Why stock and Property market "crashes" are still years away

Some arguments for poor economic conditions to come, off the top of my head:

- Tech companies are largely unprofitable and overvalued. Too much venture capital has flowed into these companies seeking high returns in “unicorns”. Even unicorns like Uber don’t make any money and are using more and more VC money to fuel massive expansion. Additionally, a few fat-nosed tech oligarchs getting wealthy does little for Main Street.

- Shale oil producers are hanging on for dear life with OPEC pressure and a supply glut.

- U.S. stocks are generally overvalued.

- The current economic expansion is already one of the longest in history.

- Too many subprime loans have been made in the auto industry. Not enough cars are moving off the lots. Loan terms have been extended to ridiculous levels (e.g., 60 mo+). Sales have been slowing, even with huge incentives. This is a ticking time bomb. (https://www.forbes.com/sites/panosm...oming-collapse-in-us-auto-sales/#3557c2a41660) (https://www.bloomberg.com/news/arti...-morgan-stanley-sees-impending-buyer-s-strike)

- Too many subprime loans ($1.4 trillion) have been made to college students. Another ticking time bomb. Delinquency rates have steadily climbed. Yes, the gov’t (i.e., us) is on the hook for this, but debt overhang (or, worst case scenario, institutional collapse) affects the private sector.

- Home prices have outpaced incomes. Mean prices countrywide have surpassed 2006 levels, though some areas are still depressed.

- Businesses have too much inventory thanks to weak sales figures. Some big-box retail is currently teetering on the edge of solvency.

- Capital expenditures have not been made by companies for long-term productivity growth. Salaries have concomitantly gone nowhere, though corporations and the few at the top have made huge profits. Mohammad El-Erian: "Since the [2008] crisis, the top 1 percent of the nations earners have received 95 percent of the income growth." Arguably, money headed to the rich adversely affects aggregate demand, which in turn affects growth.

- ECB is at the negative bound. The Fed has missed its monetary policy normalization window and additionally has no more tools at its disposal when the next recession comes. Mohammad El-Erian argues that central banks have done God’s work, and that the rest is up to fiscal/regulatory policy. And it doesn’t look like any of the big Western countries are doing anything to get their fiscal house in order. Trump is too busy wasting his time engaging in a pointless media war concerning baseless Russia allegations while Rome burns.

- Small business creation is at at a 40-yr low. (http://money.cnn.com/2016/09/08/news/economy/us-startups-near-40-year-low/index.html). Sorry for the CNN link.

- Debt and unfunded liabilities will eventually crush us. They are likely already having a big effect on the private economy in terms of debt overhang. As an aside, the interesting thing is that we’re probably in a deflationary environment; and that central banks have very little to do with setting interest rates. (https://www.alt-m.org/2016/12/01/fed-holding-interest-rates/). In other words, inflation probably won’t be a big issue in the short-medium term.
 

Australia Sucks

Kingfisher
Soviet, let me address some of your arguments:

-Yes there are some questionable tech companies around like Twitter and Uber, but then again the most valuable companies in the world are hugely profitable tech companies like Apple, Microsoft, Facebook, Alphabet, Amazon, etc. The number of rubbish tech companies is probably fewer than the last tech boom which ended around 2000/2001. Incidentally the end of the last tech boom was just a mid cycle slowdown and was not enough to stop the bull market (did cause a pullback though) or crash the economy (lower interest rates reflated the economy).

-In regards to Shale oil producers this risk is well known by the market and low oil prices have been here for a while. Its not coming out of left field to surprise the market, so everyone is prepared for the coming losses and it won't crash the market. The other thing with shale is that unlike traditional oil the assets are typically quite short term, so if you cut back on capex, so typically you can simply run down 70-80% of your existing assets (sometimes more) within 3 years. Simply by not spending on capex (i.e. not renewing their shale sources) this will cut out a lot of supply from the market and its already started.

-As for U.S.A. stocks being overvalued I already addressed that previously. Yes they are overvalued and will likely stay overvalued for years to come partly due to low interest rates. Look at history and you will see stocks can remain overvalued for very long periods of time.

-As for subprime loans in the auto industry I think there may be a temporary dip, but longer term as the economy continues to strengthen sales will turnaround. Also subprime cars are hardly a big enough problem to crash the economy. The problem could eventually cause loses to some car manufacturers and niche financiers but car companies or niche lending companies going out of business won't crash the economy. Subprime crashed the economy previously because major banks were at risk of collapsing.

-Subprime student loans if certain niche financiers collapse it will not cause the economy to implode. Also a large part of the losses can be moved onto the government balance sheet. 1.4 trillion of losses is not enough to endanger the government or cause an end to the boom.

-Home prices are naturally outpacing incomes currently because they are recovering from what was a previously depressed cyclical low. If you look at home prices from a longer term perspective they are hardly at nose bleed levels (which they mostly likely will be by the end of the boom).

-Business inventory numbers tend to be very volatile over short periods of time. As for bricks and mortar retail yes that industry is gradually dying. However a lot of the sales lost from bricks and mortar retailers are going to companies like Amazon, so the net impact on the economy will be lower than many people think.

-The wealth gap in the U.S.A (and indeed most developed economies) has widened for decades. This is business as usual. Also household income growth is finally picking up. This article is a little dated but I think the trend is generally underway.
http://www.cnbc.com/2016/09/13/here-are-6-charts-to-explain-why-household-income-shot-up.html

Also if you look at an index like the S&P500 a lot of these companies have other ways to increase profits such as through automation/efficiency and through increasing overseas sales to Asian and Latin American markets. I think capital expenditures will pick up in coming years, as record profits must go somewhere. With rising interest rates (higher borrowing costs) and higher stock prices/valuations reinvestment into capital expenditure is gradually becoming relatively more attractive compared to share buybacks or takeovers than previously.

Alsothe nature of our large corporations has changed we have more information/tech companies than before. If for example G.M. wants to expand they might open another manufacturing plant whereas a tech company like Facebook might make a takeover for Whatsapp and then spend hundreds of millions of dollars on research and development and marketing to improve the business. However the accounting and tax treatment of this kind of investment is such that its not always classified as capital expenditure even though its a real investment into the economy. So structurally a lot of investment no longer shows up in traditional capital expenditure figures, but that does not make it less real.

-As for central banks having missed the window to raise interest rates that is you effectively making an implied call that the next recession is soon, which I think is an unlikely scenario. As for what governments around the world are doing governments and central banks have and always will be incompetent and that is not sufficient reason for the boom to end. Besides in Asia infrastructure investment is booming and I think you will see eventually a boom in U.S.A. infrastructure will happen as the U.S.A. government will look to bolster the state of its crumbling infrastructure. I understand there is a possibility of it getting derailed due to politics but I think infrastructure spending will eventually come through. According to the article there could be a trillion dollars worth of infrastructure coming down the long-term pipeline.
http://www.cnbc.com/2017/04/03/chin...us-infrastructure-boom-it-wont-come-easy.html

-Small business creation is at a 40 year low because the big companies just keep getting bigger.
https://www.economist.com/news/spec...-old-some-neware-once-again-dominating-global
I don't think its enough to stop the boom as the large corporations keep churning out record profits and keep the boom going.

-Look at history debt can keep rising for years. Just look at Japan. Yes, eventually it will get to a breaking point but can you confidently predict the breaking point is soon? I think the breaking point is years away. Can you make a convincing logical argument why the mounting tower of debt will soon topple? There are commentators that have been predicting imminent collapse due to the debt burden literally for decades. Without proper timing this is useless. In most developed markets inflation is already picking up off a low base. The E.U. and Japan are a little behind on the trend but I expect it to turn around into higher inflation sooner rather than later.

Finally just because the boom has been going a long time is not a reason in and of itself for the boom to end. Especially so when you consider that annual average GDP growth during this boom/recovery has been lower than the annual average growth rate of most past recoveries. In other words the recovery/boom has been longer but less intense than most.

Conclusion:
The market always climbs a wall of worry. Be careful of listening to the doom and gloomers. Look at how many years Peter Schiff, Jim Rogers, Mark Faber, etc have been calling for a market crash that has not happened yet. A broken clock is right twice a day. Market crashes occur very infrequently historically speaking and history shows its generally a mistake to be overly cautious and sit on the sidelines waiting for an impending crash. Often people that do this, by the time the crash happens they will have missed out on so much gains that even after the crash they will be worse off then people that just kept investing.
 
I would recommend reading The Reminiscences of a Stock Operator to any aspiring trader. It was written in 1923 but the basic concepts underlying markets never change and most of them are related to human behavior.

Current economy is not cyclical anymore so we can't predict future based on past observations. We are completely in a new era. The next correction will result from the actions of the Fed. Currently, it holds $2 trillion in various toxic and undesirable assets (similar to the central banks of other countries). When Yellen and her cohort decide to unwind Fed's balance sheet this September, a major correction will result. Combined with rising interest rates, this will start a new bear market. Add in the increasing number of baby boomers that will start selling their portfolios to survive and we will witness a perfect storm. We need to remember that sometimes economic downturns are orchestrated to achieve some big sociopolitical goals like the consolidation of banking industry during the Great Depression.

Additionally, we live in a post-industrial society where automation will take away the remaining few and miserable jobs. If someone thinks that their profession is immune to automation, they are being delusional. The next "semi-artificial" market crash will usher in the era of Universal Basic Income and permanent negative interest rates, resulting in a complete cashless society.

Current market rallies are fueled by stock buybacks and have nothing to do with underlying fundamentals. It has been 7 years that market fundamentals don't play a role in stock rallies/downturns. They only care about low interest rates, stock buybacks, and mergers and acquisitions.

Most of the current big name companies are nothing else but political enterprises. Uber, Tesla, Twitter, Snapchat, and many others bleed billions of dollars but are kept afloat to accomplish some certain long'term political goals. The next crash will be a crash that will dramatically change our lives and some kind of Orwellian society will be the result.
 

Australia Sucks

Kingfisher
Speculator, do you care to give proof of your assertion that the "current economy is not cyclical anymore"? That is a huge claim to make especially when you are backing it up with zero evidence.

As for the whole recovery since 2009 being fueled by share buybacks that is a huge misconception. Buybacks where only responsible for a small part of e.p.s. growth.
https://www.businessinsider.com.au/contribution-buybacks-eps-growth-2015-11?r=US&IR=T
Note that towards the end of the graph e.p.s. growth was fully coming from buybacks but that was a temporarily weak earnings period (the graph ends Q3 2025 so its dated) and its no longer the case and back to business as usual just like it was earlier in the graph.
As for trying to assert that buybacks caused share price outperformance (this article from 2016) shows that companies that did not engage in any share buybacks actually had a higher total shareholder return than companies that bought back shares.
https://www.bigtrends.com/education/the-impact-of-stock-buybacks-on-the-market/

Yes companies like Uber, Tesla, Twitter, Snapchat are all rubbish for the most part. But we have far fewer of those companies than in the late 90s/early 2000s tech boom (which when it burst didn't crash the economy) and we have a lot more genuine and highly profitable tech companies like Alphabet, Apple, Facebook, etc that are making huge profits.
 

Australia Sucks

Kingfisher
p.s. Speculator I have read reminiscences of a stock operator years ago out of interest. It was a fascinating book even though I am an investor and its aimed at traders it was still a worthy read. To quote the book “Why, this is a bull market!” “my dear boy, if I sold that stock now I’d lose my position; and then where would I be?”

Another great quote from the book:
" It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull
markets and early bears in bear markets. I’ve known many men who were right at
exactly the right time, and began buying or selling stocks when prices were at the very
level which should show the greatest profit. And their experience invariably matched
mine that is, they made no real money out of it. Men who can both be right and sit tight
are uncommon."

Conclusion:
Why this is still a bull market! Don't sell because you'll lose your position your position, and then where would you be?
 
speculator said:
I would recommend reading The Reminiscences of a Stock Operator to any aspiring trader. It was written in 1923 but the basic concepts underlying markets never change and most of them are related to human behavior.

Current economy is not cyclical anymore so we can't predict future based on past observations. We are completely in a new era. The next correction will result from the actions of the Fed. Currently, it holds $2 trillion in various toxic and undesirable assets (similar to the central banks of other countries). When Yellen and her cohort decide to unwind Fed's balance sheet this September, a major correction will result. Combined with rising interest rates, this will start a new bear market. Add in the increasing number of baby boomers that will start selling their portfolios to survive and we will witness a perfect storm. We need to remember that sometimes economic downturns are orchestrated to achieve some big sociopolitical goals like the consolidation of banking industry during the Great Depression.

Additionally, we live in a post-industrial society where automation will take away the remaining few and miserable jobs. If someone thinks that their profession is immune to automation, they are being delusional. The next "semi-artificial" market crash will usher in the era of Universal Basic Income and permanent negative interest rates, resulting in a complete cashless society.

Current market rallies are fueled by stock buybacks and have nothing to do with underlying fundamentals. It has been 7 years that market fundamentals don't play a role in stock rallies/downturns. They only care about low interest rates, stock buybacks, and mergers and acquisitions.

Most of the current big name companies are nothing else but political enterprises. Uber, Tesla, Twitter, Snapchat, and many others bleed billions of dollars but are kept afloat to accomplish some certain long'term political goals. The next crash will be a crash that will dramatically change our lives and some kind of Orwellian society will be the result.
This could be accurate, or somewhat accurate, but it might not happen for a decade or two. Could it happen as a result of the unwinding of the balance sheet at the end of this year? Sure, but that's a super specific prediction which makes it less likely for many reasons.

The reality is that Euro stocks and the ECB is in FAR more trouble than the American system re: central banking, which means two things:

1. That's why the Fed is planning on doing what they're doing and
2. Capital will move from Europe as things get increasingly undesirable in the Euro Zone, which will happen sooner than later.
 
Australia Sucks said:
Conclusion:
The market always climbs a wall of worry. Be careful of listening to the doom and gloomers. Look at how many years Peter Schiff, Jim Rogers, Mark Faber, etc have been calling for a market crash that has not happened yet. A broken clock is right twice a day. Market crashes occur very infrequently historically speaking and history shows its generally a mistake to be overly cautious and sit on the sidelines waiting for an impending crash. Often people that do this, by the time the crash happens they will have missed out on so much gains that even after the crash they will be worse off then people that just kept investing.
As much as I like Schiff and think fundamentally he is correct, I agree with an opposing (he doesn't call him out or anything) explanation by Martin Armstrong that explains why Schiff can be right fundamentally but wrong about it applying to us currently or affecting us NOW. That is namely he (Schiff) is looking at the US as a closed system. As I noted above, Armstrong also believes the ECB has WAY bigger problems currently and in store for the future, all of which will lead to the propping up of our investments and markets here when global (euro mainly, but others) money tries to find a safe(r) haven. Indeed, the market can stay irrational longer than Schiff can predict, or remain solvent. I do see metal commodities eventually rising WITH the US markets as in general currency confidence slowly erodes.

***My prediction? A smaller correction rather than cataclysm suggested by speculator ending the year. At this very moment, the S&P is 2470 and the DOW is 21600. I am guessing towards a 10% correction. Momentum when this causes a bit of a global shock, followed by a renewed future outlook for the US with new tax policy, and then a run to over 23000 for the DOW. And it'll continue while others keep naysaying ... but the next big one will be huge, probably around the time Australia Sucks said, actually. That'll be the perfect time for all the boomers to hit full stride, pensions to really bankrupt everyone, and by that time all the tax tricks will have been maxed out by the central powers in the big cities, etc.
 
So much doom and gloom.

THE ECONOMY WILL ALWAYS GROW. IF THIS FAILS TO HAPPEN YOUR MONEY WILL BE USELESS ANYWAY.

In practical terms this means you should always continue to invest. ALWAYS.

There should be a poll of how many users are investing $50 (or whatever) into a few broadly diversified no fee/load ETFs with their bank/brokerage.

This is like brushing your teeth. You shouldn't even need to think about it. We can argue all day about fluoride is an industrial byproduct poison from aluminum smelting and how calcium phosphate ions are just as efficient st mineralization. It's like arguing over whether Schwab or Vanguard is better.

Pick 3-5 ETFs. Automate small periodic investments. Go on with your life. Concentrate on things you can actually control.

No one has a crystal ball. There will always be fraud, hype, etc. That's why you invest small over a long span of time. When a downturn happens you keep investing. When the market picks up you keep investing. Most of what you lose and make back is profits not principle.

Eventually you retire and spend down the profits and principle. Unless your job is financial management or day trading why on earth would you worry about any trend under 3-5 years?

If the market crashes and bottoms out for awhile YOU WILL KNOW. You could be in the woods and you'll hear about it. It will be FROMT PAGE NEWS for weeks. Your friends will be getting laid off, losing their homes, etc.

Unless you're actually comfortable and familiar with all the investment TOOLS offered by your brokerage you'll be like 99% of people who were too scared to make a big move in spring 2009.
 
Travel Museums said:
So much doom and gloom.

THE ECONOMY WILL ALWAYS GROW. IF THIS FAILS TO HAPPEN YOUR MONEY WILL BE USELESS ANYWAY.
I get your point, but neither sentence in CAPS is true.

If you invested in 2000 or 2009 you might have been "lucky" but you were in a much better position. When those crashes happened money clearly wasn't useless. On the contrary, the difference between haves and have nots is that the big market drops don't crush the haves, for many reasons.

Recent history shows you the market goes up long term, and I have no basis yet to say it will not continue to go up (as I've said above, it will in my view) but let's not act like it will go up for sure, for all time. That's just silly stuff which has been proven absolutely false by history, just not as recent.
 
In case anybody is interested in an alternate perspective, and please don't try and pick this story apart because I'm fucking exhausted and trying to do it from memory, and I don't know stock lingo well.

I have some contacts in the credit card industry due to the nature of my job, and today I was meeting at a local restaurant to discuss a proposal with them. The proposal went south so we sat and talked about shit for an hour, and he told me the following story, which I will now relay to you.

"I was at a party in Florida 2 nights ago, and I met the head of Morgan Stanley.
(Long discussion about Morgan Stanley's failure to integrate with online payment systems for its institutional clients removed for brevity.)
So I said, 'There's been this huge run up in the stock market, and I'm thinking of getting in.'
And he says to me, 'No, don't do that. The time to do that was 5 years ago. The central banks and big instutitions have been buying lots of assets, they're buying google, they're buying apple. But the guys who got in two years ago are going to find they're not hitting their profit targets, and they're going to start to start retrenching soon.'
And I said, 'Really?' and he said 'Yup' and folded his arms like it wasn't his problem, which I guess it really wasn't."

Now, how much stock you want to put in "a guy who supposedly to talk to a guy, as related by a person on an anonymous internet message board", is up to you.
But it seemed germane, and so I thought I may as well post it.
 

RichieP

Pelican
The metric that best predicts crashes is the private-debt-to-GDP ratio, and it's growth rate. This has not been grasped by mainstream economists but is thankfully rapidly gaining credence.

Countries with worrisome private-debt-to-GDP ratios:
https://www.forbes.com/sites/stevek...ost-vulnerable-to-a-debt-crisis/#313d5596ce5a

The UK and USA have already crashed in 2008, private-debt-to-GDP is now more manageable and what most likely awaits them is "the great stagnation".

But China, Australia, S. Korea, Canada and others are vulnerable - high debt-to-GDP ratios that have been growing fast. A Chinese crash would have massive global knock-on effects, particularly to exposed economies. Australia in particular is in a massive housing bubble, high debt-to-GDP, and a lot more exposed to the Chinese economy than UK/USA. I would not buy a house in Sydney any time soon.
 

Troller

Woodpecker
Someone told me the boss of Louis Vuitton recently said he´s expecting a crash in the next 1-3 years. And he´s buying minority positions in LVMH companies because of that.

Just googled it for the rooshers:

http://www.cnbc.com/2017/06/15/be-careful-a-global-crisis-is-coming-says-lvmh-ceo.html

5 star Hotels in Paris lost 15% occupancy rates in recent years. But still you can sell for double an hotel bought 2-3 years ago. This shit doesn´t make sense. And actually scares the property owners. There is no fundamentals to sustain a price increase. But still it exists.

My 3 cents (1 cent due to inflation) is the stocks in US are overvalued. And the main factor which deploy crisis are central banks. They create the conditions for a crash to happen. With conditions created a number of factors can determine the sparkle. And there seems to be an inversion of cycle by the FED. But I could be wrong.

From rumours of the industry I´ve been hearing the year of the crash will be 2019. This things normally take more time than expected.
 
Kid twist what are you talking about? How on earth has it been proven false that the market always grows. You're obviously missing my point. I'm not talking about a little bit of stagnation that's a blip in an 80 year investment portfolio. Big picture.

There will always be ups and downs. The Great Recession, even Depression was a down. Prolonged but temporary downs, after long ups. Followed by more ups. Look at every economic measure from GDP to the total NYSE points. The market always grows. LONG TERM.

What is the only way to keep your cash worth than inflation? Invest. Equities, housing, etc.

The market is down. Your cash is more valuable. Equities are undervalued. What do you do? Buy. Invest. It's so simple.

The markets up. You're worried it's overvalued. What do you do? Invest. Oh wait I should sell and clear profit first right? Wrong. The unmanaged index still outperforms slick Rick in the long run.

The USA always recovers and grows. Our military industrial complex supported by all your tax dollars insures this. Why do you think there are only two real political parties both of whom are controlled by the same donors?

Invest $50 a week for your entire life. If you have extra cash in a recession make a big move (odds are you'll chicken out).

Whats the point of all this analysis? How is it going to change anything in 99% of people's lives. It's a farce. Are you going to retire any earlier or have anymore money?

If you're not disciplined enough to actually invest a set amount regularly the answer is no. Your manipulating yourself.

How about I don a suit. Then you can pay me to manage your money buy-sell-buy-sell and in 50 years I'll be outperformed by a broad basket. You can pay me and still pay more for newspapers and cable tv shows. Devote time to it. And for what? Most of the growth is Facebook, Amazon, a few others. Take them out and your left with boring stuff.

I'm not some bull investor. Our economic system runs on debt. It's a Ponzi scheme. But unlessyour going to invest every cent into an off grid paradise you really have no choice but to play ball. In the event of a true collapse your money will be itchy toilet paper anyway.
 

Australia Sucks

Kingfisher
SamuelBRoberts I don't doubt your source and believe that the guy said what you claimed he did, I just happen to think he is more likely to be wrong than right, but only time will tell. The same thing applies to the boss of Louis Vuitton. Economic and market predictions are notoriously difficult even for the well connected, and yes I could easily be wrong also.

Just to make my point the famous activist investor billionaire Carl Icahn has been warning of an impending market crash (multiple times) since late 2015.

https://www.businessinsider.com.au/...that-they-helped-create-the-earnings-mirage-1

We all know how that call turned out.

RichieP Australia, Canada, etc do have growing private debt but its not yet at the level of hyperbolic growth that typically precedes a crash. Given how much control China exerts on their economy they can kick the proverbial can a long, long way down the road. Yes there will be an eventual China crash but the Chinese government has lot's of ammunition/levers to pull so its not happening any time soon.

Also Australia is not in a housing bubble. The two biggest cities Sydney and Melbourne are in a housing bubble. If you look at all the other capital cities the price increases over the past 10 years have been very modest. Also the affordability metrics in other cities are still good. Besides what is to say the Sydney and Melbourne bubbles cannot keep inflating? If you compare the prices in these cities to other global cities like London, San Francisco, or New York you will see that potentially prices could run a long way higher yet.

I mean look at the foreign currency reserves of China, their increasing gold holdings and look at the level of interest rates. The interest rates could be cut a lot further if needed for stimulus and currency could be weakened a little (not too much because that would cause a trade war). That's on top of spending stimulus the government could do.

I think 2019 or 2020 will be a mid cycle slowdown/correction rather than a fully fledged crash.
 
Australia Sucks said:
SamuelBRoberts I don't doubt your source and believe that the guy said what you claimed he did, I just happen to think he is more likely to be wrong than right, but only time will tell. The same thing applies to the boss of Louis Vuitton. Economic and market predictions are notoriously difficult even for the well connected, and yes I could easily be wrong also.
Thanks for responding in a rational and calm manner. It's appreciated.

If I could judge who was truly right here, I wouldn't be posting on this forum I would be getting blown by a supermodel on the deck of my flying yacht. But it seemed relevant and something I should pass along.
 
When I say that the economy is not cyclical, I mean that economic crises are not caused by fundamental economic reasons anymore. The first real economic recession happened in 1819 and the last one after WWII. The energy crises of 1970s, hyperinflation of 1980s, national currency failures of late 1990s, dotcom busts of 2000 and the housing crash of 2007-08 are nothing else but speculator shenanigans. These crises have nothing to do with real economic metrics. They are intentionally created artificial bubbles to transfer wealth from general population to certain conglomerates.

I was lucky to attend one of the "elite" business schools in the world and had the privilege of meeting the originators of the above-mentioned crises. My derivative trading professor invited his buddy, the CFO of Lehman Bros, to lecture us and she was boasting about 98-to-1 leverage at Lehman right before the financial crisis. This means that a mere 1 percent drop in value would have wiped all equity of the bank. I had a chance to personally ask questions to the infamous CFO of Enron, Andrew Fastow, and what I learned about these guys is that they don't give a flying fuck about anything. Current economic troubles are a result of pure negligence and/or calculated operations to reduce competition and concentrate industries.

Stock buybacks are the major driving force of the current bull market. That shenanigan has been going on for the last five years and companies bought back trillions of dollars of their own stock. Even though 2017 was less active in this regard before July, after the banks passed their stress tests they reversed the trend by buying back $93 billion of stock in a single day. This is an all time record. Read the article below.

Stock Buyback Bonanza

The price to earnings ratio adjusted for inflation and other factors is at an all time high of 27.1, higher than before the Great Depression.
 

Australia Sucks

Kingfisher
Speculator "professional" managers have never given a stuff about the consequences of their actions. This has been the case since the invention of the joint stock company. The invention of joint stock companies goes back possibly as far as 960 A.D.
https://en.wikipedia.org/wiki/Joint-stock_company#Early_joint-stock_companies

Of course once a joint stock company becomes large enough and "professional" managers are put in charge and get paid handsomely to take risks with other people's money they are going to take stupid risks or commit fraud because they benefit from the upside scenario while dodging the fallout of the downside. This has been going on for hundreds of years and way before even 1819! Just look at the South Sea bubble which occurred in the early 1700s.
https://en.wikipedia.org/wiki/South_Sea_Company

So your claim is misleading, yes these people are greedy, selfish psychopathic fucks with immense power but it sure as hell ain't a new phenomenon!

Adam Smith incorrectly theorized that "agency costs" and misaligned incentives would ultimately cause the demise of the "joint-stock company". His prediction has so far proved incorrect, despite the many frauds and stumbles which have occurred along the way. His an article talking about Adam Smith's views on joint stock companies.
http://www.slate.com/articles/business/the_dismal_science/2002/07/the_options_problem.html

There are many reasons why Adam Smith's prediction on this topic did not come to pass, but I don't think its relevant for me to explain them here.

As for the impact of stock buybacks I believe I covered that already in my previous posts on this thread. With the main arguments being that only a small proportion of E.P.S. growth is coming from stock buybacks and also companies that did not have any stock buybacks have outperformed (in terms of total return) the companies that did have buybacks. Yes buybacks might have an influence on the margins but it is hardly the primary driver. The primary drivers of the current bull market are record profits and low interest rates.

I believe the 27.1 times p.e. you are quoting is a Schiller p.e. (current price versus average of last ten years earnings). The p.e. based on trailing twelve months earnings is much lower. Yes, the stock market is overvalued but I think it will remain overvalued given that corporate earnings continue to march higher and interest rates continue to remain low (albeit rising from a low base). Typically a catalyst is needed to cause a market crash as overvaluation by itself is rarely enough to cause a crash. I just don't see a catalyst on the short-term horizon that is powerful enough to cause a crash.
 

Australia Sucks

Kingfisher
The S&P500 hit another all time new high this week. By the end of next week we will have a pretty good idea of the current earnings season reports for U.S. companies. By all accounts American companies generally will likely be posting higher earnings. Watch this space.

Weakness in housing starts in the U.S.A. (less new houses being built then expected) should continue to push house prices higher there.

https://www.cnbc.com/2017/06/16/us-housing-starts-may-2017.html

The above article talks about the recent slowdown in housing construction.
 

HOD

Woodpecker
Gold Member
crdr said:
This is pure speculation. No one on earth can predict the future.
Not true, the international banks can, i.e. IMF and the Oligarchs that control the international banking system can control the future not predict it:(
 

BB1

Robin
HOD said:
Not true, the international banks can, i.e. IMF and the Oligarchs that control the international banking system can control the future not predict it:(
:bullshit:


Read some of the books by Nassim Taleb.
 
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