The 2020 Stock Market Crash Thread

[Deepdiver]

Are my FDIC-backed CDs safe?

Depends upon the bank or credit union that issued the CDs.

The FDIC S.O.P is to make a larger bank take over assets of the failed bank while the ggovernment absorbs the bad debts so unless BoA goes bankrupt your FDIC insured CDs should be ok... I would also look into the private insurance guarantees at mega financials like Fidelity, Schwab etc use to insure customers Money Markets as these firms security accounts are insured for more than FDIC limits.

Not sure how they risk manage (insure) Money Markets but if Fidelity fails the USA and we all have bigger problems.

 

[NoMoreTO]

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[MichaelWitcoff]

I didn’t say “wealth investors,” I said “wealthy investors.” Buffett, Munger, Town, the Gardners - all of them have the exact same opinion on what to do during a market downturn. I’m taking this opportunity to learn how to choose good companies to open positions with, since if 5 people with exponentially more success than me in a given realm all say the same thing, then I’m going to listen and try to follow in their footsteps. Same strategy I use with fitness, spiritual growth, and everything else in my life.

 

[Lampwick]

Are my FDIC-backed CDs safe?

Depends upon the bank or credit union that issued the CDs.

The FDIC S.O.P is to make a larger bank take over assets of the failed bank while the ggovernment absorbs the bad debts so unless BoA goes bankrupt your FDIC insured CDs should be ok... I would also look into the private insurance guarantees at mega financials like Fidelity, Schwab etc use to insure customers Money Markets as these firms security accounts are insured for more than FDIC limits.

Not sure how they risk manage (insure) Money Markets but if Fidelity fails the USA and we all have bigger problems.

Everyone should take a good look at what their cash is actually invested in. In your brokerage account, there is a setting on where to put your uninvested cash. At some brokerages, it can be set to basically the equivalent of a savings account that's backed by FDIC, in which case if the brokerage were to fail, it is supposed to be backed by a government insurance fund.

But if your cash is being swept into a money market fund, then it is actually being invested in various debt securities. These types of investments are not covered by FDIC but rather SIPC. This protection is not as good as FDIC according to my understanding, and it only theoretically covers failure of the brokerage itself, not investment losses.

Money market funds can be strictly government debt like treasuries, but often times they put corporate bonds in there to juice yield. Corporate bonds will implode relatively soon, in my opinion.

If one doesn't think investment losses can occur in something as "safe" as money market funds, just look to the last crisis where the oldest money market fund imploded due to having just 1.2% of its assets exposed to Lehman:

https://en.wikipedia.org/wiki/Reserve_Primary_Fund

I don't know to what extent FDIC is safe either to tell you the truth. The biggest question right now is what will actually act as a safe haven.

 

[Enoch]

Trump should announce diversion of DOD funds to grow the us strategic oil reserve, 100% buy American. Our energy companies cant go under.

 

[Kona]

Are my FDIC-backed CDs safe?

Yes.

I cashed out all my stocks I've been playing around with in the middle of the night. I made money on all of them so I figured why not.

I bet a big part of the problem is that so many people can do like I did and just hit a button and be out of it. It used to be people had to call their brokers.

My concern is the time it takes the sales to settle and then the time it takes for the money to move to my bank account. All that stuff in between is not insured.

Aloha!

 

[Emancipator]

If oil prices stay as low as this for a period longer than 3 months, we could very possibly be seeing the end of the fracking industry. It would set Russia's economy back for 10 years, but it would also cripple the petrodollar.

Well this a calculated move by Russia They met with the Saudi's in Vienne, They knew the Saudi's will retaliate if they didn't co-operate with the production cuts.

So I think the Russians are probably ready for this? They won't be set back 10 years or much so. Because if it was a serious threat to their economy they only needed to cut production by about ~10% or so.

Exactly, it's the Russians telling Saudi to pound sand.

Russia has a larger reserve fund than the Saudis currently and don't have an extravagant internal budget to ensure the populace doesn't revolt

 

[Coja Petrus Uscan]

There are a lot of factors at play here so it is anyone's guess what will happen, but I don't see this being as bad as some predict.

There is room for much more government debt. Japan is at 250% debt and their central bank is buying stocks. A third of the Japanese government budget is debt repayments. Most Western governments are at about 7%. The pain of rolling up the unsustainable financial system and government is currently much more painful than the squeeze (part of which is structural and cannot be mitigated).

The US is in a much better shape than Japan. The top 1% of the US economy lays waste to pretty much anyone else, the demographics are better than Europe, the US gets more than half high skilled immigrants, the share of global FX in USD is virtually unchanged over the last twenty years. There are plenty of problems, but the pain of rolling the game up is huge.

Rolling the game up equals ten years of severe pain. Governments would be able to do it even if they wanted to and were elected to do so.

When the markets crash everyone will run for the dollar. It will probably be the greatest run into an asset ever seen. There will be very little anyone want beyond the dollar - highly deflationary. The Fed will print like crazy, but most of that money will just go into shoring up the banking system. The money won't come into public circulation, like most of the money from QE1, 2, 3. circulating money supply hasn't been touched.

Look at China on the other hand and their M2 is through the roof.

Japan has set the model. You can prop of banking systems for a very long time and the US is far behind the curve.

A blow to the dollar requires people to run out of it into something else, flooding the market with dollars. I can't see that happening. There isn't anything that can fill that void. For now no one wants CNY, RUR, gold in the trillions. China is around two decades away from GDP parity with the US and they are facing serious issues from an already shrinking workforce and poor central planning. At best The US and China becomes equals.

The way I see it panning out:

1) market crash (soon)
2) mass money printing
3) the decline in living standards since '08 will increase, leading for more support for socialism, the top 10% will largely be untouched
4) Western governments will surpass 150% debt to GDP
5) social order will continue to fray

Then another crash, in say 2030, that will take out Japan and other less stable countries that have surpassed 250% debt to GDP, like Italy and Greece. But at this point The US will still be the best house in a bad neighborhood. Depending on factors there should be good growth in South (East) Asia up until about 2040, but none of those countries will rival The US.

If there is any country that is going to have this insane crash some are predicting it's China. Huge USD debt exposure, shrinking work force, trade war, ground zero for Cronoavirus, huge slowing bubble economy based on bad investments of central planners.

My plan has been:

1) sell most stocks (Jan 2019)
2) move into high quality USD bonds - approaching 40% return in one year - and cash
3) I'm now buying some more recession proofing, like Grizzly Short Fund
4) buying and loaning stables coins for the next crypto bottom, maybe $6K
5) wait for the crash
6) give it six months and go all in on cheap stocks and if gold goes down, that too, as once The Fed starts printing like crazy gold should reach new highs

 

[Lampwick]

Gework, Japan has negative interest rates and owns 75% of the Japan ETF market. If you had to guess, what are the mechanisms that the U.S. will use to prop the economy up? We are approaching 0% interest rates again, and the 30 year has gone below 1%, so I don't think quantitative easing is much of an option.

 

[Enoch]

Trump is an all in player. Time to see monetary policy stretched to its limit. Mass govt spending plan to boost GDP, wages, consumer demand. Huge business tax breaks.

 

[EvanWilson]

So, if your prognosis is that the market is going to collapse overnight and long term then logically speaking you should be loading up on index puts or shorting S&P futures. If you are right then you'll be immensely rich within 6 months to a year.

I don't doubt that there is serious distress right now in the market.. but 1 year out there has to be bigger signs pointing to a bear market aside from alarmist sources. Black swan events need to show that they can collapse industry for that to happen. The financial crisis in 2008 was an example of a collapsing industry. 2000..collapsing industry.

I took a look at that last week and this week. The problem is that with volatility being so high the premium is massive. Even on short options, like the weekly ones, there are large premiums, meaning even if you get a large move and would make a profit, one is not being compensated enough for the risk.

 

[EvanWilson]

Are my FDIC-backed CDs safe?

Yes.

I cashed out all my stocks I've been playing around with in the middle of the night. I made money on all of them so I figured why not.

I bet a big part of the problem is that so many people can do like I did and just hit a button and be out of it. It used to be people had to call their brokers.

My concern is the time it takes the sales to settle and then the time it takes for the money to move to my bank account. All that stuff in between is not insured.

Aloha!

While you broker stuff does not have FDIC insurance (except for maybe the all cash part of the account, some do have FDIC insurance like a bank account) there is SIPC (covers brokerage accounts to 500,000 in the event of the firm failing) that sort of acts like the FDIC for brokerage accounts. Plus some brokerage firms by additional insurance on top of SIPC coverage.

 

[Dallas Winston]

I don't know if this is the popping of the "everything bubble" or not.

My best guess, based on the data I use, is we'll see about a 25%- 30% correction, off the highs, for the major indices.

A cyclical bear market, within a long-term secular bull.

 

[EvanWilson]

Are my FDIC-backed CDs safe?

Yes, up to $250,000 per depositor.

 

[Leonard D Neubache]

For all you guys looking to buy the dip, I hope you get your month+ of supplies in place first.

Meanwhile "safe" is a relative term. I'm sure the folks in Cyprus thought that literal money in the bank was safe until they woke up one day to find withdrawal controls then a week later got bailed in with their own money, all executed entirely under rule of law.

If the circumstances are unprecedented then so too will be the measures taken to retain control.

 

[Hansel]

I don't know if this is the popping of the "everything bubble" or not.

My best guess, based on the data I use, is we'll see about a 25%- 30% correction, off the highs, for the major indices.

A cyclical bear market, within a long-term secular bull.

Correction only happens when the current instruments in place working properly to control they market. Right now that is the Fed issuing debt and cutting rates. Problem is, they have no more wiggle room to do that anymore and the market has been overvalued which means it could very easily crumble once something that is not just financial, but also political takes place.

Each instrument that operates as a major arm of financial control before the next wave of economic crisis is established at the end of the previous one, due to the failure of the last instrument to contain the crisis.

 

[RWIsrael]

Funnily enough this all happened right after international women's day when all banks and corporates were busy virtue signalling about how many women they have on the board.

The biggest correction I'm hoping for is for the wokeness to stop and some serious measures taken to create value for shareholders.

 

[Captain Gh]

From someone who's not an expert... isn't funny that this happened just a couple of months prior to our current situation... and the context surrounding the COVID-19 Virus that we discussed in other threads! Hmmm!!!

More than 1300 CEO's Have Left Their Post in The Past Year

Unfortunately can't link up the article!

For those who believed that at least Capitalism was a fair system... can't the truth be more obvious? They took our cash... and Peaced Out!!!

 

[STG]

Part of a book Generational Dynamics for Historians. First published in 2005 (before the 2008 crash), the book uses Generational Theory that was developed from the Fourth Turning theory, to show how history repeating is due to generational changes.

War and economic crisis can be predicted by using this theory.

http://www.generationaldynamics.com/pg/ww2010.book2.htm

The Stock Market is the biggest bubble in the history of man.

Dow Jones Industrial Average -- 1896 to 2002 (log scale), with best fit exponential growth line.

In the case of the stock market, it should be a lot simpler to do long-term forecasting, because we can easily graph the stock market, something we can't as easily do with wars.

Take a look at the adjoining graph, and you'll see just how easy it is. The heavy squiggly line is the DJIA, and the thin straight line is the long-term exponential growth trend line. Since the DJIA must follow the trend line in the long run, we can easily see that the DJIA is going to fall substantially from where it is today (early 2005).

How much? Well, the trend value in early 2005 is 4670, and in the year 2010 is about 5800, but the actual DJIA today is between 10,000 and 11,000. Thus we can expect the DJIA to fall substantially in order to be consistent with the long-term trend. Moreover, the trend line represents an average, so the DJIA will have to fall far below 5800 to compensate for the large bubble. A fall to the 3000 range seems like a reasonable conclusion.

Price / Earnings ratios
One such comparison can be made using standard price/earnings ratios.

As we described earlier in this chapter, the prices of stocks have spiked way above the real values of their underlying companies the stocks represent. We estimated that the value of an S&P 500 company grows by an average of 1.34% per year, but since 1990, the S&P 500 stock index has grown at 6.10% per year. This has created an imbalance, where stocks are overpriced by at least a factor of two.

One way of measuring this is by comparing the price of a stock with the earnings of the company. The amount of money that a company earns is a good proxy for the real value of the company.

When the price/earnings ratio is 25, it roughly means that a company is earning $1.00 per year for each $25.00 in the price of its stock. This roughly means that an investor buying that stock can hope to earn only $1.00/$25.00 or 4% per year. At a P/E ratio of 20, the rate is $1.00/$20.00, or 5% per year.

Historically, the S&P 500 P/E ratio has averaged around 14. This corresponds to an interest rate of roughly 7%. Thus, depending on the era, you could theoretically earn 7% interest by investing in the stock market, or you could earn around 5% interest in a bank, or 4% or so by investing in Treasury bonds. The differences in interest rates have to do with risk. You earn more in stocks because there's a risk of losing everything, while you earn less in government bonds because they're backed up by the national treasury, and there's little risk.

A P/E ratio can be computed for an individual stock or for an entire group of stocks. An individual stock with a P/E ratio above 17 is considered overpriced, while a stock with a P/E ratio below 10 is considered underpriced. If the S&P 500 P/E index is above 17, then the entire stock market is considered overpriced.

The adjacent graph shows the S&P 500 P/E ratio index since 1881. As you can see, every time in the last century it exceeded 20, it fell below 10 within 5-15 years. It went above 20 in 1995, so as of this writing, in early 2005, it's been above 20 for ten years, so a substantial collapse is just about due.

 

[Kona]

People in the know say these are once-in-a-lifetime low prices on the oil stocks. Exxon, Marathon, Oxy, etc.

Should you wait a day and see if they sink more?

Aloha!