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Don't Be Surprised if Stocks Drop 50%

Discussion in 'Financial Cents' started by tulianr, Aug 2, 2014.

  1. tulianr

    tulianr Don Quixote de la Monkey

    The Dow tanked more than 300 points today, and the market in general has been "sputtering" of late, writes Henry Blodget at Business Insider. So are we on the brink of that correction everyone seems to be talking about? Blodget says that he, like everyone else who writes about the market, doesn't know.

    But what he does know is that stocks are currently overvalued by "every valid historical measure." And that doesn't bode well, because it can signal not just a minor correction on the horizon but a market crash. "I would not be surprised to see stocks fall ~50% from this level in the next few years," he writes. "And, if that happens, you shouldn't be surprised either."

    Naysayers argue that the market has hit a "permanently high plateau," but Blodget doubts it. Expensive stocks, unusually high corporate profit margins, and Fed tightening could combine to do nasty things to portfolios soon. Still, Blodget isn't selling his stocks or suggesting that others do so. But at the very least, investors "should be mentally prepared for the possibility of a major pullback and lousy long-term returns. "

    Don't Be Surprised if Stocks Drop 50% - Henry Blodget says we should at least be prepared for the possibility
  2. DarkLight

    DarkLight I self identify as a Blackhawk Attack Helicopter! Site Supporter

    The word "permanent" has no meaning when used to describe anything related to the stock market. That's the most absurd thing I've heard in a long time.
  3. kellory

    kellory An unemployed Jester, is nobody's fool. Banned

    Like saying "I always get the best hand in poker."
    AmericanRedoubt1776 and tulianr like this.
  4. 3M-TA3

    3M-TA3 Cold Wet Monkey

    We have been a bubble scam based economy since dot bomb in the late 90's. Make something a "hot" investment (stocks, land, gold, bitcoin, you name it), wait for the lemmings to go deep, pull out your profits, collapse ensues (lemmings lose their @$$es), government intervention to stabilize (mostly to make sure their buddies/big donators don't go to prison), time to cloud lemming memory, was, rinse, repeat.

    Honestly, I think there is a star chamber somewhere where they are taking bets on how blatant obvious and ludicrous they can make the next one without the lemmings popping their heads up and recognizing that the cliff is too high to survive the fall (again).

    The current stock market bubble looks to be Dot Bomb 2. Do you really think there is one iota of real value in FaceBook, Twitter, etc? It's all vapor, hell, I can almost hear the fuse burning.

    The second issue leading to a bubble is out of control quantitative easing. The govt says little to no inflation caused by QE, but my groceries and bills have gone up so much in the last year that I swear somebody snuck 2 teenagers in my house. Maybe it's different where you live... As Penn and Teller would say "Bullshit!". The obvious goal of current economic policy is to split us into elite and peasant classes, and we are now less than a generation away.

    The third factor I see is what will happen when ebola makes it to the productive workforces in North America, Europe, and Asia. Ebola makes the black plague look like a summer flu. The only good news about having 80 to 90 percent of everybody you know dying is that your stock portfolio won't matter anymore, because you will be focused on day to day survival.
  5. kellory

    kellory An unemployed Jester, is nobody's fool. Banned

    I understand, you can set an automatic sell point, that will sell off any stock as it falls beyond your risk level. Or, you can ride it to the bottom, buying stocks as you go (more stocks per dollar), then as the market rises again, those stocks are worth much more than what you invested.
    My brother is a wall street guy. The math I've seen says, the very BEST money maker, in the long run, is a "U" shaped profit chart. With the same weekly investment, it yields the highest return.
    So pick stocks now, That you believe will be coming back up, buy now in those stocks as you can.
    TheEconomist likes this.
  6. Airtime

    Airtime Monkey+++ Site Supporter

    It is a bit amusing/interesting how stocks can be deemed "over valued" in terms of a currency with no intrinsic value. It could be argued that the stocks (representing the real assets and business potential for a corporation) actually have intrinsic value and the higher stock prices are actually representing a de-valuation of the dollar. Especially with the Fed printing 85 billion a month as part of the quantitative easing game. If this is the case, then a correction would not be in order.

    The truth is probably somewhere in the middle. I note that often the people promulgating these doom and gloom scenarios are trying to sell precious metals or investments in other assets such as farm land (now that is overvalued relative to the amount of FRNS it can generate!)

  7. ghrit

    ghrit Ambulatory anachronism Administrator Founding Member

    That, to me, is closer to the truth than any other noise coming off the street. Seems to me that the value remains, regardless of price demanded. Either there is underlying value, in which case buy. If no underlying exists, don't buy. It's buyer's risk to make that determination.
  8. kellory

    kellory An unemployed Jester, is nobody's fool. Banned

    Well, my 401 is based on growth. I believe in this country and it's people. I made a firm choice when I set it up, and I have never wavered from that belief. If I am wrong, if I bet on a loser, then I will work till the day I die.
    AmericanRedoubt1776 likes this.
  9. -06

    -06 Monkey+++

    Kellory, appreciate your patriotic attitude and optimism but fear it is poorly founded. When you let others play with your money--in the end they will be playing with your money. Do your own investing. You are no dummy. Buy things that will not lose their value, buy some that are nearly liquid, and some that are. Dad said the real value is what you can sell something on the quick market.
    AmericanRedoubt1776 likes this.
  10. kellory

    kellory An unemployed Jester, is nobody's fool. Banned

    Did I mention my brother is a broker...;)
  11. Airtime

    Airtime Monkey+++ Site Supporter

    Good investment advisors ALWAYS recommend diversification for your portfolio: spread your money over lots of different investments of different types and in different sectors of the economy. To me this is good advice but often their vision is too limited to simply a broad mix of stocks, bonds and T-bills. On the flip side I have a friend who has ALL his retirement sitting in gold and silver in two safes in his house.

    My thinking is why stop with the diversification at stocks and bonds? Employ a mix of conventional investments, farm land, silver (both junk and very pure as I can make colloidal silver or solder with junk), gold, solar system on the house, other off-grid investments for water (well) and heat, cash stashed in safe, tools, truck farm equipment (small tractor, planter, tiller, sprayers, some farm chemicals) etc.

    My investment plan could be summed up as:
    1. Have normal investments for the scenario that SHTF doesn't happen,
    2. Make our home capable of running off-grid as that cuts our expenses dramatically in retirement and helps us survive SHTF.
    3. Have assests that have intrinsic value and can produce food or income,
    4. Have some assests that are very liquid, easy to transport, hard to confiscate, I alone secure and control.

    That to me is diversification but it's also JMO. YMMV.

  12. VisuTrac

    VisuTrac Ваша мать носит военные ботинки Site Supporter+++

  13. BTPost

    BTPost Old Fart Snow Monkey Moderator

    Not much Bacon, on that Piggy......
    AmericanRedoubt1776 and VisuTrac like this.
  14. fedorthedog

    fedorthedog Monkey++

    It seems like no one in the market knows what the book value is anymore
    vonslob likes this.
  15. gunbunny

    gunbunny Never Trust A Bunny

    Lots of money leaving junk bonds at the moment. The original term for this was called a six-sigma event, and last happened in 2008... Just something to think about.
    vonslob and tulianr like this.
  16. gunbunny

    gunbunny Never Trust A Bunny

    BTFATH! (Formerly replaced the saying BTFD, because we don't really get too many dips anymore)
    Brokor likes this.
  17. kg4jxt

    kg4jxt Monkey

    just my two cents, so to speak, but I have been "investing" for many years with good success (>8% annual return) and there are two points I would make:

    first, the "Peter Bogle" method of buying and holding a fixed percentage of equity (in my personal case this is 70%) has been great; I don't like investing so don't want to either have to fool with it or worry about it. Every six months I re-balance to 70% - if the market is up, I take profit and buy bonds - if the market is down, I sell bonds and buy stocks "on sale". I buy the S&P 500 via index fund (VFINX). When the market has really tanked in the past, this has taken some mental discipline but it has paid off. I kept buying into the 2008 meltdown and what I lost on the downslide I more than regained on the upside in 2009 and 2010 (with no stress and no reading of boring financial columns).

    second, the exponential advances in computerization which will cause so much civil unrest and social turmoil in the next decade or two, will also vastly increase the profitability of the corporations that free themselves of their labor force. Profitability will soar. Being in the market for the long haul will be very beneficial IMHO. I am there!
  18. vonslob

    vonslob Monkey++

    If the stock market as a whole was to drop 50% I would be a stock buying fool. A sub 1000 s&p would cause me to do everything i could to have more money to put into the stock market. I would be so desperate for investment capital i would steal my neighbors garden hoses and sell them on craigs list. If the market was to drop to zero what good would money be? Buy when everyone else is selling, sell when everyone else is buying.
    kg4jxt likes this.
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