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Show HN: Is the stock market going to crash?
- timsayshey 9y agoReally cool idea. As someone that hasn't really investigated the market indicators for collapse this is really eye opening. It really breaks things down into plain english. Hope this goes to the top for some rational/interesting conversation.
- truffle_pig 9y agoThanks for the kind words! I'm not an economist myself so I'm hoping others on HN might be able to correct any inaccuracies.
- nautilus12 9y agoIs this open source? Id like to see how/where you are pulling your data.
- myth_drannon 9y agoThe source is not minified.
- deleted 9y ago[deleted]
- hellogoodbyeeee 9y agoDon't put too much weight into his analysis. There are folks who spend their entire professional careers studying the economy and they haven't, on average, ever correctly predicted how the stock market will perform. I don't want to knock on OP's analysis here, but it's important to remember the famous quote (maybe by Keynes?), "The market can remain irrational much longer than you will remain solvent"
- Kiro 9y agoI got a "Add Create React App Sample to your home screen" notification on my phone.
- mendeza 9y agoWhat about student loan debt, how does that factor into the economy or the stock market being affected? Right now student loan debt is at 1.4 trillion source: https://www.debt.org/students/ https://www.debt.org/students/
- SmellTheGlove 9y agoI wouldn't worry about student loan debt being a problem. It's very likely that they're going to get a bailout before a bubble bursts. Where on earth did I come up with this, you ask? Easy - I just paid my student loans off last week. It's only natural that everyone else will now get bailed out! Seriously, though, this is a real problem and we need to do something. Even if it doesn't have a direct effect any time soon, it's going to have an indirect effect as our generation (I'm some kind of X-ennial, apparently, but let's just say everyone 20-40) continues to replace retiring boomers in the economy. If we're all saddled with non-dischargable debt, it's going to hurt the housing and consumer spending segments.
- knewter 9y ago> Seriously, though, this is a real problem and we need to do something the thing we have to do is not borrow money we can't repay. capitalism is a distributed system. borrowing money you can't repay is a broken local protocol. don't try to fix that with anything but fixing it locally.
- sova 9y agoMoney is not as important as living a full life. Sometimes trade offs must be made
- thomascgalvin 9y agoThis is at least partially true, but ignores the "reality on the ground." Even many entry-level jobs require a college degree now, and forgoing a college education makes you unhirable in many markets. Until that changes, "college you can't afford" is pretty much a mandatory expense. There are ways to minimize the cost -- basically two years at a community college and two years at a state school -- but the days of being able to afford college by working a part time job are long over. The reality is, if you want to participate in today's job market, you probably must take on at least some college debt.
- lg 9y agoCould the fact that a lot of US companies book profits overseas and keep them there for tax reasons foil your assumption about the meaning of a high US market cap:domestic GDP ratio?
- qubex 9y agoThat is already implicit in the Efficient Market Hypothesis' valuation of the total market capitalisation of stocks (that is part of the reason for which the total value of the stock market exceeds GDP).
- xphilter 9y agoRight, but this chart ignores that (as far as I can tell). If US listed companies are going to eat more of the global GDP, then it wouldn't be crazy that the value of the stocks will exceed GDP of the country in which it's listed (i.e., the fact that the value does exceed GDP might not be a precursor to a crash).
- krit_dms 9y agoThere's really no reason why GDP should equal market cap. Companies are largely (especially now, since interest is so low) valued on future income, rather than current income. Look at Amazon and Netflix, both tradin at 200x earnings. This is beacuse investors think they will earn a lot more in the future than they do now. Are they overvalued? who knows.
- qubex 9y agoIndeed, market valuation as a multiple of GDP is hitherto unknown to me. However that's why I wrote partially: foreign assets are factored into the value investors attribute to the stock market as a whole. In retrospect I shouldn't have argued from the standpoint of percentage of GDP.
- xphilter 9y agoGood point. I'd wager that US listed companies' share of profit and/or income growth outside of the US has increased since the 70s/80s. I'd at least have a global crosscheck of some kind.
- qubex 9y agoEconomist here. You should really keep in mind that the same GDP must go both towards paying off the national debt and paying off household debt. Also you should track commodities (at the very least, the ratio between put & call options).
- crdoconnor 9y agoAre you familiar with MMT?
- qubex 9y agoIf you mean Mark To Market, yes. It you mean anything else (and I am wracking my brains trying to come up with another relevant meaning for that acronym), no.
- RobertoG 9y agoI think he is talking about Modern Monetary Theory, where one of the conclusions they arrive, after studying how modern economies work, is that private sector debt grow when there is not enough government deficit. https://en.wikipedia.org/wiki/Sectoral_balances https://en.wikipedia.org/wiki/Sectoral_balances Another of the conclusions is that the national debt, for countries with a floating sovereign currency, is just a number without real meaning. https://www.nakedcapitalism.com/2014/08/taxation-government-spending-the-national-debt-and-mmt.html https://www.nakedcapitalism.com/2014/08/taxation-government-...
- forbiddenlake 9y agoSays "Stock market is closed" at 10:45AM EDT. Is it really?
- deleted 9y ago[deleted]
- artursapek 9y agoA high VIX would indicate that the market is crash-ing.
- jaaames 9y agoOnly indicates it's moving, doesn't necessarily mean crashing.
- artursapek 9y agoVIX rising means market is moving, but strictly downwards, right?
- pillowkusis 9y agoA site like this seems dangerous at best. Nobody can predict the stock market. Nobody can predict when a stock market is more likely to crash. This site tries to indicate otherwise. Whatever causes the crash it probably won't be one of the indicators listed here.
- choxi 9y agoI think the subtitle sets expectations pretty clearly: > No one knows for sure, but there are indicators that can help us guess. We can chart these indicators to give us the illusion of foresight.
- module0000 9y agoHoly shit, just seeing the "indicators that can help us guess" gives me shivers. The person who utters that phrase is admitting to guessing with their money. Does anyone else find that as absurd as I find it? If I hire a pro to enter/exit a position, if they are guessing(with or without the assistance of indicators), I have made a very bad decision to hire them.
- MarkMc 9y agoPerhaps you and I have different definitions of the a word 'guess'. To me, it includes 'Making a logical estimate based on available evidemce'. Every investment decision is a guess.
- pillowkusis 9y ago>indicators that can help us guess this is the dangerous part. No, they can't, even though it seems like they could. If they could, they would be used by people to make money and deflate the bubble that would have caused the crash in the first place. That's the theory, anyway
- module0000 9y agoPredicting the actions of human being is very difficult. The market "crashes" when 2 people throw in the towel. One of those groups is the aggregate of retail+institutional buyers. The other group is market makers. When neither group is willing to bid the price, then that price decreases. When neither group is willing over an extended period of time(say, an hour), we have a "market crash". It's a very hyperbolic way of saying no one is willing to buy, but others are still willing to sell. In that state, the price retreats as buy-side liquidity is consumed, and continues retreating until buy-side liquidity is equal to sell volume. Once buy-side liquidity is in excess of sell volume, then the price moves up. tldr; "crash" is used to describe a very natural condition, caused entirely by the emotions of human beings.
- avip 9y agoI love the design and phrasing. This is just a well-done website. It would be really interesting to see your collapse pyramid over time. How did it look in 2000? 2008?
- truffle_pig 9y agoThis is a good idea. I'm going to implement it as a timeline I think.
- krit_dms 9y agoIt not really an easy thing to do, but value weighted price/earning would probably be the most common way to do it.
- solatic 9y agoSince the diamond is a 2D figure, then if you add time as a third dimension, you'd get a diamond-shaped cylinder. Add a blue-red spectrum color code, whereby blue is a time slice with a small surface area and red is a time slice with a large surface area, and you'd be able to plot the dangerously large Diamonds of Economic Failure over time in a way which clearly indicates when the danger signs were worst.
- neom 9y agoDistribution of household debt is to significant to look at the health of the economy in this way, especially so when you look at how the GDP is generated and who is generating it.
- 19890903 9y agoOh dang ! That household debt sure is scary. Where's the real time data sourced from? > U.S economic risk as of ... With the click of a button, may be also allow a view of where it was at a point in history...? i.e. U.S economic risk as of [insert point in history] Great work so far. Simple and usable.
- truffle_pig 9y agoThis is a great idea. Might implement some kind of timeline that you can scroll through.
- matt-attack 9y agoBut while the household debt is huge, isn't it naturally balanced by the equally massive collateral the banks have in the houses themselves? I mean, sure Joe America has a $500k mortgage, but the bank has first position on Joe's house which is worth $675k.
- tveita 9y ago> first position on Joe's house which is worth $675k Only in a healthy housing market. In an economic downturn where a lot of people are defaulting, the bank will not be able to sell the house for anywhere near that price.
- tome 9y agoMarket Volatility section: Current risk: NaN / 10 "Calm waters" (I'm using Edge)
- lowboy 9y agoAh, I was getting the same error in Chrome Canary and it just took a while to load data. Came here to let the OP know about it and when I tabbed back it was no longer NaN/10.
- JoblessWonder 9y agoI also get it on "Market Overvaluation." NaN is the opposite of Calm Waters for me.
- TekMol 9y agoThe page strives solely on it's nice graphics, and sensationalist wording. There is little to no content of substance. For example the page calculates "Market Overvaluation" as the US stock market value divided by the yearly US GDP. Hilarious.
- vvdcect 9y agoHow would you calculate Market overvaluation?
- marwatk 9y agoShiller Price/Earnings[1], probably. It looks at the previous 10 years of earnings to do a P/E to try to even out the earnings and get a better picture. But I'd imagine even just normal P/E ratio would be better... [1] http://www.multpl.com/shiller-pe/ http://www.multpl.com/shiller-pe/
- JumpCrisscross 9y ago> How would you calculate Market overvaluation? The market is a conversation, not a calculation. There is no equation for its "proper" valuation because there is no equation for an asset's "proper" price. We have markets because these calculations, the economic calculation problem [1], are hard. Financial theory has a habit of magicking uncertainty into variables that look like constants but aren't. With option theory, it's the volatility curve. With CAPM [2], it's the risk-free rate curve and general market risk premia (also beta). In the discounted cash flow model [3], it's the discount rate and future payout curve. These models sort of work a lot of the time, but not always and not as well as we'd like them to. Unfortunately for the precision-minded, the bridge between the quantitative models are people doing their people things. Note that I'm not saying it's all voodoo. There are models. But understanding them takes appreciating their constraints, assumptions and strengths. [1] https://en.wikipedia.org/wiki/Economic_calculation_problem https://en.wikipedia.org/wiki/Economic_calculation_problem [2] https://en.wikipedia.org/wiki/Capital_asset_pricing_model https://en.wikipedia.org/wiki/Capital_asset_pricing_model [3] https://en.wikipedia.org/wiki/Discounted_cash_flow https://en.wikipedia.org/wiki/Discounted_cash_flow
- 9y ago
- mathiasben 9y agoI feel as though the "stock market" following the 2008 crisis has become further insulated from the larger economies fundamentals. wages can continue to not keep up with inflation, savings rate continues it's downward slide, household debt service payments consume an ever increasing slice of disposable income, etc... all the while the type of dramatic dislocation event similar to 1929, 1987 are unlikely to occur. the market "circuit breakers" ensure any crash is a slow moving trend and not a single calamitous event.
- mathiasben 9y agothe stock market is so divorced from the actual economy that over half of Americans don't participate in any way at all whether through direct purchase, 401k, mutual funds, etc.. most of the action on the stock markets is companies rebuying their stock to generate earnings and hedge funds and the less than half of Americans who have access to retirement planning.
- vkou 9y agoWhat percentage of Americans have historically participated in ownership of capital?
- notfromhere 9y agoGiven that like 75% of corporate profits are used for share buyback schemes, stock market is a rigged shell game.
- benmarten 9y agoHow is the heat matrix diagram calculated? It seems to be wrong. Public Debt has a 3.7/10, while it looks like its around 8.5 in the heat diagram. Looking at the individual ratings: - Household Debt: 5.5 / 10 - Market Overvaluation: 9.1/10 - Market Volatility: 0.3/10 - Public Debt: 3.7/10 --> SUM = 18.6/40 or 46.5% Also I noted: Drawing a linear trend line through the "Market Overvaluation" diagram, does make it look a lot better though. One could argue that people get used to certain levels, hence a growing trend over time. Taking only these factors into account, it does not look like the market is gonna crash soon. In my opinion it's likely going to be caused by another factor not listed here ;)
- wuliwong 9y agoI'm also confused by the public debt number. It is far higher now than in 2008.
- kerkufle 9y agoThanks Obama!
- truffle_pig 9y agoThanks for bringing this up - turns out that was a bug. I've fixed it now so they're the same.
- uiri 9y agoFor market overvaluation, it says: 9.1 / 10 "DEFCON 4" DEFCON 5 is peacetime, DEFCON 1 is imminent nuclear war. For example, during the Cuban Missile Crisis, the US reached DEFCON 2. Should this say DEFCON 2 instead? Or is "above" normal readiness the intended meaning?
- truffle_pig 9y agoYeah was trying to communicate "moderate risk", but it's kinda tongue in cheek.
- laumars 9y agoWe got the tongue in cheek point of the comment. However what is being discussed is the ordering. Defcon 1 is more serious than Defcon 5. ie it counts backwards from 5 to 1 as situations become more serious. So your comment should be Defcon 2. Pedantics aside, I did enjoy those little comments you put alongside the threat level.
- jng 9y agoYou can just write DEFCON 3 and this will communicate the same "moderate risk" message to everyone, no matter their understanding of how DEFCON levels work.
- CWuestefeld 9y agoThe movie Wargames guessed wrong. As a result, the public understanding is backwards from the real NORAD numbers.
- dooglius 9y agohttps://en.wikipedia.org/wiki/DEFCON https://en.wikipedia.org/wiki/DEFCON https://www.youtube.com/watch?v=UHBqJj0znYo https://www.youtube.com/watch?v=UHBqJj0znYo Seems consistent to me, DEFCON 1 is war, 5 is peace
- CWuestefeld 9y ago
- runako 9y agoI've never seen market valuation expressed as market cap as % of GDP. I'm not an economist, so I'll leave the detailed arguments to them. But it would be at least useful to explain why you think this is a meaningful metric as compared to those typically used to measure market valuation (e.g. P/E ratios etc.). Your graph also ties your valuation metric to the 2000 peak and the 2008 peak. However, there were crashes in 1990 and 1987 as well. Should readers conclude that the 1987 peak level was also too high, and that therefore the last ~30 years have also been too high as well? (Abstaining from investing in the stock market at levels above the 1987 crash would have resulted in the loss of tremendous opportunity for wealth creation.) There are a lot of opinions implicitly expressed in this site; it would be good to try to make those explicit.
- amelius 9y agoYou should always use separate validation data anyway.
- truffle_pig 9y agoGood points, I might go into a bit more detail for how I calculate the risk for each factor. Thanks for the feedback
- wheaties 9y agoOne issue I see here is how much of the S&P500 (or general market cap) are we attributing to a US-centric view of global companies? That is, if a company is "in the US" but economically are not.
- JumpCrisscross 9y ago> market valuation expressed as market cap as % of GDP This metric makes little sense for this use case. Consider two countries. They are identical in every way except in Country A 90% of the companies are publicly-traded while in Country B 10% are. Country A will have a market cap to GDP 9x Country B's. Does that mean Country A is 9 times overvalued relative to Country B? The objection works in-country, too. Saudi Aramco is going public in New York or London [1]. This will lift one of those market's aggregate capitalisation by up to $1 trillion. Does this mean that market will necessarily become overpriced? The answer to both question is of course not. Market cap to GDP tells you the degree to which a country has developed public markets. Not anything interesting about the levels in those markets. [1] https://www.bloomberg.com/view/articles/2017-04-05/aramco-ipo-is-just-the-first-step-for-saudi-arabia https://www.bloomberg.com/view/articles/2017-04-05/aramco-ip...
- lr4444lr 9y agoCan someone with an actual economics degree explain to me whether it's a valid criticism of the "Market cap as % of GDP" metric that many US companies derive value from multinational labor and consumption, and if not, why not? Thanks in advance.
- pinky1417 9y agoSB in economics here and current business school student (I know, I know: burn the future MBA at the stake!). Indeed, it is a valid criticism. The market cap/GDP measure is mismatched, since market cap theoretically reflects investors' expectation of future cash flows globally while GDP is a measure for only one country. Also, GDP is problematic for a bunch of reasons, so even if all companies were only operating in the United States, GDP would still only be a crude measure of economic output.
- zmk_ 9y agoPlus, as you mentioned yourself mcap corresponds to the present value of all future cashflows and GDP to one years output. The only way this would make sense is you were comparing changes in GNP to changes in mcap.
- rb808 9y agoIt is valid criticism. The rule is a rule of thumb, so isn't like a law of physics. The amount of internationalization would be relatively similar over short periods of time, so is an OK measure cf 10-20 years ago, but yes has problems comparing over a century. Other similar issues are the amount of private ownership of US companies (that aren't included in Total Market Cap), and also foreign ownership of US companies which is higher than it used to be (I think).
- grandinj 9y agoThe answer is of course: YES. The more important question is when, and the answer to that is "who knows". The market is a chaotic system, with severe non-linear responses. As such, it can remain stable much longer than people think, and crash much harder than anyone expects.
- csours 9y agoI was expecting the site to just have YES at the top in big letters with some explanation below. Things are certainly feeling bubbly lately.
- nnd 9y agoWhat library did you use for the counting animation?
- anonu 9y agoAs the site makes clear, nobody really ever knows if the market is going to crash. On the market valuation side they claim the current market is overvalued. But overvalued is a relative term... As you have to value versus something, and that something is usually something historical. The way I see it though is the markets are a big voting machine.. and they're making predictions about the future and incorporating future expectations. With the current US administration still pondering over tax plans and infrastructure stimulus packages that are promised, market may be underpriced???
- smt88 9y ago> The way I see it though is the markets are a big voting machine.. and they're making predictions about the future and incorporating future expectations This is likely true because of "wisdom of crowds" (aka regression to mean of randomly-sampled human estimates). > With the current US administration still pondering over tax plans and infrastructure stimulus packages that are promised, market may be underpriced??? The president doesn't control taxes or spending, and he can't do anything about infrastructure on his own. All he can do is use political capital to push Congress in a certain direction. So far, he's been totally unable to do that. In terms of the national economy, the US is the same as it was under Obama -- House totally under Republican control, Senate mostly under Republican control, Janet Yellen running the Fed, no major shocks. There's little unity among Republican Congresspeople, and even less when you include Democrats. Tax reform may be a bipartisan issue, but it's likely going to be limited to simplifying the tax code (lowering taxes while closing corporate loopholes). If all the trickle-down dinosaurs believe that higher corporate taxes will harm the economy (which it almost surely won't), then the stock market should -- if anything -- go down. This could mean that it's underpriced, but not for the reasons you seem to suggest.
- petters 9y ago> Create React App Sample Shows up on Chrome mobile.
- mxschumacher 9y agoAmerican companies sell products & services outside of the United States. Comparing American GDP with the aggregate value of the US stock-market is deeply misleading, especially given a historical comparison: foreign markets such as China have gained in relative importance over timeframe under consideration. When looking at debt, one should not just observe the nominal amount, but also the interest rates, which have never been lower. Large companies can tap public debt markets and borrow billions at 1.5% over a timeframe of ten years. Risk is thus lower than the website suggests (at lower interest rates, a company can carry more debt). Additionally, returns to equity will be higher (the I in EBIT is smaller, so profits are bigger).
- module0000 9y agoGDP is a correlated measurement. Trying to use correlated measurements as a leading or primary measurement is one of the many steps on the stairwell down to bankruptcy for a trader.
- georgeecollins 9y agoThe American GDP includes net exports, ie: goods that are bought in other countries. So its not a crazy comparison. But it is not great ratio for long historical comparisons because of the changing nature of economies and markets.
- wuliwong 9y agoI like the idea. I think it could benefit from some transparency into the calculations.
- neilwilson 9y ago'Public Debt' is a private asset. Why is having more wealth a bad thing? The idea that being 'in credit' with a sovereign government with its own currency is a problem has been thoroughly debunked. Primarily by Japan. Time to stop repeating the myth.
- cs702 9y agoI love the idea, the simple design, and the humble tone of the byline ("no one knows for sure, but there are indicators that can help us guess. We can chart these indicators to give us the illusion of foresight."). However, I have two suggestions. First, the numeric rankings (such as "5.5 / 10") need context: why not say something like "10 is the highest value reached in the historical record"? Second, the explanations you give for chosing these indicators need a bit of work, as evidenced by some of the comments and questions on this thread. Most lay readers won't understand why the ratio of total stock market capitalization to annual GDP is important.
- truffle_pig 9y agoGood point, I think I will go into a bit more detail as to how the risk factor is calculated. Yeah seems like I might need to go into a bit more depth explaining the rationale behind each indicator. I'm open to including different indicators too.
- tveita 9y agoNormalizing household debt against the GDP makes the assumption that we are comparing the debt with the ability to pay for it. But according to graphs like this, even though the GDP has been rising, median households have not been getting a corresponding increase in income: https://en.wikipedia.org/wiki/Household_income_in_the_United_States#/media/File:US_GDP_per_capita_vs_median_household_income.png https://en.wikipedia.org/wiki/Household_income_in_the_United... So the income we are adjusting against is not necessarily going to the people that are in debt!
- JumpCrisscross 9y agoHousehold debt to GDP tells you the state of the society. Household debt to income tells you households' ability to repay. If Debt/GDP is fine but Debt/Income is not, you're looking at (a) default (lenders eat dust), (b) inflation (savers eat dust) or (c) public assistance (non-borrowing taxpayers eat dust). That's a political question. If Debt/GDP isn't fine, option (c) flies off the table.
- tveita 9y agoThat sounds reasonable, but aren't all of those mitigations for after the shit hits the fan? None of options will prevent a crash unless you can actually exercise them pre-crash.
- JumpCrisscross 9y ago> aren't all of those mitigations for after the shit hits the fan? Not necessarily. Raising minimum wages or cutting certain taxes are examples of pre-emptive steps political systems can take to increase households' incomes. Making debt harder or easier to discharge, or raising or lowering policy rates, can be similarly prophylactic.
- apsec112 9y agoI think you could estimate much more accurately with the prices of deeply out-of-the-money put options. Those are effectively a betting market on whether stocks will crash or not. We should expect option prices to take into account every major factor (not just these four), because if they didn't, people would get rich by trading on the "missing" info until prices corrected themselves.
- TuringNYC 9y agoAgreed, these are good indicators because people are actually backing these "predictions" with money...as opposed to theoretical models with no skin in the game.
- pdog 9y agoIf you're looking for The Single Greatest Predictor of Future Stock Market Returns[1], here it is: http://www.philosophicaleconomics.com/2013/12/the-single-greatest-predictor-of-future-stock-market-returns/ http://www.philosophicaleconomics.com/2013/12/the-single-gre... This is a long read, but it's worth it. The metric can be calculated in FRED[2], and as a predictor of future returns, it outperforms all of the most common stock market valuation metrics, including cyclically-adjusted price-earnings (CAPE) ratio[3]. (Basically, the average investor portfolio allocation to equities versus bonds and cash is inversely correlated with future returns over the long-term. This works better than pure valuation models because it accounts for supply and demand dynamics.) [1]: http://www.philosophicaleconomics.com/2013/12/the-single-greatest-predictor-of-future-stock-market-returns/ http://www.philosophicaleconomics.com/2013/12/the-single-gre... [2]: http://research.stlouisfed.org/fred2/graph/?g=qis http://research.stlouisfed.org/fred2/graph/?g=qis [3]: http://www.multpl.com/shiller-pe/ http://www.multpl.com/shiller-pe/
- KasianFranks 9y agoWhen the yield curve begins to dip, a flight to quality will begin into crypto's.
- deleted 9y ago[deleted]
- matt_wulfeck 9y agoGood luck with that. Usually there's a exodus from speculation the minute things get hairy in the market. Nobody speculated in crypto right?
- KasianFranks 9y agoLike there was in 2008/09 when most people in the world lost confidence in banking systems followed by the bailouts and Quantitative Easing.
- 9y ago
- mathiasben 9y agomarket overvaluation section could do to include the yield spread on bonds as this is sometimes quoted as a volatility risk indicator.
- jostmey 9y ago"We can chart this to give us an illusion of foresight" Got to respect the Author's humility in foretelling the future
- misja111 9y agoThe metric used to calculate market overvaluation is interesting but it has little value for predicting a stock market crash. Let's take he last 3 major US crashes: 1987: this crash was caused by automated trading systems which could run wild in the absence of any prevention regulations such as circuit breakers 2000: the collapse of the dotcom bubble 2008: start of the financial crisis caused mainly by opaque credit default swaps and packaged subprime loans Of those 3, only the dotcom bubble seems to be a bit related to the market overvaluation metric. And even right before the dotcom bubble crash there were plenty of economic guru's who argued that classic overvaluation metrics were not valid anymore because we were now in a 'new economy'. The other two crashes were caused by black swans; occurrences that nobody was aware of and that were only understood afterwards. Most likely the next crash will be a black swan as well.
- luckydude 9y ago"occurrences that nobody was aware of and that were only understood afterwards" Umm, I'm no genius but I was managing my mother's money at the time of the 2008 crash. It was very obvious to me that there was going to be a crash, I pulled out of the market in late 2006 and didn't lose a dime in the crash. I think the better statement is "The 2008 crash was obvious but many people were in denial". Again, I'm not a financial wizard, I could just see the writing on the wall on that one, everyone was getting approved for houses they couldn't afford, you just knew that was not going to end well.
- matt_wulfeck 9y agoPredicting a crash is easy but timing it with accuracy is extremely difficult. In fact you were two years too early and lost out on a lot of potential return. There will always be a crash/correction. Easy. But when?
- leongrado 9y agoCompletely agree. Yeah luckydude I can say with 100% certainty that if you took all of your money out right at this moment, you won't lose any money in the next crash. Give me the nobel prize in economics guys.
- where_do_i_live 9y agoYour volatility section seems to be a very poor indicator of a future crash in the manner you are using it. Volatility is not a predictor, but instead a descriptor. An analogy I think is the weather stick - Is this stick wet? Then it is raining. It is a very poor item to use in your context. Further, sustained periods of low volatility often are sometimes indicators of complacency among investors and indicators of higher chances of bubbles. Sustained periods of low volatility are at times indicative of higher future risk of a market crash, not a low predictor. I think you need to re-evaluate how you use volatility.
- dnadler 9y agoWell, he's using the VIX, so it is technically market implied future volatility. Whether it has predictive power is open to debate, but it is technically a forward-looking indicator.
- pterhx 9y agoMatt Levine wrote an article (with charts!) on VIX[0] back in 2014 that basically says the same thing: VIX is more of a measure of past volatility than an indicator of future volatility. [0] https://www.bloomberg.com/view/articles/2014-06-09/the-vix-is-not-a-great-way-to-measure-complacency https://www.bloomberg.com/view/articles/2014-06-09/the-vix-i...
- omg_ketchup 9y agoSite just displays a blank page. No error or anything. I think that's a better statement than whatever the app actually does.
- gianrubio 9y agoLOL http://isthissitegoingtocrash.com http://isthissitegoingtocrash.com
- aembleton 9y agoYou need to switch Javascript on.
- duxup 9y agoThus crashing my browser and answering the question at the same time.
- joshuaheard 9y agoMine took a while to load all the data. (I have a very fast internet connection). The site loaded, but the inside data took a while, like the graph, and the "Current Risk" numbers at the bottom.
- mcguire 9y agoIs this a psychological experiment? All I get on Android Chrome is a white screen.
- bluetwo 9y agoThe volatility index, or VIX, has become a popular measurement to reference in the context of predicting the market over the past couple years. The problem is that it does not seem to have any real predictive power and I have yet to see any shred of evidence that the VIX has been shown to have predictive power over the future value of the stock market. It is calculated from past price variance and is used in calculating the theoretical price of options, but that is it. Does anyone have any evidence the VIX has value?
- hidenotslide 9y agoIt is calculated from the (theoretical) implied volatility of listed S&P options, so it is indeed forward looking (not past variance). But it is riddled with microstructural issues and to my knowledge doesn't really have any track record of predicting crashes. It will react to market events contemporaneously though, so it is a decent measure of expected future volatility. Besides household debt, the rest of these indicators don't make much sense either. Much better would be measures of the yield curve, inflation, and corporate credit quality.
- cbanek 9y agoThere is actual money behind the number of the VIX, but I'm not sure if you'd call it value. There are ETFs and other vehicles that buy VIX futures, and either go long or short, which people can buy and sell. Like TVIX, XIV, etc. There's some worry that a quick spike in VIX futures from such a low level at the wrong time could cause a catastrophic unwinding of these instruments. But I'm not an expert in these things.
- deleted 9y ago[deleted]
- cm2187 9y agoBlank page for me. Don't know if it is there but a nice chart is size of the Fed B/S vs S&P 500, since 2005. Suggests a large part of the valuation of stock is generated by QE, which the Fed intends to start withdrawing this year...
- Nursie 9y ago"NaN% more overvalued than just prior to the 2008 financial crisis," I think there might be a few coding errors still lurking in there.
- TazeTSchnitzel 9y agoI got that in Firefox, whereas it works in Chrome. Poor cross-browser testing?
- iliveinseattle 9y agomarket cap as a percent of gdp is a very bad indicator. In today's world a very large and increasing percentage of revenues is derived from outside the U.S.
- unknown_apostle 9y agoCute site :-) Btw we have the added issue that the volatility of volatility appears to be rising. Meaning periods of apparent big calm turn into big price swings more rapidly.
- franciskim 9y agoLowest volatility ever in 27 or so years according to VIX apparently, which is actually a warning sign.
- hathym 9y agoThe real question is when?
- csomar 9y agoDoes it make sense to have "marketcap" / GDP if the Nasdaq/DowJones has non US companies like Alibaba? Or is it taking these into account?
- kmfrk 9y agoIf nothing else, I like how this might stir some interesting discussions about the state of the economy. One thing I'd like is a link to the cited data to make it a little more serious and conducive to debates.
- davidreiss 9y agoOnly the elite know. It's so funny how people think that recessions, depressions, stock market crashes, etc are some "natural" event. A stock market crash happens when the elite decide there should be a market crash. When they pull money out of the market.
- shostack 9y agoThat's a bold claim. Source?
- woah 9y agoDiagram doesn't work on safari with Adblock
- myth_drannon 9y agoYou can setup webpack to minify/uglify your source files.
- odammit 9y agoNah, Trump says it's fine. Don't worry about it. It's the best. May see a dip in 2020.
- lordnacho 9y agoOne could argue that the volatility scale should be the other way round; that the diamond should be showing extreme values on everything other than household debt, which is middling. The market is normally calm on the way up, which is why you might think its current upward movement will soon be interrupted by a volatile down-move.
- Sujan 9y agoYes.
- Sujan 9y ago(Sooner or later...)
- yosito 9y agoI fully expected this to be a page with the single word "Yes."
- malynda 9y agoAnother pedantic remark: Next to the clock, you should include a timezone. Very interesting!
- coverband 9y agoInteresting analysis, but I'd not have included public debt as a risk factor. If anything, increasing public debt provides upward support for the equity market, regardless of whether the money goes to public investments, tax cuts or bad government spending.
- peternicky 9y agoWhy does this site report "the stock market is closed"?
- Glyptodon 9y agoQuestion (as someone without domain knowledge): could someone explain what the expected relationship between GDP and total stock market value is? GDP represents non-publicly traded, and even non-private activity, while presumably the stock market's valuation is at least somewhat driven by expectations of future growth/profit, rather than current productivity. I don't doubt that there's a relationship of some kind, but what is the simple ratio actually showing?
- saimiam 9y agoI was (sort of) there when the 2000 tech crash happened and was in the thick of it when the 2008 crash happened. This thread and a few offline conversations made me reexamine what I believe about the stock market and the nature of the 2000 and 2008 collapses. Of course, I'm not an econ nor do I have data to back up anything I'm saying. All manias, from tulips to tech IPOs to housing bubbles are born when the common person joins the frenzy. On the flip side, the mania collapses when the common person walks away or never shows up the party. For the tech IPO frenzy of 2000, the common person never even showed up to use all those exotic new ideas which were getting funded and going public. During the housing bubble, the common person bought and sold houses which setup the flywheel. Eventually, the common person walked away from the asset in question bringing down the entire charade. Today, the market is soaring. People are starting to wonder when gravity will reassert itself but in my view, this time the difference is that the common person cannot walk away. Unless adblocking and disdain for social media become extremely mainstream, the common person is so busy amusing themselves to death online that they are not going to leave the tech mania. Companies like FB and Google have made the web sticky. Does this mean the stock market will rise indefinitely? I don't know. I do know that once there is a captive market comprising everyone online, no company is going to stop advertising or figuring out ways to reach buyers online. We are in a new age where you just can't get away from the web. We are the product but we also have no way of exiting the dragnet.
- plaidfuji 9y agoThis is probably the most insightful comment here. When your grandma is buying some asset class, it's time to sell. I think the biggest complicating factor here is the US government debt and the massive amount of it that the federal reserve owns via its treasury bond buying program since 2008. Who's on the hook for this debt? The common person, via the value of the US dollar. The next crash will be precipitated by actions of the fed and creditors to the US government, not stock market investors. Incidentally, in this environment, cryptocurrencies could emerge as a safe haven.
- socrates1998 9y agoLow Volatility might actually be an indicator that the stock market is going to blow up, rather than stay calm. Volatility tends to cluster, and periods with really low volatility are often an indicator that there is a big movement coming.
- module0000 9y agoSo, if the stock market is hypothetically predicted to crash in 10-25 days - what are you going to do? Short it now? Short it later? Buy? Just curious what HN readers think. For the giggles...I'm going short when the tape says market sell orders exceed the rate of bid additions, and the opposite for going long. I like long-term analysis as much as the next guy, I just never, ever, ever, ever, ever make decisions based on it.
- daotoad 9y agoGood idea for a website, should be able to get you some nice revenue from intermittent visits. You probably want to focus on financial services for your ads. I'm not going to say anything about your numbers and your models other than, without the ability to see how they looked at previous crashes, it's hard to see if the site is useful. To the innumerate masses and emotional investors the flickering numbers are persuasive enough. So they really don't matter. On the bad side, your UX is god-awful. Use an oldish, slightly crappy monitor to look at it and you will discover that your background is indistinguishable from the foreground. The top bar of the box completely disappears, too. Also, a row of buttons is NOT a good tabbed interface--there is no indication that clicking on "Market Volatility" is going to reload all the content below the row of buttons. Maybe make actual tabs, at least make that stuff a distinct box. This could be a nice little side product to make you some extra money. Get some GA on there, and slowly add features. I think a bit of interactivity and the ability to customize the predictive models through some drag and drop could actually make the page sticky and get people coming back.
- deleted 9y ago[deleted]
- tambourine_man 9y agoSite's broken on mobile: http://imgur.com/BD6gzVZ http://imgur.com/BD6gzVZ
- JVIDEL 9y agoThis is actually a pretty useful site Don't get to say that a lot around here
- AJRF 9y ago"We can measure Market Overvaluation by looking how much the stock market costs vs how much it is providing." Isn't this the opposite of what the stock market is supposed to provide? I assumed valuations for the most part are guided by what a companies outlook is for the future, not the present.
- sigmar 9y ago>The VIX is generally consistantly low (10 - 15) until it isn't. To get a sense of what a crisis would look like, we can compare to a few historical values. What's the point of using a metric that can turn on a dime in a predictive model?
- cbanek 9y agoPeople use a low VIX to represent complacency, which is typically present before a market crash, along with the famous irrational exuberance. Once it goes up, it means there's volatility in the future coming, because the VIX is based on S&P 500 options.
- brookside 9y agoA great read on how to capitalize on the upcoming crash! The Sale of a Lifetime: How the Great Bubble Burst of 2017-2019 Can Make You Rich[1] Also good is the author's earlier book The Great Crash Ahead [2] "outlining why the next financial crash and crisis is inevitable, and just around the corner— coming between mid-2012 and early 2015" Hmmm... 1. https://www.amazon.com/Sale-Lifetime-Great-Bubble-2017-2019/dp/0735217742/ https://www.amazon.com/Sale-Lifetime-Great-Bubble-2017-2019/... 2. https://www.amazon.com/Great-Crash-Ahead-Strategies-Turned/dp/1451641559 https://www.amazon.com/Great-Crash-Ahead-Strategies-Turned/d...
- indescions_2017 9y agoCorrect answer, of course, is no one knows, because the future is opaque and unpredictable. And indeed you have some very smart professionals going to cash or directly betting on a 5-10% correction in the S&P500. And a set of equally smart fund managers calling for a 2600 target by mid-2018. What we can say with some certainty, based on options activity, is that if a single day 3-4% drop in the S&P500 occurs it can trigger a massive unwind in short volatility positions: https://www.reuters.com/article/us-usa-stocks-volatility-idUSKBN1AJ328 https://www.reuters.com/article/us-usa-stocks-volatility-idU... And with several political risk factors on the near term horizon, including the possibility of a government shutdown in late September due to the failure of Congress to extend the debt ceiling (yes, they are arguing over who is going to pay to fund the border wall with Mexico). It certainly should surprise no one if a coming tomorrow could be very different than the extraordinarily low-volatility landscape we face today. The Case For Long Volatility by Eric Peters https://www.linkedin.com/pulse/case-long-volatility-eric-peters https://www.linkedin.com/pulse/case-long-volatility-eric-pet...
- rrggrr 9y agoHousehold debt should be measured against household income and not against GDP.
- kurtisc 9y ago>Is the *US stock market going to crash?
- ringaroundthetx 9y agoSo VIX doesn't give an indication of much. The VIX formula has changed so many times, and the human behavior around the assets that VIX tracks has changed to reflect those changes and the new products those changes are based on. Different people gamble in weekly S&P500 options than gambled in monthly S&P500 options. Different people gamble in the 5 consequetive week at any given moment weekly options, than gambled in the single week at a time weekly options. The options market itself has had ebbs and flow in interest. And the self fulfilling prophecy of keeping the market propped up when everyone buys PUT options expecting it to crash has disillusioned a lot of people from participating at all. People know what the central banks are up to, why pretend to have confidence in any of it. The Swiss bank is printing money to buy US stocks for free. Everyone's creating money through new bond issuances to buy things for free. This all contributes to a lower VIX.
- yuhong 9y agoYea, the US economy is based on constantly growing debt basically, which can't last forever. My favorite is the ad bubble now, and ads are basically designed to increase consumption. It is probably worth mentioning China too: http://www.zerohedge.com/news/2017-08-06/chinas-minsky-moment-imminent http://www.zerohedge.com/news/2017-08-06/chinas-minsky-momen...
- movedx 9y agoCan you please open source this under an MIT or some license you agree with?
- aagha 9y agoThis is sooo cool! Great job. One thing that might be helpful is to have a separate (informational) page that indicates what the diamond looked like at other period of economic failure--in fact, what it looked like leading up to the period of failure/crash would be really interesting. I'm curious: How quickly can some of these variables changes? For example, it seems the VIX is at it's low end--how quickly can it spike to say, 30? How fast can the other vars change?