Why the Stock Market will continue to fall…

[patientlywaiting]

When valuation goes poof, the vapor wealth will disappear.

A big portion of the wealth was not based on real corporate earnings but on companies buying out each other using
1) high stock valuation as currency,
2) easy credit/cheap debt/easy money.

To me, this is very similar to the cross-ownership of the Japanese Keiretsus. In America, we just traded stocks in companies back and forth at ever higher prices. Then everyone started trading houses at ever higher prices. As long as there was a great fool, wealth was created.

That can only last as a couple of decades. In the end, only net income derived from real revenues can justify valuation. Warren Buffet understands that very well.

[gandalf]

I think we can all agree the run-up in asset prices these past few years has been partially, if not significantly, due to the effects of loose credit, leverage and financial engineering. As the business cycle turns and we head into a period of economic contraction and credit tightening, the impact on stock market capitalization, among other things, will be decidedly negative.

Personally, I’m anticipating further declines in overall asset values. Given the magnitude of the run-up, a 25% decline in stock market capitalization from this point and another 25% drop in property values isn’t outside the scope of reason. I expect the decline to be expressed through a combination of currency devaluation and outright nominal deflation. Wealth is actively being wiped off the books as we speak.

Overall, I am very concerned about multiplier effects and the collateral damage of de-leveraging on the ‘real economy’ (productive and profitable economic activities). I expect the impacts of the unwinding to be severe, with market failures in certain areas such as construction and credit. I think some regions will be hit harder than others, and I put San Diego in the ‘at-risk’ category due to state, county and municipal financials as well as general over-exposure of its economy to FIRE markets.

[gandalf]

I think we can all agree the run-up in asset prices these past few years has been partially, if not significantly, due to the effects of loose credit, leverage and financial engineering. As the business cycle turns and we head into a period of economic contraction and credit tightening, the impact on stock market capitalization, among other things, will be decidedly negative.

Personally, I’m anticipating further declines in overall asset values. Given the magnitude of the run-up, a 25% decline in stock market capitalization from this point and another 25% drop in property values isn’t outside the scope of reason. I expect the decline to be expressed through a combination of currency devaluation and outright nominal deflation. Wealth is actively being wiped off the books as we speak.

Overall, I am very concerned about multiplier effects and the collateral damage of de-leveraging on the ‘real economy’ (productive and profitable economic activities). I expect the impacts of the unwinding to be severe, with market failures in certain areas such as construction and credit. I think some regions will be hit harder than others, and I put San Diego in the ‘at-risk’ category due to state, county and municipal financials as well as general over-exposure of its economy to FIRE markets.

[gandalf]

I think we can all agree the run-up in asset prices these past few years has been partially, if not significantly, due to the effects of loose credit, leverage and financial engineering. As the business cycle turns and we head into a period of economic contraction and credit tightening, the impact on stock market capitalization, among other things, will be decidedly negative.

Personally, I’m anticipating further declines in overall asset values. Given the magnitude of the run-up, a 25% decline in stock market capitalization from this point and another 25% drop in property values isn’t outside the scope of reason. I expect the decline to be expressed through a combination of currency devaluation and outright nominal deflation. Wealth is actively being wiped off the books as we speak.

Overall, I am very concerned about multiplier effects and the collateral damage of de-leveraging on the ‘real economy’ (productive and profitable economic activities). I expect the impacts of the unwinding to be severe, with market failures in certain areas such as construction and credit. I think some regions will be hit harder than others, and I put San Diego in the ‘at-risk’ category due to state, county and municipal financials as well as general over-exposure of its economy to FIRE markets.

[gandalf]

I think we can all agree the run-up in asset prices these past few years has been partially, if not significantly, due to the effects of loose credit, leverage and financial engineering. As the business cycle turns and we head into a period of economic contraction and credit tightening, the impact on stock market capitalization, among other things, will be decidedly negative.

Personally, I’m anticipating further declines in overall asset values. Given the magnitude of the run-up, a 25% decline in stock market capitalization from this point and another 25% drop in property values isn’t outside the scope of reason. I expect the decline to be expressed through a combination of currency devaluation and outright nominal deflation. Wealth is actively being wiped off the books as we speak.

Overall, I am very concerned about multiplier effects and the collateral damage of de-leveraging on the ‘real economy’ (productive and profitable economic activities). I expect the impacts of the unwinding to be severe, with market failures in certain areas such as construction and credit. I think some regions will be hit harder than others, and I put San Diego in the ‘at-risk’ category due to state, county and municipal financials as well as general over-exposure of its economy to FIRE markets.

[gandalf]

I think we can all agree the run-up in asset prices these past few years has been partially, if not significantly, due to the effects of loose credit, leverage and financial engineering. As the business cycle turns and we head into a period of economic contraction and credit tightening, the impact on stock market capitalization, among other things, will be decidedly negative.

Personally, I’m anticipating further declines in overall asset values. Given the magnitude of the run-up, a 25% decline in stock market capitalization from this point and another 25% drop in property values isn’t outside the scope of reason. I expect the decline to be expressed through a combination of currency devaluation and outright nominal deflation. Wealth is actively being wiped off the books as we speak.

Overall, I am very concerned about multiplier effects and the collateral damage of de-leveraging on the ‘real economy’ (productive and profitable economic activities). I expect the impacts of the unwinding to be severe, with market failures in certain areas such as construction and credit. I think some regions will be hit harder than others, and I put San Diego in the ‘at-risk’ category due to state, county and municipal financials as well as general over-exposure of its economy to FIRE markets.

[Coronita]

Surprised no one's commenting on today's market yet :).

Still think the gov is going to let things go down to 8000?

The gov would trash everything else to prop up the stock market. And yes, there are plenty more irrationale things it *can* do if it *had* to.

Consider something this irrationale. What would happen if the gov all the sudden decide to say for the next 4 years, all capital gains from stock market are completely tax free? Wouldn't this be enough incentive for you to enter the markets again?

Gov will do whatever it takes to restore confidence in the markets if things get that bad, even adopting extreme measures, which would make today's gov irrationale policies look like child's play.

 

[img_assist|nid=5962|title=selfportrait|desc=|link=node|align=left|width=100|height=80]

—– Sour grapes for everyone!

[Coronita]

Surprised no one's commenting on today's market yet :).

Still think the gov is going to let things go down to 8000?

The gov would trash everything else to prop up the stock market. And yes, there are plenty more irrationale things it *can* do if it *had* to.

Consider something this irrationale. What would happen if the gov all the sudden decide to say for the next 4 years, all capital gains from stock market are completely tax free? Wouldn't this be enough incentive for you to enter the markets again?

Gov will do whatever it takes to restore confidence in the markets if things get that bad, even adopting extreme measures, which would make today's gov irrationale policies look like child's play.

 

[img_assist|nid=5962|title=selfportrait|desc=|link=node|align=left|width=100|height=80]

—– Sour grapes for everyone!

[Coronita]

Surprised no one's commenting on today's market yet :).

Still think the gov is going to let things go down to 8000?

The gov would trash everything else to prop up the stock market. And yes, there are plenty more irrationale things it *can* do if it *had* to.

Consider something this irrationale. What would happen if the gov all the sudden decide to say for the next 4 years, all capital gains from stock market are completely tax free? Wouldn't this be enough incentive for you to enter the markets again?

Gov will do whatever it takes to restore confidence in the markets if things get that bad, even adopting extreme measures, which would make today's gov irrationale policies look like child's play.

 

[img_assist|nid=5962|title=selfportrait|desc=|link=node|align=left|width=100|height=80]

—– Sour grapes for everyone!

[Coronita]

Surprised no one's commenting on today's market yet :).

Still think the gov is going to let things go down to 8000?

The gov would trash everything else to prop up the stock market. And yes, there are plenty more irrationale things it *can* do if it *had* to.

Consider something this irrationale. What would happen if the gov all the sudden decide to say for the next 4 years, all capital gains from stock market are completely tax free? Wouldn't this be enough incentive for you to enter the markets again?

Gov will do whatever it takes to restore confidence in the markets if things get that bad, even adopting extreme measures, which would make today's gov irrationale policies look like child's play.

 

[img_assist|nid=5962|title=selfportrait|desc=|link=node|align=left|width=100|height=80]

—– Sour grapes for everyone!

[Coronita]

Surprised no one's commenting on today's market yet :).

Still think the gov is going to let things go down to 8000?

The gov would trash everything else to prop up the stock market. And yes, there are plenty more irrationale things it *can* do if it *had* to.

Consider something this irrationale. What would happen if the gov all the sudden decide to say for the next 4 years, all capital gains from stock market are completely tax free? Wouldn't this be enough incentive for you to enter the markets again?

Gov will do whatever it takes to restore confidence in the markets if things get that bad, even adopting extreme measures, which would make today's gov irrationale policies look like child's play.

 

[img_assist|nid=5962|title=selfportrait|desc=|link=node|align=left|width=100|height=80]

—– Sour grapes for everyone!

[(former)FormerSanDiegan]

I’m confused as to where the notion came from that stocks are currently in a speculative bubble. Stocks may fall some more. But, (unlike the housing market in Southern California and elsewhere), fundamental valuations are not currently high by historic standards.

Current estimates for 2008 P/E for S&P 500 is 15.3 at current index levels. Heck, even based on Shiller’s long-term median P/E for the S&P 500 of 15.7* we are slightly below the long term median for S&P 500 valuation. Stocks are not in a valuation bubble.

* as noted here: http://www.investopedia.com/articles/technical/04/020404.asp

[(former)FormerSanDiegan]

I’m confused as to where the notion came from that stocks are currently in a speculative bubble. Stocks may fall some more. But, (unlike the housing market in Southern California and elsewhere), fundamental valuations are not currently high by historic standards.

Current estimates for 2008 P/E for S&P 500 is 15.3 at current index levels. Heck, even based on Shiller’s long-term median P/E for the S&P 500 of 15.7* we are slightly below the long term median for S&P 500 valuation. Stocks are not in a valuation bubble.

* as noted here: http://www.investopedia.com/articles/technical/04/020404.asp

[(former)FormerSanDiegan]

I’m confused as to where the notion came from that stocks are currently in a speculative bubble. Stocks may fall some more. But, (unlike the housing market in Southern California and elsewhere), fundamental valuations are not currently high by historic standards.

Current estimates for 2008 P/E for S&P 500 is 15.3 at current index levels. Heck, even based on Shiller’s long-term median P/E for the S&P 500 of 15.7* we are slightly below the long term median for S&P 500 valuation. Stocks are not in a valuation bubble.

* as noted here: http://www.investopedia.com/articles/technical/04/020404.asp

[(former)FormerSanDiegan]

I’m confused as to where the notion came from that stocks are currently in a speculative bubble. Stocks may fall some more. But, (unlike the housing market in Southern California and elsewhere), fundamental valuations are not currently high by historic standards.

Current estimates for 2008 P/E for S&P 500 is 15.3 at current index levels. Heck, even based on Shiller’s long-term median P/E for the S&P 500 of 15.7* we are slightly below the long term median for S&P 500 valuation. Stocks are not in a valuation bubble.

* as noted here: http://www.investopedia.com/articles/technical/04/020404.asp

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