When is the sky going to fall?

I have read countless predictions of how and when the stocks are going to fall after the six-year upwards run. But I am beginning to think the stopped clock is about to be right for once. No idea what the catalyst would be, but I’d guess either a Fed rate hike or a Grexit.

Feds have signalled again and again that they would raise rates, but wouldn’t you know, somehow at the last minute they never do. So an actual hike would carry somewhat of a surprise element.

Grexit (will they won’t they) is somewhat of a similar story. Markets are getting more and more complacent that Greece won’t exit the Euro, so an exit and then a debt default (almost mandatory, they have severe cashflow problems) would be enough to trigger a panic.

As opposed to all this, leverage seems to be much less than in 2008-9 but we’ll know which hedge funds are swimming naked only when the tide goes out.


nothing will happen until inflation shows it’s head. I bet that is at least 5yrs away, maybe even longer.

greek has a long history of defaulting, nothing new there, don’t expect any resolution _ever_.

this does not mean volatility will go away, or carry trades dont blow up, or an asian currency crises, but i think interest rates aint gonna move for a long while.

Agree it could blow up.

But it could still go on for years as well.

What worries me is the slowdown in US corporate earnings.

EPS decline is especially concerning considering all of the share buybacks… Current Shiller PE is at 27, well above the average of 16-17. I can’t imagine what it would be if companies weren’t able to borrow so cheaply to buy back their shares…

Well it’s no secret that share buybacks have been fueling valuations in the US.

They are starting it in Europe now. cool

My personal view is that there is a crisis coming and Japan and China will play a major roll. My view is also that this crisis is going to develop very slowly, with a gradual global descent of growth, then very quickly. I don’t think it will be a rapid purely credit driven crash, but rather a slow fading of demand from maxed consumers. Timing is a bit open ended, I would approach this one by remaining invested but with flexibility and an eye on the horizon.

^no way, with all respect of course, human nature is to always want more. imo, no such thing as being maxed out. more money you have more money you spend. Credit is juss the means to stretch are limits. I think it was bernank who said something that every crisis starts with a credit crash.ray dalio made a video confirming it too. powerful words really.

even bush knows this, as he was quoted as saying, "“If money isn’t loosened up, this sucker could go down,” haha best quote ever.

Well there’s a point where lending restrictions put in place may act as a cap. I put a post on here about a month ago showing the real state of household leverage in the US, it’s not encouraging.

Agree on the demand point. There are billions of people who don’t even have a fraction of the lifestyle we enjoy here. As long as each generation continues to want their kids to have a better life than they did themselves, I can’t help but think that pushes up markets in the longrun. We’ll have plenty of downturns, recessions, corrections, maybe even a crash or two, but in the long-run the direction is up.

For what it’s worth, I think the issue that will lead to the correction in this market is all the US denominated debt that many foreign countries have been issuing. If the USD continues to rise, these obligations will get harder and harder to pay

Bernanke is actually right for once. Ray’s video is subpar.

This is just my opinion but I think all the above listed reasons are widely watched, talked about and most likely hedged in some form.

What’s not being widely spoken about is the severity of the drought the Western United States is expericing and its potential ability to bring the US economy to its knees. I think Agriculture is going to be punched in the face this summer, barring some dramatic rainfall in May. The fallout is going to be unexpected and that’s when the “sky will fall”

Lots of good predictions, we’re gonna check on these in Aug

bernanke working for pimco

Eps beats so far this quarter have been ok but revenue beats have been elusive. Top line growth harder to fudge with accounting tricks. Speaks to the weakness of the us consumer, who is 70% of the economy. Stagnant wages and over leveraged still. We are living in a world of excess supply. Also recent estimates of Chinese growth are around 3.5% instead of the 7% reported. Huge credit issues over there as well.

The second half of this year seems like a good time. The whole world wants to know what happens when you exit QE and raise rates. Now we get to find out!

Minor correction - likely lead by events unfolding in Europe and a Grexit if those big debt repayments in July aren’t rescued again by the powers that be. Given the ECB et al. have been looking at this and the situation is getting more and more acrimonious, I can see a Greek default soon. This is driven by politics not sensible economic policy - the great fallacy of the EUro itself.

The “fall from the sky” - China. What’s happening to that stock market is taking “defying the fundamentals” to a whole other level. Debt also appears to be an issue and the signs of a property bubble are quite literally there for all to see. Reminds me of Dubai pre GFC in this regard. It’s just not sustainable. Also, the lack of liquidity in the global fixed income market looks problematic and will likely rear it’s ugly head when interest rates rise.

Jealous you didn’t get in when I called it in Nov?

Just because it went from being crazy undervalued, to a higher valuation, does not mean it is overvalued. When it hits 40X perhaps we can talk.

I don’t know if we should go around shorting China just yet. They still have so many safety nets in place. Their QE is far from where the US or EU have implemented. Their population savings rate is 50% - so in a downturn, the Chinese can tap into this for consumer spending or home purchases. Their economy is still, for the most part, controlled by the government. They might decide to liberalize some economic policy and have significant economic gains as a result.

Of course, their country is not very transparent. It could turn out that their growth has all been a lie, their population all has AIDS, or something else like that.

Yeah, Ohai nailed it.

Also the A-share market is driven by the unsophisticated investors. Any short should NOT be based on fundamentals (because they do not care about fundamentals), but on expectations of what these retail investors will do. And to do that you have to understand the Chinese.

Remember, they just came flying out of other assets classes, back into stocks…that’s what put the valulations back up (and leverage, which is here to stay). They aren’t just going to empty their broker account and run back to…what? Real estate? Naw. They may panic and sell, but after that happens, they still have to put their money somewhere. The most likely place being…back into stocks!