Black Monday

**Joshuatree** · 04-08-2017, 10:46 PM

Thanks Hoop; i think i got the gist off that

. If you can occasionally share how many ducks are lined up I and many others on here would immensely appreciate this philanthropic knowledge. ETFs becoming immensely popular was one i found(i scrolled back 10 pages on this thread only).
Great thread thanks one and all and enjoy your weekend.

**RupertBear** · 05-08-2017, 08:24 AM

Originally Posted by Hoop

You are seeing market mania now..you don't realise it because of all the negative media....

but the figures don't lie...S&P500 earnings (inflation adjusted) at same level as 2007 (expected to rise 2017-18)..very high PE Ratio being labeled as not over-valued by the majority investment groups with very low interest rates citing the "new normal" as the excuse..This looks to me like exhuberance in a complacient way..Have a look at the $VIX chart change $INDU to$VIX (a value <20 is calm) This indicator has been mislabeled by the media as a fear index, in reality the $VIX index is a measure of S&P500 options volatility..The VIX is at record lows showing extreme calm in the market.. however the VIX has been calm for years now apart from an occasional blip upwards and the investors have accustom themselves to this calm as being a long term normal event which history tells us this is not the case... Investors are deluding themselves into thinking stocks are priced about right while in fact the market is fundamentally overvalued with some measures in bubble territory..e.g Shiller PE Ratio

Late stage Bull market sees a drop in "available" money as investors are fully emersed into the market and their debt funding is maxed out..This scenario shows up decreasing volume with rising prices..(lack of sellers- investor sentiment is bullish) see 5 year S&P500 chart change $INDU to $SPX, investor happiness at a high level and the majority now promising this bull market will continue for a long time yet (a minority promises this in Stage 1 50%/50% in stage 2) and low VIX values with lower value spikes (fear) reinforcing this investor contentness.. while the media dramatizes and hypes up the most trival non-effectual things into a pseudo-major event..eg worry this worry that..

Good God!!!!!..even the weather forecasters are at it now..all in the name of gaining public attention and increasing market share of the public's attention.....

Another way to show bubbles is the investor mania to borrow and beg to obtain more (available) money to buy stock at any cost through the stockmarket....While we all might be openingly grizzling about the market to the media..the truth is these grizzlers are borrowing big time and plonking it on the market...being able to borrow at lower interest rates and the US companies in recent years changing course and raising their dividend yield rates fuels this type of behaviour..Have a look at the NYSE margin Debt.....raw data here..inflation adjusted values here in historic chart form.... notice how the margin debt has doubled in the last 4 years and has increased that trend this year...Also notice on the charts the point when margins top out 2000 2007 and the last 3 years (yet to top out) all during boom times..as I said in my previous post the economy trend is a lagging indicator..History shows nearly all recessions occur after the stockmarket reverses into a Bear Market Cycle..Most investors include nearly all on ST forum (Winner69 excluded) think it is the other way around (false logic)/(layman's paradox).....This false logic is the major factor causing investor denial and all sorts of Cognitive Dissonances when the market reverses to bear and is the reason why 80% of the investors fail to exit the market and get mauled by the bear..(margin investors more severely due to margin calls)...Please read this ST thread there is 26 pages of valuable info to understanding how the sharemarket works..This thread could save you big time when the next Bear market arriveshttp://www.sharetrader.co.nz/showthread.php?5171-Investing-strategies-and-secular-bear-markets Note the start date of the thread, the end of the last bull market cycle

I have a list which I have posted recently on ST (page 124 post #1853) the conditions which signal the top of a Bull Market Cycle..I continuously add to it as more conditions and correlated indicators are published by various well regarded experts in their fields...High margin debt is one on my list..another is high A&M (acquistions & mergers) which currently has been dropping in numbers...I have personally labeled each condition as a "duck"..we have high MD but A&M is average so not all ducks have lined up in a row yet suggesting this current Cyclic Bull Market cycle still has legs but it is definitely not Stage 2..it is in stage 3 and has been for 3 years now (rare length of time)..

Great post thanks Hoop

**winner69** · 05-08-2017, 08:33 AM

This guy says the bull market will continue forever

Aaron - long wait for you

https://www.cnbc.com/2017/08/04/the-...onditions.html

**winner69** · 05-08-2017, 09:09 AM

Nearly all recessions start after the markets turn into a bear cycle

The current economic 'boom' in NZ (rock star etc) could will turn to 'bust' in 2018/2019 (the drivers are currently present)

One then could expect the NZX to start looking bearish later this year

**RTM** · 05-08-2017, 10:11 AM

https://seekingalpha.com/article/406...-indexing-trap

This author seems to be worth keeping an eye on. Not sure how I stumbled upon it...apologies if it is above within this thread.

**Bjauck** · 05-08-2017, 03:44 PM

Originally Posted by Hoop

You are seeing market mania now..you don't realise it because of all the negative media....

but the figures don't lie.........it is in stage 3 and has been for 3 years now (rare length of time)..

Not a rant but a sobering post. It is easy to be caught up in the excitement surrounding particular companies.

**BlackPeter** · 05-08-2017, 04:25 PM

Hoop - great post & lots of food for thought. Thank you!

I guess the one thing which got under my skin was the exorbitant margin debt you are pointing to. Anything else can still be controlled by humans when the SP drops, but this is one thing which is very likely to turn a market "cold" into a serious flu: investors who are required to sell, whether it is a good idea or not - just due the bank making a margin call.

So, yes, I give you we might be in phase III. This huge amount of margin debt is just plain stupid. However still not sure how and when the whole thing will play out, and yes, I think that this time it is different (doesn't mean though that we will avoid the next crash):

I don't think we ever had that late in a bull cycle such low interest rates;
People do have the information about previous crashes ... and some behave accordingly (people do learn, though some slower than others);
Crashes typically happen when investors don't worry. At the moment however, they do.

A number of experts (including John Ryder) are calling a peak in 2018 and a correction to follow.

Probably a good time to reduce any margin lending and increase the cash component of one's portfolio.

Otherwise - I guess the only sensible thing to do is to "dance close to the exit" as John Ryder tends to recommend. To leave the market at this stage completely can still cost another one or two (or three) years of good gains ... and missing out is a loss as well.

Ah yes - and great discussion. However - the people who are worrying about the next crash (black Monday) since August 2015 (and went cash) lost already now the 30% the NZX50 grew since then .. lost opportunity cost can be worse than a nice little correction from time to time.

Happy investing everybody