yes or no major stock market correction in 2015-2016

[Hankaroundtheworld]

Hi everyone,

Reading a lot lately about potential collapse of our Money-system, because of the still growing Debt-bubble around the world (now QE in Europe ...), and at the same time the impact of the high valuation of the Stock market and potential major correction possibility ...

As I am going to start ERM this year, I am getting a bit nervous if I not should take the money out of the market, and "wait" for that correction...but keeping cash at the Bank is also not so safe...(only partially protected).... so what to do??

Problem is as well that big part of money is in "Managed Pension fund", which is a personal fund that I pay regularly (Monthly) money into, but I have still 2 years to go on this, so if I stop this, I need to pay "penalties", so I could try to bring the existing funds in this Managed account into "low risk" funds, but Bonds are also risky nowadays....

Anyway, what is your view, are we really close to a major correction, or even collapse of Money-system??

It all feels a bit shaky, or am I nervous starting ERM??

thanks for your view
Hank

[stand@desk]

I'd suggest the Permanent Portfolio or your own variation that is close to it. With the unpredictability of the financial system these days, it's nearly impossible to predict who will get bailed out and who won't, who will devalue their currency or forgive debts or unpeg currencies etc..I think going for diversity and keeping balanced to asset allocation balances is the way to stay preserved with mild capital appreciation.

[George the original one]

If my portfolio were in Europe, I'd be more nervous than I am in the USA. The Eurozone recession is probably already priced into the market, the question is whether conditions will deteriorate beyond expectations. And I have no idea!

[rube]

+1 for stand@desk
this is also what I do (PP + our own house, most of what we still have in savings accounts will be moved gradually over the next 24 months to the PP as well).

[Dragline]

My guesses:

Stock market correction? More likely than not. Followed by a rebound. Maybe another round of QE involved.

"Collapse of the money system"? Unlikely, but more risky for Euro than dollar. Dollar strength is most likely to continue due to softer central bank policies in Japan and Europe.

One of the main wild-cards, as usual, is the prospect of a serious debt contraction or dislocation in the private debt arena -- for example, all that money that was loaned for new energy explorations in the past few years cannot be repaid and causes a financial implosion with liquidity problems and bankruptcies.

[Hankaroundtheworld]

For PP advocates, do you use the following:
The Permanent Portfolio (PRPFX) is a traditional mutual fund based on the permanent portfolio that started trading 30 years ago. More recently the Global X Permanent ETF (PERM) brought the concept to the market in an ETF wrappe

[rube]

No, I use separate funds etfs to make my own local PP. I do this for various reasons (on my phone now, can explain it later if you wish).

[Chad]

I don't see anything more than the standard 5-10% correction possible in the US markets (China is another matter). This is not a crash. They happen rather frequently. If the Fed raises rates this year the 5-10% correction will probably happen a little before that or after that. Either way, I don't see how a recession can start this year. Cheap gas and an improving economy should prevent that.

Since, 2008 all the doomers have been saying the monetary system is going to crash and burn, and it hasn't happened. Doesn't mean it can't, but it is highly unlikely. It will take more than a couple highly debt laden Mediterranean countries, an economically shaky pseudo superpower with almost zero exports other than oil and gas, and couple shiekhs who can't buy their 5th Ferrari.

In fact, what no one is mentioning is that there is an outside shot the world economy gets a nice boost this year. Cheap oil will boost all the real economies quite nicely (US, China, India, Europe). Plus, Europe has upcoming QE. While this is an outside shot considering Europe's and China's issues. it's not completely out of the question.

[workathome]

Probably should assume anything is possible. If you're not buying individual companies Buffet-esque you should probably create an asset allocation strategy with regular (e.g. yearly) rebalances and just plan to stick with it no matter what. Most strategies have ~10% historical returns with similar Sharp ratios and drawdowns. Permanent Portfolio is maybe the exception with lowest drawdowns, it acts more like a Risk Parity strategy (e.g. Dalio's All Weather) than the others like 60/40, IVY, etc.

[leeholsen]

it does look shaky and growth and earnings are on a decline all over, but in about a month; Europe is going to start the printing presses just like the FED did and look at a chart of the stock market and FED purchases and its only been 5% decline.

the law of diminishing returns applies but i'd wait until april to see if before being real bearish.

my guess is feb is shaky also and then in march Greece gets a bailout and the euro printing kicks in and its off to the races.

[bibacula]

Reading a lot lately about potential collapse of our Money-system, because of the still growing Debt-bubble around the world ...

Don't read wing-nut blogs with such crazy-talk.

Markets will fluctuate. You have to be able to handle market moves to be FI.

Have you noticed that successful financially-independent types keep most of their assets in stocks? They buy low-cost index funds and hold for the long term.

I remember reading Graham and Dodd's "Security Analysis" 1934 edition when I learned how to invest. In the end, they recommended buying a basket of stocks and a basket of bonds then holding through thick and thin.

This strategy worked in the 1930's and will work in the 2030's, too.

[KevinW]

For PP advocates, do you use the following:
The Permanent Portfolio (PRPFX) is a traditional mutual fund based on the permanent portfolio that started trading 30 years ago. More recently the Global X Permanent ETF (PERM) brought the concept to the market in an ETF wrappe

If you have a question that's off-topic from the original post like this, it's best to start a new thread.

[Sclass]

Markets correct. This is just a fact of life that I've had to deal with for over twenty years now. And while it was traumatic at times to lose at times half of my capital (paper capital that I lost coming off a peak), I recovered. So I say if you're young, don't worry about it. If there is a correction tomorrow, fine, keep building your portfolio at a discounted price. Don't use fear of what is eventually inevitable (I promise you there will be a big correction someday ) stop you from getting started.

Now if you've saved twenty years of cash in a savings account and you want to plunk it all down today my advice is different. Enter your positions slowly. My advice to go for it is for a young person just getting started in investing. There may be a correction next month, and if there is, you should keep working, earning capital, and go bargain hunting. It is a continuous process. As I matured as an investor my activity looked less like dollar cost averaging and more like buy low and sell high...but embarrassingly it started out as kind of DCA. I used LUV as kind of a savings account in the 90s.

So I'm asked if there is going to be a big plunge by all my friends these days. Of course there is. Make sure you keep some dry powder (or your job) so you can capitalize on it.

I usually don't do this but along these lines this is what I'd do if I was back in my 20s as an entry level engineer frugally saving to ERE today (2/2015 when I write this). I'd buy individual stocks in energy. Yeah, say I had $20k saved up and I'd potentially lose (gasp) 50% of my net worth as oil plunged again. But $20k could be saved back quick as a young professional and you'd have a long time horizon to take your eyes off it and let it recover.

Not too long, we'll be doing plasma fusion and solar farming at some point .

I can still remember staring at Home Depot on a DATEK terminal thinking, hell, I missed it, it already doubled. It went on to crash and double multiple times over the next decades. A few hundred shares purchased then would have been a nice win today.

[Sclass]

Oops, ima idiot. Sorry Hank, I didn't know what ERM was before I blasted off that post. Maybe some of the young guys can get some perspective from what I said. You have an entirely different nut to crack. A correction is a big concern in your situation.

Apologies all around.

[Hankaroundtheworld]

Thanks all, it does help to see different perspectives. When I was a young professional, I did not look a lot at how personal wealth was growing, and that managed pension fund with dollar-cost-avg monthly contribution went on thru the corrections in 2008 and 2011, etc.. I am now 8.4% annually on avg since 2002 in that fund, and as said, still 2 years to go. But I am anyway starting my ER (Moderate) by Aug 2015 using some cash savings. For now, I just gamble to keep it all in (high-risk) equities and some rental-properties. Lately I am looking almost everyday at my wealth growth (or potential decline), and I guess, this is indeed related to some fears of stopping work and the need to live on my savings/investments. Nothing strange, it just needs some time to adjust, and then I hope I will stop looking at money, and just enjoy the freedom that I have gained with ERM

@bibacula : you are probably right, I should not read to many fear-mongering articles on Monetary system problems, but fact is that global debt is growing exponentially, so how long will that go right?

[bibacula]

@Hankaroundtheworld - Debt itself isn't important. Instead, focus on debt servicing capability. If debt grows slower than the ability to service debt, then all is good.

Too many US debtors couldn't service their debt in 2007, but now the US looks normal. Europe is still in their crisis, but they will eventually make creditors recognize their losses. China still hasn't figured out which debtors are insolvent much less which creditors will lose their money. All of these situations will eventually be resolved. Most importantly, the monetary system will not "collapse", whatever that means.

BTW, most of our systems are exponential, like inflation, investment returns, GDP, etc. Pessimists will see "runaway" debt; optimists will see exponentially growing GDP, stock prices and dividends. Both camps will be correct.

[IlliniDave]

I'm going to stick my neck out and say, "Maybe, maybe not." I really think the timing of such things is unknowable. It will happen someday, then we'll have the next bull cycle. Over the timeframes I invest for, it's all noise. If PEs get up to 80, it could be Japan all over, but starting where we are I don't see any sort of one way swing unless the Yellowstone caldera blows or something.

[WYOGO]

I'm going to stick my neck out and say, "Maybe, maybe not." I really think the timing of such things is unknowable. It will happen someday, then we'll have the next bull cycle. Over the timeframes I invest for, it's all noise. If PEs get up to 80, it could be Japan all over, but starting where we are I don't see any sort of one way swing unless the Yellowstone caldera blows or something.

I am more concerned about the long term effects of the Yellowstone Caldera then I am the markets in general. If adaptable and physically sound, stay the course...

[Scrubby]

It seems to me that large corrections have come every 5-7 years for a while. The last one was in 2008/2009, so I think the next one is close.

[JL13]

Let's hope so. All these S&P companies are buying back their shares @ p/b of nearly 3:1. 2:1 would make for a much better ROI.