patrick.net

prodigy says

Before, during, or after the correction, or a combination thereof?

smaulgld says

What will you do if the stock market corrects 20%

The poll question in the blog post is after a 20% correction but answer however you wish

http://smaulgld.com/what-happens-after-the-next-stock-market-crash-poll/

Stock market crash means RE prices has to go up!

bubblesitter says

Stock market crash means RE prices has to go up!

we learned that here from the gurus and oracles

UPDATE:

If the stock market corrects more than 20% will you:

invest in the stock market 18.61% (43 votes)

remain in cash 14.72% (34 votes)

buy gold or silver 41.13% (95 votes)

buy real estate 15.15% (35 votes)

buy treasury bonds 0.43% (1 votes)

buy foreign currencies 2.16% (5 votes)

buy crypto currencies like bitcoin or litecoin 7.79% (18 votes)

Total Votes: 231

Other countries like Belgium are picking up the slack from China to buy US Treasuries. A reduction of QE will not lead to the requirement to raise US Treasury rates in order to make them attractive. There will be foreign and domestic buyers for them.

The NY Times reports that the Defense Dept is cutting back like reducing the size of the US Army. Anticipate that the federal budget will be held in check as a percentage of GDP. The amount of US Treasuries issued will be lower as the deficit is reduced. Hence, lower and lower deficits should continue to keep interest rates low.

Per multpl.com the S&P 500's Shiller PE ratio is around 25 and near the same level it was at back in 2008. The same holds true for Warren Buffet's Total Market Cap vs GDP ratio (i.e., 115% currently with anything below 110 is normal or undervalued).

The natural gas and oil boom should help to keep inflation in check.

It is a good idea to hedge with 10 to 25% of your savings in real assets such as real property and precious metals. Vanguard Precious Metals Fund is a good holding to provide you the precious metals exposure.

Wake up and drink a beer

Oh, just watch and wait while our "government" bails out its bosses.

adarmiento says

Other countries like Belgium are picking up the slack from China to buy US Treasuries. A reduction of QE will not lead to the requirement to raise US Treasury rates in order to make them attractive. There will be foreign and domestic buyers for them.

I saw that Belgium!

Comparisons to 1987 persist

http://finance.yahoo.com/blogs/breakout/dow-hits-record-as-1987-crash-comparisons-continue-143945083.html

Just going by P/E ratio (trailing 12 months), the P/E ratio is around 18.6. Which is not that terrible considering the ratio's value back in 2000 and 2008. See : http://www.multpl.com/

Also consider the S&P 500 is currently 20% above the early 2000 peak. So the market has only appreciated about 1.5% annually from 2000 to present day :-(

Seems like because of this lackluster performance, there is more potential for the market to outperform its 2000 to 2014 record.

adarmiento says

Just going by P/E ratio (trailing 12 months), the P/E ratio is around 18.6. Which is not that terrible considering the ratio's value back in 2000 and 2008. See :

There are plenty of distortions in the market now as their were in 2000. A large number of companies with no earning and multi billion dollar market caps.

Also the PE's are skewed because many companies have engaged in share buybacks lowering their share floats making the earnings per share look better.

Finally, earnings growth is face out pacing revenue growth which means companies are getting earnings growth from share buybacks, and operational efficiencies like firing workings or moving them to part time.

Laugh. I'm pretty much out of the market. And I'm debt free and have money in the bank.

jvolstad says

Laugh. I'm pretty much out of the market. And I'm debt free and have money in the bank.

The worry with money in the bank is if the bank fails you may be required to help bail in the bank.

http://dollarvigilante.com/blog/2013/11/04/plans-in-place-for-a-us-bank-bail-in.html

http://www.zerohedge.com/contributed/2013-12-11/part-vi-how-likely-are-bail-ins-bank-england-says-us-%E2%80%9Ccould-do-today%E2%80%9D

The solution to all the bank problems: Print.

http://www.youtube.com/embed/-yblvWycttA

Poll results to date:

There are still 1/4 brave souls who will put money back into the market:

What will you do if the stock market crashes?

invest in the stock market 25.07% (91 votes)

remain in cash 12.67% (46 votes)

buy gold or silver 40.22% (146 votes)

buy real estate 13.22% (48 votes)

buy treasury bonds 0.83% (3 votes)

buy foreign currencies 1.93% (7 votes)

buy crypto currencies like bitcoin or litecoin 6% (22 votes)

Total Votes: 363

smaulgld says

What will you do if the stock market crashes?

I'm prepared.

Vicente says

I'm prepared.

I understand that Realtor's make for good fertilizer.

Current P/E ratios are not high. So a sell off based upon fundamentals seems unlikely. A sell off based upon the need to raise cash is another scenario. Like in the recent financial meltdown. So a crash of the derivatives market, a crash of RE, any type of crash where equities have to be unloaded could cause a stock market crash. But based upon P/E, I wouldn't say equities are overvalued. I haven't factored in share buy backs.

Blurtman says

Current P/E ratios are not high.

P/E are at the high end but not exorbitant but as mentioned above much of that is due not to revenue growth but rather the relatively high PE's are a result of share buy backs bough with QE low interest money to window dress and by cutting expenses and not paying raises.
Profits are set to fall.

smaulgld says

late 60's and early 70's it didn't make sense to hold stocks

'60s and 70s people had no money to invest... stagflation of the 70s
left no money to save...if you had a job. Many didnt.

The flip side, was there was no growth in the economy.

thomaswong.1986 says

'60s and 70s people had no money to invest... stagflation of the 70s

left no money to save...if you had a job. Many didnt.

The flip side, was there was no growth in the economy.

and the reason the stock market was stagnant was because of a sluggish economy and NO FED intervention in the form of zero interest rates and $4 trillion in QE

The US economy according to the way they US calculates GDP grew about $1 trillion from 2009 -2013 -the Fed printed $4 trillion. good deal?

smaulgld says

There are plenty of distortions in the market now as their were in 2000. A large number of companies with no earning and multi billion dollar market caps.

Also the PE's are skewed because many companies have engaged in share buybacks lowering their share floats making the earnings per share look better

Very true. Yet the distortions in prior decades up to 2000 didnt exist.

smaulgld says

thomaswong.1986 says

'60s and 70s people had no money to invest... stagflation of the 70s

left no money to save...if you had a job. Many didnt.

The flip side, was there was no growth in the economy.

and the reason the stock market was stagnant was because of a sluggish economy and NO FED intervention in the form of zero interest rates and $4 trillion in QE

The US economy according to the way they US calculates GDP grew about $1 trillion from 2009 -2013 -the Fed printed $4 trillion. good deal?

I've always been intrigued by measurements of economic output. Recent past fraudulent financial transactions grew GDP, but once the fraud was exposed, nobody went back and corrected the GDP metric. And so the Fed can grow GDP through the low interest rate provision of cheap money, fueling the buying and selling of assets, for example. But does that really add anything real to the economy.

Blurtman says

I've always been intrigued by measurements of economic output. Recent past fraudulent financial transactions grew GDP, but once the fraud was exposed, nobody went back and corrected the GDP metric.

They count medical costs and energy costs as part of the GDP so if we are sick and cold and the price of healthcare services, electricity and heating oil rise, GDP rises even though our quality of economic life has gone done.

smaulgld says

Blurtman says

Current P/E ratios are not high.

P/E are at the high end but not exorbitant but as mentioned above much of that is due not to revenue growth but rather the relatively high PE's are a result of share buy backs bough with QE low interest money to window dress and by cutting expenses and not paying raises.
Profits are set to fall.

I would wager that most on Wall Street believe the current market would not be nearly as high without the Fed injection. Do you really think this is fueled by organic earnings and revenue growth?

Analyzer says

Do you really think this is fueled by organic earnings and revenue growth?

not much revenue growth, earnings growth is partially a function of companies buying back their own shares with their cash as they have not use for it to grow their business because the demand is not there. Some companies go one step further and borrow at low rates to buy back their shares to boost earnings per share by reducing the number of shares they have outstanding.

So no there is no revenue growth to justify the current high level of the stock market -pull QE, rates rise and we'll see the real economy a negative growth deflationary one. But the fed won't let that happen they will come up with some other reason to continue money printing even if they don't call it QE

smaulgld says

There are plenty of distortions in the market now as their were in 2000. A large number of companies with no earning and multi billion dollar market caps.

Also the PE's are skewed because many companies have engaged in share buybacks lowering their share floats making the earnings per share look better.

Finally, earnings growth is face out pacing revenue growth which means companies are getting earnings growth from share buybacks, and operational efficiencies like firing workings or moving them to part time.

I agree about the buyback, which means less outstanding shares and therefore there are more earnings per share.
source: http://www.businessinsider.com/sp-500-stock-buyback-history-2014-4

You could compare earnings growth to sales or revenues growth.

http://www.multpl.com/s-p-500-sales-growth

or

http://www.multpl.com/s-p-500-real-sales-growth

Another factor to consider are that interest rates are a lot lower now then they were before the stock market run ups in the late 1990's and in the mid 2000's. The Federal Reserve monetary policies lower the interest payments on corporate debts, and thereby increase their earnings.

I heard about 6 months ago on CNBC that many experts believe that 50% of the stock market gains were due to Federal Reserve policies.

We need to see revenue growth, which means more jobs growth. From what I've read, there has been an uptick in income growth. Some or a lot of that of course is due to capital gains and dividends.

adarmiento says

Another factor to consider are that interest rates are a lot lower now then they were before the stock market run ups in the late 1990's and in the mid 2000's. The Federal Reserve monetary policies lower the interest payments on corporate debts, and thereby increase their earnings.

Good points all which highlight that the Fed helped orchestrate an environment to boost stock prices not the economy

adarmiento says

I heard about 6 months ago on CNBC that many experts believe that 50% of the stock market gains were due to Federal Reserve policies.

We need to see revenue growth, which means more jobs growth. From what I've read, there has been an uptick in income growth. Some or a lot of that of course is due to capital gains and dividends.

Correct />
Jobs dont come from rising stock prices or rising home prices

smaulgld says

Correcf

Jobs dont come from rising stock prices or rising home prices

Sustainable jobs do not come from stock market gains or rising home prices. Short term jobs do. I have seen a major uptick of contractor home repair contracts about 10 years ago due to people using borrowed money from home equity loans.

adarmiento says

Sustainable jobs do not come from stock market gains or rising home prices. Short term jobs do. I have seen a major uptick of contractor home repair contracts about 10 years ago due to people using borrowed money from home equity loans.

Great point. QE provides temporary stimulus

smaulgld says

Great point. QE provides temporary stimulus

I think because of globalization and automation that the nature of our economy's survival is based on a speculative bubble cycle spurred by Federal Reserve policies.

smaulgld says

Good points all which highlight that the Fed helped orchestrate an environment to boost stock prices not the economy

Well it's just trickle down. It only stands to reason if you make rich people richer, that they will hire and pay their people better, that the money will flow into the economy and help everyone. Bottomless tax cuts, subsidies to corporations, or ZIRP from the Fed are all pretty much resulting in the same thing. If you don't like trickle down you must be a Socialist.

Crash? No. Correction of 10% to 15% is long overdue. Too many are waiting for the correction, so it can only happen when the early birds jump back in. Like what Isaac Newton did.

Vicente says

smaulgld says

Good points all which highlight that the Fed helped orchestrate an environment to boost stock prices not the economy

Well it's just trickle down. It only stands to reason if you make rich people richer, that they will hire and pay their people better, that the money will flow into the economy and help everyone. Bottomless tax cuts, subsidies to corporations, or ZIRP from the Fed are all pretty much resulting in the same thing. If you don't like trickle down you must be a Socialist.

Seems to be a contradiction- In general Democrats dislike trickle down policies and Republicans favor them. Yet when it comes to the Fed Democrats support Fed policies and Republicans oppose them. Perhaps it's because Democrats get more of their campaign money from the big banks?

jvolstad says

Laugh. I'm pretty much out of the market. And I'm debt free and have money in the bank.

Video on depositor bailins

http://youtu.be/XSb9VzNjQgE

smaulgld says

Yet when it comes to the Fed Democrats support Fed policies and Republicans oppose them.

Remind me how Republicans voted as a block against bailout? Oh right, they didn't. Because when the SHTF, they are country club socialists with a bunch of empty rhetoric and hot air to try and convince their moronic followers otherwise. GOP takes trickle down as axiomatic despite facts, it is just INCONVENIENT for them that this instance of trickle down is implemented via Fed instead of their usual special favors to Richie Rich. Perhaps a little bit of it is territorial jealousy, oh it's OUR job to make FIRE wealthier, if we aren't doing the handouts directly we don't get enough credit.

Vicente says

Remind me how Republicans voted as a block against bailout? Oh right, they didn't. Because when the SHTF, they are country club socialists with a bunch of empty rhetoric and hot air to try and convince their moronic followers otherwise. GOP takes trickle down as axiomatic despite facts, it is just INCONVENIENT for them that this instance of trickle down is implemented via Fed instead of their usual special favors to Richie Rich. Perhaps a little bit of it is territorial jealousy, oh it's OUR job to make FIRE wealthier, if we aren't doing the handouts directly we don't get enough credit.

Exactly they talk a big game but do nothing. Both parties are serving wealthy interests, the only difference is Democrats pay some attention to the less fortunate (while screwing them too!)