Economy crash =/= stock market crash?

Type_45

beavere38 said:

These are some of the reasons attributed to the stock market crash of 1929. The 1929 crash started on 24th October 1929, exactly 1100 months ago from today.

1. Investors leveraged using margin, encouraged by low interest rates. 

In the past, a big surge in margin balances tended to precede history-making stock market declines. Margin debt has soared to over $260BN.

More info and charts: https://wolfstreet.com/2021/03/17/stock-market-leverage-spikes-in-historic-manner-another-!!!!!!-chart-of-a-zoo-that-has-gone-nuts/ 

2. A struggling agricultural sector.

There are plenty of struggling sectors at the moment.

3. Low wages

Yes. Prices are flying up and wages are not. Many people have been on furlough at a reduced wage. Many likely to lose jobs soon.

4. Stocks soaring to unrealistic valuations.

The market cap to gdp ratio (Warren Buffet indicator) is currently over 200% It has never been this high and usually only spikes briefly over 100% 

Historically, the Buffett indicator average has been around 65%. The ratio dipped below 30% several times throughout the Great Depression and then briefly in 1982. The ratio peaked at 88.3 prior to the market crash in 1929 and at 136.9 during the dot-com bubble in 2000. The ratio hit an all-time high earlier this week.

5. Proliferation of debt

6. An excess of large bank loans that could not be liquidated

One key difference is that governments can print money today, which they couldn't back then. This new money goes into the stock market.

The_Green_Hornet

Mystic Meg called. She wants her crystal ball back.

sevenhills

Type_45 said:

One key difference is that governments can print money today, which they couldn't back then. This new money goes into the stock market.

Quantitative easing weakens a countries currency, which could actually push the UK markets upwards.

Prism

Type_45 said:

beavere38 said:

These are some of the reasons attributed to the stock market crash of 1929. The 1929 crash started on 24th October 1929, exactly 1100 months ago from today.

1. Investors leveraged using margin, encouraged by low interest rates. 

In the past, a big surge in margin balances tended to precede history-making stock market declines. Margin debt has soared to over $260BN.

More info and charts: https://wolfstreet.com/2021/03/17/stock-market-leverage-spikes-in-historic-manner-another-!!!!!!-chart-of-a-zoo-that-has-gone-nuts/ 

2. A struggling agricultural sector.

There are plenty of struggling sectors at the moment.

3. Low wages

Yes. Prices are flying up and wages are not. Many people have been on furlough at a reduced wage. Many likely to lose jobs soon.

4. Stocks soaring to unrealistic valuations.

The market cap to gdp ratio (Warren Buffet indicator) is currently over 200% It has never been this high and usually only spikes briefly over 100% 

Historically, the Buffett indicator average has been around 65%. The ratio dipped below 30% several times throughout the Great Depression and then briefly in 1982. The ratio peaked at 88.3 prior to the market crash in 1929 and at 136.9 during the dot-com bubble in 2000. The ratio hit an all-time high earlier this week.

5. Proliferation of debt

6. An excess of large bank loans that could not be liquidated

One key difference is that governments can print money today, which they couldn't back then. This new money goes into the stock market.

Only some of it does but enough that when the central banks close the taps some of that money will probably come back out of the stock market into other assets like loans, bonds and property. One goal of the central banks is to gradually remove QE without causing too much of a fuss which would otherwise cause a stock market crash.

Notepad_Phil

beavere38 said:

Type_45 said:

beavere38 said:

sevenhills said:

Todays value of FTSE is the same as it was in May 2017

Looking at that chart what has always happened historically when the FTSE gets to this level? 

What has happened historically after each crash? 

It goes back up again. BUT each crash gets larger. We have to ask will the pattern repeat or will it be different this time?

I'm not aware that in percentage terms that crashes have been getting consistently larger - do you have a reference for that?

Or are you talking about a specific period of time or perhaps referring to the number of points dropped during a crash (which are likely to always increase in size given that markets usually go up).

Thrugelmir

sevenhills said:

Todays value of FTSE is the same as it was in May 2017

Is that with income reinvested? 

sevenhills

Thrugelmir said:

Is that with income reinvested? 

No, it just shows that shares are at a historically low price, although you would expect that with COVID and many organisations not working at full capacity.

Type_45

beavere38 said:

These are some of the reasons attributed to the stock market crash of 1929. The 1929 crash started on 24th October 1929, exactly 1100 months ago from today.

1. Investors leveraged using margin, encouraged by low interest rates. 

In the past, a big surge in margin balances tended to precede history-making stock market declines. Margin debt has soared to over $260BN.

More info and charts: https://wolfstreet.com/2021/03/17/stock-market-leverage-spikes-in-historic-manner-another-!!!!!!-chart-of-a-zoo-that-has-gone-nuts/ 

2. A struggling agricultural sector.

There are plenty of struggling sectors at the moment.

3. Low wages

Yes. Prices are flying up and wages are not. Many people have been on furlough at a reduced wage. Many likely to lose jobs soon.

4. Stocks soaring to unrealistic valuations.

The market cap to gdp ratio (Warren Buffet indicator) is currently over 200% It has never been this high and usually only spikes briefly over 100% 

Historically, the Buffett indicator average has been around 65%. The ratio dipped below 30% several times throughout the Great Depression and then briefly in 1982. The ratio peaked at 88.3 prior to the market crash in 1929 and at 136.9 during the dot-com bubble in 2000. The ratio hit an all-time high earlier this week.

5. Proliferation of debt

6. An excess of large bank loans that could not be liquidated

If 'candles' and 'heads and shoulders' and whatever else in chart-ology worked, we'd all know about it.  It's not a secret practice.

It doesn't work.  It cannot be used to dictate investment decisions.  



The only proven way of doing it is to invest for decades.  Keep your money in the market no matter what and keep adding to it.  




I personally think that there are some shadowy, high-up people who have the power to cause crashes and therefore predict them and magnify their wealth.  I believe this is what happens.  But unless you are one of them, you are trying to pin the tail on a donkey by trying to predict when to buy and sell.

Bravepants

The only people consistently making money with "charting" are those that offer training courses on the subject.

Alistair31

Is there any good resource that explains in basic terms those charts with the red and green bars? More so for general interest, rather than something to act on.