# Are We at the Edge of a Market Precipice ?



## dogleg (Feb 5, 2010)

With the oil price wars and the middle East battles and the general market mood are huge investment risks (losses) just around the corner?


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## fatcat (Nov 11, 2009)

dogleg said:


> With the oil price wars and the middle East battles and the general market mood are huge investment risks (losses) just around the corner?


similar conditions have existed every hour of every day for the last 100 years ... we are always at the edge of a market precipice


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## dogleg (Feb 5, 2010)

Wow! Always?


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## AltaRed (Jun 8, 2009)

dogleg said:


> Wow! Always?


A world event can happen at any time. That is why there truly is risk in equity and bond markets.


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## Joe Black (Aug 3, 2015)

A "loss" only occurs when you panic and sell when the price goes down.


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## crr243 (Nov 2, 2015)

Joe Black said:


> A "loss" only occurs when you panic and sell when the price goes down.


Buy, buy, buy!


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## The_Tosser (Oct 20, 2015)

Joe Black said:


> A "loss" only occurs when you panic and sell when the price goes down.


lmao 

well that is good news for my neighbour. I'm going to run over and tell him his nortel shares are still full value. He is going to have a great christmas.

btw this is pure ignorance. If what you're sitting in is 'down' you are sitting in a loss. Ignoring this fact doesn't make you whole again no matter how badly you want it. Your broker doesn't agree with you either. They won't lend based on what you bought it for, promise! lol.


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## OnlyMyOpinion (Sep 1, 2013)

The_Tosser said:


> lmao well that is good news for my neighbour. I'm going to run over and tell him his nortel shares are still full value. He is going to have a great christmas.
> btw this is pure ignorance. If what you're sitting in is 'down' you are sitting in a loss. Ignoring this fact doesn't make you whole again no matter how badly you want it. Your broker doesn't agree with you either. They won't lend based on what you bought it for, promise! lol.


Bad day I guess? I didn't notice Joe mention nortel or trying to borrow on margin. 
I think he was suggesting that just because my TD holding was down $2400 today, it's only a realized loss if I sell it today. Pure ignorance would have been selling it today.
But of course you knew what he meant, you just wanted to impart some of your own wisdom :rolleyes2:


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## sags (May 15, 2010)

Paper losses mean significantly more to current retirees, who are withdrawing as their funds decline.

They are faced with slowing the withdrawal rate, running out of money or hoping the markets come back in time for them.


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## My Own Advisor (Sep 24, 2012)

I got a rather angry email recently from a reader on my site, a retiree, pretty ticked off with the "I wish the market would collapse so I could buy more stocks at cheaper prices" cheer leading. 

I can see his point. He is in his asset preservation years. Falling markets and dirt low bond yields are no friend to him. Meanwhile anyone in their asset accumulation years are cheering for falling stock prices. 

Depending where you are financially, either you applaud days like this or you believe we're at the edge of some cliff.


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## AltaRed (Jun 8, 2009)

This almost 10 years retired retiree does not need market volatility either. That said, I keep a reserve of fixed income handy to avoid having to sell beaten up equities in a down market and thus I sleep well at night.


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## MoreMiles (Apr 20, 2011)

My Own Advisor said:


> I got a rather angry email recently from a reader on my site, a retiree, pretty ticked off with the "I wish the market would collapse so I could buy more stocks at cheaper prices" cheer leading.
> 
> I can see his point. He is in his asset preservation years. Falling markets and dirt low bond yields are no friend to him. Meanwhile anyone in their asset accumulation years are cheering for falling stock prices.
> 
> Depending where you are financially, either you applaud days like this or you believe we're at the edge of some cliff.


If all you want is to have the markets going down, then you should not be investing in them. If you want the markets to go down before you buy and up after you buy, then you are simply being selfish. There is no surprise someone is getting upset at you being selfish.

For those who wish the markets can keep going lower and lower without fear or consequence, I will be happy to sell you anything, as long as you promise in writing to sell it back to me when you need cash, at a % lower than your purchase price. Right? If you would not take such a deal, why would you do that with any market investment?


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## dogcom (May 23, 2009)

dogleg said:


> With the oil price wars and the middle East battles and the general market mood are huge investment risks (losses) just around the corner?


Fatcat is right these conditions have been around forever. Still however the debt bubble is huge and the economy is not as strong as the media says it is so a collapse is easily possible. The Fed will probably raise rates and with oil hedge losses to banks and stuff there is a lot to worry about. Of course the Fed shouldn't raise rates and skyrocket the deficit and debt but they have painted themselves into a corner.


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## james4beach (Nov 15, 2012)

It's normal for stock markets to have volatility, long stagnant periods and to make life difficult for investors.

What's been *unusual* is the stock market behaviour since 2009: generally straight up (especially in the US) with no corrections and no volatility. If anything, the stock market may be going back to how it more traditionally behaves. Too many people got into the stock market in the last few years, thinking it's an easy place to be, and an easy place to make money.

Remember the posts that kept appearing here a few months ago, people wanting to park money in a stock index for a few months to make money? Notice those posts stopped. When people get too complacent ... as was the case ... they get burned. The stock market is a risky place to be, and always has been.

However I do really worry about the deflation and deleveraging that's out there. In a market that has oil at $38, copper at $2, and zero% interest rates, this is the picture of a global market that is NOT growing. We also have corporate credit tightening.

So I think anyone who is positioned to expect strong global growth (i.e. high equity exposure, or high risk exposure) is going to be disappointed. But an average investor who has a traditional 50/50 asset allocation would probably be OK for long-term investment.


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## lonewolf (Jun 12, 2012)

james4beach said:


> It's normal for stock markets to have volatility, long stagnant periods and to make life difficult for investors.
> 
> What's been *unusual* is the stock market behaviour since 2009: generally straight up (especially in the US) with no corrections and no volatility. If anything, the stock market may be going back to how it more traditionally behaves. Too many people got into the stock market in the last few years, thinking it's an easy place to be, and an easy place to make money.
> 
> ...


 Aug 21 2015 there was a Dow theory bearish primary trend change. The Dow could still go to a new high unconfirmed by the transports & the Dow theory bearish primary trend change would still be in effect. Hard to go down hard in December with strong seasonality.


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## Joe Black (Aug 3, 2015)

The_Tosser said:


> lmao
> 
> well that is good news for my neighbour. I'm going to run over and tell him his nortel shares are still full value. He is going to have a great christmas.
> 
> btw this is pure ignorance. If what you're sitting in is 'down' you are sitting in a loss. Ignoring this fact doesn't make you whole again no matter how badly you want it. Your broker doesn't agree with you either. They won't lend based on what you bought it for, promise! lol.


I was addressing the OP's post which was on the *market* and not some specific stock. Assuming you are not some gambling fool, if you are investing in the *market* you would have a diversified portfolio and a long term outlook. In such a scenario, you become "whole again" after any temporary "loss" if you stick to your long term plan.


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## Joe Black (Aug 3, 2015)

sags said:


> Paper losses mean significantly more to current retirees, who are withdrawing as their funds decline.
> 
> They are faced with slowing the withdrawal rate, running out of money or hoping the markets come back in time for them.


When I retire I don't expect the bulk of my assets to be in the market. Hopefully, I will have enough that I don't need to rely on investment income.


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## james4beach (Nov 15, 2012)

AltaRed said:


> This almost 10 years retired retiree does not need market volatility either. That said, I keep a reserve of fixed income handy to avoid having to sell beaten up equities in a down market and thus I sleep well at night.


Higher fixed income % (which could include HISAs and GIC ladders) is the only way to shield yourself from stock market volatility.

And remember that those Trinity update studies on sustainable withdrawal rate etc have showed that, in retirement where you're living off a portfolio, there is no significant advantage to high equity allocation versus low equity. The sweet spot appears to be around 50% equities but from the numbers in the historical studies, there is not much difference in the end result between say 90% equities and 40% equities.

Therefore, if you're in retirement and you dislike volatility, you should keep stock allocations to something like 40% to 50%. Remember that should be applied across all net assets, and pensions (if you have any) fall into fixed income.


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## AltaRed (Jun 8, 2009)

For clarification, when I said "I do not need", I should have added that "I can accept market volatility". If I include present value pensions, I am probably about 60-65% equity. My stand alone portfolio is closer to 75-80% equity. I am okay with that because my pensions and investment income (interest and dividends) meet most of my cash flow spending.


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## fatcat (Nov 11, 2009)

the op seemed to post a version of a post we have all seen a million times ... he has a vision, a dream, a hunch, a gut-feeling that everything will go south in an instant ... just his sense of the reality of the market 

but people get these feeling about a million times every day in the market and the market chugs along

massive thumping surprise crashes have been happening in the market since it began and they come out of nowhere and virtually no-one predicts them with any kind of accuracy at all ... no one


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## james4beach (Nov 15, 2012)

fatcat said:


> surprise crashes have been happening in the market since it began and they come out of nowhere and virtually no-one predicts them with any kind of accuracy at all ... no one


I strongly disagree, fatcat. People who analyze valuations knew that late 1990 tech stock valuations were enormously high. Ridiculous multiples on stocks, and huge price increases on unprofitable companies. There were plenty of people knew to avoid the over-valued NASDAQ of the late 1990s.

You can look at Grantham's letter in which he remarks that when he polled fund managers in the late 90s, everyone knew the market was overvalued. The problem is that *due to career risk*, the analysts and managers do not tell their clients this. They always put on a brave face and march on, even into a ridiculous or dangerous market. Grantham writes:



> To repeat an old story: in 1998 and 1999 I got about 1100 full-time equity professionals to vote on two questions. Each and every one agreed that if the P/E on the S&P were to go back to 17 times earnings from its level then of 28 to 35 times, it would guarantee a major bear market. Much more remarkably, *only 7 voted that it would not go back*! Thus, more than 99% of the analysts and portfolio managers of the great, and the not so great, investment houses believed that there would indeed be “a major bear market” even as their spokespeople, with a handful of honorable exceptions, reassured clients that there was no need to worry.


Do you see this important distinction? The experts know, but they're not in the business of scaring you out of stocks. It's dumb retail investors who buy stocks no matter what, and who suffer horrendous losses.

In 2007, it became clear that a credit crunch was underway. Structured credit indices and MBS paper was crashing... this happened well before the stock market hMany smart investors fled financial stocks and realized the system had deep instability. I was shorting Citigroup, Fannie Mae, and Countrywide Financial in 2007-2008. I shorted one American bank _to zero._ I was managing a mid sized bond portfolio at the time and also deliberately avoided Fannie & Freddie paper. All of these were foreseeable, with research effort.

So I disagree that these things cannot be seen coming. The mounting losses at banks were absolutely obvious, as was the major risk on the horizon.

And today ... well my opinion is that the (US) market is dramatically overvalued, pumped up by nothing more than central bank stimulus (QE and ZIRP). There is an economic slowdown underway while the S&P 500 still remains at lofty levels that are totally unsupportable. CAPE is unusually high. Commodities have crashed. Oil and metals continue to crash; this shows global deflation/deleveraging, not any kind of expansion. And within the last year, junk credit has started crashing, there is a sign of a contagion to some corporate bonds, and a bear market seems all but inevitable. That's my perspective. I've been avoiding stocks in anticipation of this, and now I think it's absolutely clear the bear market is on the horizon.


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## dogcom (May 23, 2009)

I would say your right james but don't underestimate the desperation and insanity of the central bankers. The markets depend on this desperation and insanity to move forward and so far the central banks have delivered this, but investors do have to keep in mind it isn't investing in the traditional sense.


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## james4beach (Nov 15, 2012)

dogcom, I think you're right. The central bankers are desperate and will do nutty things. This is not your dad's stock market... this is something new, and nobody has experienced this before. We're the guinea pigs!

Perhaps the Federal Reserve will start buying billions $ of junk bonds and will pump the bubble back up. Another possibility is that they can start buying lots of stock index ETFs (or stock futures). The Japanese central bank already does this and is the largest institutional owner of index ETFs in Japan!


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## HaroldCrump (Jun 10, 2009)

james4beach said:


> Perhaps the Federal Reserve will start buying billions $ of junk bonds and will pump the bubble back up. Another possibility is that they can start buying lots of stock index ETFs (or stock futures). The Japanese central bank already does this and is the largest institutional owner of index ETFs in Japan!


So is the Swiss central bank.
They have been buying up tech stocks like Apple, Microsoft, and Google for over a year now.
The PBOC routinely buys stocks, either directly or via other state-owned agencies.


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## fatcat (Nov 11, 2009)

james4beach said:


> I strongly disagree, fatcat. People who analyze valuations knew that late 1990 tech stock valuations were enormously high. Ridiculous multiples on stocks, and huge price increases on unprofitable companies. There were plenty of people knew to avoid the over-valued NASDAQ of the late 1990s.
> 
> You can look at Grantham's letter in which he remarks that when he polled fund managers in the late 90s, everyone knew the market was overvalued. The problem is that *due to career risk*, the analysts and managers do not tell their clients this. They always put on a brave face and march on, even into a ridiculous or dangerous market. Grantham writes:
> 
> ...


james at any given moment there are probably tens of thousands of visible commentators in print, radio, tv, and on the internet who are talking about financial matters

everyone is trying to make a name for themselves and someone is predicting something either really good or really bad virtually every day that the market is open

by sheer luck, they sometimes get it right

look at the "great canadian housing crash" .. it has been predicted for how long, a decade ? .. it may come or it may not but if it does all kinds of people are going to tell me how brilliant they are


the op used the word "precipice", that means catastrophic fall over a few days and no one can predict that except by blind luck

ps. you have been predicting a crash something like the 08 crash also but you have been doing it for the last 5 years during which time the market has soared ... so what is fair ? ... what is the time limit on crash predictions ? ... if you right in ten years and i have made a shite load of money in the meantime are you still right ?


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## My Own Advisor (Sep 24, 2012)

"everyone is trying to make a name for themselves and someone is predicting something either really good or really bad virtually every day that the market is open"

Correct, this is how talking heads make money.

Do you think talking heads would make money by saying:

"I have no idea where interest rates will be next year"
"I have no idea where bond yields will be next year"
"I have no idea what the stock market will do next year".

A broken clock is right now many times a day....? 

Everything in the future is virtually a guess. Sure, the educated folks can make better educated predictions but by no means does any expert have any expert accuracy on anything. 

In the business and investing worlds, the better you are at _making people think you have the answers _the more money you will make. Ka-ching!!


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## dogcom (May 23, 2009)

This is all true even though it is fantasy, the fantasy is being played out by the people who have the money and can print unlimited amounts of it. This is the reality we live in and it can go on for years until it doesn't and we move on to the next reality. No one can predict it but please don't try to put fundamentals and lessons to it making it seem like the right thing to do.


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## dogleg (Feb 5, 2010)

To all, thanks for the comments. I think I might have gotten more than I bargained for here. So what should I do? Keep buying or bury my head ,turn off all electronics, read no papers, go and hide out at my farm for a year or so and resurface in the hope that oil is selling for $90 US ,Alberta is booming and Ontario can't keep up with the demand for products? Few rainbows form over Bay and Wall street.


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## dogcom (May 23, 2009)

I heard under the US/Iran deal that Iran may end up pumping 2 millions bpd next year. Also none of the Arab states wants to be the example and hold back oil production. It doesn't look good for oil going forward except maybe the seasonal strong period that arrives in Feb. every year.

I am mostly in short term bonds right now until I figure out what I want to do.

Also it doesn't look like the US stock market is a fan of a rate hike right now. If they do raise rates they will have to come up with a way to back door QE to cover it.


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## Taraz (Nov 24, 2013)

dogleg said:


> To all, thanks for the comments. I think I might have gotten more than I bargained for here. So what should I do? Keep buying or bury my head ,turn off all electronics, read no papers, go and hide out at my farm for a year or so and resurface in the hope that oil is selling for $90 US ,Alberta is booming and Ontario can't keep up with the demand for products? Few rainbows form over Bay and Wall street.


With oil prices and the Canadian dollar low, and food prices soaring, why can't you make money farming? Perhaps you need a better niche?


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## sags (May 15, 2010)

I have always maintained that a person with a long time line.........say 25 years, should just continue to invest and ignore all the ups and downs.

But..........I looked at the TSX chart from 1980 to today and if you draw a trend line from the start the TSX would normally be around 8,000 points. It is currently at 13,000 points.

Does that mean a big drop is coming............of perhaps 30-40% or was the steep rise in the past few years business as usual ?

I don't know and I doubt anyone does, but it is a little uncomfortable to consider.


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## dogcom (May 23, 2009)

If you look around with all the geopolitical events going on we may be at an end of this game very soon. One reason to create turmoil in the world is to blame the financial collapse onto it. This may be why we are seeing art go so high because rich people want something of value for their money they can touch that is not part of some paper futures market like gold.

I don't know what or when it will happen but with all the rigging of markets going on at some point something bad will happen and it could go down very quickly.


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## My Own Advisor (Sep 24, 2012)

Market drops don't bother me very much only from the perspective that my investing horizon is decades out. It's also based on the fact I am still working.

I can appreciate after peaking at close to 15,525, the S&P/TSX, it's now 12,790; down about 17%. YTD index down about 9%. Conservative investors feel vindicated I'm sure!


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## OnlyMyOpinion (Sep 1, 2013)

My Own Advisor said:


> Market drops don't bother me very much


^+1 Been there done that. This correction will be a bit different for us though - we're no longer working so we won't be able to add substantial new money through the cyclical lows. The best we can do is allow our DRIP's to add modest numbers of new shares at lower prices. Our dividend payor's are diversified and should be secure (?).
Also, our 'fully invested' horizon is 10-15 yrs (not decades), but we've built a FI wedge to get us through that period. 
So we're just standing back watching the roller coaster and waiting for the screams from the young 'uns to begin eaceful:


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## dogleg (Feb 5, 2010)

Taraz: Interesting idea ,however,only two kinds of farms make money: big factory farms and inherited farms. Mine is the latter but have you any idea how many hours you need to work to 'grow' livestock or how much risk there is in produce farming? One storm can kill you or one disease can wipe out a herd. On the other hand you don't have to commute and your neighbours are some of the best people on the planet.


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## CPA Candidate (Dec 15, 2013)

Resist the urge to become emotional at times like this. I've been listening to sentiments that a crash is around the corner since 2011. At this point most of the damage to TSX stocks has already been inflicted, I wouldn't be a seller here. US economic data looks sound and I think Canada will stay out of a recession. Oil is unsustainable at these levels and I see it gradually edging up throughout 2016. The outlook is tepid but not disastrous. I'd look at individual stocks doing well and avoid broad market bets. It is still too soon to be adding to energy producers.


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## Pluto (Sep 12, 2013)

Tygrus, although your motive is a tad suspect, you will get your wish. Many people don't know or don't care that economies and therefore stock markets are cyclical. Governments and central banks talk a persuasive, but foolish talk, concerning reducing or even eliminating cycles. It ain't going to happen. Believing them only proves one is a sheep. And the sheep won't know it until it is too late. However, it is not productive to criticize the current crop of sheep. Prophets of doom are too abstract, too many, refer to too many confusing indicators, and warn too often. They become part of the problem by allowing themselves to become annoying background noise. 

It's like Alexander the Great on one side of a river, and the massive Persian army on the other. Alexander had his men frequently march to a river crossing. The Persians heard them coming and were, at first, wary and ready. But the Greeks didn't cross. So what the heck was that about the Persians wondered? The surmised they had the Greeks intimidated, and this daily noisy marching to the river crossing was just Alexander keeping his troops in shape for the long march home. The Persians relaxed, and were lulled to sleep. But not all of them. Some tried to convince the confident that it was a trick, but they were dismissed. So the perpetually wary among the Persians, subtly found excuses to camp a little further from the river crossing, while they thought, they would let the confident be in the front lines when the inevitable occurred. Sure enough, one day, totally unexpected, yet in plain sight, Alexander's best troops crossed the river and soundly trounced the confident. 

The signs of a late stage bull market are in plain sight. But no matter. The confident have convinced themselves that the prophets of doom are just foolish noise and are missing out on untold riches, while the wary quietly subtly move to a safer position.


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## Moneytoo (Mar 26, 2014)

Pluto said:


> The signs of a late stage bull market are in plain sight. But no matter. The confident have convinced themselves that the prophets of doom are just foolish noise and are missing out on untold riches, while the wary quietly subtly move to a safer position.


Yeah, it's all gonna be good - same as 
"80 per cent of the time" (unless it's another 20% this time... )

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Don’t fear the volatility. A strong Santa Claus rally is near


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