söndag 12 oktober 2014

What does it take to crash markets? -Nothing!

Do you remember 1973-1974, when the S&P 500 index plunged 50%, even while earnings increased by 50%? That was fun. Hussman writes more here.

What "happened" was more or less the same thing as today. All variables, market levers, were cranked the opposite direction when the bull ended compared to when it started. Consequently, earnings didn't matter. Nothing needed to happen to cause a crash.

2 kommentarer:

  1. I know you like Peter Schiff and I do too. He has mentioned a couple of times that he thinks there will be a big downsizing in the financial industry (see here for example: http://youtu.be/XSj4tpu0kYU?t=1h9m7s). Do you agree with this assessment, that it won't be as lucrative to be in this industry in the future? Brummer has cancelled yet another hedge fund for example, a trend?

  2. I don't think Brummer's decisions are related to downsizing the industry. It's just a natural process of keeping the BMS fund of funds new and fresh, and the remaining fund managerss on their toes.

    But I definitely do agree with Schiff on the downsizing of the industry. Right now there is an incredible boom due to both record money printing and record leverage at the same time. And yet, the "real" money component is just 10-20% of what it was 10 years ago.

    If markets fall from here ("crash" by 50%) I expect the number of shares traded to fall by another half, thus reducing the total value traded to 25% of today's level, ceteris paribus. In addition I expect a lot of alogrithmic trading to disappear (now 80% of the market), at least half of the money left after the market fall.

    That would leave us with a market turnover at only 15% of what it is today. I'm not saying that 85% of all finance workers must go or that the industry will have 85% lower revenues and 85% lower room for salaries and bonuses... No, wait, that actually IS what I'm saying.

    I would not enter the industry now if I were young. On the other hand, I wouldn't have done so 20 years ago either so why ask me? (:p)

    Just note that maybe, just maybe the central bankers have a final crazy trick up their dirty sleeves that could fuel another couple of maniac years. That just might be worth staying for if you are entering the mo' biz now, but I'd rather recommend you learn some programming or marketing instead.