Why is The American Stock Market going to crash?

[amanda more]

Now that is is eminent it does seem it was inevitable.

 

We can see how deeply horrible the economy is. Unless you are in Washington DC. But Wall Street has to have known it.

 

I am currently resigned that it was only a matter of time. Have you moved your 401k out of stocks? If not-why not (there is no penalty for shifting investments)

 

Still what are the reasons the street and the country are crashing? I can think of factors- can you?

[jackson33]

amanda; I hope your not thinking if the Stock Market did crash (it won't), that being insured through FDIC would protect your original investment from the lost value, which it won't. Depending on where your account is held and if FDIC secured, that bank/saving & loan of whatever fails, your account will probably first be bought or assumed by another financial institution, or if their are no buyers (highly unlikely) then the FDIC would assume your account.

 

Many people are cashing in their 401's, taking some substantial losses and I really feel making a serious mistake. Anyway, I'm not sure what you mean by moving to an FDIC insured company, since no program would ever be set up otherwise. There were some changes, actually for the better, more value insured and if your over the new limits, highly unlikely, their are other remedies your financial adviser can advise yo on.

 

For the first time in more than 25 years, Congress has raised the limit on federal deposit insurance coverage, which protects against loss if a banking institution fails. However, the higher insurance limit only applies to certain kinds of retirement accounts that people may have at banks and savings associations insured by the Federal Deposit Insurance Corporation (FDIC) and at credit unions insured by the National Credit Union Administration (NCUA).

The FDIC wants bank customers to know what's new and what hasn't changed. [/Quote]

 

http://www.womens-finance.com/retirement/fdicchanges.shtml

[swansont]

If you are one who reacts emotionally to fluctuations in the market, you shouldn't be investing in stocks. You tend to sell low and buy high.

 

 

Just for reference, closing levels for this past Friday

DJIA 11,444.61

NASDAQ 2,532.41

S&P 500 1,199.38

[iNow]

Many people are cashing in their 401's, taking some substantial losses and I really feel making a serious mistake. Anyway, I'm not sure what you mean by moving to an FDIC insured company, since no program would ever be set up otherwise.

I suspect she's thinking of something to do with IRAs, wherein the account holder can choose to hold their money in either an FDIC insured deposit account or instead in a money market account which is comprised of mutual funds and other similar portfolio options. I agree with Jackson, though, that the question doesn't make much sense given the context. The banks are not (currently) at risk of failing, so the FDIC isn't going to help much here. If the market crashes, that value is lost (for now... again, I agree with Jackson that it's best to hold now... not sell... but, in fact, buy while costs are rock bottom).

 

As to the thread question, a lot of the negative performance in the markets right now is due to activities in Italy and Spain. The S&P downgrade isn't helping, but I can't blame the S&P since it's really the insanity in the US congress right now that has global markets spooked. The Nikkei just opened, and other markets in Asia open soon. It will be interesting to see what they do. It's not solely related to the US credit rating, though, whatever happens.

 

You tend to sell low and buy high.

Who's this? As a general rule, folks should do the opposite. Were you suggesting Amanda comes across as the type to make that error?

[swansont]

Who's this? As a general rule, folks should do the opposite. Were you suggesting Amanda comes across as the type to make that error?

Anyone who's panicking right now and selling is selling after a big drop. That's selling low, and it's a bad strategy. I haven't seen any analysis from Amanda, just an insistence that the market is going to crash. If I had seen an analysis it would include many companies with increasing profits and low P/E ratios; a temporary drop in prices is a buying opportunity, not a cause to jump out of the market.

[Hal.]

People don't like the fact that last friday they had a bad friday so they think they are going to have a bad friday this friday . People don't like the fact they had a bad september 2001 and there is something about adding a decade , though did it happen with a 7 ?

[Realitycheck]

Did you hear some fearmongering on television or something? The market went on a little run down, but there are plenty of decent fundamentals in place to avoid foretelling a crash. Maybe a bit of residual debt ceiling hysteria, but it's not like the sky actually fell. The U.S. isn't perfect.

[amanda more]

Did you hear some fearmongering on television or something? The market went on a little run down, but there are plenty of decent fundamentals in place to avoid foretelling a crash. Maybe a bit of residual debt ceiling hysteria, but it's not like the sky actually fell. The U.S. isn't perfect.

 

It doesn't matter if it is chicken and egg. If the American economy is deteriorating then the stock will absolutely go down.

 

The only question is when.

 

I just found out the multimillionaires that hang out where I do have been in cash for several weeks. As Republicans they had to have some insider information on that.

 

So, treat it as a theoretical question. If the stock market was going to crash tomorrow what would be the reasons?

 

401Ks have a mechanism to choose investments. So maybe it is treasuries instead of an account but one can angle it for FDIC insured or government backed.

 

If you are one who reacts emotionally to fluctuations in the market, you shouldn't be investing in stocks. You tend to sell low and buy high.

 

 

 

 

Don't worry my pretty little head about it really? Check out PBS online or google it. Ask any Wall Street guy that isn't selling you something. It works on emotion. And now is actually high.

 

 

 

 

amanda; I hope your not thinking if the Stock Market did crash (it won't), that being insured through FDIC would protect your original investment from the lost value, which it won't. Depending on where your account is held and if FDIC secured, that bank/saving & loan of whatever fails, your account will probably first be bought or assumed by another financial institution, or if their are no buyers (highly unlikely) then the FDIC would assume your account.

 

Many people are cashing in their 401's, taking some substantial losses and I really feel making a serious mistake. Anyway, I'm not sure what you mean by moving to an FDIC insured company, since no program would ever be set up otherwise. There were some changes, actually for the better, more value insured and if your over the new limits, highly unlikely, their are other remedies your financial adviser can advise yo on.

 

 

 

http://www.womens-fi...icchanges.shtml

 

It turns out when it is your money (the people on this forum) and losing actual cash is eminent. What do we have? Emotion.

 

The market is forward looking meaning it is not as it is but what people think it will do. Again emotion.

 

Beyond that what are the fundamentals that are tanking the economy and the market? I don't need any particular order. I'll go first. "You can't have an economy based on a nurse, a doctor, a lawyer and a teacher." ie Destroy manufacturing then an economy tanks.

 

 

 

[DrRocket]

Anyone who's panicking right now and selling is selling after a big drop. That's selling low, and it's a bad strategy. I haven't seen any analysis from Amanda, just an insistence that the market is going to crash. If I had seen an analysis it would include many companies with increasing profits and low P/E ratios; a temporary drop in prices is a buying opportunity, not a cause to jump out of the market.

 

The market went down about 1000 pts in the last several days, based largely on hysteria and the unsurprising idiotic behavior of Congress. The value of my stocks dropped a small fortune. I can either sell, cementing the loss, and put the money in cash accounts yielding about 0 and holding dollars of questionable long-term value, or leave it invested in corporations that have strong balance sheets,produce useful products, pay dividends and invest in growing their business.

 

I think I can figure this out.

[amanda more]

 

 

Who's this? As a general rule, folks should do the opposite. Were you suggesting Amanda comes across as the type to make that error?

 

Eureka. I think I have my book concept.

 

http://www.cxoadvisory.com/2231/individual-investing/genetics-of-investing-not-algorithms/

 

First glance is rudimentary. But from that wonderful graph it looks like this. Suppose you are pretty much broke and have few assets.

 

In general,let's imagine vice is independent of IQ.

 

Those who have the highest IQs still dump their paltry assets into the stock market.

 

So the reason that those one discusses the market with find it especially emotionally charged assuming they have decent IQs is because they are overextended.

 

The next reason the market will crash:

 

"Just as the lottery has been rebranded a game, the stock market has been rebranded not a risk but an investment."

 

So, then wakeup call. "Oh,no. It is folly." Crash.

 

 

 

 

The market went down about 1000 pts in the last several days, based largely on hysteria and the unsurprising idiotic behavior of Congress. The value of my stocks dropped a small fortune. I can either sell, cementing the loss, and put the money in cash accounts yielding about 0 and holding dollars of questionable long-term value, or leave it invested in corporations that have strong balance sheets,produce useful products, pay dividends and invest in growing their business.

 

I think I can figure this out.

 

A crash will be 50%. Sell. Half of your investments.

 

 

 

 

Eureka. I think I have my book concept.

 

http://www.cxoadviso...not-algorithms/

 

First glance is rudimentary. But from that wonderful graph it looks like this. Suppose you are pretty much broke and have few assets.

 

In general,let's imagine vice is independent of IQ.

 

Those who have the highest IQs still dump their paltry assets into the stock market.

 

So the reason that those one discusses the market with find it especially emotionally charged assuming they have decent IQs is because they are overextended.

 

The next reason the market will crash:

 

"Just as the lottery has been rebranded a game, the stock market has been rebranded not a risk but an investment."

 

So, then wakeup call. "Oh,no. It is folly." Crash.

 

 

 

 

 

 

A crash will be 50%. Sell. Half of your investments.

 

 

 

 

The balance sheet is fiction. No changes after Enron. Off the book liabilities are huge. (<and another reason)

[Cap'n Refsmmat]

A crash will be 50%. Sell. Half of your investments.

Suppose DrRocket wants to cash in on his investments some years from now. Why should he sell investments now, when they're down, when a crash would be temporary and the companies may recover within five or ten years?

[iNow]

Anyone who's panicking right now and selling is selling after a big drop. That's selling low, and it's a bad strategy. I haven't seen any analysis from Amanda, just an insistence that the market is going to crash. If I had seen an analysis it would include many companies with increasing profits and low P/E ratios; a temporary drop in prices is a buying opportunity, not a cause to jump out of the market.

Indeed, we agree. I was just missing your intended point the first time I read it. I can clearly see now that you were suggesting that people who panic should avoid the market, as they will tend to make mistakes like selling low and buying high. Seems pretty obvious now. Thanks.

[swansont]

It doesn't matter if it is chicken and egg. If the American economy is deteriorating then the stock will absolutely go down.

 

The only question is when.

 

I just found out the multimillionaires that hang out where I do have been in cash for several weeks. As Republicans they had to have some insider information on that.

 

Being in cash before the drop is quite different from going to cash afterwards, wouldn't you say?

 

 

Don't worry my pretty little head about it really? Check out PBS online or google it. Ask any Wall Street guy that isn't selling you something. It works on emotion. And now is actually high.

 

I'll thank you not to put words in my mouth. I'm asking you to provide some kind of objective analysis. You're just waving your hands. Wildly.

 

Emotion is high. Those who are emotional are selling. My point.

[CaptainPanic]

The total value of the stock market is only supposed to represent a real economy. It represents investments in real goods, and real factories/people/knowledge/etc.

 

So, what I wonder is whether the stock market has just overestimated the health of the economy (I think so), or whether this is just a moment of panic and we'll get over it soon enough.

 

I think that the stock market has been ignoring some serious problems, and has created a bubble. The real economy's bubble has burst a while ago, especially the housing bubble. And it has not recovered yet. Prices are still lower than before. But the stock market which should normally follow this trend has largely ignored it.

 

The stock market is a funny thing. As I wrote: its value should represent a real economy, but if all the traders are just greedy, they can make themselves believe that the value can be a bit higher. And this common disbelief of problems can have driven the prices up a lot.

[swansont]

The total value of the stock market is only supposed to represent a real economy. It represents investments in real goods, and real factories/people/knowledge/etc.

 

So, what I wonder is whether the stock market has just overestimated the health of the economy (I think so), or whether this is just a moment of panic and we'll get over it soon enough.

 

I think that the stock market has been ignoring some serious problems, and has created a bubble. The real economy's bubble has burst a while ago, especially the housing bubble. And it has not recovered yet. Prices are still lower than before. But the stock market which should normally follow this trend has largely ignored it.

 

The stock market is a funny thing. As I wrote: its value should represent a real economy, but if all the traders are just greedy, they can make themselves believe that the value can be a bit higher. And this common disbelief of problems can have driven the prices up a lot.

 

The stock market, in general, is forward-looking: people buying or selling in anticipation of things getting better or worse. So for many it's not a matter of the economy being bad, it's a matter of whether it will get better or get worse. The real economy was much worse a few years ago, but then, the S&P500 dropped in half. (>1500 in late 2007, ~700 in Jan 2009). I submit that the market did not ignore the crash of the housing bubble and the effect on the economy. The market tanked. Why look for a crash? It already happened, 2.5 years ago.

[CaptainPanic]

The stock market, in general, is forward-looking: people buying or selling in anticipation of things getting better or worse. So for many it's not a matter of the economy being bad, it's a matter of whether it will get better or get worse. The real economy was much worse a few years ago, but then, the S&P500 dropped in half. (>1500 in late 2007, ~700 in Jan 2009). I submit that the market did not ignore the crash of the housing bubble and the effect on the economy. The market tanked. Why look for a crash? It already happened, 2.5 years ago.

You are right that the traders look to the future... but the stock market that we read about in the news today looks at the very near future: a couple of weeks, days, hours or in case of panic just minutes or seconds. So, because they look at such a short term, and you can win or lose several percent in a matter of minutes, the value of the stock market is quite disconnected from the real economy.

 

Indexes such as the DOW-Jones are almost back where they were before the big crash you talk about. Banks still trade debt. The whole system never changed.

 

The stock markets overestimated the value of the economy in 2008... now, while the real economy has not really recovered, stocks (average indexes, like the Dow) are back at the value of those days. I believe that it's too high. And I personally believe (it's a belief, not science) that there is a connection between the real economy and the stock market, no matter how abstract they've made it, and no matter how the trade works. Once in a while, the reality corrects the stock market... and that's what we're seeing now. There's nothing better or worse with the actual economy. It's just the stock market that has its numbers is seriously wrong sometimes.

[swansont]

You are right that the traders look to the future... but the stock market that we read about in the news today looks at the very near future: a couple of weeks, days, hours or in case of panic just minutes or seconds. So, because they look at such a short term, and you can win or lose several percent in a matter of minutes, the value of the stock market is quite disconnected from the real economy.

 

Indexes such as the DOW-Jones are almost back where they were before the big crash you talk about. Banks still trade debt. The whole system never changed.

 

The stock markets overestimated the value of the economy in 2008... now, while the real economy has not really recovered, stocks (average indexes, like the Dow) are back at the value of those days. I believe that it's too high. And I personally believe (it's a belief, not science) that there is a connection between the real economy and the stock market, no matter how abstract they've made it, and no matter how the trade works. Once in a while, the reality corrects the stock market... and that's what we're seeing now. There's nothing better or worse with the actual economy. It's just the stock market that has its numbers is seriously wrong sometimes.

 

No, stocks are not valued as highly as they were back then.

 

http://online.wsj.com/mdc/public/page/2_3021-peyield.html

 

Friday's P/E for DJIA was 12.82. A year ago it was 14.41. S&P500 was 14.48 vs 17.36 a year ago.

 

http://seekingalpha.com/article/285551-lowest-trailing-p-e-ratio-in-2-decades?source=yahoo

S&P P/E graph is near the bottom. P/E ratio now is below what it was for what looks to be all of 2000-2008, and well below what it was during the crash

 

As that article says: So don't be fooled: This recent selling is/was a bet, and only a bet, that we're headed into another recession. Maybe that's the case, but as they say, economists have predicted nine of the last five recessions.

[Realitycheck]

S&P dropped their rating to AA. I'm calling for a correction of, say 10% tops (Asia already closed down 5%), but a crash? It's not the end of the world. Sooner or later, they're going to bring back some of that money and scoop up some of those bargains. Is one rating letter worth 50%? I think not.

[mississippichem]

As that article says: So don't be fooled: This recent selling is/was a bet, and only a bet, that we're headed into another recession. Maybe that's the case, but as they say, economists have predicted nine of the last five recessions.

 

In the event of another crash like in 2008, I wonder if they will disallow put options again. If they don't, many stand to make a fortune on a crash.

[amanda more]

In the event of another crash like in 2008, I wonder if they will disallow put options again. If they don't, many stand to make a fortune on a crash.

 

Please,please don't be true. I am too discouraged to google it. Really could it be that the House majority leader put cash into a hedge fund that (and I have read nothing) that was doing Margin trading.

 

So my reason number 3. Why is the American Stock Market going to crash? Because the politicians knew bringing the debt ceiling to the brink would crash it.

 

Suppose DrRocket wants to cash in on his investments some years from now. Why should he sell investments now, when they're down, when a crash would be temporary and the companies may recover within five or ten years?

 

May. The stock market I firmly believe does make 6% a year as it has for the last 100 years. This was when America was up and coming. Still unless you plan on living forever, it may not recover in your lifetime.

 

The lottery prevents you from losing more than 50% here again assuming a lot of betting over many years.

 

4th reason: Why is The American Stock Market going to crash? Sales pitches that have lulled smart but not entirely flush players to risk their life savings because of the marketing hype that it is investment which sounds like savings. Its not. It is a bet and every three years or longer everyone realizes it.

 

So your turn. There have to be hundreds. Anyone for the topic?

 

Indeed, we agree. I was just missing your intended point the first time I read it. I can clearly see now that you were suggesting that people who panic should avoid the market, as they will tend to make mistakes like selling low and buying high. Seems pretty obvious now. Thanks.

 

iNow What is high?

[Realitycheck]

I just want to add, that on individual securities, you shouldn't wait till its worthless. Incorporating a stop/loss strategy is good. 80%? 90%? It's up to you. Money could be potentially better off somewhere else. How does performance compare to the market? This can be a good indicator of prevailing opinion regarding a particular stock, but I don't need to tell most of you that.

Edited August 8, 2011 by Realitycheck

[iNow]

Why is the American Stock Market going to crash?

Data suggests that it's because the markets don't see a path for growth right now. All they see is austerity and contractionary measures, and this is made worse since the change in our credit rating from S&P will make the cost of borrowing higher for the immediate future (this means it will be that much harder to grow). On top of that, based on the way trades looked today, the market had already factored in the political nonsense from the "brinksmanship" you reference. They were flying into US bonds like they were hot cakes, and that's a sure sign that they trust this is a good place for their money to be right now.

 

Also, why do you continue to focus on all of these conspiracy theories and just the US market? Global markets are down right now, not just the US, and largely all for the same reason. The path to growth is being hindered by bad policy and the need for bailouts in Europe. I get the sense that you want to understand these issues, but simply don't have enough information to do so, and you instead are replacing rational discussion with hysterics and conspiracy theories, which helps nobody and isn't useful when having a fruitful discussion.

 

As an aside, I expect we'll see some firm announcements tomorrow (or in the rather near future) from the European and US central banks to calm the volatility.

[amanda more]

I just want to add, that on individual securities, you shouldn't wait till its worthless. Incorporating a stop/loss strategy is good. 80%? 90%? It's up to you. Money could be potentially better off somewhere else. How does performance compare to the market? This can be a good indicator of prevailing opinion regarding a particular stock, but I don't need to tell most of you that.

 

The bog boys are out. You are right. But millions have salesmen/brokers BSing them into the long haul.

 

http://online.wsj.com/article/SB10001424053111904480904576496552754467380.html?mod=WSJ_hp_LEFTTopStories

 

Another reason: The big boys do use stop/loss and get out.

 

 

[Realitycheck]

This is just a minor point, but BOA went down because they got sued today over the mortgage crisis, for one. I wonder if there were similar disassociated reasons for the others.

Edited August 9, 2011 by Realitycheck

[amanda more]

Data suggests that it's because the markets don't see a path for growth right now. All they see is austerity and contractionary measures, and this is made worse since the change in our credit rating from S&P will make the cost of borrowing higher for the immediate future (this means it will be that much harder to grow). On top of that, based on the way trades looked today, the market had already factored in the political nonsense from the "brinksmanship" you reference. They were flying into US bonds like they were hot cakes, and that's a sure sign that they trust this is a good place for their money to be right now.

 

Also, why do you continue to focus on all of these conspiracy theories and just the US market? Global markets are down right now, not just the US, and largely all for the same reason. The path to growth is being hindered by bad policy and the need for bailouts in Europe. I get the sense that you want to understand these issues, but simply don't have enough information to do so, and you instead are replacing rational discussion with hysterics and conspiracy theories, which helps nobody and isn't useful when having a fruitful discussion.

 

As an aside, I expect we'll see some firm announcements tomorrow (or in the rather near future) from the European and US central banks to calm the volatility.

 

 

iNow, honest rhetoric has long been squished by those jazzed by wild eyed junk taking lots of bandwidth.

 

Yes, it smells of that and so I am so hoping it is wrong.

 

The underlying rot is a real reason. The stock market would inevitably crash. So that apparent wild eyed stuff just points for a way to have cash by timing the market.

 

Should they stop the delay and open up the dark market of derivatives that is 1200 trillion dollars worldwide. Over $120,000 for every man, woman, child.

 

Too bad I just don't have the makeup for all the fictional stuff. It must be great for those who can be soothed by recreational fiction wrapped up as real. Alas.

 

So balance sheets are currently a fiction. Check "The Warning" on frontline. The off balance sheet transactions are the 1200 trillion dollars.

 

Reason number whatever: The underlying rot of derivatives cannot be held back any longer from the light of day which brings to light that the companies are not profitable as their liabilities exceed their profit causing acknowledgment by the financial guys and a run away from stocks.