Correction in progress!

economic

Alexland wrote: »

I agree we could just be looking at a correction here as some markets were just too hot in the last few months.

As UK investors as we didn't really see the rapid overseas share price growth as our currency was strengthening at the same time negating a lot of the upside.

It might be the next crash comes for all the reasons mentioned in this thread but after this correction has recovered? Who knows.

Alex

I don't see a crash happening anytime soon. We have a strong global growth story, strong earnings, a steepening yield curve in the US, bonds seemingly at the start of a bear market, cash deposits guaranteed to lose money.

In this scenario, where do you think is the best place to have most of your wealth?

I would think easily stocks. In fact i am betting stocks will make new highs this year.

economic

chucknorris wrote: »

At the moment my (excluding my wife's investments) portfolio is:

35% investment property
34% equities
18% fixed pension
13% cash (not normally this high, but looking to upsize home)

But over the next 5-6 years (for retirement) I will be re-balancing my portfolio to something like this:

34% equities
30% bonds/cash (mainly bonds)
23% fixed pension
13% investment property

Thats a good mix. I am:

stocks - 63%
cash - 27%
P2P - 10%

I am now thinking of starting to derisk from P2P lending. i think derisking completely will take about 6 months to a year max. Its not that im worried about defaults, yet. Its more forward planning. Whilst i dont see a recession hitting the UK in the next 1 year or so, i think one could happen within 2-3 years and by that point i rekon there will be a lot of defaults on these P2P platforms. In this case i rather just start slowly derisking now and investing the money in stocks. A bit of forward planning, thats all.

Bravepants

economic wrote: »

A bit of forward planning, thats all.

Planning is ALWAYS forward. It's always too late to do backward planning!

BananaRepublic

economic wrote: »

I don't see a crash happening anytime soon. We have a strong global growth story, strong earnings, a steepening yield curve in the US, bonds seemingly at the start of a bear market, cash deposits guaranteed to lose money.

In this scenario, where do you think is the best place to have most of your wealth?

I would think easily stocks. In fact i am betting stocks will make new highs this year.

At present it does look fairly good, and I can see a year or two of bull market ahead of us. And yet crashes usually come along when you do not expect them, due to some external force - a hike in oil prices for example - or a weakness that most people did not see - such as junk debt.

The one weakness that people talk about is Chinese debt. Given that the GFC was triggered by Western debt, primarily US debt spread around the US and Europe, perhaps the next crash will be triggered by Chinese debt. A crash has been predicted by many including a Niall Ferguson, due to raising interest rates and Chinese debt.

economic

BananaRepublic wrote: »

At present it does look fairly good, and I can see a year or two of bull market ahead of us. And yet crashes usually come along when you do not expect them, due to some external force - a hike in oil prices for example - or a weakness that most people did not see - such as junk debt.

The one weakness that people talk about is Chinese debt. Given that the GFC was triggered by Western debt, primarily US debt spread around the US and Europe, perhaps the next crash will be triggered by Chinese debt. A crash has been predicted by many including a Niall Ferguson, due to raising interest rates and Chinese debt.

I think we could get a em debt crisis. Rising rates and rising dollar could blow it all up. The question is timing.

Glen_Clark

economic wrote: »

I don't see a crash happening anytime soon. We have a strong global growth story, strong earnings, a steepening yield curve in the US, bonds seemingly at the start of a bear market, cash deposits guaranteed to lose money.

In this scenario, where do you think is the best place to have most of your wealth?

I would think easily stocks. In fact i am betting stocks will make new highs this year.

You haven't mentioned the thing that is causing prices to fall - possible withdrawal of QE.

economic

Glen_Clark wrote: »

You haven't mentioned the thing that is causing prices to fall - possible withdrawal of QE.

The market knew QE is to be withdrawn weeks/months before the correction, why didn't it correct then?

The correction was due to FED uncertainty. That is all. The vix trades just exacerbated the sell-off. This uncertainty will persist until we get more clarity from the FED and more economic data.

A withdrawal of QE does not mean stocks go back down to 2009 levels. This is because a withdrawal of QE does not automatically mean credit suddenly starts to contract.

Please stop reading the media or fake analysts.

Glen_Clark

economic wrote: »

The market knew QE is to be withdrawn weeks/months before the correction, why didn't it correct then?

The correction was due to FED uncertainty. That is all. The vix trades just exacerbated the sell-off. This uncertainty will persist until we get more clarity from the FED and more economic data.

A withdrawal of QE does not mean stocks go back down to 2009 levels. This is because a withdrawal of QE does not automatically mean credit suddenly starts to contract.

Please stop reading the media or fake analysts.

Withdrawal of QE means rising interest rates. Which is a double whammy for share prices - Not only does money flood out of shares into cash, (Who wants Amazon at 300 times earnings when you can get more in a bank account) but companies have to pay more to borrow, leading to falling profits.

Filo25

Glen_Clark wrote: »

Withdrawal of QE means rising interest rates. Which is a double whammy for share prices - Not only does money flood out of shares into cash, (Who wants Amazon at 300 times earnings when you can get more in a bank account) but companies have to pay more to borrow, leading to falling profits.

And the discount rate applied to future earnings increases.

No idea how it plays out, but the current uncertainty is more a valuation issue than one with the real economy, perfectly possible to have a more significant correction when the underlying economy looks strong (not that I'm saying that will happen).

Equities have had a hell of a run, but they are due either a more significant pullback or just relatively suppressed returns in the coming years, as always trying to predict when and how that happens is so phenomenally difficult, it is probably pointless!

Glen_Clark

Filo25 wrote: »

And the discount rate applied to future earnings increases.

No idea how it plays out, but the current uncertainty is more a valuation issue than one with the real economy, perfectly possible to have a more significant correction when the underlying economy looks strong (not that I'm saying that will happen).

Equities have had a hell of a run, but they are due either a more significant pullback or just relatively suppressed returns in the coming years, as always trying to predict when and how that happens is so phenomenally difficult, it is probably pointless!

Exactly. You said it better than I have.
Seems to me it depends on when they withdraw QE and by how much. I don't know. The market swings on what politicians and bankers say, because thats all we have to go on - but it has been notoriously unreliable.