The turbulence of the election, rising interest rates against overheated housing markets does give some plausibility to a US housing crash in 2018 or 2019. Proponents of an upcoming crash point to too many Americans living lavish lifestyles, still buying expensive foreign luxury cars on a $40,000 salary, while sitting on over-leveraged monster mortgages that could be subject to quickly rising mortgage rates.
Unemployment is near record lows. Corporations are bringing money from offshore accounts back into the U.S. Technology is driving thousands of new innovations. Of course, none of these conditions for prosperity will last forever, and there's certainly pockets of the U.S. still experiencing job loss and poverty. I loath being a cheerleader for stocks or the economy, but it's not as bad as it seems.
You Marxist piece of shit. What the hell do you think the entire banking industry is based on. Should we throw our money at each other, hoping someone else reciprocates so we don’t have to eat discarded baby fetus? Interest is necessary to compensate for risk, which you would have known if you took your head out of Hegel’s ass and learned some basic financial theory. These subprime loans were the riskiest fucking things on the market, but they were rated AAA. Don’t fucking crucify bankers for being goddamn rational human beings while you complain about society passing you goodbye. Get off the fucking Communist high road and realize some shit about the world and how it works.
"I've been in retailing 30 years and I have never seen any category of goods get on a self-destruct pattern like this", a Service Merchandise executive told The New York Times in June 1983. The price war was so severe that in September Coleco CEO Arnold Greenberg welcomed rumors of an IBM 'Peanut' home computer because "IBM is a company that knows how to make money". "I look back a year or two in the videogame field, or the home-computer field", Greenberg added, "how much better everyone was, when most people were making money, rather than very few". Companies reduced production in the middle of the year because of weak demand even as prices remained low, causing shortages as sales suddenly rose during the Christmas season; only the Commodore 64 was widely available, with an estimated more than 500,000 computers sold during Christmas. The 99/4A was such a disaster for TI, that the company's stock immediately rose by 25% after the company discontinued it and exited the home-computer market in late 1983. JC Penney announced in December 1983 that it would soon no longer sell home computers, because of the combination of low supply and low prices.
Real Wealth Strategist is an investment newsletter. Matt Badiali’s work has taken him to Papua New Guinea, Iraq, Hong Kong, Singapore, Haiti, Turkey, Switzerland and many other locations around the world. He’s visited countless mines and oil wells internationally, interrogated CEOs about their latest resource prospects and analyzed all manners of geologic data. Matt believes the best way to be sure if an investment is safe (and correctly made) is to see it in person.
People who were caught in the 2008 crash are spooked that a 2018 bubble will lead to another crash. But that crash was caused by forces that are no longer present. Credit default swaps insured derivatives such as mortgage-backed securities. Hedge fund managers created a huge demand for these supposedly risk-free securities. That created demand for the mortgages that backed them.
On September 20, the London Stock Exchange crashed when top British investor Clarence Hatry and many of his associates were jailed for fraud and forgery. The London crash greatly weakened the optimism of American investment in markets overseas. In the days leading up to the crash, the market was severely unstable. Periods of selling and high volumes were interspersed with brief periods of rising prices and recovery.
Our tail-hedged portfolio consists of S&P 500 and out-of-the-money put options (specifically one delta which has a strike roughly 30% to 35% below spot) on the S&P 500. At the beginning of every calendar month, using actual option prices, the number of third-month options (with a maturity from 11 to 12 weeks, and also carrying over the payoff from unexpired options) is determined such that the tail-hedged portfolio breaks even for a down 20% move in the S&P 500 over a month. From practice, for scaling the payoff, we can safely assume the S&P 500 options’ implied volatility, or IVol, surface would look similar to the one observed after the lows of the October 2002 crash.
You’re correct – some are predicting a blood bath – but they have been doing so for years. And I agree some segments of the Sydney property market will fall more than 20% – especially all those new apartments many of which were sold to unsuspecting investors. I’ve read the sources you’ve quoted and I’ve also read the comments from DR Phil Lowe – our RBA Governor – I don’t think he’s a fool – I’ll listen to him
Though we don't know what will motivate a future market crash, it's likely to be something that will ultimately be recovered from if history is any guide. The economy and society are very flexible. Industries, and even countries, can rise and fall over time, but if you have a global, well-diversified and lower cost portfolio, then you should be well-positioned. This is an area where diversification helps. If you spread your bets it will likely help. You'll probably find that the next crisis centers on a specific country, part of the globe or investment theme. If you've spread your bets through diversification, then you'll undoubtedly have some assets that fall in value, perhaps alarmingly, but often certain assets can do well during certain crises such as high-quality bonds, more defensive or inexpensive parts of the stock market, or commodities including gold.