Crisis 2016 Radar

[Hankaroundtheworld]

Hi,

Not that I trust any bank or financial advisor, but this report might be of interest:
http://static.guim.co.uk/ni/14525947963 ... -08011.pdf

It is of RBS that predicts major correction in 2016 of around 20% (if I understood well). The document contains a lot of info (if you are equipped to analyze this).

If I look at the world (big picture), the fundamentals are:
1. World population is still growing, although a bit lower, but we will reach 10-11 billion before 2050, so more Food, Goods & Services are required
2. We still have "cheap" energy to fund growth, and people still want to grow despite that Earth cannot cope (yes, lots of talk that we need to safe Earth, but when it gets down to it, 95% of human population will act in own interest, and chose personal gain above reducing pressure on earth resources).
3. We still have an accelerating technology domain, which hopefully will create more than just useless consumer junk, and focus on "food producing", "green energy", "cheaper and better medicals", "better banking services", etc...in other words, "value creation" should increase = economic growth

However, short-term it seems a bit shaky ....

Anyway, let's keep the radar on !

Hank

[Ydobon]

I am not equipped to analyse every aspect of that report, but I was struck by the amount of noise and waffle in it, a lot of guesses masquerading as reasoned research. As for aspects such as the 'technical' indicators, I suppose you either believe that they have meaning, or you don't.

I suspect that they will be right for the most part on the macro trends, but I certainly won't be following their commission generating trading suggestions (sorry, advice on how to mitigate against these).

[drachma]

I'm sure there are Real Professionals doing Scientific Financial Analysis that know a good deal more than I do, but I find it really hard to trust any sort of report. Or at least, maybe the data and analysis is sound but it's hardly actionable for the household investor.

There is always a looming "correction" (or recovery!) and if it doesn't happen in 2016 it will happen in 2017 and they'll say, see it was just a bit late, or else it won't and by then the report will be forgotten and there will be a new one.

On the other hand, I find it hard to accept that there is such a huge profession of highly compensated individuals who aren't producing value for their employers with this sort of analysis. Historically, stranger things have happened (were alchemists employed by royalty? that's the best made-up example I can pull out of my ass), but these days I would imagine company leadership is a lot more performance-driven and dead weight analysts would be cut...

[vexed87]

No one can predict what the cause of the next crash will be, or when it will occur, but when the MSM and financial institutions are collectively forecasting a major correction just around the corner you know things are not quite right in the world! If the forecasters keep predicting the start of a correction, someone is bound to be right eventually. The global economy is just to complex to predict which event will be the next trigger. We may well see markets rise to new heights. Just remember, most writers/analysts/institutions have some agenda, angle or axe to grind. If they really believe what they were 'selling' surely they would be raising enough capital instead to short the market. Of course, personal gain doesn't always come in to it, there are some writers with noble causes and their advice often comes in the form of old fashioned common sense.

There are lots of indicators that shares are overpriced, growth is slowing, growth in demand for commodities is slowing, the right kinds of jobs are not being created etc. These are your early warning signs that recession is right around the corner. Of course, it depends whose data you are reading, and whose data you trust. The MSM would still have us all believe that the world is rosy and we are isolated from the troubles of the emerging markets. Personally, I'm not so sure, but I have always been a cynic/pessimist.

Diversify your income streams and investments, have some prudent stores of the things you can't live without like food, water and coffee, hopefully you can make it out the other side.

I thought the forum might enjoy this cartoon.

[Ydobon]

You must be reading different media from me, bad news sells and the news is being painted as pretty bad at the moment.

[vexed87]

Just one exmaple, IMF puppet of the worlds central banks says "nothing to see here, recovery is still happening, Chinese contagion stays in china" (yes, I'm paraphrasing): http://www.bbc.co.uk/news/business-35191325

[IlliniDave]

There's always a correction/crash coming. Today, 1-, 5-, 10-years down the road? Who knows? I can't live my investing life cowering over when the next downturn will occur. If you're stressed worrying that you need to change course before it happens, you might consider whether your investment approach is unsuitable for you. Otherwise, it's part of life--consider it an adventure!

[cmonkey]

I agree....it's always "right around the corner!". Having gone through the stage where I believed it I have come out the other side not really caring if/when it happens. I will enjoy life no matter what happens. Stocks go down, I get better yield on what I'm buying. Stocks go up I have more net worth. It's win-win no matter what as long as you are buying quality.

As illiniDave stated I think anyone worrying about an 'impending crash' in the stock market should be thinking of how they can make that work for them.

Frankly I think all the people talking about "bad news in China" are just ridiculous. I think they are still somewhere in the range of 6-7% GDP. I mean come on? These people are delusional with their expectations. The larger something grows the harder it gets to sustain higher growth numbers. The USA is a good example. Anything over 3% is stellar. Over 2% is consider great.

The International Monetary Fund, for example, forecasts growth of 3.6% this year after 3.1% in 2015.

Last year's figure is rather sluggish; this year's stronger but still not all that impressive.

I read a report recently (though I can't find it ATM) that looked at a much longer timeline for economic growth/interest rate numbers. Historically < 1-2% was considered normal! The past few decades are an aberation and should not be expected to continue just 'because'. The conclusion was that we are entering normal territory again and that we have been in abnormal territory for a while, since about 1985-1990 (probably due to the tech explosion). Just look at stock charts pre-1985. Stocks went decades just hovering around within a very narrow spectrum. That's just fine!


@vexed, that is a great cartoon. Thanks for sharing.

[Ydobon]

Just one exmaple, IMF puppet of the worlds central banks says "nothing to see here, recovery is still happening, Chinese contagion stays in china" (yes, I'm paraphrasing): http://www.bbc.co.uk/news/business-35191325

Or it could just be that they're crap at forecasting. Everything isn't always some diabolical plan orchestrated by sinister figures in the shadows, sometimes people just get things wrong (often). Anyway, just because the BBC have referred to an article from a German newspaper chatting to the evil IMF, it doesn't imply an editorial stance or an attempt to mislead.

I could provide links to a large quantity of articles from UK news sources (FT, Telegraph, Guardian etc.) suggesting that things aren't so rosy, it's just 'news' (which should probably be called something else pithy, sure the chappy who wrote Survival+ will have come up with something)

There will always be contrarian views (for a positive or negative outcome in any situation).

[Hankaroundtheworld]

Société Générale, Albert Edwards, is also coming with a doom-message: 75% down predicted on S&P in 2016 ....

http://www.marketwatch.com/story/socgen ... 2016-01-12

It seems that it is co-ordinated between banks to talk the market into a major correction, so they can buy up cheap assets ...

[jennypenny]

So, pundits aside ... what is everyone thinking? Is the 10% correction all there is? Are we headed for a 20% pullback? Significantly more?

The oil thing stumps me. I get it, but I don't.

[Ydobon]

Gut feeling tells me we're due for far sharper falls, but not the immense crashy that the crazies would love. Wouldn't be surprised to see another 10% pullback.

This is based on nothing more than the fact that people are prone to panicking

[Hankaroundtheworld]

I expect maximum 20% dip because of China and may be some worries around wars and Greece (again), but quick recovery after that, so no "doom" crash of 75%. Why? See fundamentals in beginning of thread, but there is also TINA effect (where else can all that cash go than stock market?), on top of this, "western world" is not doing too bad, growth of around 1.5%, more you cannot expect in the developed world (unless we reach a new Technology break-through on the level of "internet introduction", etc..).

But, perhaps obvious, I am not an expert in predicting the stock market results, but I do not believe anyone else can predict either, and for sure I do not trust what Banks say (unbelievable how the criminal organization "Goldman Sachs" gets away by paying off their crimes.... you lose belief in the system because of this ...)

[jennypenny]

Looks like it's going to be more than 10% in the US.

My hedges are holding, but barely.

[Dragline]

You know, I have say I really don't (know that is).

This is the time of year I usually deploy cash accumulated and saved from last year and re-balance the accounts. But I'm just sitting and watching for the moment.

I'm surprised LT bonds have not truly spiked yet, but will sell some if and when the 10yr goes back below 2%. Also surprised the VIX has not spiked yet. What I can't figure out is whether that means its not going to be so bad or the worst is yet to come. I feel like we need to see some more bankruptcies and shrinking of outstanding debt in the energy sector before it all shakes out.

I would not be surprised if the US market ends the year wherever it ends this month, though.

[Chad]

Always hard to judge the actual drop. What I don't think is happening is another historical crash (Great Depression, Great Recession). This doesn't look like anything more than a normal slow down and normal market pullback that will shake out a little debt and will see a few obvious companies go bankrupt (some of the poorly managed shale companies, etc.).

I do agree with Dragline's last comment, "I would not be surprised if the US market ends the year wherever it ends this month."

I'm looking forward to this, as it will be another long-term buying opportunity for the top tier blue chips that pay a nice dividend and a few long shots in the energy sector.

[Hankaroundtheworld]

Currently it goes fast downhill. Always amazes me, that if the sentiment switches, downhill goes faster that uphill. Somehow you would expect that with the huge popular "index-based" investing strategy and the "buy-and-hold" tactic that normally goes together with this, you would see some stability in moves (up and down), but apparently not. Anyway, we are going thru some thresholds at the moment, the 20% dip is getting closer!

[jacob]

Always amazes me, that if the sentiment switches, downhill goes faster that uphill.

This is how you can tell that markets aren't random. You can more often than not tell whether a real price chart is upside down just by looking at it. This is impossible with a random walk chart. Random walks look the same regardless of orientation.

The markets are by construction a human system, so ancient wisdom applies:

"It would be some consolation for the feebleness of our selves and our works if all things should perish as slowly as they come into being; but as it is, increases are of sluggish growth, but the way to ruin is rapid." --- Seneca

Somehow you would expect that with the huge popular "index-based" investing strategy and the "buy-and-hold" tactic that normally goes together with this, you would see some stability in moves (up and down), but apparently not.

No, you should actually expect the opposite because this represents a decrease in the diversification of opinion or lack of independent thinking (perhaps the very definition of the word "popular"?) that results from everybody trading/investing in the same thing---here indexes---and in the same way.

Short term moves (traders, specialists) as well as big money moves (fund hedging, central bank rigging---foreign special banks can and do trade US equity futures at a discount at the CME) are driven by highly leveraged (typically more than 50x leverage) future contracts that deliver on the popular indices. Buy&hold index investors provide the liquidity (typically via automated monthly contributions) that these contracts deliver on and so they drive the long term moves.

Put it another way, if one student gets the idea that he can just copy the average answer of the class for a guaranteed B instead of doing his homework. That's brilliant! That was Bogle in the 20th century. If enough students start following this strategy though, then the average answer converges on being meaningless as individual students are copying other students who in turn are copying the copier. (In nerd terms, they're creating positive feedback loops.) The "average answer" becomes unrooted in any educational reality. This makes it possible for the average answer to fluctuate wildly for even small disturbances as fewer and fewer people are providing actual input. That has been the 21st century. As far as I recall, about half of all investing is essentially people copying other peopler in an infinite regressive loop.

[cmonkey]

What I don't think is happening is another historical crash (Great Depression, Great Recession). This doesn't look like anything more than a normal slow down and normal market pullback that will shake out a little debt and will see a few obvious companies go bankrupt (some of the poorly managed shale companies, etc.).

I also think people have been just generally more jittery since the great recession and have just really been looking for another crisis and so anything other than 'onward and upward' is automatically 'sell everything'. Historically speaking 2015 was a pretty normal year in in terms of actual growth numbers, the only difference was the spectrum that everything moved around in. This is just due to more money flying around (and algorithms I suspect).

I think we are simply moving into a slow growth state that will stick around for a long time before eventually petering out sometime later in the decades to come. Fast growth was a product of cheap energy and its just not possible at this point, but mega-investors just don't get it. Thus the massive amounts of panic.

I hope you're right about 2016 being pretty flat. Even 1-2 % would be fine (and normal).

[Chad]

This is a really good summary of a lot of current conditions:

http://www.bloomberg.com/news/videos/20 ... oil-prices

As a side note, this guy was #2 to Gross at PIMCO for a long time. He had started to eclipse Gross in respect towards the end of Gross's career at PIMCO. Now, if you compare this to the article in the thread about Gross's prediction, it seems like he has eclipsed Gross in rational thought on the economy/market.