Why is The American Stock Market going to crash?

[Hal.]

Amanda ,

 

It was very interesting that when I went at the end of 2001 to find the U.S. stock market values for each close in 2001 , I observed that for a week after the attacks on New York indices were valued at 0 . Was nothing an accurate value of the U.S. stock market at that time or was that just because there was no calculated value ?

 

Imatfaal also gave an answer to a post above . Care to enlighten us ?

[amanda more]

You still haven't come up with convincing reasons why one should expect a 50% decline. But, even under the assumption that one might occur, why would it be any different than the 50% drop we saw in 2008/2009? i.e. a recovery of almost all of the drop over the course of several months? If I'm not in the market, I lose the opportunity for all that gain. I'm not buying stocks when they are the cheapest. My dividends are nonexistent, and don't get reinvested on the cheap.

 

What do I do with my newly-expanded cash position? Where can I get more than a percent or two return on it? I've seen the crash of '87 and the one after the new millennium/9-11 in addition to the housing bubble crash. The market recovered each time. My investing horizon is longer than the next year or two. If it wasn't, I shouldn't be in stocks.

 

 

 

This is a chart which shows what most of us can basically already understand. This isn't much of a recovery. It could be a new normal.

 

The stock market hates stagnation as iNow has pointed out. The technical term is lost 'opportunity cost'. If money is pulled out of a stock at $100 and it goes up to $20 then it will be a lost opportunity to make $20. The only reason I can guess that one might predict a 20% increase in stocks is that one is looking backward to some former price. That is not how it works.

 

My mom has the same outlook on everything based on her expert rating in Duplicate Bridge (Buffett, Gates play it) In bridge if you bid seven and make it and the other tables bid five and make it you win and they lose. But if you have a vase that in the top market made $700 and now sells for $500 it is a different story. $500 is a whole lot better than zero and not that different from $700.

 

You have actually not lost $200 and even if you paid $700 that is meaningless for the value. The vase is being exchanged for the asset as a vase and the asset as cash. Houses, everyone now realizes aren't worth $350,000 as some kind of hard number. A good is actually worth what others will buy. It doesn't matter if, historically, it was worth a million. The past is the past. If you sell, then you are then stuck with the value you sell for your books. But the sales price is independent of what you paid for it and you are actually not any more or less rich.

 

In a 50% crash one might look at a cash position that makes 0% as a boon. By math you would have 100% more than if you had stayed. Do you have a stockpile of nonperishable food? I guarantee if you shop the bargains and keep a pantry of $1000 worth it will never be worth 0 and I would assure it would go up at least with general inflation. That beats the market.

 

Reason: At some point the 401k and IRA investor will finally realize what the rich have realized- the stock market is a bad bet.

[swansont]

If that big drop is supposed to mean something, then you are almost 4 years too late with your warning. I've highlighted the time period in question — roughly when you posted your warning. That little circle on the end. We saw a 50% drop in the stock market when monthly retail dropped by $25 billion. Explain again how scary that blip is supposed to be.

 

[amanda more]

If that big drop is supposed to mean something, then you are almost 4 years too late with your warning. I've highlighted the time period in question — roughly when you posted your warning. That little circle on the end. We saw a 50% drop in the stock market when monthly retail dropped by $25 billion. Explain again how scary that blip is supposed to be.

 

 

"A government report Thursday morning on new claims for unemployment benefits will give traders news on the country's jobs crisis — one of the major economic challenges cited by the Fed.

 

Ninety minutes before the opening bell, Dow Jones industrial average futures are down 211 points, or 1.9 percent, at 10,796. Standard & Poor's 500 index futures are down 24, or 2.1 percent, at 1,131. Nasdaq 100 futures are down 43, or 1.9 percent, at 2,202.

 

Read more: http://moneywatch.bn.../#ixzz1YgWw7PEE"

I don't really understand scary. A small upturn that starts to then decrease could signal a downturn. The retail sales show it hasn't returned to a robust level and may then continue to decrease or go up and down around a lower average level. Like a sine wave or the market has been doing.

 

The market is currently down.

 

Reason: Figure with average 3% drop (could include 4% rally) per day in 7 days that is a 21% drop. Trading rules may stop sales at a single day there is a formula for hours stopped and percent so a 10% drop so then 7 times 3 is 21 plus 10 is 31% total drop by October 2. Psychologically the dow is now at 10,800 so after a 8% drop it goes below 10,000 making it likely that a selloff will decrease it further as everyone becomes aware that it has dropped.

Edited September 22, 2011 by amanda more

[amanda more]

he r

That definately puts it into bear market. Is that bear going to turn crash. What do you think?

Reason: Hovering near 10000 for the DOW in what is already a bear market will cause a psychological tumble once it drops below 10000 for a strong drop i.e. crash.

Edited September 22, 2011 by amanda more

[amanda more]

Amanda ,

 

Should stock market participants be responsible for what happens to a company's losses just as they are responsible for it's profits ? Should they always operate in credit , making any losses covered by collateral ?

 

 

 

 

 

Suppose your nephew needs a few bucks to get by. If you invest a $1000 in him are you then on the hook for the $10000 he owes? A corporation is set up so all we lose is the $1000 we invest and not on the hook for the company.

 

So as the stock market tanks, it should give some solace we are not required to pay more than our bets.

 

This has to be the way for arms length transactions where we cannot directly be there to run the company day by day.

 

In a partnership it is generally assumed that the partner who puts in the most gets most of the profits and is on the hook for the higher percent of the debts. But you are directly involved there.

 

It will be interesting to see which corporations go to 0 in stock and bond value.

 

Currently DOW is 10,662 and dropping. Psychologically that is looking way too close to 10000 so I see the rate of fall accelerating.

 

For the second part that ability to borrow to buy stocks was a huge reason for the Great Depression. You are right that failure to regulate ways of buying stocks for pennies and owing the value is very destabilizing. There used to be rules against it. More of the "sheriff left the town" of the last 30 years gutted those rules. It has turned stocks into very, very wild speculations.

 

Reason: People have so disconnected from the stocks as goods and services that they are unable to evaluate them based on the companies themselves. Computers programmed to look only at the numbers exacerbate it and produce bubbles and crashes.

 

 

 

Edited September 23, 2011 by amanda more

[Hal.]

Amanda , Upon the supposition of a nephew ,

 

If my nephew borrowed $1000 for use in business and it was a simple loan , I would take it that he would be in debt to me for $1000 but the business did not represent me . If my nephew sold a part of the ownership of a business to me for $1000 , I would then assume that the business' dealings were partly in my name . I would question the debts the business was making and if I thought they were excessive I would make it known . In my simple view I have always thought that a business is only worth what would be left over if it shut down and paid off all it's debts . Morally , in my opinion , to close a business leaving many other business' to absorb any losses is wrong . Lawfully , owners may be protected , if somebody like my nephew said he couldn't pay my $1000 back to me , I would steal the wheels off his car .

[amanda more]

Amanda , Upon the supposition of a nephew ,

 

If my nephew borrowed $1000 for use in business and it was a simple loan , I would take it that he would be in debt to me for $1000 but the business did not represent me . If my nephew sold a part of the ownership of a business to me for $1000 , I would then assume that the business' dealings were partly in my name . I would question the debts the business was making and if I thought they were excessive I would make it known . In my simple view I have always thought that a business is only worth what would be left over if it shut down and paid off all it's debts . Morally , in my opinion , to close a business leaving many other business' to absorb any losses is wrong . Lawfully , owners may be protected , if somebody like my nephew said he couldn't pay my $1000 back to me , I would steal the wheels off his car .

 

Businesses can make a ton of money with few assets. Your uncle let's you set up a sweatheart lease for you only to sell magazines in a corner of his store. So, with few expenses you take in a thousand dollars a day. You send most of the cash profit back to the rest of the family in the old country. There is no money in the business. There is a value, however. Customers stop on their way to the train. There have been no bugs in the candy bars. There is then "goodwill." If you decide to leave town and go to graduate school, you have only your inventory to sell anyone. Your uncle may, however, set up another lease with someone else. You may have carefully invested thousands on flyers getting people to stop by your store and they have also patronized your uncle's store. If you decide to take your candy bars and go to college with them then your uncle is not liable to the people you owe the bill to. But he also can't just take your leftover candy bars because you operate there. It used to be you could get a price on a business with manufacturing equipment etc. and a fire sale book value. In a service based economy, it is hard.

 

If they close that train entrance for repairs for the next five years, what happens then to whatever value your magazine stand has?

 

The value of a business is very different from any hard assets. Mostly based on anticipating sales and profits in the future.

[toastywombel]

The market is essentially a large set of mathematical equations that allow us to quantify the many different types of business interactions between individuals, business, institutions, and their respective governments. So in the end we are able to determine somethings value with a number, making it easy to predict, model and manipulate values in order to add more value to such values. Finally a mixture of deceit, fear, greed, and good business is put to the test as different institutions, people, and/or governments place their bets. The big numbers at the end of the day are your answer.

 

The silliest thing about the free market is the idea that if everyone had faith in each other, and kept loaning money everything would go on just fine. People could start up business, and current business could continue to get outrageously cheap and ridiculously financed loans. The problem is that investors and banks stopped lending because they were unable to package the debt they already had and sell it to other investors and banks, as they had done in the past. The government gave the banks billions in an attempt to solve this problem, but I suppose it was not enough, and to compound the problem banks and investors have held back on loaning like they did in pre-2008 times despite getting all the capital from the government. But the silliest thing is, if everyone believed the market was going to do fine, and everyone invested as they were pre-2008 times, we would be so much better off at the moment as far as the stock market. Now jobs is a different issue, depending on what kind of jobs you want.

 

And thats all I have to say about that.

Edited September 23, 2011 by toastywombel

[amanda more]

The market is essentially a large set of mathematical equations that allow us to quantify the many different types of business interactions between individuals, business, institutions, and their respective governments. So in the end we are able to determine somethings value with a number, making it easy to predict, model and manipulate values in order to add more value to such values. Finally a mixture of deceit, fear, greed, and good business is put to the test as different institutions, people, and/or governments place their bets. The big numbers at the end of the day are your answer.

 

The silliest thing about the free market is the idea that if everyone had faith in each other, and kept loaning money everything would go on just fine. People could start up business, and current business could continue to get outrageously cheap and ridiculously financed loans. The problem is that investors and banks stopped lending because they were unable to package the debt they already had and sell it to other investors and banks, as they had done in the past. The government gave the banks billions in an attempt to solve this problem, but I suppose it was not enough, and to compound the problem banks and investors have held back on loaning like they did in pre-2008 times despite getting all the capital from the government. But the silliest thing is, if everyone believed the market was going to do fine, and everyone invested as they were pre-2008 times, we would be so much better off at the moment as far as the stock market. Now jobs is a different issue, depending on what kind of jobs you want.

 

And thats all I have to say about that.

 

Well, perhaps I could ask for some clarification.

 

I was just reading about a paper having to do with "the commons" that was published in the late sixties. It talks against the idea that the "invisible hand" of the market always works in some kind of sainted manner(Adam Smith).

 

My contention and a fairly universal one is that jobs are important. A sick economy has to effect the stock market. The weird attitude to do business as before as some kind of saving grace does puzzle.

 

From Wall Street Journal regarding this weekend September 24: http://online.wsj.com/article/SB10001424053111903703604576589210888153064.html

 

"The broad market declines have added pressure on finance ministers and central bankers as they gather for the International Monetary Fund's annual meeting in Washington this weekend.

 

"We are in a red zone," said World Trade Organization chief Pascal Lamy, one of many officials attending the meeting. "We are at risk of repeating what happened in 2008"—when market upheaval shook the global economy—"occurring again for different reasons but through the same channel, the financial system."

 

So you are saying that the lack of banking itself- making loans etc. is a huge problem. I hadn't really thought that it hurts the banks themselves because if bankers don't do banking then it hurts them. Makes sense though. Pretty dire words above.

 

And as congress again %$^*s up with weird disconnected stuff with yet another sandbox fight it seems-

 

Does anyone hear Nero playing as Rome burns?

 

 

Reason: The weirdest most disconnected nuttsiest politicos to ever inhabit the House tug just hard enough to get a teetering economy to crash as they continue to party hardy for themselves and their party. Meanwhile those that know warn of another economic crash. Anyone OK with more "reverse Robin Hood" especially fattening bankers and taking bucks to New York instead of feeding the 1 in 7 food insecure Americans?

 

 

 

 

[amanda more]

http://en.wikipedia....ki/Trading_curb As the market tanks. Here are trading curbs (circuit breakers)

Percent amount of drop. On the day the DOW drops below 10,000 expect to see these used.

 

 

 

 

The DOW is the one to watch because it is running 10,800 and so with an 8% drop it hits a significant number 10,000 sooner than the other indices.

 

Will "those who run us" wake up from Occupy Wall Street and do econ 101 and inject the cash to the 99% instead of the 99% again dumping cash to the Wall Street 1%? Will those on Wall Street themselves finally get some poliitical Will to save the US economy and use their influence for that? Stay Tuned. So Reason Stock Market crashes - The 1% continue to do business as usual and kill the golden goose by taking so much it starves everyone and even finally themselves.

Edited October 3, 2011 by amanda more

[amanda more]

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.

 

 

 

"On Monday, stocks fell sharply, starting the fourth quarter on a dismal note as developments in the euro zone over the week weighed down confidence. Markets in Europe also fell on Monday and have extended their losses in trading today. At last check, the FTSE 100 Index in London was down 2.8%, while the DAX Index in Frankfurt was down 3.2%. In Asia, the Nikkei 225 Index was down 1.1%."

 

"Ahead of the opening bell, the Dow Jones Industrial Average futures are trading 110 points lower at 10,419, the S&P 500 futures are trading 12 points lower at 1,075, and the Nasdaq 100 futures are trading 19 points lower."

 

Read more: http://thestockmarke...8#ixzz1ZoiiGrJ0

 

 

 

 

Current 10,523 only needs 5% drop to crack 10,000 so this will influence the bottom falling out. There will be circuit breakers at 10% closing the market for a while. It is also the new low for the last 12 months.

 

I had personal experience with a high IQ scientifically trained person who ignores money and business. When I visited my doctor sister her taxes were undone and she had paychecks in her dresser drawer. There are finer things in life than money.

 

One in seven Americans are food insecure. And yet see that the Panera's workers cash will likely go again to the multi-millionaires on Wall Street. When if they had followed Econ 101 and the will of the people (aka Occupy Wall Street) this new Great Depression would have been avoided.

 

 

Well, it still can be. If grandparents would just care about children.

 

 

 

 

Reason Grandparents were coopted with ridiculous rhetoric to ignore reality and vote against the economic rescue of their children and grandchildren with paradoxical cries that they were "helping their children's futures." The normal human reaction to restrain innovation as one ages was manipulated and paid for by the wealthy as a power grab which resulted in the destruction of the American Economy. Plus only 50 have to show and the corporate media covered it.

 

 

 

 

 

 

 

 

 

 

Edited October 4, 2011 by amanda more

[iNow]

I had personal experience with a high IQ scientifically trained person who ignores money and business.

Good for you. I had an experience with a grocery clerk who liked knock knock jokes. So what?

 

 

When I visited my doctor sister her taxes were undone and she had paychecks in her dresser drawer.

Do you frequently look into your sister's underwear drawer when visiting?

 

 

 

Reason Grandparents were coopted with ridiculous rhetoric to ignore reality and vote against the economic rescue of their children and grandchildren with paradoxical cries that they were "helping their children's futures."

What amazes me a bit is the shock and surprise you express toward something which has been taking place fairly consistently for centuries.

Edited October 8, 2011 by iNow

[amanda more]

 

 

 

You have to be really kidding here. Nothing about the stock market. It is extremely obtuse to continually play unhearing regarding examples.

 

People under 30 the calculator generation don't do what you and I do. Unless they are scientifically trained they have a hard time imagining what a 3% drop in a day can mean. It would be a surprise that it is 21% drop in 7 days (actually this is close enough for those who would quibble on the exactness.)

 

They think so little in simple math they are perplexed and surprised. You and I can see a graph and notice it is varying around a mean. That is totally incomprehensible.

 

I can also be as obtuse as many in this thread. For instance, it would never occur to me in a million years that anyone would sell short on anything I would post. If I could predict the future like that I would be rich.

 

They have delayed implementation of the 1200 trillion dollars in derivatives legislation. When that hits the fan which companies are even profitable. In a dark market- who would know that? Now that guy would predict the future. He, they will profit.

 

I suppose when it does -- the blame, just as it fell on homeowners will now fall on college students. (occupy wall street) Scapegoating has to be older even than grandparents throwing their offspring to the wolves.

 

Reason- Half the population is addicted to pornography or jazzy pornographic like statements in whatever general concepts and finds no ability to use their intellect on reality. This inability to think straight is an addiction which prevents them from controlling outrageous behavior among themselves and their peers. Reality that doesn't turn them on lets them turn a deaf ear to crashing economies and actually thinking about scenarios and deductive reasoning regarding available facts. They are unable to be real enough to be honest which of course when enough are like that crashes Wall Street.

 

ps you are now getting scary

 

 

 

[swansont]

People under 30 the calculator generation don't do what you and I do. Unless they are scientifically trained they have a hard time imagining what a 3% drop in a day can mean. It would be a surprise that it is 21% drop in 7 days (actually this is close enough for those who would quibble on the exactness.)

 

Actually no, a 3% drop in a day does not imply a 21% drop in 7 days. That's a wild extrapolation with no reasoning to support it. Why should we expect the market to drop like that? BTW, seven sequential 3% drops means about a 19.2% drop.

 

There are a whole bunch of companies increasing dividends and buying back stock — that requires cash payouts. In 2008/2009 companies were slashing dividends to conserve cash. So these companies are comfortable enough with the economic outlook to commit to using more of their cash flow to return it to shareholders. Not something you do if you are worried about an economic collapse.

[iNow]

ps you are now getting scary

How so, and why do you say that?

[amanda more]

Actually no, a 3% drop in a day does not imply a 21% drop in 7 days. That's a wild extrapolation with no reasoning to support it. Why should we expect the market to drop like that? BTW, seven sequential 3% drops means about a 19.2% drop.

 

There are a whole bunch of companies increasing dividends and buying back stock — that requires cash payouts. In 2008/2009 companies were slashing dividends to conserve cash. So these companies are comfortable enough with the economic outlook to commit to using more of their cash flow to return it to shareholders. Not something you do if you are worried about an economic collapse.

This has to be as much a shock to you at me as it is to me. A $30 a month payment for ten months is not something most people can understand. They can't add a zero. Especially those under thirty.

 

So you and I can do a worse case scenario and multiply 7 times 3%. They can't do that. With significant figures a 3% drop can vary from 2.5 to 3.4% so taking it at 3.00% is not correct. Although yes I am aware of the equation and reasoning you used but perhaps you can't abide estimates.

 

Reason The average American educated investor can do so little thinking in an arithmetic way that numbers that are released are meaningless.

 

 

[swansont]

This has to be as much a shock to you at me as it is to me. A $30 a month payment for ten months is not something most people can understand. They can't add a zero. Especially those under thirty.

 

So you and I can do a worse case scenario and multiply 7 times 3%. They can't do that. With significant figures a 3% drop can vary from 2.5 to 3.4% so taking it at 3.00% is not correct. Although yes I am aware of the equation and reasoning you used but perhaps you can't abide estimates.

 

Reason The average American educated investor can do so little thinking in an arithmetic way that numbers that are released are meaningless.

 

What does this have to do with the stock market?

[A Tripolation]

So you and I can do a worse case scenario and multiply 7 times 3%. They can't do that.

 

Apparently neither can you. If something dropped by 3% every day, the cumulative drop would not be 21%. The first drop would be 3% of the initial total. The second drop would be 3% of the previous total (the total that was already subtracted by 3% of its initial value). It worries me you neglected such elementary mathematics, yet preach about complex market analysis.

[amanda more]

Apparently neither can you. If something dropped by 3% every day, the cumulative drop would not be 21%. The first drop would be 3% of the initial total. The second drop would be 3% of the previous total (the total that was already subtracted by 3% of its initial value). It worries me you neglected such elementary mathematics, yet preach about complex market analysis.

 

A mathematician, a physicist and an engineer walk into a bar. I am saying the average person in the street has a hard time estimating what the prices would be from a drop. I am well aware of those equations but I am ok buying a toaster for $30 a month for a year and calling it $300. So there.

 

Physicists have a hard time estimating.

 

Ok so the DOW makes it easy. A $300 drop a day then. They don't multiply it by seven and say it is $2100. So what does a $300 drop mean? Not much. But a drop for seven days means a lot. It is around 10,000 now. Don't scream. That would then be about a 21% drop or a bear market. I am amazed, I am doing complex market analysis?

 

I'd love if there are quants who would jump in.

 

Reason: After the novelty wears off the wall street types will continue to ignore the reality they actually see and the reality they actually admit to themselves is true and continue to fund the craziness in congress tanking the economy causing a crash.

Edited October 10, 2011 by amanda more

[swansont]

Physicists have a hard time estimating.

 

LOL

 

It is around 10,000 now.

 

If by this you mean that the DOW is above 11,100 (i.e. ~600 points higher than your last gloom-and-doom post), then I agree.