Dejavu 2007?

Ask your investment, budget, and other money related questions here
Farm_or
Posts: 412
Joined: Thu Nov 10, 2016 8:57 am
Contact:

Dejavu 2007?

Post by Farm_or »

Does anybody else see the similar circumstances to our economy prior to the 2008 crash?

Record high dow, home ownership, high real estate, consumer confidence and bad loans?

I listened to an analyst yesterday acknowledge the shaky mortgages (red flag!), but played it down due to MIP. But the insurance fund runs out at $29 billion? Worst case, another tax payer bailout?

This all sounds familiar, to me.

IlliniDave
Posts: 3845
Joined: Wed Apr 02, 2014 7:46 pm

Re: Dejavu 2007?

Post by IlliniDave »

Not really. My house still isn't worth what it was worth in 2007. And I don't think the mortgage situation is as bad as it was then. They were truly handing them out like candy with the gov't fanning the flames.

That said, one can always, every single day, wake up and declare we're headed for a market crash/recession/whatever, and be correct. And there's always the same risks out there. People can lose jobs and default on mortgages, and there's usually localized bubble-like markets. Corporate profits can falter and bonds can start paying more, prompting a move away from stocks. It's sort of like a blues song. There's some underlying similarities in every chorus, but the real action happens in the unique playing over the top of it.

Chad
Posts: 3844
Joined: Fri Jul 23, 2010 3:10 pm

Re: Dejavu 2007?

Post by Chad »

No. Mortgages aren't anywhere near where they were in 2007. If Trump goes too far with rolling back certain laws this might change, but no way to know at this time. A lot of numbers suggest a housing shortage. Consumer debt is better, though it still looks strange to high savers and low risk people (most people on here). US stock values are high, but not absolute nose bleed territory.

This does not mean a pullback can't happen or isn't likely, but it will just be a normal run of the mill pullback. What it will not be is an economic crash like 2007-2008.

Chad
Posts: 3844
Joined: Fri Jul 23, 2010 3:10 pm

Re: Dejavu 2007?

Post by Chad »

One caveat...the odds of a black swan event are much higher going forward.

User avatar
Ego
Posts: 6357
Joined: Wed Nov 23, 2011 12:42 am

Re: Dejavu 2007?

Post by Ego »

Farm, I am not saying you are not correct.... but.... it is common for everyone to be on guard for the last crisis and completely miss the next one.

black_son_of_gray
Posts: 504
Joined: Fri Jan 02, 2015 7:39 pm

Re: Dejavu 2007?

Post by black_son_of_gray »

Chad wrote:This does not mean a pullback can't happen or isn't likely, but it will just be a normal run of the mill pullback. What it will not be is an economic crash like 2007-2008.
How big is a normal run of the mill pullback? Depending on your metric, getting back to normal market valuations (historically) could mean a %50 drop, no? Or are you thinking %10-20 corrections?

7Wannabe5
Posts: 9369
Joined: Fri Oct 18, 2013 9:03 am

Re: Dejavu 2007?

Post by 7Wannabe5 »

it is common for everyone to be on guard for the last crisis and completely miss the next one.
Yup. BTW, 1958 was the peak year for reported happiness of average American.

Image

classical_Liberal
Posts: 2283
Joined: Sun Mar 20, 2016 6:05 am

Re: Dejavu 2007?

Post by classical_Liberal »

...
Last edited by classical_Liberal on Thu Feb 04, 2021 10:48 pm, edited 1 time in total.

enigmaT120
Posts: 1240
Joined: Thu Feb 12, 2015 2:14 pm
Location: Falls City, OR

Re: Dejavu 2007?

Post by enigmaT120 »

7Wannabe5 wrote:Yup. BTW, 1958 was the peak year for reported happiness of average American.
No wonder, when they had finally achieved this:

Imagetruckleft by Ed Miller, on Flickr

...and the '58 Corvette, the last Cameo pickup, and the first El Camino.

Not that I care about cars and stuff.

Chad
Posts: 3844
Joined: Fri Jul 23, 2010 3:10 pm

Re: Dejavu 2007?

Post by Chad »

black_son_of_gray wrote:
Chad wrote:This does not mean a pullback can't happen or isn't likely, but it will just be a normal run of the mill pullback. What it will not be is an economic crash like 2007-2008.
How big is a normal run of the mill pullback? Depending on your metric, getting back to normal market valuations (historically) could mean a %50 drop, no? Or are you thinking %10-20 corrections?
From an article about a pullback in 2014. http://www.valuewalk.com/2014/10/stock- ... back-2014/
The S&P 500 has now experienced 19 pullbacks during this 5.5-year-old bull market, during which the index has risen by 182% (cumulative return of 217% including dividends). The 1990s bull market included 13 pullbacks; there were 12 during the 2002 – 2007 bull market. At an average of three to four pullbacks per year, we are in-line with history [Figure 1]. We understand the nervousness out there, but what we have just experienced looks pretty normal at this point.
A normal run of the mill pullback is roughly 5-10%, with a 20% every now and then. By no means would a 50% drop put the US market at normal valuations, it would be amazingly cheap. The majority of people on this forum are doom and gloom, and are always expecting a crash. These crashes rarely happen. Though, as I mentioned previously, the odds of a black swan event are higher now with Trump in office, as he is unpredictable.

Hankaroundtheworld
Posts: 470
Joined: Mon Feb 24, 2014 4:50 am

Re: Dejavu 2007?

Post by Hankaroundtheworld »

Has anyone a good overview of the leading indicators, like (a) Shiller P/E - above 28, (b) VIX - seems okay, (c) world-wide Shipping acitivity, etc...
At least, we could try to calculate the risk-factor that a correction could happen soon (I discussed in 2016, but that turned out a reasonable year, strangely enough Trump helped with this ...)

Is there a trustful site or list of indicators that can predict a possible turn of events?

bryan
Posts: 1061
Joined: Sat Nov 29, 2014 2:01 am
Location: mostly Bay Area

Re: Dejavu 2007?

Post by bryan »

@Hankaroundtheworld, personally I think it's way too complex, dynamic of a system. I'll leave it to folks like at BlackRock or the Michael Burrys of the world. Best to use what you know that others might not notice or act on (e.g. local factors/indicators or specific niche trends or new facts, etc.) and make bets with the correct vehicles.

Dragline
Posts: 4436
Joined: Wed Aug 24, 2011 1:50 am

Re: Dejavu 2007?

Post by Dragline »

Let me know if you find one -- we'll all be rich!

You would have to have the kind of insight that the characters in "The Big Short" had, and then be lucky enough on timing. Or somehow sneak under the hood of Jim Simons' hedge fund algorithms.

Chad
Posts: 3844
Joined: Fri Jul 23, 2010 3:10 pm

Re: Dejavu 2007?

Post by Chad »

Oh, if someone somehow finds out Simons' algorithms/system please let me know. That would be interesting.

Hankaroundtheworld
Posts: 470
Joined: Mon Feb 24, 2014 4:50 am

Re: Dejavu 2007?

Post by Hankaroundtheworld »

Thanks for the humour :-) He, I am just trying to hold onto some levels of predication's / finding a magic formula is of course the holy grail, but not realistic. Just trying to catch what you'll are using as a reasonable indicator (or just ignoring if you believe that it does not make sense)

jacob
Site Admin
Posts: 15906
Joined: Fri Jun 28, 2013 8:38 pm
Location: USA, Zone 5b, Koppen Dfa, Elev. 620ft, Walkscore 77
Contact:

Re: Dejavu 2007?

Post by jacob »

John Hussman has been working on this problem for years. See e.g. https://www.hussmanfunds.com/weeklyMarketComment.html

The problem with indicators is that the most important one (which often override all the other ones) is usually unique to a given market. For example, between 2009 and 2014, almost all of US market moves could be explained by the QE activities of the Fed. That's a pretty easy "indicator" if you happened to have included it in your quiver AND figured out how it was more important than anything else. If not, indicator-thinking just puts you self-consistently on the wrong side of the trade.

There are of course some classic indicators as well ... they generally rely on waiting for mean-reversion, that is, having the statistics re-assert itself. The problem with that is the this mean-assertion can happen in two ways. Either the market comes to the mean (this is what you want) or the mean comes to the market as the sampling window gets moved in which case you didn't profit/lost money ... because all profit needs the price to move in the direction of your prediction ... something that holds for everybody; even buy and holders.

banker22
Posts: 110
Joined: Mon Aug 03, 2015 1:17 pm

Re: Dejavu 2007?

Post by banker22 »

I like Doug Short's composite valuation model, which is updated every month:

https://www.advisorperspectives.com/dsh ... overvalued

His model suggests a c.45% correction is necessary to return to historic means.

Hankaroundtheworld
Posts: 470
Joined: Mon Feb 24, 2014 4:50 am

Re: Dejavu 2007?

Post by Hankaroundtheworld »

banker22 wrote:I like Doug Short's composite valuation model, which is updated every month:

https://www.advisorperspectives.com/dsh ... overvalued

His model suggests a c.45% correction is necessary to return to historic means.
Thanks, interesting indeed. And of course, this all should be read into context (basically the way I read @jacob comments) If the world continues the QE floods, everything can be different. At the moment, TINA effect is still ongoing.

I am afraid to keep too much Cash at the Bank account, because now there is a higher chance that Governments will top this off if a Bank crisis appears again ... on the other hand, I want to wait till the overvalued market is correcting ..

User avatar
Seppia
Posts: 2016
Joined: Tue Aug 30, 2016 9:34 am
Location: South Florida

Re: Dejavu 2007?

Post by Seppia »

jacob wrote:John Hussman has been working on this problem for years. See e.g. https://www.hussmanfunds.com/weeklyMarketComment.html
Thanks for the link, I've read a ton of these articles in the last days and they are excellent.

I think a good counter for the current very high valuations is (especially for Americans) to diversify internationally.
European and EM markets are not nearly as overvalued as the USA.
Yes the EU has gone negative on rates but stock markets refuse to skyrocket because of weak earnings and political uncertainty here. Shiller Cape is still below 17, dividends are well above 3% and P/B is reasonable.
Couple this with a very strong dollar and a weak euro and it's a good time to be American :)

Now obviously since all markets are correlated, in the event of a big USA crash, European stocks will drop as well in the short term.

I think though that there is also risk in being completely out of the market..
two years ago USA markets were already very very high. They're higher today

so it is in my opinion best to look at current valuations with a probabilistic approach i.e."in the next 10-15 years I'm more likely than not to have Decent returns investing in European stocks", "in the next 10-15 years I'm more likely to have bad returns investing in American stocks", "In the next 10-15 years I'm more likely to do better being in Europeans stocks rather than American ones", etc.

slowtraveler
Posts: 722
Joined: Sun Jan 11, 2015 10:06 pm

Re: Dejavu 2007?

Post by slowtraveler »

I agree about international diversification. I'm curious, why do you focus on European as opposed to International or Emerging?

European has a higher P/E (25.30) & P/B (1.8) with a lower Earnings Growth (3%) than International (21.2 ,1.6 & 6.9%) or Emerging (18.5, 1.6, & 9.2%).

Post Reply