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The mother of all crashes is coming and it won’t be fun

125 points by 4monthsaway 5y ago

flyinglizard 5y ago
Meanwhile, those who don’t participate in the game are eaten alive by inflation.
- farmin 5y ago
  That's right. A cash position seems very expensive with high inflation. A tricky time to be investing, as always. Damned if you participate, damned if you don't. Hot tips welcomed.
  - RedShift1 5y ago
    I have this exact problem myself. I'm saving quite a bit of money every month but at the same time it's worth less and less. I'm thinking of going to my bank and set up some kind of investment plan but I don't really trust banks, I mean, what's in it for them?
  - jdenning 5y ago
    Real Estate - highly leveraged mortgage with a low, 30-year, fixed interest rate. Keep the payment low enough that you're sure you can afford to hold it. The 30 year mortgage rate is still pretty low, especially compared to current inflation. You win on the equity gain, you win on the inflation, and you win on taxes. (given recent trends, laws, and rates) Edit: this is not investment advice; I am not qualified to give investment advice.
    - mellavora 5y ago
      In a place where people will want to buy houses for the next 30 years, at an inflation-adjusted price which preserves the value of your investment, and assumes you've already bought the house or can do so in the near future while mortgage rates remain low, while the struggle is that the cost to get into the market is rising at crazy multiples (30% yoy?) and assuming enough economic stability that you can be sure to make the payment even if your job moves.
    - ac29 5y ago
      People thought real estate was a can't lose investment back in the run up to 2008 as well. While real estate can be a good investment for many people, a lot of places are well into bubble territory (Canada, Australia, and China come to mind).
  - _slyo 5y ago
    The conventional wisdom of "buy equities regardless of price" doesn't make much sense to me. I can temporarily convince myself it's the smart thing to do, but the thought of putting my money into stocks just makes me sick for some reason. I can't do it. I've missed out on a great deal of money hoarding cash instead of stocks, but I have peace of mind. The cost of inflation is worth that to me. I have felt that a crash -- a real crash, i.e. a change in public opinion about the equity markets -- has been just around the corner since 2016. I'm much less worried about the prospect of a dollar crash, even with today's inflation. This is not investment advice and is only my personal opinion.
    - kimsant 5y ago
      Bravo. Peace of mind is an indirect cost of investment. I've met a brilliant head of engineering, that told me "I've sold all my stocks/coins so I can stop looking at my phone and reading articles, and I can really focus on what matters". Not having state bonds that allow people face inflation, has a HUge indirect cost: having offices full of nerds looking at stock/coin exchanges. How much human valuable time is now lost on that?
    - kqr 5y ago
      Keep in mind it's not a binary choice. You can exchange anywhere between 0 % and 100 % of your savings for some other asset class, like stocks. An extreme position in either direction is probably a mistake, but what about 20 %? 30 %? The idea is not to get rich quick, nor is it to avoid any risk (because both are statistically impossible.) The idea is to limit how much a crash of any type hurts, by having some savings also in other types of assets. So for example, if your savings are $100 and you buy stocks for $30 of that, and the stock market crashes so you're down to $10 in stocks, now you only have $80 in savings. But you can use your cash savings to bootstrap your stock position back to 30 % again. If the market recovers, you get an outsize benefit from that. (Similarly, if there should be some sort of dollar crash, you can probably use your stock market savings to bootstrap your dollar position again, putting you in a good position for recovery.)
- sunshinerag 5y ago
  How do we stop this game?
  - infp_arborist 5y ago
    First, don't commit to playing the game. A piece of advice I got (interestingly) from my dentist: "The only things worth putting money into are education and health." So, invest in your (spiritual) well-being and your capacity for relationships and love before anything else.
pjc50 5y ago
I mean, possibly, but what informational advantage does a random medium blogger have here? It's statistically likely that there will be one eventually, they seem to be some sort of Poisson process, just as it is likely there will eventually be another earthquake that destroys the Bay Area again. That doesn't mean it can be predicted even to the nearest year. People were predicting a crash several years before the 2008 mortgage crash, and even so house prices have rebounded since then. I do regard the arrival of major brands into NFTs and the purchase of crypto-themed sports teams and stadiums as a leading crash indicator, but a lot of people have lost money trying to predict crypto crashes.
- kzrdude 5y ago
  What says that a crypto crash will affect the regular economy as a whole, though?
  - tofurocks 5y ago
    I think he may mean that the exuberance going on right now in the crypto and nft markets may be seen as a "top signal" predicting a market crash soon (people moving into riskier and riskier assets usually precedes a crash). Timing the top of markets is hard though - and while the music is playing you have to dance.
  - JohnHaugeland 5y ago
    There have been a ton of them and it hasn't even come close.
  - jbotz 5y ago
    Oh, it most certainly would; it would wipe out billions of dollars of what many people consider part of their wealth. Joe Cryptomillionair spends more of his regular income because he feels rich because of the balance in his crypto wallet, and thus stimulates the economy. Wipe all that out and suddenly a lot of people who were spending a lot of money are scrambeling to pay their morgages, perhaps even having to sell other investments to do so.
    - 5y ago
thinkingemote 5y ago
Possibly a Hinge of History fallacy caused by raised anxiety levels. I suppose this might apply to the majority of contemporary doom predictions from all sorts of subjects.
bhaak 5y ago
The sub title of the article is "History ain't changed" and the article starts with "In the late summer of 1929 [...]" and I already knew that I shouldn't have read any further. Yes, there will be a crash, there always is, but it will play out differently than the ones before. History only rhymes, never repeats itself. There have been calls for a big crash for decades now but no crash in this millennium was the big one. "The S&P 500 fell 57% during the 2008 crisis, 49% in the dot-com bubble, and 34% during the COVID-19 crash. So if the most pessimistic predictions prove true, the next one would be the most dramatic crash since the Great Depression." We already had big crashes in the last decades but we always came round (more or less). We are no longer on the gold standard, governments have plenty of experiences with crashes. I'm not convinced that we'll be seeing a crippling crash again.
- crooked-v 5y ago
  > We are no longer on the gold standard This is a key thing. A Great Depression-level crash is basically impossible in any modern country with a decent credit rating and even vaguely competent financial management.
  - drsnow 5y ago
    Can you elaborate? I'd like to know why this is the case
    - chii 5y ago
      i suspect the OP is suggesting that you can print your way out of a depression.
      - grey-area 5y ago
        What could possibly go wrong! This strategy of financializing governments debt to deal with financial difficulties led to the south sea bubble. MMT is an old lie, oft repeated.
    - pharmakom 5y ago
frontman1988 5y ago
Evergrande defaulting and impeding omicron couldn't even dent the market. Much less a crash. Those predicting the crash are going to have to play a long long waiting game. Might as well ride the wave.
- bellyfullofbac 5y ago
  On the flip side, crypto has been off the peak for a week or two, and I've noticed the price of crypto has an effect on meme stocks (like AMD, Nvidia, Tesla).. I wonder if the end of student debt payment deferment will cause a lot of people to liquidate their investments and cause a big dip..
  - bhaak 5y ago
    It's less of a meme than you think. AMD and NVidia are integrated into crypto by the GPU mining and Tesla has lots of Bitcoin.
  - baal80spam 5y ago
    > meme stocks (like AMD, Nvidia, Tesla) Uh. What is your definition of a meme stock?
mupuff1234 5y ago
A lot of the speculative/growth stocks took quite a hit recently, down 30% or more in the last few weeks, but that didn't seem to affect the market as a whole that much.
winrid 5y ago
Is there any way to build an economic system without having periodic crashes?
- deleted 5y ago
  [deleted]
- tanbog5 5y ago
  Possibly, but it probably won't have many periodic peaks either, and very flat or zero growth. A lot of people seem to like getting rich even it means some of them wind up poor /shrug
  - Nemrod67 5y ago
    "A lot of people seem to like getting rich even it means some of them wind up poor /shrug" wouldn't be that bad, but replace "some of them" with most of them.
- actually_a_dog 5y ago
  Not if it's run on market principles.
  - Ekaros 5y ago
    I wonder if they were actually run on market principles would crashes be so bad or big? Or more of corrections of certain sectors.
    - actually_a_dog 5y ago
      I don't think so. The problem is that there's always going to be some amount of speculation in a market. And, it's really speculation that drives prices up beyond what they really "should" be, which eventually leads to the correction. If the speculation goes on too long, and drives prices up too high, then you have a "crash." And, absent regulation to the contrary, there's nothing preventing the market from rising too high, too fast (i.e. the market can remain irrational for arbitrary lengths of time, to paraphrase Keynes). OTOH, there doesn't seem too be a sensible way to determine what constitutes speculation, for purposes of constructing a regulation that prevents it.
ekianjo 5y ago
Predicting crashes is easy. Since they occur pretty much regularly every 10 20 years. What is hard is finding out when they will occur and what triggers them. Also there is no one out there who can predict crashes one after the other with accuracy, no matter how right they were in 2008.
actually_a_dog 5y ago
https://archive.md/Zer4n https://archive.md/Zer4n
romankolpak 5y ago
How would quantitative easing affect the next crash? It seems like a thing that distinguishes this time from all other ones. Governments have more control over the economy with QE: they can inject liquidity into markets and boost spending whenever this is needed, so economy seems less likely spin out of control during a crash. Did we learn how to tame and limit the blast radius of crashes or am I misunderstanding QE?
- adflux 5y ago
  Fed cant qe with inflation approaching 10%.
- lottin 5y ago
  QE doesn't boost spending directly. QE is about buying bonds, so that there's more money in circulation (and fewer bonds), in the hope that the resulting low interest rate environment will lead to more borrowing and consequently to higher levels of consumption and investment.
- neilwilson 5y ago
  QE actually reduces the amount of money flowing in the economy, not increases it. What it is is an exchange of assets that pay, say, 2.5% for once that pay federal funds rate. That's a net reduction in income for banks. QE is just an assets swap attempting to reshape the longer term yield curve that hasn't been pulled down by setting rates near zero. It's got nothing to do with 'injecting money'. For that you need to look at the fiscal flow data: spending less taxes.
StrLght 5y ago
Lots of experts have been predicting a crash for at least a few years now, but none of them are saying what's the catalyst. Right now there's a huge inflation, unimaginable valuations, lots of retail investors -- yet nothing has triggered a noticeable reaction. After reading articles like this you always have to remember that the market can remain irrational longer than you can remain solvent.
- xivzgrev 5y ago
  This is what I wonder. In the dot com and 2008 recessions it was fairly obvious what was fueling speculation - websites and real estate. Now…I don’t see it. Crypto, but it feels like it’s not mainstream enough to send economy into tailspin. If bitcoin crashed tomorrow, the economy would probably shrug and say “yea that was expected”.
  - kqr 5y ago
    To be fair, to most people it wasn't fairly obvious before it happened. So it seems like also the next time it will be obvious mainly in hindsight.
- sys_64738 5y ago
  They were predicting a crash at the tail end of 2019, pre-COVID-19. None of them predicted what happened next although I bet some will claim March 2020 was what they foretold.
sofixa 5y ago
> Technology stocks turn out to be the most overvalued, with Tesla, Apple, Alphabet, Amazon, Microsoft, and Facebook (now Meta) making up 25% of the index. Jus because they make a big part of the index doesn't automatically mean they're overvalued. Apple, Alphabet, Amazon, Meta are huge, highly profitable, and with high growth. Their valuations make more or less sense. Tesla is certainly an outlier though, and highly overvalued.
- Blammar 5y ago
  Correct. The issue is that, for index investors that want statistical robustness, having 25% of your funds in only 6 stocks increases your risk (specifically, your variance.) People who invest conservatively (e.g., are happy with returns of inflation + 5%) would prefer index funds that don't have that issue.
  - deleted 5y ago
    [deleted]
  - lotsofpulp 5y ago
    So it is statistically less robust and more volatile to invest disproportionately more in companies that earn more money? What scale would you recommend using to decide proportionality of one’s investments? The arbitrary number of publicly listed companies? Divvy up between 500 or 3,000? An arbitrary blend of net income and number of publicly listed US companies? My point is if 6 companies are each growing their profits for 10+years in amounts equal to or greater than profits of entire other industries, you might want to weight it a bit higher.
    - OrderlyTiamat 5y ago
      > So it is statistically less robust and more volatile to invest disproportionately more in companies that earn more money? From tone I'm assuming this is a rhetorical question, but I believe the answer is obviously yes? Statistical variance is orthogonal to profit. You'd do even better by investing all your money in the single highest earning company, but you won't cause it's a huge risk. I also believe that what scale to use to decide proportionality is not an open an shut case and is actually an important question for each investor. Not an expert, corrections welcome.
mercy_dude 5y ago
Even if you predict a crash, predicting the bottom is almost impossible. As an example, among many people who had sat on cash during the 2021 March, how many of them actually bought at the bottom? For layman investor the best course of action is to invest and forget, ideally in a balanced or semi-balanced portfolio.
- mikevm 5y ago
  You don't need to predict the bottom. If you manage to sit out the first 20-30% drop you can probably go back in. You can use something like https://recessionalert.com/ https://recessionalert.com/ or a combination of your own signals to time the exit of the market. Of course, it will never be perfect and there will be times where you will get a false positive, but being right most of the time can still massively reduce risk. Big drawdowns really hurt the geometric compounding of returns. A 50% loss requires a 100% gain to offset.
  - kqr 5y ago
    Do you have any evidence that your suggestion actually works for real people? All studies on this I've come across say that anyone using common wisdom will both exit and re-enter too late -- i.e. they tend to end up selling low and buying high, and even just holding would be an improvement. (I'm saying "even just holding" because a constant-fraction rebalanced portfolio is a disciplined way of actually buying low and selling high, and not only in a bear market.
    - mikevm 5y ago
      The ERN blog had a few nice posts regarding market timing: https://earlyretirementnow.com/2018/02/21/market-timing-and-risk-management-part-1-macroeconomics/ https://earlyretirementnow.com/2018/02/21/market-timing-and-... https://earlyretirementnow.com/2018/04/25/market-timing-and-risk-management-part-2-momentum/ https://earlyretirementnow.com/2018/04/25/market-timing-and-... In the second one he simulates a momentum strategy which does pretty well, which can be used along with multiple other signals to increase confidence. I was thinking of simulating using leverage after these kind of drops to try to increase returns even further.
refurb 5y ago
People throw around “crash” but it’s never defined and I would argue has nothing definition. A multi-year recession? S&P dropping by 50%?
- sys_64738 5y ago
  Some brave souls will compare to prior crashes by naming the years. But tying themselves to such also exposes them to ridicule if they get is spectacularly wrong. Financial "experts" only have their reputations to keep them employed so they need to be able to insulate themselves from any narrative.
Blammar 5y ago
Just so people remember history correctly: 1. The Roaring Twenties market peaked in August 1929 with a ~6100 Dow. 2. Market low in November 1929 at ~3800, a ~38% drop. The "big crash" was just ~4400 to ~3800. 3. Then it RECOVERED to ~4700 by March 1930, a ~24% gain. 4. It then dropped over a year to ~3000 by March 1931, a ~37% drop. 5. Then the real crash to ~900 in June 1932, a ~70% additional drop. People had a LOT of time and a LOT of additional information about the economy to decide to get their funds out of the market. I have finally drilled into my skull that I am unable to time the markets with reliability. So I hold across corrections. In 1930 I wouldn't have done anything -- I wasn't born yet.
- simo7 5y ago
  Agreed, macro predictions are very hard. Much easier to make predictions on individual assets (companies, commodities etc.) and hold long term. Also, precisely because macro is hard, these analyses often feel superficial. Inflation, especially if exogenous, can negatively impact the economy but at the same time cash-alternative assets become more attractive. What's the ultimate effect there? And what about historically low interest rates? Don’t they warrant a shift in investment preferences towards stocks? Wether a macro prediction turns out to be right or wrong it’s rare to read a deeper argument than “things are too high must go down”.
- odiroot 5y ago
  Ok, let's assume people were reasonable and liquidated their portfolios after November 1929. Now they have cash, great. I may be wrong but didn't the value of the dollar also crash? It seems the safest option was to cash out and buy gold or land.
  - bottled_poe 5y ago
    Don't forget to factor in capital gains taxes on selling. This is a strong behavioural influencer. Basically, unless you are very certain of a major downturn in your investment eg. 40%, it doesn't make sense to sell, ever!
blip54321 5y ago
Alternative explanation: We're looking towards huge amounts of inflation. Stocks are the safest place to stash savings, so are currently at high P/E.
- choeger 5y ago
  That's the thing, ain't it? If you exit the market for cash during an inflation period you will realize losses of x% per annum. So the question is: Is the current stock bubble driven by inflation expectations?
  - blip54321 5y ago
    It doesn't matter. The question is whether we will continue to see high inflation. Whatever the current perceived cause, if we do see massive inflation then it's not a bubble.
leobg 5y ago
These fear based articles have been coming out for years. It’s one of the easy ways to get clicks, I guess. As a holder of Tesla stock, I do not want to make bad decisions. So I don’t want to shrug off the points being raised. There are no simple explanations. Nobody can predict the future. And whether I like a message or not says nothing about how valid it is. So I tried to do my homework. I wrote it up here[1], if anyone is interested. [1] https://leobg.medium.com/should-you-sell-your-tsla-holdings-to-hedge-against-a-possible-market-crash-d7f157014178 https://leobg.medium.com/should-you-sell-your-tsla-holdings-...
dools 5y ago
It’s interesting reading analysis on the stock market from someone who doesn’t know what money is nor how it works
OscarCunningham 5y ago
Bear in mind that crashes and recessions aren't the same thing. The stock market can go down without anyone losing their jobs, and vice versa. We saw this with Covid, where GDP dropped but stocks stayed high. So if there is a stock crash it won't necessarily be noticeable for the median person.
kimsant 5y ago
I see too many fearless, and too less greedy. China is already there, delisting stocks from the US, empowering it's currency and improving fast in intelectual property regulation and economics management. Maybe we won't see crashes, but the big risk is a change of dynamics, a big stocks flat only sustained by inflation that sooner or later could trigger the ultimate shift of mindset, china beeing the right place to invest, yuan the world currency.
- 10xrubberduck 5y ago
  I think so too. Increasing money supply for too long devalues that currency, even if its a global currency like usd. In its face a more stable currency will start looking more appealing for trade. This dynamics may take several years to play out though.
avvt4avaw 5y ago
I’m a hedge fund manager. Not a big fund all things considered, just a few hundred million. But I think about stuff like this for a living. Here’s why you can safely ignore this article. There is always someone predicting an upcoming market crash. People like Grantham (cited in the post) have been predicting a mega crash for most of the last decade. Market crashes occur every 10-20 years but the thing is, over that 10-20 year cycle the market is always net up, so if you sit out the cycle because of worries about an upcoming crash you could easily miss out on 5-10 years of great returns. The post author frequently compares flow variables (eg earnings, GDP) to stock variables (eg market cap). That’s not necessarily terrible, but the ratio is always sensitive to interest rates (because the stock variable discounts future values of the flow variable, and when rates are low the discounting has less of an effect). Market cap/earnings and market cap/GDP are high now because interest rates are low (asp because growth expectations are high, but that’s not necessarily incorrect). Before the dot com crash US interest rates were 6%, compared to 0.25% now — of course that skews the statistics. Michael Burry is cited as “someone with a proven track record of predicting market crashes” but in fact he predicted exactly one crash. Well, so did John Paulson, and the ensuing decade proved that it was just luck. Mark Cuban “predicted” the dot com crash. It doesn’t mean they are geniuses, it means they got lucky once. Growth in margin debt is cited as a reason to worry. But margin debt has grown because assets have grown. The S&P 500 has double since the lows of March 2020, so the fact that margin debt has doubled is not a cause for concern. As a percentage of assets, margin debt has been stable for the last decade. This post is pointless fearmongering, nothing more. Of course, there will be a crash at some point. It could be in six months, a year, five years or ten years. This guy can’t predict it any better than anyone else can.
- kimsant 5y ago
  The key is not to predict a black swan, but to keep reasoning and awake, trying to figure out where the focus is needed. I don't value the outcome (you call it luck), but the reasoning behind.
- arc-in-space 5y ago
  > interest rates are high Did you mean to say low, or are you talking about nominal rates?
anovikov 5y ago
Medium is like a normal news site, on steroids: almost all you can read there is fear-mongering and anxiety induction, and little else. Without that, people don't click. Seriously, people who actually decide on whether the crisis will happen (that is, starting with the guys like you and up the value chain), don't make decisions based on that sort of bullshit, they read their news at Bloomberg/AP/Reuters terminals. So it can safely be ignored indeed.
- sharken 5y ago
  Fear mongering and anxiety induction are all the rage with the Corona virus and it's variants. Always goto another source of information and be critical all the time, that helps a lot as you point out.
  - chrisan 5y ago
    UCSF does a Covid Grand Rounds of latest research/science https://www.youtube.com/watch?v=IGspuLnRBB4 https://www.youtube.com/watch?v=IGspuLnRBB4
Paul_S 5y ago
I'm happy to embarrass my future self with a firm prediction. Nothing in the market will happen that will cause people's quality of life to drop until WW3. The reason I think that is if the pandemic didn't manage it than nothing short of a global war will be enough to shake people's belief in infinite growth (which is what keeps the market alive).
- adam_arthur 5y ago
  The pandemic caused the market to do well, due to the excess monetary and fiscal stimulus aimed at countering it. Without the pandemic the market would be lower right now. Of course, the pendulum is about to swing the other way with both fiscal and monetary support ending.
- thanatos519 5y ago
  "Nothing in the market" is right because climate catastrophe is an externality.
elisharobinson 5y ago
crash usually come by way of forced selling. "assets" are no longer dependent on human factors like gdp. cloud and datacenter compute used is a better aggregate indicator then gdp. "assets" are growing exponentially and show no signs of slowing down.
Bombthecat 5y ago
Why is this on the front page??
- deleted 5y ago
  [deleted]
- istinetz 5y ago
  Because people are worried. There have been too many bad omens recently.
  - Bombthecat 5y ago
    There always is and there always will be.
known 5y ago
"Buy a stock the way you would buy a house. Understand and like it such that you'd be content to own it in the absence of any market" --Warren Buffett (b. 1930)
kkjjkgjjgg 5y ago
"“If the shoeshine boy is giving stock advice,” he thought, “then it’s time to get out of the market.”" But what if the shoeshine boys say a crash is coming and it's time to get out of the market? How does one even get out of the market? There seems to be a huge inflation issue going on, so simply exchanging stocks for money does not seem the way to go, either?
drumhead 5y ago
The overwhelming sentiment from the opinions on this thread is that the author is wrong. Is that a sell signal?
- lotsofpulp 5y ago
  Sure, if you think the US government has lost its ability to prop/pump up the prices again, in contrast to the last 20 times.
- 4monthsaway 5y ago
  If I remember Warren Buffet's teachings correctly, that would certainly qualify
DevKoala 5y ago
Actually right now your average joe is calling an incoming crash. Not a single article out there is bullish.
bern4444 5y ago
Either the author really believes this, and so should load up on puts and shorts, or they are just blowing smoke. I doubt they're willing to bet the money.
- WalterBright 5y ago
  The confidence people express in their predictions has an inverse correlation with their willingness to bet on those predictions.
  - erik_seaberg 5y ago
    You can’t just bet on a crash, you have to bet that your counterparties will survive the crash and pay you rather than defaulting. Anyone who followed Burry’s story, or the other big shorts, will remember that.
    - bern4444 5y ago
      Any retail trader can buy a few puts on SPY for however far out they think a crash is coming
Invictus0 5y ago
Everyone wants to talk about history as if it's a good indicator of the future: but every moment in history happens only once. If you expect to make the same returns in 2 years that a past stock market investor would get in 20, you probably should expect to survive as many market crashes as he did, just on a shorter time frame. There is no free lunch, you pay for high returns with high volatility.
tluyben2 5y ago
Everyone predicts crashes all the time; I'm guilty of this myself (I thought it would be 2019). Unless you have a narrow timespan, you will always be right of course. Currently it seems the market sentiment is pretty bearish though, so I guess it's easier to sound credible when being negative.
- sys_64738 5y ago
  The scattergun approach will see everybody be right some of the time. It's those experts who say they predicted X but X is irrelevant if we can't compare to Y, where Y is the number of times they've made such claims.
anonu 5y ago
> Predicting the exact moment when a bubble will burst is never easy. Grantham, for example, predicted the 2000 crisis well in advance, but it took almost three years for it to happen. You'll always have the people standing on top of the soap box predicting the end of the world. They're not wrong. The end of the world will come one day. Its just close to impossible to figure out when. As the economist Keynes would say, “The stock market can remain irrational longer than you can remain solvent." Also, considering 2 things: first, timing the market perfectly is near impossible. second, market moves from the bottom left to the top-right of the graph over a very long term. If you are a long term investor, the safest, smartest, best thing you can do is to do nothing.
edmcnulty101 5y ago
I've noticed that if I crumple up a piece of paper and shoot it across the room into a trash can, nine times out of 10 I'll miss, and people will chuckle and forget about it in 5 seconds. But one time out of 10 I'll make it, and people will be very impressed and tell me I should play for the local NBA team. This psychological phenomenon also applies to prediction of stock market crashes.
e-dant 5y ago
Luckily, because my clients postpone my bills for months and try to settle for less I don’t have to worry about things like being “over invested” or “in a bubble.”
adam_arthur 5y ago
A recession seems pretty obvious. And corresponding correction in 2022 if you think through the macro picture logically. We injected 4T of fiscal stimulus over ~2 years, which is about to completely end over the next two months (though some programs already over). A large amount of corporate earnings growth was due to distortions in consumer income, which fed into retail sales. Personal Income: https://fred.stlouisfed.org/series/PI https://fred.stlouisfed.org/series/PI Retail sales have been about 20% elevated from a very smooth and consistent trend since the pandemic hit: https://fred.stlouisfed.org/series/RSXFS https://fred.stlouisfed.org/series/RSXFS (This chart alone is enough to understand the inflation situation, the quickness and magnitude of the increase is unreal) So we inject 4T in stimulus at one pont in time, why would we extrapolate the impact of that in perpetuity? It seems pretty obvious a large portion of that money will end up in low velocity places and thus the higher goods sales won't be maintained. In the next two months, the child tax credit will expire, and student loan payments will resume. This amounts to close to 30B/month in effective consumer income that will disappear essentially overnight. There will certainly be a recession/earnings recession next year due to these factors. An alternative outcome is that the one time fiscal injection led to excess liquidity trading hands, thus we have persistently high inflation and new normal of earnings is maintained through deflated value of currency. But in this scenario the Fed must tighten much more aggressively, which leads to the same result. There are many perma-bears out there that call doom without sufficiently specific reasoning, but in this case the macro picture looks very clear and easy to predict. The market doesn't appear to be pricing it in, however. If you disagree, what logical mechanism could explain an alternative outcome?
Throwawayh89 5y ago
I think everyone most everyone agrees with this. The market is cyclical. The trick is predicting where the top and the bottom are. If you can do that with precision you are a wealthy man.

125 points by 4monthsaway 5y ago

flyinglizard 5y ago

Meanwhile, those who don’t participate in the game are eaten alive by inflation.

farmin 5y ago
That's right. A cash position seems very expensive with high inflation. A tricky time to be investing, as always. Damned if you participate, damned if you don't. Hot tips welcomed.
- RedShift1 5y ago
  I have this exact problem myself. I'm saving quite a bit of money every month but at the same time it's worth less and less. I'm thinking of going to my bank and set up some kind of investment plan but I don't really trust banks, I mean, what's in it for them?
- jdenning 5y ago
  Real Estate - highly leveraged mortgage with a low, 30-year, fixed interest rate. Keep the payment low enough that you're sure you can afford to hold it. The 30 year mortgage rate is still pretty low, especially compared to current inflation. You win on the equity gain, you win on the inflation, and you win on taxes. (given recent trends, laws, and rates) Edit: this is not investment advice; I am not qualified to give investment advice.
  - mellavora 5y ago
    In a place where people will want to buy houses for the next 30 years, at an inflation-adjusted price which preserves the value of your investment, and assumes you've already bought the house or can do so in the near future while mortgage rates remain low, while the struggle is that the cost to get into the market is rising at crazy multiples (30% yoy?) and assuming enough economic stability that you can be sure to make the payment even if your job moves.
  - ac29 5y ago
    People thought real estate was a can't lose investment back in the run up to 2008 as well. While real estate can be a good investment for many people, a lot of places are well into bubble territory (Canada, Australia, and China come to mind).
- _slyo 5y ago
  The conventional wisdom of "buy equities regardless of price" doesn't make much sense to me. I can temporarily convince myself it's the smart thing to do, but the thought of putting my money into stocks just makes me sick for some reason. I can't do it. I've missed out on a great deal of money hoarding cash instead of stocks, but I have peace of mind. The cost of inflation is worth that to me. I have felt that a crash -- a real crash, i.e. a change in public opinion about the equity markets -- has been just around the corner since 2016. I'm much less worried about the prospect of a dollar crash, even with today's inflation. This is not investment advice and is only my personal opinion.
  - kimsant 5y ago
    Bravo. Peace of mind is an indirect cost of investment. I've met a brilliant head of engineering, that told me "I've sold all my stocks/coins so I can stop looking at my phone and reading articles, and I can really focus on what matters". Not having state bonds that allow people face inflation, has a HUge indirect cost: having offices full of nerds looking at stock/coin exchanges. How much human valuable time is now lost on that?
  - kqr 5y ago
    Keep in mind it's not a binary choice. You can exchange anywhere between 0 % and 100 % of your savings for some other asset class, like stocks. An extreme position in either direction is probably a mistake, but what about 20 %? 30 %? The idea is not to get rich quick, nor is it to avoid any risk (because both are statistically impossible.) The idea is to limit how much a crash of any type hurts, by having some savings also in other types of assets. So for example, if your savings are $100 and you buy stocks for $30 of that, and the stock market crashes so you're down to $10 in stocks, now you only have $80 in savings. But you can use your cash savings to bootstrap your stock position back to 30 % again. If the market recovers, you get an outsize benefit from that. (Similarly, if there should be some sort of dollar crash, you can probably use your stock market savings to bootstrap your dollar position again, putting you in a good position for recovery.)
sunshinerag 5y ago
How do we stop this game?
- infp_arborist 5y ago
  First, don't commit to playing the game. A piece of advice I got (interestingly) from my dentist: "The only things worth putting money into are education and health." So, invest in your (spiritual) well-being and your capacity for relationships and love before anything else.

pjc50 5y ago

I mean, possibly, but what informational advantage does a random medium blogger have here? It's statistically likely that there will be one eventually, they seem to be some sort of Poisson process, just as it is likely there will eventually be another earthquake that destroys the Bay Area again. That doesn't mean it can be predicted even to the nearest year. People were predicting a crash several years before the 2008 mortgage crash, and even so house prices have rebounded since then. I do regard the arrival of major brands into NFTs and the purchase of crypto-themed sports teams and stadiums as a leading crash indicator, but a lot of people have lost money trying to predict crypto crashes.

kzrdude 5y ago
What says that a crypto crash will affect the regular economy as a whole, though?
- tofurocks 5y ago
  I think he may mean that the exuberance going on right now in the crypto and nft markets may be seen as a "top signal" predicting a market crash soon (people moving into riskier and riskier assets usually precedes a crash). Timing the top of markets is hard though - and while the music is playing you have to dance.
- JohnHaugeland 5y ago
  There have been a ton of them and it hasn't even come close.
- jbotz 5y ago
  Oh, it most certainly would; it would wipe out billions of dollars of what many people consider part of their wealth. Joe Cryptomillionair spends more of his regular income because he feels rich because of the balance in his crypto wallet, and thus stimulates the economy. Wipe all that out and suddenly a lot of people who were spending a lot of money are scrambeling to pay their morgages, perhaps even having to sell other investments to do so.
  - 5y ago

thinkingemote 5y ago

Possibly a Hinge of History fallacy caused by raised anxiety levels. I suppose this might apply to the majority of contemporary doom predictions from all sorts of subjects.

bhaak 5y ago

The sub title of the article is "History ain't changed" and the article starts with "In the late summer of 1929 [...]" and I already knew that I shouldn't have read any further. Yes, there will be a crash, there always is, but it will play out differently than the ones before. History only rhymes, never repeats itself. There have been calls for a big crash for decades now but no crash in this millennium was the big one. "The S&P 500 fell 57% during the 2008 crisis, 49% in the dot-com bubble, and 34% during the COVID-19 crash. So if the most pessimistic predictions prove true, the next one would be the most dramatic crash since the Great Depression." We already had big crashes in the last decades but we always came round (more or less). We are no longer on the gold standard, governments have plenty of experiences with crashes. I'm not convinced that we'll be seeing a crippling crash again.

crooked-v 5y ago
> We are no longer on the gold standard This is a key thing. A Great Depression-level crash is basically impossible in any modern country with a decent credit rating and even vaguely competent financial management.
- drsnow 5y ago
  Can you elaborate? I'd like to know why this is the case
  - chii 5y ago
    i suspect the OP is suggesting that you can print your way out of a depression.
    - grey-area 5y ago
      What could possibly go wrong! This strategy of financializing governments debt to deal with financial difficulties led to the south sea bubble. MMT is an old lie, oft repeated.
  - pharmakom 5y ago

frontman1988 5y ago

Evergrande defaulting and impeding omicron couldn't even dent the market. Much less a crash. Those predicting the crash are going to have to play a long long waiting game. Might as well ride the wave.

bellyfullofbac 5y ago
On the flip side, crypto has been off the peak for a week or two, and I've noticed the price of crypto has an effect on meme stocks (like AMD, Nvidia, Tesla).. I wonder if the end of student debt payment deferment will cause a lot of people to liquidate their investments and cause a big dip..
- bhaak 5y ago
  It's less of a meme than you think. AMD and NVidia are integrated into crypto by the GPU mining and Tesla has lots of Bitcoin.
- baal80spam 5y ago
  > meme stocks (like AMD, Nvidia, Tesla) Uh. What is your definition of a meme stock?

mupuff1234 5y ago

A lot of the speculative/growth stocks took quite a hit recently, down 30% or more in the last few weeks, but that didn't seem to affect the market as a whole that much.

winrid 5y ago

Is there any way to build an economic system without having periodic crashes?

deleted 5y ago
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tanbog5 5y ago
Possibly, but it probably won't have many periodic peaks either, and very flat or zero growth. A lot of people seem to like getting rich even it means some of them wind up poor /shrug
- Nemrod67 5y ago
  "A lot of people seem to like getting rich even it means some of them wind up poor /shrug" wouldn't be that bad, but replace "some of them" with most of them.
actually_a_dog 5y ago
Not if it's run on market principles.
- Ekaros 5y ago
  I wonder if they were actually run on market principles would crashes be so bad or big? Or more of corrections of certain sectors.
  - actually_a_dog 5y ago
    I don't think so. The problem is that there's always going to be some amount of speculation in a market. And, it's really speculation that drives prices up beyond what they really "should" be, which eventually leads to the correction. If the speculation goes on too long, and drives prices up too high, then you have a "crash." And, absent regulation to the contrary, there's nothing preventing the market from rising too high, too fast (i.e. the market can remain irrational for arbitrary lengths of time, to paraphrase Keynes). OTOH, there doesn't seem too be a sensible way to determine what constitutes speculation, for purposes of constructing a regulation that prevents it.

ekianjo 5y ago

Predicting crashes is easy. Since they occur pretty much regularly every 10 20 years. What is hard is finding out when they will occur and what triggers them. Also there is no one out there who can predict crashes one after the other with accuracy, no matter how right they were in 2008.

actually_a_dog 5y ago

https://archive.md/Zer4n https://archive.md/Zer4n

romankolpak 5y ago

How would quantitative easing affect the next crash? It seems like a thing that distinguishes this time from all other ones. Governments have more control over the economy with QE: they can inject liquidity into markets and boost spending whenever this is needed, so economy seems less likely spin out of control during a crash. Did we learn how to tame and limit the blast radius of crashes or am I misunderstanding QE?

adflux 5y ago
Fed cant qe with inflation approaching 10%.
lottin 5y ago
QE doesn't boost spending directly. QE is about buying bonds, so that there's more money in circulation (and fewer bonds), in the hope that the resulting low interest rate environment will lead to more borrowing and consequently to higher levels of consumption and investment.
neilwilson 5y ago
QE actually reduces the amount of money flowing in the economy, not increases it. What it is is an exchange of assets that pay, say, 2.5% for once that pay federal funds rate. That's a net reduction in income for banks. QE is just an assets swap attempting to reshape the longer term yield curve that hasn't been pulled down by setting rates near zero. It's got nothing to do with 'injecting money'. For that you need to look at the fiscal flow data: spending less taxes.

StrLght 5y ago

Lots of experts have been predicting a crash for at least a few years now, but none of them are saying what's the catalyst. Right now there's a huge inflation, unimaginable valuations, lots of retail investors -- yet nothing has triggered a noticeable reaction. After reading articles like this you always have to remember that the market can remain irrational longer than you can remain solvent.

xivzgrev 5y ago
This is what I wonder. In the dot com and 2008 recessions it was fairly obvious what was fueling speculation - websites and real estate. Now…I don’t see it. Crypto, but it feels like it’s not mainstream enough to send economy into tailspin. If bitcoin crashed tomorrow, the economy would probably shrug and say “yea that was expected”.
- kqr 5y ago
  To be fair, to most people it wasn't fairly obvious before it happened. So it seems like also the next time it will be obvious mainly in hindsight.
sys_64738 5y ago
They were predicting a crash at the tail end of 2019, pre-COVID-19. None of them predicted what happened next although I bet some will claim March 2020 was what they foretold.

sofixa 5y ago

> Technology stocks turn out to be the most overvalued, with Tesla, Apple, Alphabet, Amazon, Microsoft, and Facebook (now Meta) making up 25% of the index. Jus because they make a big part of the index doesn't automatically mean they're overvalued. Apple, Alphabet, Amazon, Meta are huge, highly profitable, and with high growth. Their valuations make more or less sense. Tesla is certainly an outlier though, and highly overvalued.

Blammar 5y ago
Correct. The issue is that, for index investors that want statistical robustness, having 25% of your funds in only 6 stocks increases your risk (specifically, your variance.) People who invest conservatively (e.g., are happy with returns of inflation + 5%) would prefer index funds that don't have that issue.
- deleted 5y ago
  [deleted]
- lotsofpulp 5y ago
  So it is statistically less robust and more volatile to invest disproportionately more in companies that earn more money? What scale would you recommend using to decide proportionality of one’s investments? The arbitrary number of publicly listed companies? Divvy up between 500 or 3,000? An arbitrary blend of net income and number of publicly listed US companies? My point is if 6 companies are each growing their profits for 10+years in amounts equal to or greater than profits of entire other industries, you might want to weight it a bit higher.
  - OrderlyTiamat 5y ago
    > So it is statistically less robust and more volatile to invest disproportionately more in companies that earn more money? From tone I'm assuming this is a rhetorical question, but I believe the answer is obviously yes? Statistical variance is orthogonal to profit. You'd do even better by investing all your money in the single highest earning company, but you won't cause it's a huge risk. I also believe that what scale to use to decide proportionality is not an open an shut case and is actually an important question for each investor. Not an expert, corrections welcome.

mercy_dude 5y ago

Even if you predict a crash, predicting the bottom is almost impossible. As an example, among many people who had sat on cash during the 2021 March, how many of them actually bought at the bottom? For layman investor the best course of action is to invest and forget, ideally in a balanced or semi-balanced portfolio.

mikevm 5y ago
You don't need to predict the bottom. If you manage to sit out the first 20-30% drop you can probably go back in. You can use something like https://recessionalert.com/ https://recessionalert.com/ or a combination of your own signals to time the exit of the market. Of course, it will never be perfect and there will be times where you will get a false positive, but being right most of the time can still massively reduce risk. Big drawdowns really hurt the geometric compounding of returns. A 50% loss requires a 100% gain to offset.
- kqr 5y ago
  Do you have any evidence that your suggestion actually works for real people? All studies on this I've come across say that anyone using common wisdom will both exit and re-enter too late -- i.e. they tend to end up selling low and buying high, and even just holding would be an improvement. (I'm saying "even just holding" because a constant-fraction rebalanced portfolio is a disciplined way of actually buying low and selling high, and not only in a bear market.
  - mikevm 5y ago
    The ERN blog had a few nice posts regarding market timing: https://earlyretirementnow.com/2018/02/21/market-timing-and-risk-management-part-1-macroeconomics/ https://earlyretirementnow.com/2018/02/21/market-timing-and-... https://earlyretirementnow.com/2018/04/25/market-timing-and-risk-management-part-2-momentum/ https://earlyretirementnow.com/2018/04/25/market-timing-and-... In the second one he simulates a momentum strategy which does pretty well, which can be used along with multiple other signals to increase confidence. I was thinking of simulating using leverage after these kind of drops to try to increase returns even further.

refurb 5y ago

People throw around “crash” but it’s never defined and I would argue has nothing definition. A multi-year recession? S&P dropping by 50%?

sys_64738 5y ago
Some brave souls will compare to prior crashes by naming the years. But tying themselves to such also exposes them to ridicule if they get is spectacularly wrong. Financial "experts" only have their reputations to keep them employed so they need to be able to insulate themselves from any narrative.

Blammar 5y ago

Just so people remember history correctly: 1. The Roaring Twenties market peaked in August 1929 with a ~6100 Dow. 2. Market low in November 1929 at ~3800, a ~38% drop. The "big crash" was just ~4400 to ~3800. 3. Then it RECOVERED to ~4700 by March 1930, a ~24% gain. 4. It then dropped over a year to ~3000 by March 1931, a ~37% drop. 5. Then the real crash to ~900 in June 1932, a ~70% additional drop. People had a LOT of time and a LOT of additional information about the economy to decide to get their funds out of the market. I have finally drilled into my skull that I am unable to time the markets with reliability. So I hold across corrections. In 1930 I wouldn't have done anything -- I wasn't born yet.

simo7 5y ago
Agreed, macro predictions are very hard. Much easier to make predictions on individual assets (companies, commodities etc.) and hold long term. Also, precisely because macro is hard, these analyses often feel superficial. Inflation, especially if exogenous, can negatively impact the economy but at the same time cash-alternative assets become more attractive. What's the ultimate effect there? And what about historically low interest rates? Don’t they warrant a shift in investment preferences towards stocks? Wether a macro prediction turns out to be right or wrong it’s rare to read a deeper argument than “things are too high must go down”.
odiroot 5y ago
Ok, let's assume people were reasonable and liquidated their portfolios after November 1929. Now they have cash, great. I may be wrong but didn't the value of the dollar also crash? It seems the safest option was to cash out and buy gold or land.
- bottled_poe 5y ago
  Don't forget to factor in capital gains taxes on selling. This is a strong behavioural influencer. Basically, unless you are very certain of a major downturn in your investment eg. 40%, it doesn't make sense to sell, ever!

blip54321 5y ago

Alternative explanation: We're looking towards huge amounts of inflation. Stocks are the safest place to stash savings, so are currently at high P/E.

choeger 5y ago
That's the thing, ain't it? If you exit the market for cash during an inflation period you will realize losses of x% per annum. So the question is: Is the current stock bubble driven by inflation expectations?
- blip54321 5y ago
  It doesn't matter. The question is whether we will continue to see high inflation. Whatever the current perceived cause, if we do see massive inflation then it's not a bubble.

leobg 5y ago

These fear based articles have been coming out for years. It’s one of the easy ways to get clicks, I guess. As a holder of Tesla stock, I do not want to make bad decisions. So I don’t want to shrug off the points being raised. There are no simple explanations. Nobody can predict the future. And whether I like a message or not says nothing about how valid it is. So I tried to do my homework. I wrote it up here[1], if anyone is interested. [1] https://leobg.medium.com/should-you-sell-your-tsla-holdings-to-hedge-against-a-possible-market-crash-d7f157014178 https://leobg.medium.com/should-you-sell-your-tsla-holdings-...

dools 5y ago

It’s interesting reading analysis on the stock market from someone who doesn’t know what money is nor how it works

OscarCunningham 5y ago

Bear in mind that crashes and recessions aren't the same thing. The stock market can go down without anyone losing their jobs, and vice versa. We saw this with Covid, where GDP dropped but stocks stayed high. So if there is a stock crash it won't necessarily be noticeable for the median person.

kimsant 5y ago

I see too many fearless, and too less greedy. China is already there, delisting stocks from the US, empowering it's currency and improving fast in intelectual property regulation and economics management. Maybe we won't see crashes, but the big risk is a change of dynamics, a big stocks flat only sustained by inflation that sooner or later could trigger the ultimate shift of mindset, china beeing the right place to invest, yuan the world currency.

10xrubberduck 5y ago
I think so too. Increasing money supply for too long devalues that currency, even if its a global currency like usd. In its face a more stable currency will start looking more appealing for trade. This dynamics may take several years to play out though.

avvt4avaw 5y ago

I’m a hedge fund manager. Not a big fund all things considered, just a few hundred million. But I think about stuff like this for a living. Here’s why you can safely ignore this article. There is always someone predicting an upcoming market crash. People like Grantham (cited in the post) have been predicting a mega crash for most of the last decade. Market crashes occur every 10-20 years but the thing is, over that 10-20 year cycle the market is always net up, so if you sit out the cycle because of worries about an upcoming crash you could easily miss out on 5-10 years of great returns. The post author frequently compares flow variables (eg earnings, GDP) to stock variables (eg market cap). That’s not necessarily terrible, but the ratio is always sensitive to interest rates (because the stock variable discounts future values of the flow variable, and when rates are low the discounting has less of an effect). Market cap/earnings and market cap/GDP are high now because interest rates are low (asp because growth expectations are high, but that’s not necessarily incorrect). Before the dot com crash US interest rates were 6%, compared to 0.25% now — of course that skews the statistics. Michael Burry is cited as “someone with a proven track record of predicting market crashes” but in fact he predicted exactly one crash. Well, so did John Paulson, and the ensuing decade proved that it was just luck. Mark Cuban “predicted” the dot com crash. It doesn’t mean they are geniuses, it means they got lucky once. Growth in margin debt is cited as a reason to worry. But margin debt has grown because assets have grown. The S&P 500 has double since the lows of March 2020, so the fact that margin debt has doubled is not a cause for concern. As a percentage of assets, margin debt has been stable for the last decade. This post is pointless fearmongering, nothing more. Of course, there will be a crash at some point. It could be in six months, a year, five years or ten years. This guy can’t predict it any better than anyone else can.

kimsant 5y ago
The key is not to predict a black swan, but to keep reasoning and awake, trying to figure out where the focus is needed. I don't value the outcome (you call it luck), but the reasoning behind.
arc-in-space 5y ago
> interest rates are high Did you mean to say low, or are you talking about nominal rates?

anovikov 5y ago

Medium is like a normal news site, on steroids: almost all you can read there is fear-mongering and anxiety induction, and little else. Without that, people don't click. Seriously, people who actually decide on whether the crisis will happen (that is, starting with the guys like you and up the value chain), don't make decisions based on that sort of bullshit, they read their news at Bloomberg/AP/Reuters terminals. So it can safely be ignored indeed.

sharken 5y ago
Fear mongering and anxiety induction are all the rage with the Corona virus and it's variants. Always goto another source of information and be critical all the time, that helps a lot as you point out.
- chrisan 5y ago
  UCSF does a Covid Grand Rounds of latest research/science https://www.youtube.com/watch?v=IGspuLnRBB4 https://www.youtube.com/watch?v=IGspuLnRBB4

Paul_S 5y ago

I'm happy to embarrass my future self with a firm prediction. Nothing in the market will happen that will cause people's quality of life to drop until WW3. The reason I think that is if the pandemic didn't manage it than nothing short of a global war will be enough to shake people's belief in infinite growth (which is what keeps the market alive).

adam_arthur 5y ago
The pandemic caused the market to do well, due to the excess monetary and fiscal stimulus aimed at countering it. Without the pandemic the market would be lower right now. Of course, the pendulum is about to swing the other way with both fiscal and monetary support ending.
thanatos519 5y ago
"Nothing in the market" is right because climate catastrophe is an externality.

elisharobinson 5y ago

crash usually come by way of forced selling. "assets" are no longer dependent on human factors like gdp. cloud and datacenter compute used is a better aggregate indicator then gdp. "assets" are growing exponentially and show no signs of slowing down.

Bombthecat 5y ago

Why is this on the front page??

deleted 5y ago
[deleted]
istinetz 5y ago
Because people are worried. There have been too many bad omens recently.
- Bombthecat 5y ago
  There always is and there always will be.

known 5y ago

"Buy a stock the way you would buy a house. Understand and like it such that you'd be content to own it in the absence of any market" --Warren Buffett (b. 1930)

kkjjkgjjgg 5y ago

"“If the shoeshine boy is giving stock advice,” he thought, “then it’s time to get out of the market.”" But what if the shoeshine boys say a crash is coming and it's time to get out of the market? How does one even get out of the market? There seems to be a huge inflation issue going on, so simply exchanging stocks for money does not seem the way to go, either?

drumhead 5y ago

The overwhelming sentiment from the opinions on this thread is that the author is wrong. Is that a sell signal?

lotsofpulp 5y ago
Sure, if you think the US government has lost its ability to prop/pump up the prices again, in contrast to the last 20 times.
4monthsaway 5y ago
If I remember Warren Buffet's teachings correctly, that would certainly qualify

DevKoala 5y ago

Actually right now your average joe is calling an incoming crash. Not a single article out there is bullish.

bern4444 5y ago

Either the author really believes this, and so should load up on puts and shorts, or they are just blowing smoke. I doubt they're willing to bet the money.

WalterBright 5y ago
The confidence people express in their predictions has an inverse correlation with their willingness to bet on those predictions.
- erik_seaberg 5y ago
  You can’t just bet on a crash, you have to bet that your counterparties will survive the crash and pay you rather than defaulting. Anyone who followed Burry’s story, or the other big shorts, will remember that.
  - bern4444 5y ago
    Any retail trader can buy a few puts on SPY for however far out they think a crash is coming

Invictus0 5y ago

Everyone wants to talk about history as if it's a good indicator of the future: but every moment in history happens only once. If you expect to make the same returns in 2 years that a past stock market investor would get in 20, you probably should expect to survive as many market crashes as he did, just on a shorter time frame. There is no free lunch, you pay for high returns with high volatility.

tluyben2 5y ago

Everyone predicts crashes all the time; I'm guilty of this myself (I thought it would be 2019). Unless you have a narrow timespan, you will always be right of course. Currently it seems the market sentiment is pretty bearish though, so I guess it's easier to sound credible when being negative.

sys_64738 5y ago
The scattergun approach will see everybody be right some of the time. It's those experts who say they predicted X but X is irrelevant if we can't compare to Y, where Y is the number of times they've made such claims.

anonu 5y ago

> Predicting the exact moment when a bubble will burst is never easy. Grantham, for example, predicted the 2000 crisis well in advance, but it took almost three years for it to happen. You'll always have the people standing on top of the soap box predicting the end of the world. They're not wrong. The end of the world will come one day. Its just close to impossible to figure out when. As the economist Keynes would say, “The stock market can remain irrational longer than you can remain solvent." Also, considering 2 things: first, timing the market perfectly is near impossible. second, market moves from the bottom left to the top-right of the graph over a very long term. If you are a long term investor, the safest, smartest, best thing you can do is to do nothing.

edmcnulty101 5y ago

I've noticed that if I crumple up a piece of paper and shoot it across the room into a trash can, nine times out of 10 I'll miss, and people will chuckle and forget about it in 5 seconds. But one time out of 10 I'll make it, and people will be very impressed and tell me I should play for the local NBA team. This psychological phenomenon also applies to prediction of stock market crashes.

e-dant 5y ago

Luckily, because my clients postpone my bills for months and try to settle for less I don’t have to worry about things like being “over invested” or “in a bubble.”

adam_arthur 5y ago

A recession seems pretty obvious. And corresponding correction in 2022 if you think through the macro picture logically. We injected 4T of fiscal stimulus over ~2 years, which is about to completely end over the next two months (though some programs already over). A large amount of corporate earnings growth was due to distortions in consumer income, which fed into retail sales. Personal Income: https://fred.stlouisfed.org/series/PI https://fred.stlouisfed.org/series/PI Retail sales have been about 20% elevated from a very smooth and consistent trend since the pandemic hit: https://fred.stlouisfed.org/series/RSXFS https://fred.stlouisfed.org/series/RSXFS (This chart alone is enough to understand the inflation situation, the quickness and magnitude of the increase is unreal) So we inject 4T in stimulus at one pont in time, why would we extrapolate the impact of that in perpetuity? It seems pretty obvious a large portion of that money will end up in low velocity places and thus the higher goods sales won't be maintained. In the next two months, the child tax credit will expire, and student loan payments will resume. This amounts to close to 30B/month in effective consumer income that will disappear essentially overnight. There will certainly be a recession/earnings recession next year due to these factors. An alternative outcome is that the one time fiscal injection led to excess liquidity trading hands, thus we have persistently high inflation and new normal of earnings is maintained through deflated value of currency. But in this scenario the Fed must tighten much more aggressively, which leads to the same result. There are many perma-bears out there that call doom without sufficiently specific reasoning, but in this case the macro picture looks very clear and easy to predict. The market doesn't appear to be pricing it in, however. If you disagree, what logical mechanism could explain an alternative outcome?

Throwawayh89 5y ago

I think everyone most everyone agrees with this. The market is cyclical. The trick is predicting where the top and the bottom are. If you can do that with precision you are a wealthy man.