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Author Topic: Are we heading for a market crash?  (Read 2496 times)

tradephoric

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Are we heading for a market crash?
« on: November 19, 2018, 02:40:20 PM »

The recent price action of the DJIA is resembling that of late 2007 to me.  Will the intraday high of 26,951 on October 3, 2018 become a multi-year high in the market similar to the peak that occurred on October 12, 2007?  I created an excel spreadsheet that finds the highest correlation of the current market trend (looking out X number of days out) with previous market trends.  The 2012-2018 DJIA market (blue line) actually has the highest correlation with the 1950-1956 market (red line).  Useful information?  Probably not!


« Last Edit: November 20, 2018, 11:56:46 AM by tradephoric »
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Rothman

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Re: Are we heading for a market crash?
« Reply #1 on: November 19, 2018, 02:46:48 PM »

Erm...historical trends of prices are probably not very indicative of future performance.

The economy collapse back then was due to the housing market bubble from runaway, unregulated banks that were allowed to mingle their normal banking business with investments, which they did, in derivatives sloppily rated by raters sleeping at the wheel. 

Is anything like that happening now?
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hbelkins

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Re: Are we heading for a market crash?
« Reply #2 on: November 19, 2018, 03:56:57 PM »

Erm...historical trends of prices are probably not very indicative of future performance.

The economy collapse back then was due to the housing market bubble from runaway, unregulated banks that were allowed to mingle their normal banking business with investments, which they did, in derivatives sloppily rated by raters sleeping at the wheel.  banks being required to make bad loans to customers who couldn't repay them due to the Community Reinvestment Act.

FIFY.
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tradephoric

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Re: Are we heading for a market crash?
« Reply #3 on: November 19, 2018, 03:59:50 PM »

In response to the global financial crisis, the federal reserve pegged the fed fund rate at 0% and went through several rounds of quantitative easing.  The same story played out through central banks around the world (some of them even had negative interest rates).  Because of this loose money policy the global economy is drunk on debt right now and the corporate debt levels are higher today than they were before the 2000 and 2008 recessions.  Looking from 1980, whenever the fed has raised rates the next recession soon followed (except during the dot-com bubble which pushed the economy along for a few extra years before the crash).  And after each recession, the fed has been unable to raise rates back to the previous pre-recession levels.  So yes, 2% may not sound like a high rate, but it's infinitely higher than the 0% rate it's been pegged at between 2009-2016.  When the next crash hits, what are they going to do... peg the rate at 0% for 10 or 15 years since 7 years apparently wasn't long enough?  It just seems like the fed is running out of options to address the upcoming crash.



^2016-2018 is the final heartbeat before the fed flat lines. 
« Last Edit: November 19, 2018, 04:23:08 PM by tradephoric »
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Chris

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Re: Are we heading for a market crash?
« Reply #4 on: November 19, 2018, 04:38:53 PM »

I've heard a similar story about the European Central Bank (ECB). They too have kept the interest rate very low, despite several years of strong economic growth in most Eurozone countries. It appears that growth is leveling off, Germany even recorded one quarter of economic contraction. But the ECB doesn't have tools to address downturns now, they can't lower the interest rates since they are already sitting at virtually 0%.

Though situations appear to be much worse in some emerging markets, growth figures from China are considered to be unreliable but some other countries are facing massive debt, inflation and currency problems, particularly in South America. Argentina currently has a president that is seen as a pro-reform figure (the first non-radical / non-peronist in nearly 100 years), but can't seem to get the situation under control.

I've read that many emerging markets have accumulated large debts in U.S. dollars, but are unable to repay those due to worsing currency exchange rates (i.e. their debt becomes more expensive for them). In Europe, Italy is a problem child, it has a very high debt (in the 130% of GDP range) and no government has managed to reduce it. Taxes are very high, but incomes are lagging. They also have many socio-economic problems: in many areas it is almost impossible for young adults to make a living. Many  live with their parents until they're in their 30s and sometimes even into marriage. In addition, Italy has a huge north-south divide, almost reminiscent of eastern and western Germany in terms of the per capita income gap.

vdeane

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Re: Are we heading for a market crash?
« Reply #5 on: November 19, 2018, 09:13:50 PM »

I suspect that we're heading for another crash.  At this point, more and more economists are predicting a recession within the next couple of years.  Heck, a friend of mine thinks it will be a complete and total economic collapse.
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wxfree

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Re: Are we heading for a market crash?
« Reply #6 on: November 19, 2018, 10:43:54 PM »

We're always headed toward the next crash, and the next recovery.  We also always have doomsayers, who see the end of the world just ahead.  The next recession will probably be soon, just because we don't usually go much longer than this without one.  The Fed is also quantitatively de-easing, letting 40 billion dollars worth of bonds mature each month from their holdings while reinvesting whatever matures above that amount.  It probably would have been nice if they'd started that several years ago.  If the next recession isn't severe, they'll have another cycle to bring down the size of the balance sheet and normalize interest rates.

The previous recession was unusual, because it accompanied a financial crisis.  We hadn't had that kind of recession in a long time, but after certain legislative changes were made and certain behaviors that caused the last financial crisis were allowed again, a few years later we had another one.  That recession shouldn't be thought of as a normal occurrence that is likely to happen again soon, and should not be what is envisioned as likely to happen during the next recession.

Also, I don't think the chart above should be taken as a reflection of normal interest rates.  The chart starts right before the inflation problems in the 1970s, and gives an artificially high impression of the "baseline" rate.  I don't know what the average is, but looking at a chart for a longer time period, I get the impression that the idea of an average isn't really useful.  The rate at each time period reflected broader goings on in the economic world, and was probably affected by whatever popular theory was going around at the time.
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Scott5114

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Re: Are we heading for a market crash?
« Reply #7 on: November 20, 2018, 12:14:56 AM »

Why do you ask, did you see the market going through a roundabout or something?
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Rothman

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Re: Are we heading for a market crash?
« Reply #8 on: November 20, 2018, 12:15:56 AM »

Erm...historical trends of prices are probably not very indicative of future performance.

The economy collapse back then was due to the housing market bubble from runaway, unregulated banks that were allowed to mingle their normal banking business with investments, which they did, in derivatives sloppily rated by raters sleeping at the wheel.  banks being required to make bad loans to customers who couldn't repay them due to the Community Reinvestment Act.

FIFY.
Holy cow.  So ensuring banks weren't redlining caused the housing bubble...

That is certainly a new variant of reality.
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Tonytone

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Re: Are we heading for a market crash?
« Reply #9 on: November 20, 2018, 12:29:25 AM »

There are always new loop holes, have you guys ever seen the movie “The Big Short” which explains, what lead up to our pervious recession. We always find ways of making money flip which helps everyone in the short term, but the long term will be effected worse. Seems that if a big crash happens in the future, that would be a great time to rewrite our GOV too.


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tradephoric

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Re: Are we heading for a market crash?
« Reply #10 on: November 20, 2018, 01:13:01 AM »

Considering the country is in the midst of a 10-year recovery, it's concerning that the budget deficit is approaching 1 trillion dollars.  With the increase in federal fund rates it's going to get more expensive to service the national debt over the coming years.  The CBO projects that by 2026 interest on the national debt will be the third largest budget expenditure (just behind social security and medicare).  With the rising mortgage rates there is weakening in the housing market and home refi's just hit an 18 year low.  People are no longer using their houses as ATM machines and pumping that money back into the economy.   



Does anybody remember when Trump said the market was in a big fat ugly bubble during the debates?  He seemed to be making the argument that Janet Yellen was keeping interest rates artificially low to prop up the markets and keep the economy rolling to help the democrats get elected.  Of course now that he's president, he's critical of the fed for raising rates (when before the election he was critical of them for keeping rates artificially low).

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Tonytone

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Re: Are we heading for a market crash?
« Reply #11 on: November 20, 2018, 01:16:17 AM »

Considering the country is in the midst of a 10-year recovery, it's concerning that the budget deficit is approaching 1 trillion dollars.  With the increase in federal fund rates it's going to get more expensive to service the national debt over the coming years.  The CBO projects that by 2026 interest on the national debt will be the third largest budget expenditure (just behind social security and medicare).  With the rising mortgage rates there is weakening in the housing market and home refi's just hit an 18 year low.  People are no longer using their houses as ATM machines and pumping that money back into the economy.   



Does anybody remember when Trump said the market was in a big fat ugly bubble during the debates?  He seemed to be making the argument that Janet Yellen was keeping interest rates artificially low to prop up the markets and keep the economy rolling to help the democrats get elected.  Of course now that he's president, he's critical of the fed for raising rates (when before the election he was critical of them for keeping rates artificially low).

Wowwwwwwww, America was not in a deficit, until the war, which started because of 9/11. What would america be like today if that didn’t happen. How do we reverse this. Its getting worse. Thats why trump talks of cutting programs & countries funding. So we can get back on the market.


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Rothman

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Re: Are we heading for a market crash?
« Reply #12 on: November 20, 2018, 07:59:03 AM »

Put America on the market?  And sell it to whom? :D

Yeah, when your tax plan explodes the deficit by heavily favoring the rich in the cut, that does make funding needed government programs difficult.  The Republican Administration can't say they need to cut programs now when they caused the lack of funding in the first place.

Tax the rich.
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MNHighwayMan

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Re: Are we heading for a market crash?
« Reply #13 on: November 20, 2018, 08:02:00 AM »

Put America on the market?  And sell it to whom? :D

Russia, of course.
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roadman65

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Re: Are we heading for a market crash?
« Reply #14 on: November 20, 2018, 09:40:03 AM »

This is a political discussion isn't it?  This should get locked before the end of the next week.  We all know that when you talk about Wall Street it ends up in politics due to the fact the average American believes that one of the two parties (or both) are responsible for any bad changes in the Market, and some on here will develop a flame war over it especially when one user forgets that or unawaringly does so.
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Re: Are we heading for a market crash?
« Reply #15 on: November 20, 2018, 09:49:15 AM »

This should get locked before the end of the next week.

Good to know that we still have over a week before this thread gets locked.

one user forgets that or unawaringly does so.

That one user? I think it will be intentional.
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tradephoric

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Re: Are we heading for a market crash?
« Reply #16 on: November 20, 2018, 10:24:18 AM »

At the start of 2008 the DOW dropped roughly 15% over 17 trading days and it was the first major leg down during what would become known as the global financial crisis.  If we continue to track the late 2007/early 2008 market the DOW will be at ~22,000 before Christmas.  If that happens i wouldn't panic sell but wait for a retest of the 200 day MA.  Assuming we see a significant sell off over the next few weeks, i believe the market will retest its 200 day MA (~24,500) around April 2019 and that will be your last best chance to lock in the market gains that we have experienced over the past decade. 

Saying all that, this is just a guess and i agree with hbelkins that historical trends of prices are not indicative of future performance.  But sometimes you do see price action that closely matches a previous crash and it almost spooks the market and becomes a self-fulfilling prophecy.  Maybe from here we break through DOW 27,000 and make new highs... but if we do see a significant drop heading into the end of the year i would be concerned.
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paulthemapguy

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Re: Are we heading for a market crash?
« Reply #17 on: November 20, 2018, 10:55:45 AM »

one user forgets that or unawaringly does so.

That one user? I think it will be intentional.

QFT.

I don't know if we're headed toward an all-out crash just yet, but the tyrannical act of pardoning the corporate aristocracy from having to contribute their share of taxes really isn't good for our deficit. 

Put America on the market?  And sell it to whom? :D

Yeah, when your tax plan explodes the deficit by heavily favoring the rich in the cut, that does make funding needed government programs difficult.  The Republican Administration can't say they need to cut programs now when they caused the lack of funding in the first place.

Tax the rich.

Totally nailed it IMHO.
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tradephoric

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Re: Are we heading for a market crash?
« Reply #18 on: November 20, 2018, 11:29:58 AM »

Here's a comparison of the 2008 stock market to the current stock market.  The correlation isn't extremely high but it's interesting to keep track of.



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Re: Are we heading for a market crash?
« Reply #19 on: November 20, 2018, 11:44:16 AM »

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tradephoric

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Re: Are we heading for a market crash?
« Reply #20 on: November 20, 2018, 11:58:18 AM »

It is interesting that both correlation charts are pointing to a market bottom in early 2020.  If we continue to track the 1956 market we trade sideways/slightly down in 2019... if we track the 2008 market we crash in 2019.


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wxfree

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Re: Are we heading for a market crash?
« Reply #21 on: November 20, 2018, 12:43:57 PM »

Wowwwwwwww, America was not in a deficit, until the war, which started because of 9/11. What would america be like today if that didn’t happen. How do we reverse this. Its getting worse. Thats why trump talks of cutting programs & countries funding. So we can get back on the market.


iPhone

The wars certainly had a lot to do with the deficit, but the surpluses just before were not an ongoing and normal situation.  When the 2001 tax cuts were being debated (ask your parents about it, they probably got a government check that year because the tax cut was made retroactive to the beginning of the year and they sent rebate checks) there was talk of future surpluses as far as the eye can see, which justified the tax cut.  People like to predict that whatever is happening now will keep happening forever.  That prediction is always wrong, but we keep doing it.

In my non-expert but almost-semi-informed view, I see the surpluses of the 90s and the economic expansion that drove them as a result of the growing Internet economy.  There was talk of a "new economy" in which the stock market could only go up.  Less than 10 years later there was a belief that home prices could only go up.  In both cases, there was a belief that what was going on at the moment could never stop, and in both cases that belief was wrong, as it always is.

In some way, the expansion of the Internet economy is related to other discussions here about stores closing.  The "new economy" was based on the idea that we could sell more stuff online while not selling less stuff in stores.  That obviously isn't true.  I view that period of expansion and the following period of physical store contraction, which is ongoing, as a single event.  The expansion and contraction weren't real things, or at least were much smaller things, if we average them out, they just happened at different times.  In my mind, we should see some of that late 90s surplus, maybe more than all of it, as filling in some of the following deficit because part of the cause of both was really the same event.

Edit:  I think I remember Alan Greenspan talking about how we shouldn't pay off all of the national debt and should keep a trillion or two because that's a major part of the bond market.  That's how much the world had changed.  Or at least how much the way they thought of the world had changed.  That's also how you know it's about to change back.  When there's this much certainty of a new reality is when the real reality reminds you of why it's been in place forever.
« Last Edit: November 20, 2018, 12:57:38 PM by wxfree »
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sparker

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Re: Are we heading for a market crash?
« Reply #22 on: November 20, 2018, 12:49:25 PM »

Much of the market losses in recent weeks have been a "correction" of the bubble that accompanied the rise of numerous individual stocks -- principally tech-related -- such as Apple and its associated suppliers.  Add to that a general disillusionment with social-media stocks as a "safe bet" for capital increases, and you have the makings of a general market correction rather than a crash.  Other things that tend to precipitate a more widely distributed correction -- lowered oil prices due to market manipulation by producers, both natural & man-made disasters (one after another in the 2nd half of 2018) -- also point toward a broad correction -- the Dow may well dip below 20K by the end of 2019's first quarter, taking it into decidedly "bear" territory.  But an actual "crash"?  Not likely; there's still too much value on the table and it's going out of the presently troublesome volatile areas (deemed safe a year or so ago) and into safe havens (more staid corporate bonds) for a while until the correction bottoms out; at which time it'll come back gradually;  we'll probably plateau out at or near the levels we're at now (24-25K Dow) by the end of 2019.   
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Rothman

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Re: Are we heading for a market crash?
« Reply #23 on: November 20, 2018, 12:51:27 PM »


Would have been better with roundabouts.
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