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plan ahead or fall out of bed, predicted it's coming
BOB 2
Posted: 24 August 2017 13:03:53(UTC)
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yes it's me again just reminding investors a correction/ crash could be in the next few months , or maybe not who knows,

What is a stock market crash?
Quite simply, it is a sudden dramatic drop in stock prices across a significant cross-section of a stock market. While there is no specific threshold for stock market crashes, they are typically defined as a fall of more than 10pc in a stock index over the course of a day or two.
How does a crash differ from a ‘correction’?
The speed of the decline is what differentiates a crash from a stock market correction. While a crash occurs when markets experience a sudden double-digit drop in a couple of days, a correction occurs when prices fall by 10pc or more from the index’s 52-week high.



2008 - MAJOR MARKET FALLS
New York - down 33.84%
London - down 31.3%
Paris - down 42.7%
Frankfurt - down 40.4%
Mumbai - down 51.9%
Singapore - down 49.2%
Sydney - down 41.3%
Hong Kong - down 48.3%
Shanghai - down 65.2%
Tokyo - down 42.1%


From bull to bear: The FTSE 100's biggest falls
Date Peak Date  Trough  Fall 
December 30 1999  6,930  March 10 2003  3,436  50.42% 
October 12 2007 6,730 March 3 2009  3,512  47.82% 
April 27 2015  7,103  February 11 2016  5,536  22.08% 


share valuations have soared to their second-highest ever level, suggesting that many stock investments are over-bought and could be in bubble territory.
The only other time indicators were at this level was before the dot com crash at the turn of the millennium.
Experts are now worried that history is about to repeat itself.
It comes after stock markets in both the US and Britain have continually topped their highest ever levels in recent months.
American's top stock indices the Dow Jones and S&P 500 are up a staggering 20 per cent and 16 per cent respectively over the past 12 months, while Britain's FTSE 100 has surged as much as 15 per cent over the past 12 months.


Technicians say the market has been setting up for a correction, possibly in September.
JPMorgan technical analyst Jason Hunter said the S&P 500 could see an 8 percent pullback.
The 2,400 level on the S&P 500 is seen as a critical level to hold.

https://www.cnbc.com/201...up-in-stock-charts.html


http://www.marketwatch.c...rection-mode-2017-08-22


https://www.forbes.com/s...dy-in-one/#5402c1e2779d



Added 25/08/2017
xxxxxxxxxxxxxxxxx

http://www.huffingtonpos...99dbd8fe4b056057bddd035


https://www.youtube.com/watch?v=2ZgvZlyel98


https://www.youtube.com/watch?v=7tn07-5xe-U


https://www.youtube.com/...v=fdYXGhY4Dpk&t=750



And something amusing to watch for the weekend
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

www.youtube.com/watch?v=-gHgXmMXvAg


www.youtube.com/watch?v=pg1qLJ_6-LE

www.youtube.com/watch?v=uT3SBzmDxGk
4 users thanked BOB 2 for this post.
Vince. on 24/08/2017(UTC), Tim D on 24/08/2017(UTC), Mike L on 26/08/2017(UTC), Hugh M on 08/09/2017(UTC)
AJW
Posted: 25 August 2017 08:35:37(UTC)
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I believe a correction is due causing relatively short term disruption, but a crash would surprise me given that it is being so widely anticipated and discussed. Well aware of how naïve this sounds given history, but it's just what I think most likely.
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Catch The Pigeon on 25/08/2017(UTC)
Keith Cobby
Posted: 25 August 2017 08:41:26(UTC)
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Nothing wrong with looking in the rear view mirror but the big difference between these previous corrections/crashes and now is that interest rates are on the floor.
4 users thanked Keith Cobby for this post.
Tim D on 25/08/2017(UTC), Hank Elvis Dobbs (texan) on 25/08/2017(UTC), Guest on 28/08/2017(UTC), Jon Snow on 11/09/2017(UTC)
Ermintrade
Posted: 25 August 2017 10:01:34(UTC)
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I have to agree with AJW. When everybody is talking about an imminent crash, it ain't gonna happen.
It is when everyone is piling into equities like there is no tomorrow that a crash will happen, and surprise all but the most prescient (or lucky) investors.
Regards
ermintrade
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AJW on 25/08/2017(UTC), Tim D on 25/08/2017(UTC)
Mr Helpful
Posted: 25 August 2017 10:18:34(UTC)
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Ermintrade;50276 wrote:
I have to agree with AJW. When everybody is talking about an imminent crash, it ain't gonna happen.
It is when everyone is piling into equities like there is no tomorrow that a crash will happen, and surprise all but the most prescient (or lucky) investors.


Yes euphoria (FAANGS excepted) seems absent; yet Stocks appear fully priced and the length of the Bull Market remarkable.
The shock might be the underpinning of low Bond Yields being pulled away, or something we just haven't thought about!
Could investors on this occasion be sleep-walking gently into overexposure lulled by the undue calm?
Maybe 'this time is different', at least in terms of how the top rolls over?
King Lodos
Posted: 25 August 2017 23:25:20(UTC)
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BOB 2;50231 wrote:
yes it's me again just reminding investors a correction/ crash could be in the next few months , or maybe not who knows,


Always been the case – otherwise the risk premium of stock market investing would disappear overnight.


Every crash is uncharted territory .. There are lessons from the past we fail to heed – but also mistakes made when we expect the past to repeat.

Odey was up nearly 1,500% after calling the financial crisis correctly – but just look how drastically that's been wiped out losing over 50% calling the current market incorrectly (or just too soon .. he may be laughing next week)



Shows the importance of protecting capital (and I'd also say the importance of waiting for price trends before you commit to an idea).


Tightening cycles (as we've been in since Dec 2015) usually end in recession – 10 out of 13 have been severe .. The real uncharted territory today is obv. QE – which may signal a completely new approach to markets .. Could it even be that crashes are a thing of the past?

The other big unknown is the rise in Quants (most trades are made by algorithms today) .. We had that strange Flash Crash in '87 – who even knows what might happen were markets to enter a period of volatility that set off 100,000 automated traders to sell all at once?

I often recommend Stop Losses, but that could be a situation where they're a disaster – you might not be able to sell fast enough, then of course the markets bounce back and you sold near the bottom .. I still use Stops, but I use tight stops, with the aim of maybe halving exposure before trouble sets in.

I can just as easily imagine markets spend the next 10-15 years rallying higher and higher – and us looking back on this period as a time everyone was too cautious – as I can a repeat of 2008 .. Lots of nervousness in markets at the moment – I'm not entirely sure why .. European Small-Caps, Asian Tech stocks, and the demand for metals, all seem very positive to me at the moment
2 users thanked King Lodos for this post.
BOB 2 on 26/08/2017(UTC), Tim D on 26/08/2017(UTC)
Stephen B.
Posted: 26 August 2017 15:48:39(UTC)
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I think the basic thing that drives a crash is that shares fall until they hit a point where they are clearly too low, i.e. the question becomes what's the absolute minimum this share could be worth. In the dot-com crash the answer was often zero, and in other situations you may have shares on a P/E of say 30 where it could just as easily be 10 without being obviously too low. At the moment the thing underpinning the price of most shares is the dividend yield compared with current interest rates. As long as rates stay around 1-2% that will still hold, the biggest risk would probably be that rate expectations go back to a more traditional 5%. If I pick Diageo as a random example of a big defensive multinational on a high rating, currently on a P/E of 24 and a yield of 2.5% I could imagine that there might be a factor 2 downside on that. However I think there would be a fair bit of warning, I don't see that interest rate expectations could move that much without a lot of advance preparation by the central banks over at least a couple of years and so far we have nothing like that.
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Keith Cobby on 28/08/2017(UTC)
King Lodos
Posted: 26 August 2017 17:06:59(UTC)
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It's more earnings yield than dividend yield (I always say dividends aren't real – but they're certainly not guaranteed, like buying a 30yr Treasury bond).

Diageo on a P/E of 24 would have an earnings yield of 4.2% (1 divided by the PE ratio) .. So that would be an approximation of what kind of annualised return you'd expect over the next 10 years.

You can get 2.2% on a 10yr Treasury now .. In the dot com crash, the 10yr yield peaked as high as 7%, but hovered around 5% .. With a P/E ratio around 45, that meant stocks were yielding 2.2%, and it was a no-brainer to buy bonds as soon as the growth expectations for Tech stocks started to look overoptimistic.

What usually happens in a tightening cycle is a double-whammy.

Bonds gradually become more valuable relative to stocks, but it's the recession (that comes along as people spend less, borrow less, pay more repaying debt, etc) that takes Earnings projections on stocks down
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Tim D on 26/08/2017(UTC)
Stephen B.
Posted: 26 August 2017 17:30:29(UTC)
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Personally I'm inclined to agree that the earnings yield is more significant, but a lot of people take the opposite view, that earnings are easily manipulated but cash is cash. Also to the extent that shares are overvalued it's been driven by the dividend yield - you can see the same thing in all the launches of ITs investing in infrastructure and various kinds of property, basically everything with a high dividend yield is in demand, so correspondingly those will be the most at risk in a crash. In this case I'm not sure that recession is the main risk, although it obviously wouldn't help, because those kinds of companies are relatively defensive so their profits don't drop all that much in a downturn. Again looking at Diageo over 10 years, the price was about £10 in 2007, 750 at the trough in 2009 and £25 now, so the impact from even a huge recession was fairly small compared with what we might see from P/E derating even without a recession.
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Mr Helpful on 26/08/2017(UTC)
Mr Helpful
Posted: 26 August 2017 18:03:24(UTC)
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Stephen B.;50313 wrote:
Personally I'm inclined to agree that the earnings yield is more significant, but a lot of people take the opposite view, that earnings are easily manipulated but cash is cash. Also to the extent that shares are overvalued it's been driven by the dividend yield - you can see the same thing in all the launches of ITs investing in infrastructure and various kinds of property, basically everything with a high dividend yield is in demand, so correspondingly those will be the most at risk in a crash.


Re earnings yield we are looking at about 4.1% for the UK market, with dividend yield at 3.6%,
so cover 1.14.
US 4.7% earnings yield, dividend yield 2.01%,
so cover 2.34.
This seems to fly in the face of the general opinion that US is expensive compared to UK.

Is that how you see things, or are some of these assumptions too simplistic?
Would CAPE help in any way?

We fortunately have been extremely well rewarded by our Infrastructure investments over several years; but as highlighted it all does seem to be becoming something of a dividend bandwagon lately. So caution does seem to be appropriate.
Quite how all the new launches will play out is anybody's guess.

Currently for the reduced amount of Stocks held, have recently been moving into the higher income ETFs as a proxy for value in the face of a possible tech bubble. This last may prove to be a pointless move. Any thoughts?
King Lodos
Posted: 26 August 2017 18:17:13(UTC)
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Certainly the hunt for yield among retail investors (as evidenced by Woodford still being the popular fund over here) is likely pushing dividend stocks and bond proxies to higher valuations than they merit .. No doubt about that.

But while that could be a bubble within a bubble, these kind of investors won't be the cause of a sell-off (more likely the victims) .. The market will decide when to move against stocks, and that will be a weighing up of almost everything but dividends.

What baffles me is that retail investors haven't discovered preferred shares and perpetual bonds – which sit on risk about in between stocks and bonds, and which are paying much higher yields than your average equity income fund, from much higher quality companies .. Certainly in 2016, there was a real value opportunity there (e.g. Wells Fargo preferred, and Bank of America – both yielding over 6%)
Stephen B.
Posted: 26 August 2017 18:19:05(UTC)
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Averages can be misleading - for example the US figures will include tech companies like Apple and amazon which have no UK counterpart. Conversely heavy hitters in the UK include oil and pharma - the US has them too but with much lower weights. CAPE for oil companies at least probably won't help, it's hard to know what to expect for a mid-cycle oil price. Similarly for banks, I don't think we yet know where their profits will settle in the medium term.

"Quite how all the new launches will play out is anybody's guess. "

Well, maybe, but I think the history of sectors with a lot of investment trust launches gives a fairly consistent message ...

For tech, I'd recommend reading the recent annual report of the Polar Capital Technology IT, it has a rather detailed summary of the current situation, although as always the managers may be somewhat biased.
King Lodos
Posted: 26 August 2017 18:40:39(UTC)
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It's the Ship of Theseus Problem .. Cyclically adjusted valuations can wind up with you comparing Prices from a sector that was big 5 years ago with Earnings from a different sector today.

What valuations are really trying to tell you is how much people are willing to pay for something .. In some ways what you're comparing Price to is arbitrary – someone showed you could do a pretty good job comparing Stock market prices to the price of bubblegum.

So about the best quick-fix is just to average as many different valuation metrics together, so while Earnings, Sales and Book values all have different flaws, you're at least averaging them out and getting a better idea of the Price relative to *something*

BOB 2
Posted: 26 August 2017 20:00:55(UTC)
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Getting back to correction,
After looking at all these reports etc some stating a correction is around the corner, or even a crash bigger than 2008.
My conclusion is , yes we are in dangerous territory, and it want take a
Lot to Create another correction, as to a crash unlikely but possible.
So what could cause another correction in the next couple of months
Trump being ousted ? brexit going tits up? Major profit taking in anticipation of a correction? Problems in the USA other than Trump?
War? CHINA ? interest rates hike ? or ???????????????????
What ever it is it’s very possible and as you know the market does not like bad news. So what is the worst scenario .

Latest news today



UK must pay Brexit bill, says Angela Merkel
German chancellor said bill was not a fine but an ‘obligation’ that Britain had entered into.

My comment ,100 billion pounds ?
Stephen B.
Posted: 26 August 2017 20:26:09(UTC)
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Corrections can happen at any time, but it's somewhat more common around October - people are back at their desks after their holidays, both investors and politicians, decisions and announcements get made, and also people start looking ahead to what they expect to happen in the following year, so you get a general reassessment of where share prices should be. That doesn't necessarily result in market falls, but sometimes it does. However, that doesn't mean you can do anything about it - if you increase liquidity you're better off if there is a correction, but what if there isn't? In some years markets rise strongly in the autumn ...
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BOB 2 on 26/08/2017(UTC)
King Lodos
Posted: 26 August 2017 21:57:18(UTC)
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The thing is, as soon as the weight of information signals a crash is likely, markets will already be correcting for it.

Usually a market's a mixture of bears (who believe something bad's about to happen) and bulls (who believe it never will) .. and that's why there are usually more than enough buyers and sellers of stocks at any time.

For markets to correct, it takes information entering the system that we don't already have priced in .. In that way, I'd say the best time to buy stocks is always now .. And the best time to hedge (holding cash, bonds and gold) is also always now .. Which is the philosophy of most hedge funds

3 users thanked King Lodos for this post.
Jon Snow on 26/08/2017(UTC), Tim D on 28/08/2017(UTC), Sara G on 28/08/2017(UTC)
Jon Snow
Posted: 26 August 2017 22:55:42(UTC)
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King Lodos;50322 wrote:
The thing is, as soon as the weight of information signals a crash is likely, markets will already be correcting for it.

Usually a market's a mixture of bears (who believe something bad's about to happen) and bulls (who believe it never will) .. and that's why there are usually more than enough buyers and sellers of stocks at any time.

For markets to correct, it takes information entering the system that we don't already have priced in .. In that way, I'd say the best time to buy stocks is always now .. And the best time to hedge (holding cash, bonds and gold) is also always now .. Which is the philosophy of most hedge funds



Great post.

Also if you expect a correction is coming, what do you do before it happens, do you know when it will happen, it might be Tuesday at 08:00 hrs, or even earlier if you're in the far eastern markets?

Bulls and bears, fear and greed, emotions driving investment decisions. My favourite chart -

http://www.economicshelp...ossary/prospect-theory/

It may be worth winding the clock back to the 2008 crash or GFC or whatever you want to call "it". I think it was the Queen who asked a collection of highly esteemed economists, why didn't you see it coming? She had to wait four years for a reply -

"Kapadia told Her Majesty that financial crises were a bit like earthquakes and flu pandemics in being rare and difficult to predict, and reassured her that the staff at the Bank were there to help prevent another one. "Is there another one coming?" the Duke of Edinburgh joked, before warning them: "Don't do it again."

https://www.theguardian....nancial-crisis-question

"the staff at the Bank were there to help prevent another one" Hmm.....

So, my in depth analysis concludes, you can't predict a market crash, you should construct your portfolio to be diversified against the impact of any single asset type correction as well as having regional exposure and a decent pot of cash or cash equivalent funds.
3 users thanked Jon Snow for this post.
King Lodos on 27/08/2017(UTC), Tim D on 28/08/2017(UTC), Sara G on 28/08/2017(UTC)
Jon Snow
Posted: 26 August 2017 23:11:23(UTC)
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As a follow up to my post above. Edison report on Harbourvest -

http://www.edisoninvestm...HarbourVest_16082017#js


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King Lodos on 27/08/2017(UTC), Tim D on 28/08/2017(UTC)
King Lodos
Posted: 27 August 2017 00:57:35(UTC)
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That's a nice report .. My biggest mistake with Harbourvest's that I didn't load up more on it a year or two back – I've got a Stop-Loss on it now, to sell just the past year and bit's gains (50%) if the price dips about 3-4% from here ... I don't know whether that's the right move – but I do play a tight defence.

The hope with crashes (as a technicals guy) is that you see the weakness in prices first .. It was certainly there with the Financial Crisis .. The Flash Crash of '87 was difficult, but even then, the price of the Dow had fallen below the real bullish indicators.



It's partly why I don't buy dips
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The Spanish Inquisition on 12/09/2017(UTC)
sandid3
Posted: 27 August 2017 07:06:49(UTC)
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My guess is that a big influence over crashes in the Northern hemisphere autumn months is that it becomes clear to insiders what the winter festive season will be like. Gift giving and celebration lasts roughly from the US Labor Day all the way to Chinese New Year.

If you look at UK monthly inflation data there is always a big jump in September. (It doesn't show in the annual data because the previous year's monthly change is replaced.) September is when stores install their winter season stock at full price. Full prices are based on the stores' estimate of demand.

Another guess is that this year's consumer demand will be reasonably strong because of high employment, albeit at low wages.

Other influences are available.
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Mr Helpful on 27/08/2017(UTC), Tim D on 28/08/2017(UTC)
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