Throughout 2017 and 2018, the Federal Reserve discussed a policy of raising interest rates, as they'd been at historically low levels for a historically unprecedented amount of time. Remember the correlation between interest rates for US Treasury securities and stock prices—the more you can make with safer investments (T-bills, bonds), the less attractive the risks of stocks are.
On October 31, Halloween, children and adults alike enjoy playing with the frightful themes of death surrounding the feast’s mixture of Christian All Saints’ Day and Celtic pagan origins. But, in 2017, if you are one of millions of people who have investments, here’s something all too real and scary to rob you of your sleep. This Warren Buffett Indicator predicts a stock market crash in 2018.
US data remains strong. Manufacturing conditions remained strong in the New York and Philadelphia regions and the Markit manufacturing PMI rose, the Conference Board’s leading indicator is continuing to rise, and jobless claims fell further. Housing-related data, like starts, permits and sales, doesn’t have a lot of momentum but it’s consistent with a flat/modest contribution to economic growth and at least it’s a long way from the pre-GFC housing boom that went bust.
The Housing Market Crash of 2007 was the worst housing crash in U.S. history. The Housing Market Crash of 2007 was the cause of the financial crisis. This nearly caused the U.S. to experience another depression like the Great Depression. There are a number of things we can look at to determine how the housing bubble occurred and what happened to cause the bubble to collapse.
To be clear, this isn't an exhaustive list of things that could potentially cause a stock market crash. And it's likely that more than one of these factors could combine to cause a crash. The 2008 crash, for one, was primarily caused by excessive speculation that caused a bubble in real estate prices, along with excessive leverage taken on by both consumers and financial institutions, as well as investor panic after banks started to fail.
On October 19th 1987, $500 billion in market capitalization was evaporated from the Dow Jones stock index. Markets in nearly every country around the world plunged in a similar fashion. When individual investors heard that a massive stock market crash was occurring, they rushed to call their brokers to sell their stocks. This was unsuccessful because each broker had many clients. Many people lost millions of dollars instantly. There are stories of some unstable individuals who had lost large amounts of money who went to their broker’s office with a gun and started shooting. A few brokers were killed despite the fact that they had no control over the market action. The majority of investors who were selling did not even know why they were selling except for the fact that “everyone else was selling.” This emotionally-charged behavior is one of the main reasons that the stock market crashed so dramatically. After the October 19th plunge, many futures and stock exchanges were shut down for a day.
Research at the Massachusetts Institute of Technology suggests that there is evidence the frequency of stock market crashes follows an inverse cubic power law. This and other studies such as Prof. Didier Sornette's work suggest that stock market crashes are a sign of self-organized criticality in financial markets. In 1963, Mandelbrot proposed that instead of following a strict random walk, stock price variations executed a Lévy flight. A Lévy flight is a random walk that is occasionally disrupted by large movements. In 1995, Rosario Mantegna and Gene Stanley analyzed a million records of the S&P 500 market index, calculating the returns over a five-year period. Researchers continue to study this theory, particularly using computer simulation of crowd behaviour, and the applicability of models to reproduce crash-like phenomena.
By the end of the weekend of November 11, the index stood at 228, a cumulative drop of 40% from the September high. The markets rallied in succeeding months, but it was a temporary recovery that led unsuspecting investors into further losses. The Dow Jones Industrial Average lost 89% of its value before finally bottoming out in July 1932. The crash was followed by the Great Depression, the worst economic crisis of modern times, which plagued the stock market and Wall Street throughout the 1930s.
Bond strategists have been warning that the second half of September could bring a slight jump in yields because pension funds have been loading up on Treasurys and other bonds before the Sept. 15 deadline for a change in tax laws for corporate sponsors of funds. They believe that buying has depressed yields, which move opposite prices, and the end of those purchases could send yields higher.
The affordability index continues to be stacked against potential home buyers. As housing and rental prices steadily increase, wages continue to stay relatively stagnant. Historically, the average income-to-housing cost ratio in the U.S. has hovered near 30 percent, but in some metro areas, that number is currently closer to 40 and even 50 percent! This strips away the opportunity to save money as a significant portion of a person’s monthly income is going to keeping a roof over their head.
In July 2008, the crisis threatened government-sponsored agencies Fannie Mae and Freddie Mac. They required a government bailout. The Treasury Department guaranteed $25 billion of their loans and bought shares of Fannie's and Freddie's stock. The Federal Housing Authority guaranteed $300 billion in new loans. On July 15, the Dow fell to 10,962.54. It rebounded and remained above 11,000 for the rest of the summer.
On October 29, William C. Durant joined with members of the Rockefeller family and other financial giants to buy large quantities of stocks to demonstrate to the public their confidence in the market, but their efforts failed to stop the large decline in prices. Due to the massive volume of stocks traded that day, the ticker did not stop running until about 7:45 p.m. The market had lost over $30 billion in the space of two days, including $14 billion on October 29 alone.
According to data from Equifax in August 2017, deep subprime auto loans -- i.e., loans with an origination VantageScore of 530 or less, on a scale of 300 to 850 -- have hit delinquency rates that hadn’t been seen since 2007. Interestingly enough, when examining the auto market as a whole, no red flags arise in terms of delinquency rates. But if you focus solely on subprime and deep subprime loans, they’ve been deteriorating of late.
Statistically, September is the worst month of the year for stocks, and while the S&P 500 is up about 8.5 percent so far this year, strategists say what's ahead this fall could challenge those gains, including the U.S. midterm elections. August is often wobbly too, but this year's 3 percent S&P gain was the best performance for the month in four years.
However, if China’s economy falters it might. Geopolitical turmoil concerning North Korea, Iran, Syria or Russia could also become a catalyst if things escalate enough. It’s most likely that the next market crash, whenever it occurs, will be the result of a perfect storm caused by several factors. But, since it’s not something anyone can predict, it’s best to concentrate on being prepared for a crash whenever it may occur.
Meanwhile, research and follow the companies on your list and get to know them well. Develop a strong understanding of just how they make their money, what their sustainable competitive advantages are, what their competition looks like, what their growth potential looks like, and how financially strong they are, such as in terms of cash and debt. When the market crashes, you'll be familiar with a bunch of companies and will have a sense of which are most compelling, growing most briskly and priced attractively. Monitoring your list regularly can help you notice when a company of interest, but not the overall market, falls in price significantly, presenting a possibly great buying opportunity.
I don’t know this much, if the grid is taken down, dileberately or not, once it goes down, it will trigger according to my scientits friend, The One Second After event. It will be like what i just posted. He said that this book, One second After is the actual research done on the effects of EMP and what to expect if the grid goes down. So we need to be ready. Any one without food and water is completely screwed. If the stock market is crashing right now, and we know it’s and engineered crahs involving Russia, China, and the US cabal, then we need to get ready.
That's bad news because a rise in global prices not only pushes up dollar demand by importers, which impacts the already-widening current account deficit, but also raises inflation concerns back home. Disappointing CAD data - predicted to deteriorate to 2.8 per cent this year from 1.9 per cent of GDP in FY18 - has been haunting Dalal Street for the past few weeks now.
The month began with more bad news. The Labor Department reported that the economy had lost a staggering 240,000 jobs in October. The AIG bailout grew to $150 billion. Treasury announced it was using part of the $700 billion bailouts to buy preferred stocks in the nations' banks. The Big Three automakers asked for a federal bailout. By November 20, 2008, the Dow had plummeted to 7,552.29, a new low. But the stock market crash of 2008 was not over yet.
Interesting points. To say a 2 billion dollar a day trade deficit is meaningless might be understating it. Running trade deficits every year is dangerous and leads to the recession you’re fearing. It’s the trade policies that make it happen. The global economy was highly dependent on US willing to run huge trade deficits and Europe and China are undergoing withdrawal problems.
A truly stunning result of these investigations is that the real-life frequency and size of market returns bear a notable resemblance to what is obtained by running very simple computer models. This also goes for earthquakes, solar flares, forest fires, and river floods: most of the simulations yield similar results to real life where events are frequent but small, but occasionally some gigantic one appears from nowhere.
The 1929 crash brought the Roaring Twenties to a halt. As tentatively expressed by economic historian Charles P. Kindleberger, in 1929, there was no lender of last resort effectively present, which, if it had existed and been properly exercised, would have been key in shortening the business slowdown that normally follows financial crises. The crash marked the beginning of widespread and long-lasting consequences for the United States. Historians still debate the question: did the 1929 Crash spark The Great Depression, or did it merely coincide with the bursting of a loose credit-inspired economic bubble? Only 16% of American households were invested in the stock market within the United States during the period leading up to the depression, suggesting that the crash carried somewhat less of a weight in causing the depression.
The absurd result of valuable stocks being executed for a penny likely was attributable to the use of a practice called "stub quoting." When a market order is submitted for a stock, if available liquidity has already been taken out, the market order will seek the next available liquidity, regardless of price. When a market maker’s liquidity has been exhausted, or if it is unwilling to provide liquidity, it may at that time submit what is called a stub quote—for example, an offer to buy a given stock at a penny. A stub quote is essentially a place holder quote because that quote would never—it is thought—be reached. When a market order is seeking liquidity and the only liquidity available is a penny-priced stub quote, the market order, by its terms, will execute against the stub quote. In this respect, automated trading systems will follow their coded logic regardless of outcome, while human involvement likely would have prevented these orders from executing at absurd prices. As noted below, we are reviewing the practice of displaying stub quotes that are never intended to be executed.
Rising bond yields: Given that equity markets typically share an inverse relationship with bond yields, the latter has been a cause for concern. India's 10-year bond yield is currently hovering above 8.18 per cent against the previous close of 8.11 per cent, and is up 84 basis points on a year-to-date basis. Moreover, higher yields expose the rupee and equities to dollar outflows.
The panic began again on Black Monday (October 28), with the market closing down 12.8 percent. On Black Tuesday (October 29) more than 16 million shares were traded. The Dow Jones Industrial Average lost another 12 percent and closed at 198—a drop of 183 points in less than two months. Prime securities tumbled like the issues of bogus gold mines. General Electric fell from 396 on September 3 to 210 on October 29. American Telephone and Telegraph dropped 100 points. DuPont fell from a summer high of 217 to 80, United States Steel from 261 to 166, Delaware and Hudson from 224 to 141, and Radio Corporation of America (RCA) common stock from 505 to 26. Political and financial leaders at first affected to treat the matter as a mere spasm in the market, vying with one another in reassuring statements. President Hoover and Treasury Secretary Andrew W. Mellon led the way with optimistic predictions that business was “fundamentally sound” and that a great revival of prosperity was “just around the corner.” Although the Dow Jones Industrial Average nearly reached the 300 mark again in 1930, it sank rapidly in May 1930. Another 20 years would pass before the Dow average regained enough momentum to surpass the 200-point level.
In Professor Sornette’s model, a bubble is a market heading to a critical point. But a crash is not the only possible post-crisis outcome: Prices can also stop rising and reach a higher plateau. It is precisely because of the small but real probability that a bubble will not crash but simply stop growing that it is rational for some investors to stay in the market, even when if they think that it has gone too far, too fast.
On Friday, September 19, the Dow ended the week at 11,388.44. It was only slightly below its Monday open of 11,416.37. The Fed established the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility. It loaned $122.8 billion to banks to buy commercial paper from money market funds. The Fed's announcement confirmed that credit markets were partially frozen and in panic mode.
Eighth, once a correction occurs, the risk of illiquidity and fire sales/undershooting will become more severe. There are reduced market-making and warehousing activities by broker-dealers. Excessive high-frequency/algorithmic trading will raise the likelihood of “flash crashes.” And fixed-income instruments have become more concentrated in open-ended exchange-traded and dedicated credit funds.
Ultimately, if there is a going to be a full-blown collapse of the stock market right now, we would need some sort of “kick off event” in order to make that happen. It would have to be something on the scale of another 9/11, the collapse of Lehman Brothers, an unprecedented natural disaster, the start of a major war or something else along those lines.
"They're going to stop putting money into the stock market by that same function, and you're getting into the end of the year," Ader said. Pension funds for the S&P 1500 are now funded at an average of 91 percent for the first time in years. As many funds are legacy funds, strategists expect them to reduce risk because they want to secure their funding levels.
The real estate market could collapse if banks and hedge funds returned to investing in risky financial products. These derivatives were a major cause of the financial crisis. Banks sliced up mortgages and resold them in mortgage-backed securities. These securities were a bigger business than the mortgages themselves. That's why banks sold mortgages to just about anyone. They needed them to support the derivatives. They sliced them up so that bad mortgages were hidden in bundles with good ones. Then when borrowers defaulted, all the derivatives were suspected of being bad.
It truly does appear that the elements for a “perfect storm” are beginning to come together. We have been enjoying a period of relative stability for so long that many Americans have allowed themselves to become lulled into a state of complacency. That is a huge mistake, because all along we have been steamrolling toward disaster, and nothing has been done to alter our course.
So, when will the stock market crash again? There is no way to accurately predict a bear market. The FAANG stocks (Facebook, Apple, Amazon, Netflix and Google) have led the bull market over the last 9 years. If these stocks fail to keep their earnings momentum going, investors may lose confidence in the market. So far only Facebook and Netflix have disappointed investors, while Apple remains as strong as ever.
Maybe Coca-Cola announced record earnings. Maybe it's the middle of the month, and your 401(k) contribution has just come out of your paycheck, so you automatically bought a fund or individual stocks. Maybe you've just retired, and you'd like to take 40 years of profits to pay off your mortgage, so you're selling some stocks. Maybe a stock hasn't gone anywhere for you, and you don't mind taking a little loss for the tax break. Maybe you found a bargain and you just can't wait to snap up a few shares. Maybe it's a stock bubble or stock valuations are running high.
India as we know is importer of Crude oil(Petrol, diesel). One of biggest country that supply crude to India is Iran . United States had put a lot of sanctions on Iran owing which India is facing difficulty in procuring crude from Iran. Since the demand of crude is intact and supply has been reduced globally , the price of brent crude has sky rocketed touching 80$ per barrel.
Till August 1987 markets were favorable. In fact, as per the records of 25th August 1987, the Dow was of a 2722.44, which was almost a record hike. But after that, it only started to depreciate. An 8.4% drop was recorded on September 22nd, 1987. But then there was an increase of Dow again. A 5.9% increase was recorded on the 2nd of October 1987. But that was only for the time being. Once again the Dow started to fall and by October 19th the market had badly crashed; so much so that the Dow had dropped to 508. That would be almost a 22.6% drop on that single day. And if the drop had to be measured from the peak on 25th August, it was a whopping 36.7%. October 19th has since been referred to as the Black Monday.
Trying to time a market crash or correction is pretty much impossible, and trying to estimate how much will be lost in that crash is even more difficult. If you had listened to David Haggith’s doom and gloom warnings back in 2012, you would have missed out on one of the greatest bull runs in history. You also have to realise that permabear “experts” such as Marc Faber exist and that they will constantly make predictions about how the next big market crash is just seconds away. To sum it up: Nobody really knows when it’s going to happen or if it’s worth staying on the sidelines while the market continues to grow upwards. Well, everyone except me of course. I’m 100% certain that a market crash is going to happen in 2018.