and political isolationism) and "soft Brexit" (maintaining most of the EU ties, market integration, freedom of movement, etc. without formal EU membership). This will play out over the next year or two. The EU was threatening to not allow the UK a soft Brexit, to dissuade them from leaving, but it is really in the rest of the EU's interest to allow Britain to maintain these ties, so I don't see them cutting off their nose to spite their face. Ultimately I believe there will be a soft Brexit, especially with May at the helm. The appearances will satisfy many of the ill-informed voters those who wanted out of the EU while still avoiding the dire consequences of true isolationism. It will also reassure Scotland and Northern Ireland about remaining part of the UK. A hard Brexit will almost surely result in an independent Scotland and united Ireland. May has to strike a very careful balance to keep the UK together and satisfy the referendum voters. I think she knows this. 

[MU82]

I could ask you the same question:  If Brexit is the Armageddon you act like it is, why am I doing so well?  I have done nothing but continue my dollar cost averaging of a well diversified portfolio, and my investment balances continue to climb from one record high to another.

So you act like the sky is falling, constantly panic...and make money.  I relax and keep my accounts on autopilot...and make money.  Personally, I find relaxation much more enjoyable than panic.

And yes, I did the same thing in 2008.  Even though the numbers in my account went down, I didn't panic and sell, and those paper losses turned to huge gains over time.  Patience, grasshopper....

Oh, stop with the common sense already. That doesn't play well in Smugglesville!

[Coleman]

Markets up big again today.

I'm now contemplating dialing my 401k back even more from 85% stocks to maybe 75% stocks.

I think stocks are overpriced.

Am I being overcautious?

[Skatastrophy]

Markets up big again today.

I'm now contemplating dialing my 401k back even more from 85% stocks to maybe 75% stocks.

I think stocks are overpriced.

Am I being overcautious?

From the risk-management perspective there isn't a returns difference between 80% and 85% equities allocation over the course of decades (monte carlo simulations only look backwards, though, so take everything with a grain of salt).

If you're looking at a time frame of 50 years of account draw-downs (a super early retirement), and talking about a % chance of your assets lasting that long while you're paying yourself at a constant spending power you can start calculating ideal asset allocation over that amount of time.


(X-axis is %confidence of assets lasting through retirement)
(Y-axis is 0% stocks on the left, to 100% stocks on the right)

As you'll notice, allocating much over 75%-80% of your assets to equity doesn't make a big difference on returns. What it does do though (and not shown in that graph) is significantly raise the risk of you being unable to reallocate your fixed-income assets back into equities to take advantage of significant drops in the market.

To answer your other question: Are you being overcautious? Nobody knows. Economics is a joke and anyone that says they can predict how the market is going to behave in the next 1-3 years is full of crap. Like Peter Lynch said, 'Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves."

[MU82]

From the risk-management perspective there isn't a returns difference between 80% and 85% equities allocation over the course of decades (monte carlo simulations only look backwards, though, so take everything with a grain of salt).

If you're looking at a time frame of 50 years of account draw-downs (a super early retirement), and talking about a % chance of your assets lasting that long while you're paying yourself at a constant spending power you can start calculating ideal asset allocation over that amount of time.


(X-axis is %confidence of assets lasting through retirement)
(Y-axis is 0% stocks on the left, to 100% stocks on the right)

As you'll notice, allocating much over 75%-80% of your assets to equity doesn't make a big difference on returns. What it does do though (and not shown in that graph) is significantly raise the risk of you being unable to reallocate your fixed-income assets back into equities to take advantage of significant drops in the market.

To answer your other question: Are you being overcautious? Nobody knows. Economics is a joke and anyone that says they can predict how the market is going to behave in the next 1-3 years is full of crap. Like Peter Lynch said, 'Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves."

That Lynch quote is one of my favorite investing-related quotes ever.

I'm not telling anybody what to do, but I will say that ever since 2012 more than a few "experts" have been saying "The Next Big One" is right around the corner. I just happened to see an article from July 2014 talking about how "overvalued" Altria was at 41. It's now at 69 -- a 68% gain in 2 years.

Having said all that, each of us must invest to his/her own comfort level.

[Tugg Speedman]

I could ask you the same question:  If Brexit is the Armageddon you act like it is, why am I doing so well?  I have done nothing but continue my dollar cost averaging of a well diversified portfolio, and my investment balances continue to climb from one record high to another.

So you act like the sky is falling, constantly panic...and make money.  I relax and keep my accounts on autopilot...and make money.  Personally, I find relaxation much more enjoyable than panic.

And yes, I did the same thing in 2008.  Even though the numbers in my account went down, I didn't panic and sell, and those paper losses turned to huge gains over time.  Patience, grasshopper....

I answered this question already.  Every market on the planet says BRexit and slow growth are a problem.  The US stock market is the outlier.

Every major market bottomed in late 2001.  The stock market bottomed in October 2002, marking the first time since the 19th century that it bottom after the recession ended (recession ended in November 2001)

As I noted above, every major market topped in 2006/early 2007.  Stocks laughed it off and peaked in October 2007.  It was 50% lower one year later.

Between December 2008 and January 2009 every major market bottomed.  Stocks sold off in another 25% and bottomed in March 2009

And here we go again.  Every world market has peaked in the last year.  US Stocks are blasting to new highs.

In the last 15 years the stock market is "the last to get it."  It seems to be happening again. 

So when US stocks ignore the rest of the world, they are 0 for 3.  They are ignoring the rest of the word now.  Earnings are poor, growth is poor.  Financials are poor (and history shows the market cannot "survive" with lousy financials).

The stock market is a rigged game (via central banks).  And since this thread was started 14 months ago, it has only managed to return 2.5%.

Investing in stocks is like betting on Highleigh.  It's rigged and you are guessing how the rig will work out.

Good luck but again, the stock market is the outlier in world markets.

[GooooMarquette]

I answered this question already.  Every market on the planet says BRexit and slow growth are a problem.  The US stock market is the outlier.

Every major market bottomed in late 2001.  The stock market bottomed in October 2002, marking the first time since the 19th century that it bottom after the recession ended (recession ended in November 2001)

As I noted above, every major market topped in 2006/early 2007.  Stocks laughed it off and peaked in October 2007.  It was 50% lower one year later.

Between December 2008 and January 2009 every major market bottomed.  Stocks sold off in another 25% and bottomed in March 2009

And here we go again.  Every world market has peaked in the last year.  US Stocks are blasting to new highs.

In the last 15 years the stock market is "the last to get it."  It seems to be happening again. 

So when US stocks ignore the rest of the world, they are 0 for 3.  They are ignoring the rest of the word now.  Earnings are poor, growth is poor.  Financials are poor (and history shows the market cannot "survive" with lousy financials).

The stock market is a rigged game (via central banks).  And since this thread was started 14 months ago, it has only managed to return 2.5%.

Investing in stocks is like betting on Highleigh.  It's rigged and you are guessing how the rig will work out.

Good luck but again, the stock market is the outlier in world markets.

You cite history, but seem to ignore it.  Yes, the US stock market has gone down many times, but then it has ALWAYS come back stronger than ever. 

I plan to live another 30 years or more, so downs for a couple of years don't concern me.  In fact, it gives me a chance to buy discounted stocks for a while.  There was an awesome sale in 2009....

[MU82]

You cite history, but seem to ignore it.  Yes, the US stock market has gone down many times, but then it has ALWAYS come back stronger than ever. 

I plan to live another 30 years or more, so downs for a couple of years don't concern me.  In fact, it gives me a chance to buy discounted stocks for a while.  There was an awesome sale in 2009....

Again ... common sense.

Investors who try to time the market and, in the process, miss just a handful of the best "up" days ... well, they will impose a significant penalty on their portfolios. Not only will they have missed a chance to experience those gains, and not only will they have missed a chance to recover from the worst days, but they also will have missed a chance to benefit from all the compounding in the years following those handful of great days.

[Tugg Speedman]

You cite history, but seem to ignore it.  Yes, the US stock market has gone down many times, but then it has ALWAYS come back stronger than ever. 

I plan to live another 30 years or more, so downs for a couple of years don't concern me.  In fact, it gives me a chance to buy discounted stocks for a while.  There was an awesome sale in 2009....

Not true and you seem to be contradicting yourself.

Since 2000 the US stock market has been a poor performer,  lagging inflation, bonds, gold, world stocks and bonds.  And that is the point, the ever rising stock market ended 15 years ago.  (To be clear, its NOMINAL level still rising but the only thing that does not beat it is central bank manipulated cash at 0.  Every other asset class has been a better option since 2000).

Now if are are talking about TIMING the market, then I think this is a good place to sell it, buy it back a few years from now at much lower prices.

[Tugg Speedman]

Again ... common sense.

Investors who try to time the market and, in the process, miss just a handful of the best "up" days ... well, they will impose a significant penalty on their portfolios. Not only will they have missed a chance to experience those gains, and not only will they have missed a chance to recover from the worst days, but they also will have missed a chance to benefit from all the compounding in the years following those handful of great days.

Missing the best down days matters more.  And you are assuming that those not in the market are in zero yielding cash.  Many timers, like me, rotate between other asset classes like bonds, gold, foreign stocks and so on. 

So to turn your point around, I cannot by "stuck" in stocks that are up 3% or 4% year-to-date when silver is up 47%, gold 28%, bonds 19% and so on.

In the past those that were big in precious metals and bonds had a dour outlook on the economy.  So, when you stop singing "God Bless America" you will note that any non-cash option is doing better.  (Again, cash is zero as it is a central bank manupulation)

Back to my original question, the investment choices of the "bomb shelter and can soup crowd" like gold, bonds and gun stocks is going vertical way outperforming traditional stock indices.  You think their is a message in that differing performing that you are lagging way behind them?

I think their is and that is trouble is coming.  And as I noted before, since 2000, us stocks are the "last to get it." and I believe this is happening again.

[GooooMarquette]

Not true and you seem to be contradicting yourself.

Since 2000 the US stock market has been a poor performer,  lagging inflation, bonds, gold, world stocks and bonds.  And that is the point, the ever rising stock market ended 15 years ago.  (To be clear, its NOMINAL level still rising but the only thing that does not beat it is central bank manipulated cash at 0.  Every other asset class has been a better option since 2000).

Now if are are talking about TIMING the market, then I think this is a good place to sell it, buy it back a few years from now at much lower prices.

I am not contradicting myself.

The market goes up, the market goes down.  But even when it goes down a lot, it always comes back up even more.  I have been saying this from the start.

I suspect you panic so much because of what you said before - you've never had a "real" job, so you depend on your investments for your day to day bills.  I don't.  My investments have nothing to paying my bills now, five years from now, or even ten years from now.  They are all about paying bills fifteen, twenty and thirty years down the road.  For you, panic might make sense.  For me to buy into your panic would be stupid.

[brandx]

I am not contradicting myself.

The market goes up, the market goes down.  But even when it goes down a lot, it always comes back up even more.  I have been saying this from the start.

I suspect you panic so much because of what you said before - you've never had a "real" job, so you depend on your investments for your day to day bills.  I don't.  My investments have nothing to paying my bills now, five years from now, or even ten years from now.  They are all about paying bills fifteen, twenty and thirty years down the road.  For you, panic might make sense.  For me to buy into your panic would be stupid.

Common sense rarely wins arguments. But I don't work now and don't worry about $$$$ for the exact reason you laid out.

[MU82]

Common sense rarely wins arguments. But I don't work now and don't worry about $$$$ for the exact reason you laid out.

What? You didn't get the memo?

We are doomed! DOOMED, I say!!!