Is a 2012/2013 Market Collapse Inevitable?

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ef11
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Is a 2012/2013 Market Collapse Inevitable?

Post by ef11 » Sun Mar 18, 2012 10:58 am

DISCLAIMER: I know market timing and things of this nature are not what this forum is all about. I love this forum and plan to use the theories discussed in this forum to better my financial future.

My family has a very good friend that has been doing investment research for years and years and years. He has a medical condition that doesn't allow him to get out a lot and so he spends most of his time researching a few areas of interest, one of those being the financial markets.

Now I know none of you know who this person is, or his credibility, but he warned my family of the 2008 crisis, and we pulled all of our money out of the markets in 2007 and didn't lose a dime in the crash. We got back in around the DJI 8,000 mark. So obviously this guy has some credibility in my eyes.

Read this if you want, and give me your opinion. Do you agree with this? Parts of this? None of this? I thought it might be an interesting read for people on here! I look forward to a good discussion.

When asked what his position on the markets was currently, the below was his response:

Ever since the Fed, the ECB, and the PBoC started pumping trillions into the financial system, the markets have not been real. They are largely a liquidity-based ramp job. For instance, it's often the case that good news is good news, and bad news is better news. That's because the equity markets believe that the worse things get the more likely the Fed is to start the next round of QE. For this reason, the retail investor has largely departed the markets. Share volume is extremely low, and consists mainly of computers trading against one another. This adds to the artificial levitation since headline reading robots tend to buy reports of good news, but not sell it when the news is found to be BS. You can see this in spades with regard to Europe, where the equity markets appear to respond more to rumors and statements rather than changes in fundamentals, which only get worse by the day. And the bond market is also susceptible to this as QE and Operation Twist in the US, and LTRO in Europe have cause bond yields to be pushed down way below where they would be if a real market prevailed. So we basically have a one-way market. Equities only rise and bonds only rise. This has resulted in volatility metrics (the VIX), hitting near-all-time lows. In other words, complacently reigns. So does bullishness. This is very dangerous. Markets always turn when the sentiment becomes extreme, in either direction. Right now, the VIX is about where it was in 2007. That is, it looks to be calling a top. If Q1 profit reports disappoint, there will be a mad rush for the exits. I think there is already some distribution going on, where the big boys (hedge funds mainly) are selling into the dumb-money retail folks. As always, the little guy will be the ones holding the bag when the SHTF. And I believe quarterly reports of S&P 500 companies will disappoint. Europe is in a recession now, China has slowed and is headed for a hard landing, while the US is supposedly doing better, based on gubmint statistics. These stats are crap. Unemployment has fallen dramatically, while employment has not risen. It's a mirage. People are leaving the labor force and taking part-time jobs. Last month had the worst budget deficit in US history ($231.7 billion in ONE MONTH), while tax receipts were actually down YoY. Sound like a recovery to you? It's all BS. The economy is doing terribly. If deficit spending and Fed printing were to stop (or even slow down), the real economy would immediately tank. And if gas prices keep rising, the game of musical chairs will come to an end. Main Street is in the ditch. The Dow and S&P companies are doing better because they are all multinationals that can sell to those parts of the world that are doing okay. But the world is sinking under a sea of red ink. Japan now has a trade deficit. So does China. Asia can't keep the world afloat when it's two biggest players are going down. The property bubble in China is totally out of control and will blow up in the same way ours did in 2008. It's just that nobody knows when because China's economy is also not real, but simply a ponzi that functions based on the diktats of the politburo.



The bottom line is that this is not a real recovery. Europe is getting worse by the day, and central banks are running out of ammo. But as Keynes said, the market can stay irrational longer than you can stay solvent. For that reason, I have not been shorting the markets. There is a reason for the axiom "don't fight the Fed." When every light is flashing red and it looks like a top is definitely in, then the next round of QE will be announced and the shorts will get blowtorched, sending stocks dramatically higher as they are forced to cover, adding fuel to the rally. At some point this nonsense will end horribly, but no one knows when. In the mean time, Apple keeps going up. When it passed $600, it's market cap exceeded that of the entire retail sector. Let that sink in. Does that sound sustainable to you? It doesn't to me.



So I can offer no advice. I would not be in the market if you put a gun to my head. Particularly bonds. The bull market in credit that started in 1982 is coming to an end. Short term yields in T-Bills have actually dipped into negative territory in 2011. Can they go lower? Of course not. With inflation, real rates are way negative. That cannot last. People are paying sovereign bond issuers to take their money. The bond market is a lot bigger than the equity markets, so when it goes south, things can get ugly fast. Right now, the market for US treasurys is being buoyed by the chaos in Europe. But at some point, probably next year, it will come unglued. You can't solve a solvency problem by piling on more debt. Extend and Pretend will end.



My best guess (and that's all it is): The wheels come off this fall. If there is a war with Iran, that will trigger a market collapse. If the market holds up thru November, which is typical of an election year, it will not survive 2013. The end will come when the common man figures out that this is not a typical recession, and that it's not going to end happily. But just like 2008, that realization will probably occur after it's too late to exit the markets. Which is why I choose not to be in.
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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by RadAudit » Sun Mar 18, 2012 11:24 am

ericfox11 wrote:Do you agree with this?


I agree with the statements that say "So I can offer no advice" and "My best guess (and that's all it is)" The future is unknowable so most of the article is a discussion.

But to your question "Is a 2012/2013 Market Collapse Inevitable?". The answer is no.
FI is the best revenge. LBYM. Invest the rest. Stay the course.

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market timer
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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by market timer » Sun Mar 18, 2012 11:31 am

Looks like your friend gets his information from Zerohedge.

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supraacumen
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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by supraacumen » Sun Mar 18, 2012 11:40 am

Even if your friend's predictions were to come true, why does this bother you? Like you, I am a mid-20-something investor, and (to be very blunt) I welcome another market downturn, as this will allow me to buy more assets at lower cost. Obviously, this position isn't for everyone; however, the vast majority of the people on this board have already tailored their portfolios to their acceptable risk tolerance. Thus, another downturn should not cause panic, at least for the investors here.
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Imperabo
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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by Imperabo » Sun Mar 18, 2012 11:41 am

ericfox11 wrote: But the world is sinking under a sea of red ink. Japan now has a trade deficit. So does China. Asia can't keep the world afloat when it's two biggest players are going down.



This quote makes me believe he learned his economic theory from other posters on Marketwatch. Balance of trade is a zero sum game globally. If one country is in deficit then another is in surplus.

Your friend is an an intelligent and articulate fellow, who knows all the current hot issues and buzzwords, but his knowledge doesn't compare to the pros who do this for a living. If the pros never know what's going to happen then why should he?

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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by rmelvey » Sun Mar 18, 2012 11:45 am

Imperabo wrote:
ericfox11 wrote: But the world is sinking under a sea of red ink. Japan now has a trade deficit. So does China. Asia can't keep the world afloat when it's two biggest players are going down.



This quote makes me believe he learned his economic theory from other posters on Marketwatch. Balance of trade is a zero sum game globally. If one country is in deficit then another is in surplus.

Your friend is an an intelligent and articulate fellow, who knows all the current hot issues and buzzwords, but his knowledge doesn't compare to the pros who do this for a living. If the pros never know what's going to happen then why should he?


Thank you.

I am sick of hearing of trade deficits being referred to as "bad." It is the most annoying thing about mainstream finance media.

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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by baw703916 » Sun Mar 18, 2012 11:45 am

He would come across as more credible if he avoided the use of words like "gubmint".

The question is: if not stocks or bonds, where are people who have money to save or invest going to put it?

Real estate? I don't see that happening in the near future, frankly.

Gold? This smells strongly of performance chasing. It's been returning 20% a year for nearly a decade. That's not going to continue forever...

We live in uncertain times. But pretty much all times are uncertain, except in retrospect.

My advice is save adequately, diversify, and tune out the noise (or get a good chuckle out of it).

Brad
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beareconomy
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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by beareconomy » Sun Mar 18, 2012 11:49 am

You can't really predict the future, but things do look pretty bad. One thing I am going to look at is tax recepits for tax year 2011 when the data comes out and compare it to 2010. I think we are in deep trouble if there is a decrease in revenue the government collects.

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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by bob90245 » Sun Mar 18, 2012 12:07 pm

There is ALWAYS bad news. Always.

And as Larry is wont to point out, crises occur more often than people suspect. Like every 2 or 3 years.
Ignore the market noise. Keep to your rebalancing schedule whether that is semi-annual, annual or trigger bands.

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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by grayfox » Sun Mar 18, 2012 12:16 pm

Is a 2012/2013 Market Collapse Inevitable?

Nothing is inevitable except death and taxes.

I can't argue with anything that guy is saying about the state of things. But whatever the current state, future interest rates and the stock market are still unpredictable. It could all come crashing down, or the the S&P might go into another bubble.

And even if you get the macro prediction correct, you still can lose. I recall Peter Schiff called the economic crisis in 2008. You watch his TV appearances in 2006 and 2007 and it was like he was prescient. Yet his investors lost more than the anyone because they were in foreign stocks.

Meanwhile, if the writer stays in cash earning 0%, he will lose 3% per year to inflation. If it drags on for 10 years, he'll have lost 25% of his purchasing power. What if the Armageddon he's predicting makes the dollar collapse? Then all those dollars stuffed in his mattress become worthless. Or maybe he is all in gold? Like gold can't lose 90% of its value?

If he is so worried that he can not do anything, I would recommend that he look into the Permanent Portfolio.
Gott mit uns.

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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by blinx77 » Sun Mar 18, 2012 12:59 pm

1) Is a 2012/2013 Market Collapse Inevitable?

As noted above, nothing is inevitable except death and taxes.

2) Do you think the stock market will rise or fall in the next two years?

No idea. The stock market rises more often than it falls, for whatever that's worth. But no idea.

3) Do you agree with this? Parts of this? None of this?

Not that I would ever market time anyways, but no, I don't. A trade defecit one place means a trade surplus somewhere else. One person's debt is another person's loan. One could reasonably argue the global financial system is still overleveraged, but it's not clear that this is the case or, even if it is, whether any deleveraging that may occur will occur in an orderly or disorderly fashion.

Your friend's analysis strikes me as particularly suspect because he focused on the valuation of AAPL as evidence of an inevitable market collapse. AAPL is one stock. A big stock, for sure, but one stock. Who cares about one stock? For what it's worth, the stock market as a whole is fairly reasonably valued in relation to corporate profits. As an aside, I would prefer if more of those corporate profits were returned to shareholders in the form of dividends rather than being spent on stock buybacks that in my opinion are generally designed to help executives with options much more than traditional shareholders. At the same time, that annoyance will not stop me from investing in stocks for the forseeable future for all the reasons discussed on the Bogleheads wiki and this board.

4) How should people approach the current instability in the markets?

People who are comfortable accepting the risk of a large decline in their portfolio should invest aggressively. People who are not comfortable accepting the risk of a large decline in their portfolio should invest conservatively. Regardless, nobody should "invest" in an asset that is impossible to value (e.g., gold). A gun, a few tanks of water and some canned food is a much better hedge against societal collapse.

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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by Boglenaut » Sun Mar 18, 2012 1:12 pm

The S&P 500 will be at 1490 at the end of 2012 (I know it will be at 1490 because I forcasted it as such for the Bogleheads contest).

In March 2013 (probably around March 7, but as late as March 11), the market will indeed drop to S&P 500 1056. I know it won't go any lower than 1056 because that is where I hit my first rebalance trigger in the 2008 crash, and after the crash I thought we'll never see that level again.

At that point, you should rebalance, even possibly over-balance, into stocks because by 2015 the S&P will pass 1800.

If you want to learn more about market prediction, go here:

http://www.youtube.com/watch?v=2hHJSTu5Jnk

(PS - Don't copy or quote this post in case I decide to delete it).

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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by mickens16 » Sun Mar 18, 2012 1:34 pm

What is your asset allocation? If you're that worried about it, maybe you need to rethink your stock/bond ratio. Considering you're in your 20's you have many years to continue to save.

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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by surfer1 » Sun Mar 18, 2012 1:41 pm

I come to this forum, specifically, to alleviate worry about predictions just like this one. The market will go up and down, timing it is a losing game. The alternative is to put your money in FDIC bank accounts earning 0.8% or CDs earning not much more at 1.75%, if you don't mind managing them all. Good story to read, I like the post. But we should TRY not to get wrapped up into predictions.

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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by ef11 » Sun Mar 18, 2012 1:53 pm

supraacumen wrote:Even if your friend's predictions were to come true, why does this bother you? Like you, I am a mid-20-something investor, and (to be very blunt) I welcome another market downturn, as this will allow me to buy more assets at lower cost. Obviously, this position isn't for everyone; however, the vast majority of the people on this board have already tailored their portfolios to their acceptable risk tolerance. Thus, another downturn should not cause panic, at least for the investors here.


To be clear, I never said that a downturn would bother me. I completely agree with you and honestly would love for the market to have a downturn soon because I would lose maybe $3,000 and could get in a lot cheaper!

mickens16 wrote:What is your asset allocation? If you're that worried about it, maybe you need to rethink your stock/bond ratio. Considering you're in your 20's you have many years to continue to save.


I am reading through All About Asset Allocation by Richard Ferri right now and setting up my AA currently. I am thinking 80/20 due to my age, but beyond that I cannot give you a breakdown of classes yet.

surfer1 wrote:I come to this forum, specifically, to alleviate worry about predictions just like this one. The market will go up and down, timing it is a losing game. The alternative is to put your money in FDIC bank accounts earning 0.8% or CDs earning not much more at 1.75%, if you don't mind managing them all. Good story to read, I like the post. But we should TRY not to get wrapped up into predictions.


I agree, I love this forum because it is about the long term. I have lost my ass playing the stock market day trading during college. One night I would make $1,200 and buy my friends whatever they wanted at the bars. The next Monday I would lose that $1,200, not to mention the $300 I spent at the bars. But loosing around $5000 total was well worth it for me. It got me into using the theories discussed in this forum at the age of 23, which I feel is incredibly valuable.
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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by Ed 2 » Sun Mar 18, 2012 2:01 pm

Is a 2012/2013 Market Collapse Inevitable? Hmmm... Answer: maybe yes,maybe not.Don't care. More "not" than "yes" or otherwise. I hope it will plunge, then I will buy more.:) My experiences tells me most of the collapses occur when none expected. I listen and watch on TV a lot of "financial gurus" wary conservative in their predictions which makes me to be optimistic let say for the next couple of years. VIX been lately very low, in my opinion good for investors,not good for traders.
We are investors- buy and hold for the long run. :moneybag
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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by Imperabo » Sun Mar 18, 2012 2:06 pm

ericfox11 wrote:I agree, I love this forum because it is about the long term. I have lost my ass playing the stock market day trading during college. One night I would make $1,200 and buy my friends whatever they wanted at the bars. The next Monday I would lose that $1,200, not to mention the $300 I spent at the bars. But loosing around $5000 total was well worth it for me. It got me into using the theories discussed in this forum at the age of 23, which I feel is incredibly valuable.



Indeed, a cheap lesson well learned. I paid more myself. You're way ahead of the game.

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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by gkaplan » Sun Mar 18, 2012 3:19 pm

U.S. Stocks were in a free fall in 2011, at least according to one poster, so that will mean three straight years of market collapse.
Gordon

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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by Ed 2 » Sun Mar 18, 2012 8:25 pm

gkaplan wrote:U.S. Stocks were in a free fall in 2011, at least according to one poster, so that will mean three straight years of market collapse.


ha-ha :D I bet that poster sold of his equity portion or stayed mostly in bonds and hoped been proved right on his actions. Now he maybe in disbelieve with his wrong market timing :wink: Therefore I never tried time the market,not even ones.
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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by NERD777 » Sun Mar 18, 2012 8:57 pm

Yes the FED, ECB, BOE, BOJ, etc. do have a major influence to some degree in the equity markets. Yes there is some serious pricing in of QE3 in this market if the economy indicators started to deteriorate. I guess how you define collapse is the real key here. IS 2007-2008 what you are referring too? If so I highly doubt it, the FED would not allow it to happen. The three major things that could cause a downturn of that magnitude in the next two years in my opinion is complete collapse of the EU, a confidence crisis in either Japan, UK, or USA (highly highly unlikely in the next two years, inevitable when your period is n) or a conflict with Iran which sends oil prices to the moon and destroys the worldwide economy. Honestly #3 is probably the most likely of the three unlikely scenarios. --political comments deleted--

Now if you mean a downturn like we saw in August then I would say if your portfolio needs to be less aggressive if you can't stomach that drawdown. Bad things happen often, and over the lifetime of an investor episodes like that can and will happen again and again and again. I would definitely consider myself an atypical boglehead (maybe I'm not quite a boglehead but oh well) but when you discuss whether or not things are overvalued right now it gets tricky. ALL ASSETS are pricing in a decent probability of QE3, equities, bonds, gold, etc. That's what an increase in central banks balance sheets does, inflate all asset classes. I mean personally I would consider longer term bonds MORE overvalued than equities right now. And you know what I do about it in my personal portfolio? A whole lot of nothing. I have treasuries in there for a reason. I have equities there for a reason. I have high yield there for a reason. I have corporate there for a reason. I have a small amount of metals in there for a reason. No matter what happens to the market I consider my portfolio the BEST portfolio to provide me with adequate returns AND allow me to sleep like an angel night in and night out. Don't overlook the latter part of that statement. Some can do it with 100 equities, some can't, the biggest key is knowing where you stand.

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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by umfundi » Sun Mar 18, 2012 9:02 pm

Is your friend fabulously wealthy? Does he call both ups as well as downs?

I mean, I know you believe he has a theory. But, do you believe he manages his own money particularly well?

I think you should just do a "reset" on your investment philosophy, and move ahead. Somewhere in the back is a tiny hole. Straighten a paperclip, stick the end in the hole, and hold for 5 seconds. Erase all memory, reset all options to default. Then go to Bogleheads.

Seriously, I have seen a number of cases where successfully (accidentally?) calling a market downturn has proved very damaging in the long run. People become perpetual bears, and can never bring themselves to reinvest. They become convinced that timing works, but can never make a decision about it.

Are you really correct about your own experience? Have you done the rigorous calculation of where you would now be if you had not done what you did?

At some point you sold something. At some later point you bought some other thing.

Where would you really be if you had not made the first sale, but rebalanced into those same investments at the later point?

Keith
Déjà Vu is not a prediction

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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by Ed 2 » Sun Mar 18, 2012 9:05 pm

umfundi wrote:
I think you should just do a "reset" on your investment philosophy, and move ahead. Somewhere in the back is a tiny hole. Straighten a paperclip, stick the end in the hole, and hold for 5 seconds. Erase all memory, reset all options to default. Then go to Bogleheads.



Keith


:thumbsup
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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by HongKonger » Sun Mar 18, 2012 9:17 pm

I am expecting a crash here in Hong Kong between Q4 2012 and Q1/2 2013 ...just because it happens every 5 years. I shall be buying another apartment when it happens.

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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by Ed 2 » Sun Mar 18, 2012 9:32 pm

HongKonger wrote:I am expecting a crash here in Hong Kong between Q4 2012 and Q1/2 2013 ...just because it happens every 5 years. I shall be buying another apartment when it happens.

5 years... hmm. We just entered the 6th year of plunging home prices in USA some arias are steal going down [9% down year to date], good luck with your market timing.
"The fund industry doesn't have a lot of heroes, but he (Bogle) is one of them," Russ Kinnel

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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by ef11 » Sun Mar 18, 2012 9:52 pm

Maybe I should have been more clear in my first post that this is NOT my investing strategy and do not plan to change the way I invest at all due to this gentleman's concerns...

And the title "Is a 2012/2013 Market Collapse Inevitable" was more of a title to get people to read this thread and respond with their insights, not really a question I was asking. Think of it more as a title to an article that catches your attention...

Either way, this has had a lot of replies and discussions so I think it did its job and a lot of your points are very well taken i.e. does he also call up movements as well as down movements. Very good point.
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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by supraacumen » Sun Mar 18, 2012 10:04 pm

ericfox11 wrote:Now I know none of you know who this person is, or his credibility, but he warned my family of the 2008 crisis, and we pulled all of our money out of the markets in 2007 and didn't lose a dime in the crash. We got back in around the DJI 8,000 mark. So obviously this guy has some credibility in my eyes.


My apologies for my earlier assumption; however, this statement makes it sound like you personally, along with your family, believed his predictions in 2008.

ericfox11 wrote:When asked what his position on the markets was currently, the below was his response:


With this quote, it makes it sound that you might/are planning to take a similar course of action (i.e., you wouldn't ask for his position without seriously considering market timing).

ericfox11 wrote:Maybe I should have been more clear in my first post that this is NOT my investing strategy and do not plan to change the way I invest at all due to this gentleman's concerns...

And the title "Is a 2012/2013 Market Collapse Inevitable" was more of a title to get people to read this thread and respond with their insights, not really a question I was asking. Think of it more as a title to an article that catches your attention...


A catchy title, eh? I seem to recall a previous discussion on this very same topic :D. And you seem the overwhelming response, as compared with the last thread.

Much of my first response was truly out of apathy. I read the letter/article, and I just don't care. Your friend presents interesting theories and conjectures, but, again, I hear a lot of these same things all the time, and it is all pretty much noise at this point. Sorry to be blunt, but my apathy with articles like this has been honed over a few years.
I know nothing except the fact of my own ignorance. - Socrates | | The only money made in newsletters is through subscriptions, not from taking the advice. - Malcolm Forbes

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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by steve roy » Sun Mar 18, 2012 10:12 pm

... he warned my family of the 2008 crisis, and we pulled all of our money out of the markets in 2007 and didn't lose a dime in the crash. ...


Even blind squirrels find the occasional nut.

Your friend has probably made wrong calls along with right ones. But if his predictions are off by a couple of years, are they credible? If they're off by, say, ten years, are they worth looking at? I would say no.

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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by Watty » Sun Mar 18, 2012 10:29 pm

It just happens that I was at a thrift store yesterday and I picked up these books to put on my bookshelf to remind me to be cautious about what the pundits say.


The Great Depression of 1990 Ravi Batra

http://www.amazon.com/Great-Depression- ... 0440201683


The Roaring 2000s: Building The Wealth And Lifestyle You Desire In The Greatest Boom In History Harry S. Dent

http://www.amazon.com/The-Roaring-2000s ... 122&sr=1-1



I know that I can't predict the future(at least not accurately) but my gut feel is that you friend has spend a lot of time looking around the internet and picked up a bearish sentiment.

As odd as this sound instead of being bad for the markets this might just as well be a good contrary indicator that the market could do well.

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novastepp
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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by novastepp » Sun Mar 18, 2012 10:29 pm

It took him a page to say that when we, as a country, decide to finally balance our budget and reduce our debts, we will have to deal with some tough times.

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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by sschullo » Sun Mar 18, 2012 10:36 pm

I have one prediction. UNCERTAINTY. Get used to it. It will never go away.
Public School K-12 Educators: "Ask NOT what your annuity sales person can do for you, ask what you can do to be a Do-It-Yourselfer (DIY)."

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wjo
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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by wjo » Sun Mar 18, 2012 10:39 pm

I have a colleague who makes fun of me for using "those index funds." He has been on the sidelines during the recent run up, expecting a dip. While there, I've been happily watching my balances go up. A little more growth and I'll be taking some profit to set my allocation back to my desired amounts -- so I will likely have made some money from the recent run up even if there is a subsequent dip.

If there is a crash, and he can identify the bottom, well, good for my colleague. If there isn't a crash, well, he's not going to get that growth he wants...

If there is a complete market meltdown and stocks and bonds become worthless, we will all have bigger problems.

If there is a crash, I'll rebalance according to my asset allocation and IPS, and make some money during the recovery. Since I have a long time frame, in a strange way, a crash works in my favor and I can rebalance and keep putting in new money at lower valuations.

Put simply, have a decent amount of bonds along with your stocks. Rebalance when needed. Stay the course. It will all work out in the end.

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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by Tuxx » Sun Mar 18, 2012 11:22 pm

The foreclosures flood gates have opened up with the settlement. The 99ers are dropping out of the employment numbers and taxes will be going up in 2013. Gas prices are really starting to pinch the check to check folks. Those are a few that are on my radar.

I have been lightening up on tech stocks - owned AAPL since 2002 - sold all shares, got out of bonds in December. Opened Utility, Telecom and Consumer Staples ETFs last week.

Plan to be out of all tech stocks this week. Keep building cash and adding to my defensive stocks on dips.

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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by Tuxx » Sun Mar 18, 2012 11:26 pm

Reading this thread and others - the bashing of anyone that is worried the market will go down has my Spidey Senses tingling.

It reminds me of the threads of the folks that were worried subprime was going to cause a crash and how they were bashed endlessly.

Markets go up and down - if you only trade the up, you lose the potential for great gains on the down also.

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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by HongKonger » Mon Mar 19, 2012 12:09 am

Ed 2 wrote:
HongKonger wrote:I am expecting a crash here in Hong Kong between Q4 2012 and Q1/2 2013 ...just because it happens every 5 years. I shall be buying another apartment when it happens.

5 years... hmm. We just entered the 6th year of plunging home prices in USA some arias are steal going down [9% down year to date], good luck with your market timing.


Thank you.

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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by james22 » Mon Mar 19, 2012 12:50 am

I agree with your friend up to and including "I can offer no advice."
This whole episode is likely to end so badly that future children will learn about it in school and shake their heads in wonder at the rank stupidity of it all... Hussman

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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by Ed 2 » Mon Mar 19, 2012 7:33 am

HongKonger wrote:
Ed 2 wrote:
HongKonger wrote:I am expecting a crash here in Hong Kong between Q4 2012 and Q1/2 2013 ...just because it happens every 5 years. I shall be buying another apartment when it happens.

5 years... hmm. We just entered the 6th year of plunging home prices in USA some arias are steal going down [9% down year to date], good luck with your market timing.


Thank you.

Don't you assumed that agreed with you? My point was that it is a loosers game market timing in any markets. Look the home prices after the Grate depression in US and how long it took to recover.(15years) You guys in China been subsedized by goverment grately, witch cruated huge bubble in home prices and that ain't less than our latest 2008 subprime crisis. You just started witnessing it.
"The fund industry doesn't have a lot of heroes, but he (Bogle) is one of them," Russ Kinnel

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stemikger
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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by stemikger » Mon Mar 19, 2012 8:50 am

wjo wrote:Put simply, have a decent amount of bonds along with your stocks. Rebalance when needed. Stay the course. It will all work out in the end.


If I were to try and move everything in the safety of cash in my 401K, it would not work for me. My plan only lets you do one request a month, so there is no way I can run and hide today and see the change reflected in my plan tomorrow.

However, as a Bogglehead investor, that is not what we do. You should be diversified according to your age and need and ability to take and handle risks. So as a Bogglehead you are always ready for good, bad or an indifferent market.

And finally, as another poster said, if equities and bonds become worthless, what your portfolio looks like is the least of your problems. Lock the doors, get the guns and run into your safe room with two years of canned goods. LOL.

Stay the Course and don’t worry about the Zombie Apocalypse.
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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by Tom_T » Mon Mar 19, 2012 9:03 am

stemikger wrote:And finally, as another poster said, if equities and bonds become worthless, what your portfolio looks like is the least of your problems.

I don't think that's what the other poster said. It's not that both equities and bonds will become worthless -- it's that they both drop because of a market correction/crash and rising rates. That is certainly plausible. Being diversified doesn't mean your entire portfolio can't crater. But, naturally we can't predict the future.

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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by White Coat Investor » Mon Mar 19, 2012 9:09 am

I would say that almost for sure there will be some kind of significant downturn in 2012 or 2013. There is some kind of downturn every year or two. Look at the 3rd quarter of 2011 for instance. TSM was down 15%. That's nearly a bear market.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by Clearly_Irrational » Mon Mar 19, 2012 2:00 pm

Inevitable is a big word, so is "the market". They're too broad to really mean anything.

In general markets are moved by news in the short term, macro factors in the medium term and demographics in the long term. In the short to medium term, barring an "event" like a war with Iran, I expect the rally to continue here in the US. Europe has temporarily halted their collapse but hasn't fixed the fundamental issues. The BRICs will muddle through since the US is doing well but Europe is not. If gas prices continue to increase the US recovery may slow.

If you have a properly diversified portfolio there shouldn't be any need to try and predict all of that.

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ladders11
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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by ladders11 » Mon Mar 19, 2012 2:02 pm

But, let's say that it was guaranteed that the S&P dropped 400 points over a three-month period in 2012 or 2013. Does this mean we should absolutely sell our equities now? No. If the S&P were to increase 600 points, and then drop 400, it would be a bad idea to sell right now.

If anyone says the market will crash/correct/turn-down, they need to know what level it will rise to before this crash, and specifically when the crash will begin.

I can relate to those who suggest that the Fed, TARP, ZIRP, and QE have made the markets feel "fake," but that still doesn't tell us whether the future will bring more "money printing" and "economic stimulus" or less or the same amount. They could do more of this. It is an election year for cripes sake.

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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by NERD777 » Mon Mar 19, 2012 6:46 pm

Another thing people seem to forget is the price of stock and therefore the price of the market is simply what another individual is willing to pay for it. Is AAPL worth 600 a share? It may be more or less. But as of today perceptions of investors deem that appropriate. Trading is about these perceptions, long term investing is about creating wealth. Perceptions will change as will valuations. In the long run, companies tend to generate profits for investors.

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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by Tuxx » Tue Mar 20, 2012 7:40 am

ladders11 wrote:If anyone says the market will crash/correct/turn-down, they need to know what level it will rise to before this crash, and specifically when the crash will begin.


I sold the last of my tech stuff yesterday. The must buy, buy, buy tech to join the AAPL parade was giving me this time in 2000 flashbacks.

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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by bucksfan2 » Tue Mar 20, 2012 2:35 pm

Yes, no, maybe, I don't know.

You turn on CNBC, read Marketwatch, read the WSJ, listen to NPR's Marketplace, etc. you will hear "permabears" talk about this constantly. There is always someone out there who can turn news into bad news. There is always someone out there who can make a bearish argument. All of what the original post said is known and pretty much priced into the market. There can be something that could trigger a "collapse" but for the most part these types of events cause a sell off but a nice rebound. Its the events that blindside you that devistate the market and cause it to collapse.

What happens if the Iran situation doesn't escalate much furtuer and gas eases? What happens if there is no earthquake and tsunami in Japan this year? What happens if China has a soft landing and Europe doesn't get any worse and starts to get better? If things remain calm and the US economy continues to improve, albeit gradually, the market will react in a similar manner. If SHTF then I think you will see wild swings in the market. A collapse inevitable, is anything inevitable?

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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by Ed 2 » Tue Mar 20, 2012 5:01 pm

Tuxx wrote:
ladders11 wrote:If anyone says the market will crash/correct/turn-down, they need to know what level it will rise to before this crash, and specifically when the crash will begin.


I sold the last of my tech stuff yesterday. The must buy, buy, buy tech to join the AAPL parade was giving me this time in 2000 flashbacks.


Oh yea?
Than why you did't post this message yesterday when market was up?
According your past you sold all equity's long time ago and all bonds too. You wrote: "I got out of bonds in December". What are you trying to sale? Mattresses here? :annoyed
"The fund industry doesn't have a lot of heroes, but he (Bogle) is one of them," Russ Kinnel

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danwhite77
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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by danwhite77 » Tue Mar 20, 2012 5:09 pm

Without opining on its validity, thanks for posting your friend's analysis. I found it interesting.

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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by Lumpr » Tue Mar 20, 2012 5:25 pm

ericfox11,

I started read and think about the quoted material.

When I started to run into unsupported statements of fact my natural state of skepticism heightened. For example:

Share volume is extremely low, . . .


Is it true, heck if I know. However, but it seems to me one should provide some support for statements like this.

When I started running into logical inconsistencies such as:

For this reason, the retail investor has largely departed the markets. . . . I think there is already some distribution going on, where the big boys (hedge funds mainly) are selling into the dumb-money retail folks.


Huh? How much could they be selling into retail if retail has largely departed the markets. Is there a way in which those statements can be reconciled? Probably, but that is the author’s duty not mine though.

At that point, I quit. Are the author's conclusions valid? I don't have a clue. But what the author wrote isn't even compelling enough for me to finish reading it.

Just my $.02.

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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by dave66 » Tue Mar 20, 2012 5:30 pm

bucksfan2 wrote:Yes, no, maybe, I don't know.

You turn on CNBC, read Marketwatch, read the WSJ, listen to NPR's Marketplace, etc. you will hear "permabears" talk about this constantly. There is always someone out there who can turn news into bad news. There is always someone out there who can make a bearish argument.


Saw two different news pieces today where the talking heads were happily reminding everybody that the European situation is still a potential major pitfall in the future. The whole future is a potential pitfall in the future! The market has finally started to have a positive vibe, but these people just always have to inject their doom and gloom. God forbid the general public have a single day go by where they aren't terrified of something. I just really wish all these people would shut their mouths and let nature take it's course.

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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by dratkinson » Tue Mar 20, 2012 5:36 pm

I've been following this topic looking for action steps---I got nothing, and don't have the knowledge/experience to support/refute the arguments. So I must fall back on:

http://en.wikiquote.org/wiki/Warren_Buffett wrote:Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy when others are fearful. -- Warren Buffett


So I'll follow my IPS and stay the course.
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

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Re: Is a 2012/2013 Market Collapse Inevitable?

Post by Ed 2 » Tue Mar 20, 2012 5:37 pm

dave66 wrote:
bucksfan2 wrote:Yes, no, maybe, I don't know.

You turn on CNBC, read Marketwatch, read the WSJ, listen to NPR's Marketplace, etc. you will hear "permabears" talk about this constantly. There is always someone out there who can turn news into bad news. There is always someone out there who can make a bearish argument.


Saw two different news pieces today where the talking heads were happily reminding everybody that the European situation is still a potential major pitfall in the future. The whole future is a potential pitfall in the future! The market has finally started to have a positive vibe, but these people just always have to inject their doom and gloom. God forbid the general public have a single day go by where they aren't terrified of something. I just really wish all these people would shut their mouths and let nature take it's course.

Agree.
"The fund industry doesn't have a lot of heroes, but he (Bogle) is one of them," Russ Kinnel

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