Sixth, Europe, too, will experience slower growth, owing to monetary-policy tightening and trade frictions. Moreover, populist policies in countries such as Italy may lead to an unsustainable debt dynamic within the eurozone. The still-unresolved “doom loop” between governments and banks holding public debt will amplify the existential problems of an incomplete monetary union with inadequate risk-sharing. Under these conditions, another global downturn could prompt Italy and other countries to exit the eurozone altogether.
Harris said the markets are also watching the progress of the U.K.'s pending exit from the European Union next March. On Sept. 30, the U.K. conservative party conference begins, and its tone could influence the course of Brexit talks. He said it would take a big shock from Europe to affect the U.S. Failure by the U.K. to reach a Brexit deal could be such an event.
Since traditional statistical methods are perhaps less appropriate for extreme markets, other paths of examination may be more fruitful. For example the Santa Fe Institute is examining links between different disciplines. Potentially a market crash may have more in common with a growing pile of sand, than how the same market performs outside of a crash environment. When a grain of sand is added to an existing pile so the pile grows ever higher. Most of the time, one more grain will cause the pile to grow in height by a just fraction. However, at other times the addition of a single grain will lead to a collapse and in turn that collapse may be small, large or potentially even massive. Some researchers believe that better understanding these sorts of events hold the key for a better understanding of extreme market events, because today many traditional models simply fail to hold up.
"American business will do fine over time. And stocks will do well just as certainly, since their fate is tied to business performance. Periodic setbacks will occur, yes, but investors and managers are in a game that is heavily stacked in their favor. (The Dow Jones Industrials advanced from 66 to 11,497 in the 20th Century, a staggering 17,320% increase that materialized despite four costly wars, a Great Depression and many recessions. And don't forget that shareholders received substantial dividends throughout the century as well.)"
Thank you Andrea, you’re welcome! Amazing, and a beautfiul area to live. I’d like to drill down into all the LA communities. Incredible that your home appreciated that much over 2 years. Could you get a quote on the rental income upgrade and compare ROI? Are there local restrictions? I think selling is the right move for most, even if you don’t have an idea of where to move to right now. I guess it depends on your financial status and whether you need your jobs and whether you can take a sabbatical. If you hold on for the time it takes to the convert the garage, you could earn another 100k? The demand for rentals is expected to persist. A lot of buyers will like that separate living space even if they don’t rent it out. Are the rentals you could live with reasonably priced in your area of South Bay or will you have to do the long commute?
It is believed that Khashoggi was dismembered after being abducted by the Saudis, and all of the major western powers have expressed major concern about his fate. But the Saudis insist that they didn’t have anything to do with his disappearance, and they are threatening “greater action” if any sanctions are imposed upon them. The following comes from USA Today…
The last week of January 2018 and the first week of February 2018, the Dow Jones dropped several hundred points. It looks to close out February 2 down hundreds of points, with other indexes (S&P 500, NASDAQ) to follow. While this may seem like a crisis, it is more than likely to reflect short-term investors taking their profits (in the long run up to this point) and shuffling them to other types of investments to prepare for improved bond yields.
This sluggish growth and a near 30% plunge in Shanghai shares prompted swift action from the Chinese government, which announced plans to cut personal income taxes and cut the Reserve Requirement Ratio for the fourth time to encourage more leverage on top of the debt-disabled economy. The government has even bought ETF’s to prop of the sinking Chinese stock market. As a result, shares recently surged 4% in one day. However, more than half of those gains were quickly reversed the following day as investors took a sober look at whether the Chinese government is starting to lose its grip on the economy.
The rising share prices encouraged more people to invest, hoping the share prices would rise further. Speculation thus fueled further rises and created an economic bubble. Because of margin buying, investors stood to lose large sums of money if the market turned down—or even failed to advance quickly enough. The average P/E (price to earnings) ratio of S&P Composite stocks was 32.6 in September 1929, clearly above historical norms. According to economist John Kenneth Galbraith, this exuberance also resulted in a large number of people placing their savings and money in leverage investment products like Goldman Sachs' "Blue Ridge trust" and "Shenandoah trust". These too crashed in 1929, resulting in losses to banks of $475 billion 2010 dollars ($533.06 billion in 2017).
Whereas London was once the financial capital of western Europe, it remains to be seen if it will continue to be the financial capital of the European Union. Hence the drop in the value of the pound. Hence economic uncertainty for all companies which do business in the UK or the rest of the Continent. Will the UK fall into a recession? How will that affect global demand?
It's true that higher interest rates preceded the housing collapse in 2006. But that's because of the many borrowers who had interest-only loans and adjustable-rate mortgages. Unlike a conventional loan, the interest rates rise along with the fed funds rate. Many also had introductory teaser rates that reset after three years. When the Federal Reserve raised rates at the same time they reset, borrowers found they could no longer afford the payments. Home prices fell at the same time, so these mortgage-holders couldn't make the payments or sell the house.
Mathematicians have studied housing bubbles, such as The University of Pennsylvania, and their HOUSING BUBBLE STRUCTURAL MODEL AND HYPOTHESES models couldn’t figure it out. The factors they studied do play a role, but housing bubbles and crashes are likely a cultural phenomenon (outside of major recessions). It comes down to values, attitudes, dreams and panic emotions.
In 2014, Henry Blodget wrote that stocks were 40% overvalued and that he couldn’t find any data to suggest that the market would continue rising. Although he didn’t state that a crash was coming, he did tell us that stocks were likely to give “lousy returns” over the next ten years. He also concluded his article with some technical analysis from John Hussman, which cautioned that the S&P 500 could collapse after it reached 1,900.