Markets might drop by 50%?

[Avorysuds]

What do you markets guys think of this story?

Price to earnings ratios suggest that stock markets are overvalued and in need of price adjustment, say GMO's Jeremy Grantham and James Montier.

I'm not big on the stock market. I feel I understand the FED's role in creating bubbles but past that I don't do anything in stocks.

I'm not ready for another recession =( If that's what happens...

 

[saveliberty]

50% would be a depression, so you don't have to worry about a recession.

Realistically, I'd say a 20% correction is on the horizon. Most of the money in the market is insitutional money, so they'll take the hit and government always bails them out. The big losers? Your retirement fund, if you leave it in too long.

 

[Moonglow]

Markets might drop by 50%?

Repeat something daily for 6 years and one day it might come true...

 

[saveliberty]

Corrections usually are closer together than this Moonglow. The longer it takes, the more likely it will be bubble-like. Meaning much bigger and longer lasting. Of course government will bailout the banks, AGAIN. Only the little guy with his retirement account gets burned.

 

[Moonglow]

It's normal for a summer market and Buffett was being shadowed....The dump on thursday was due to profit taking...and QE assumptions based on speculation of the labor report...and pork bellies are rising due to the diarrhea virus destroying pig herds....

 

[Delta4Embassy]

50% would be a depression, so you don't have to worry about a recession.

Realistically, I'd say a 20% correction is on the horizon. Most of the money in the market is insitutional money, so they'll take the hit and government always bails them out. The big losers? Your retirement fund, if you leave it in too long.

Heard someone on CNBC the other day when down over 300 ask if this might be a 10% correction. That'd be about 1700 pts. Down like 700 from max atm I believe. 50% seems unrealistic though.

 

[eagle1462010]

The Feds just cut asset buying by 10 Billion a month. Down to 26 BILLION a month from 80 Billion a month.

The Feds are slicing their FIAT Machine. Interest rates from the Discount window remain at .25% as they have been since the crash.

As is borrowing on a monumental scale.

 

[Toro]

Perhaps but unlikely. 50% corrections are very rare. I think there have only ever been three.

More likely, we will have a 20% to 30% correction and substandard returns over the next decade.

But maybe I'm wrong. I like GMO.

 

[Toro]

BTW the graph is a little deceptive. The first 40%+ decline was after the Tech bubble. The second was after the Housing bubble. Even though stocks and other assets are expensive, we don't have the same excesses we had over the past few decades. At least not yet.

 

[Dont Taz Me Bro]

I believe the market is overvalued, but a 50% drop is highly unlikely. I'd be more concerned with the stability of the dollar.

 

[LoneLaugher]

......and........they might not.

If you know for sure......let me know.

 

[JakeStarkey]

I expect a 15 to 25% correction later in the year, but no more.

 

[rightwinger]

Let it drop 50%

I'm ready to buy in at that level

 

[JakeStarkey]

Just so.

 

[eagle1462010]

Let it drop 50%

I'm ready to buy in at that level

And to hell with all those who get hosed in the process with that kind of a drop. A correction is coming, and people in this country are going to pay a price for it. In the lose of jobs and losing homes again.

To those who get toasted in the next crash, like the Big 4, they need their assets seized and put out of business. Thus, ending the BS Too Big to Fail.

 

[william the wie]

BTW the graph is a little deceptive. The first 40%+ decline was after the Tech bubble. The second was after the Housing bubble. Even though stocks and other assets are expensive, we don't have the same excesses we had over the past few decades. At least not yet.

Also too many people are calling for a correction. Marketwatch has had two explanations this week of why the market will crash. Since I write puts I almost always have an S&P put but its been a while since I bought an S&P call to lock in profits.

 

[Zander]

A 50% drop would not surprise me. The stock market is not rational or orderly. It's emotional and chaotic.

If a drop of 40-50% is unbearable to you mentally or financially, that means you’ve either got too much money invested in stocks or you're a wimp. In either case you need to adjust your asset allocation (or grow some balls!).

 

[sameech]

50% would be a depression, so you don't have to worry about a recession.

Realistically, I'd say a 20% correction is on the horizon. Most of the money in the market is insitutional money, so they'll take the hit and government always bails them out. The big losers? Your retirement fund, if you leave it in too long.

depends on the company. The Dow is a poor indicator of overall market conditions. Sure there are companies that will take huge hits, but that will just bolster underperforming stocks or companies like MSFT that trades pretty consistently at the historical trendline for the market of 15:1 P/E. There are other companies that have used the low interest environment to buy back shares which will make them more attractive in a dividend focused market instead of a hyped up P/E one.

If there is a major correction, I would expect to see companies like Amazon and Google to take the brunt of it. The financial sector should be fine.

 

[william the wie]

A 50% drop would not surprise me. The stock market is not rational or orderly. It's emotional and chaotic.

If a drop of 40-50% is unbearable to you mentally or financially, that means you’ve either got too much money invested in stocks or you're a wimp. In either case you need to adjust your asset allocation (or grow some balls!).

Nobody has balls that big. A while back AAII came up with a real humdinger of a magic formula investment for outsize returns that so far as I know no one has ever been willing to pull the trigger on. Here it is in all of its glory:

Buy a more or random sample of companies that have no PE, 50-200 depending on your budget.

Repeat annually.

Sell when an average or nearly average PE is achieved.

Your portfolio screen will end up covered with companies that no longer exist. (Might have been small sample size in my case.)

Variance of return is stomach churning, which is why I did only one iteration.

Checking for funds who use this strategy I couldn't find any.

Then I looked at the most recent AAII journal. Nobody can stomach high variance of return in investments, speculations yes, investments no. Even Algo programmers renormalize models so they won't be fired.

 

[Delta4Embassy]

Eventually the market's gonna crash. It's inevitable as the valueless currency we use can't be sustained forever. At some point, like other countries (most recently Argentina,) we too will default on our debt and the house of cards will come crashing down. I don't know what's gonna happen then, but as the line in "Ultraviolet" went, "What would have happened if I didn't pass one of these tests?" - "Nothing good."