With the lousy finish to last week and the various things floating out there to potentially hurt the market there may be some people trying to predict a crash.
I won't try to predict something like that, as you can imagine crash calling is pretty hit or miss, mostly miss.
The best thing to do today might be to remind readers of the history of how crashes usually work. Time and again selling into the face of a crash has been the wrong thing to do. Crashes are not bear markets. Bear markets start slowly over a period of several months.
Even the popping of the tech bubble was a multi month process. Six months after the top, the market was still in down a little territory (down about 10%).
Hopefully if you have been reading this site for a while you own one or two things that might go up in the face of a crash. If the market does crash it probably makes sense to sell or reduce positions in inverse index funds.
A crash will not cause companies to go out of business even if they do puke down. In the face of a crash you will likely read and hear a lot of emotion from many participants. As you read this now, what is better, reacting with logic or reacting with emotion?
The fact is the market has endured crashes before. There is nothing new about crashes.
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9 comments:
Investors buy inverse market positions when they think the market is heading south and want to capture the rewards of a falling market. But according to your philosophy you advise them to reduce or sell their holdings in the event of a crash. Does your advice make sense?
What is this insane talk of a crash! This is irresponsible rhetoric and is totally unjustified-except by those wishing to sell investment services and books. We are factually in a near ideal economy with reasonable equity valuations. We've had a strong move in the past month or so which has bred complacency and a pullback, which no doubt started late last week, is normal and healthy. Let's watch the hyperbole lest this site get the reputation as being for the amateurs on the lunatic fringe.
If the market were to spike down dramatically, inverse index funds would spike up dramatically. Reducing something after it has spiked up in price a lot has some merit. The need for crash insurance of this nature becomes less important, ahem, after a crash.
To the comment about insane talk. Your logic is completely lost on me. Don't crashes come when no one expects? Like say when we have "factually in a near ideal economy with reasonable equity valuations."
The time to worry about bad things happening is when things are good. There is nothing hyperbolic about a review of history.
Lowry's is saying the top is, or is near, in. I don't think they are part of the lunatic fringe, anon. Crash? I don't know about that . 20% market decline? I wouldn't bet against it. Now is not the time to bring on new longs if you look at those chartsa nd examine the fundamentals. Sure, you can buy the dip here. I 've been doing it successfully for a year. Am I buying THIS dip? No effing way.
It is the rare technican that has a good track record. If you want to spend $20,000 per year you can subscribe to Woodrow Dorsey (Alan Abelson would approve), of course he has been wrong for many months now with his call for a crash. Conversely, and a lot cheaper, you could've subscribed to Don Hays and had him prepare you all last year for a robust bull market in '06 led by the techs. Then their is Bob "Crash" Prechter who's always calling for a crash-and he's really meant it in recent months!
Nobody can see around corners or into the future, there's just too many variables. The big money has always been investing for the longterm which has the added benefit of being tax efficient. Remember if you're living in a high tax jurisdiction where you're going to pay 9-10.5% (i.e., California & NYC and many other states) on top of the federal rate on short term gains, well, that means you're going to give-up almost half of your short term gains, if you're lucky enough to call them-as I was last year, but boy oh boy I sure needed a crying towel when I wrote out my checks for taxes owed. Bottomline: It's not worth the stress to short term trade and try to outguess the market. Many hedge fund investors, too, have discovered this-high taxes one year followed by principal losses the next year.
The USD will decline 15-30% this coming week and gold will hit 800.
The thing is US equities can even go up in USD terms as we all get poorer, depends on if you plan on retiring in the USA or not.
Personally not. Good luck y'all.
-Alex The Average
That's not what the overnight markets are saying Alex - looks like USD$ and gold down, both rather sharply - but one was oversold and the other overbought so that's not terribly surprising. The longer term game remains to be played out.
Good luck to everyone also.
Meant to say USD$ UP - oh well, should have waited for my second cup of coffee.
To Alex the Average,
Are you joking? If not I would be curious to hear what you think would be the catalyst for the moves in your comment and why you think it will happen this week?
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