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Does The World Need a Market Crash?


Parsad
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Probably not. Speculation will always be around, during the best and worst of times. The propensity to gamble may even increase during tough times, as folks seek “quick and easy” ways to get out of their hardship.

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Think about this - somebody is on the other side of the table and has lost $110M. It’s most likely lots of small retail investors. BBBY isn’t really worth more than a few month ago. It’s likely a ball bouncing down stairs.

Edited by Spekulatius
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Yes but the meme stock crowd will get washed out soon enough. I'd argue with some market fundamentals starting to tip over the bulldozer is quickly catching up to the penny picker-uppers.  In 20 years we'll look at r/wallstreetbets as the modern day equivalent of the 1920s bucket shop. Until then it's just a waiting game. Enjoy the circus.

Edited by Gamecock-YT
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14 minutes ago, Gamecock-YT said:

Yes but the meme stock crowd will get washed out soon enough. I'd argue with some market fundamentals starting to tip over the bulldozer is quickly catching up to the penny picker-uppers.  In 20 years we'll look at r/wallstreetbets as the modern day equivalent of the 1920s bucket shop. Until then it's just a waiting game. Enjoy the circus.

 

Exactly, over time, when amateurs step into a competitive arena with professionals the outcome is inevitable....sometimes it just takes more time than you think for the advantage to churn through the amateur population.........stories of windfalls perpetrate the madness......but overtime you literally run out of people who haven't incurred serious losses such that they wont play 'the game' anymore. Who likes to lose, over and over again.

 

This recent meme stock rally feels to me like the last flailing twitches of a kind of stock market mania that books will be written about.......we are in the midst of an EPIC bear market rally right now, old buy the dip habits die hard....there is still some but lessening healthy household balance sheets around & cheap capital...........the Casino players have still got chips in their pockets.............but Jay & the Fed for the rest of the year are going to strangle liquidity.....earnings are going to deteriorate....at the same time the discount rate is rising. Not a good recipe for index pricing & broad meme liquidity flows.

 

The OP asked whether the world needs a market crash..........put another way the question is should young folks in US markets, yet to invest, be able to buy SPY in their 401k at level that might deliver an expected return in line with historical norms? Where that say 8-9% return is being delivered by EPS growth & dividends (not just multiple expansion & corporate tax cuts). If the answer is YES, then yeah SPY needs to come down by more than alot........given that multiple expansion literally cant go on forever as driver of returns (as it has for the last decade) and I've spoken ad nasuem in other threads how 2021 was quite clearly, IMO, peak % net margins for SPY. There will need to be a reset of index price levels downwards reflecting what I've just said on earnings/multiples to get future Johnny Jnr. into an SPY 401k investment where he can expect a CAGR of 8-9%.......and he can hope to reach his financial goals.

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11 hours ago, Parsad said:

After reading this, I have to wonder if a complete reset is necessary to get fundamentals back to the front of the line and scare the bejeezus out of the speculators and smart money:

 

https://www.ft.com/content/1b21bb08-6590-49c6-8baa-5ad8c527fbcc?ftcamp=traffic/partner/feed_headline/us_yahoo/auddev

 

Cheers!

 

I'm no economist, but I think a significant market crash would clear the way for healthy productive growth going forward. 

 

We have Zombie corporations all over the world that will never be able to pay off their debt. We also have companies that are only viable because their cost of capital is incredibly low due to low to zero interest rates all over the world. Many millions of employees are stuck in dead end jobs around the world working for businesses that are surviving solely due to central bank market manipulation of interest rates. 

 

I think a major worldwide crash without manipulated interest rates would put most of those businesses into bankruptcy/receivership. Their best assets/employees will end up with stronger businesses. Lots of layoffs and a reset would probably ensue, but this would hopefully sow the seeds of new business startups, consolidation among more efficient businesses which produce higher ROIC, and bring down asset prices. All of these factors would likely set the stage for higher forward returns. 

 

These would all be positive things for productive young workers around the developed world, and probably negative for retired people, the developing world, and the less productive members of the workforce. 

 

I think central banks will be back to nominal 0 interest rates long before we have a complete reset, so all of this seems fairly unlikely. 

Edited by RedLion
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On 8/17/2022 at 10:40 PM, Parsad said:

After reading this, I have to wonder if a complete reset is necessary to get fundamentals back to the front of the line and scare the bejeezus out of the speculators and smart money:

 

https://www.ft.com/content/1b21bb08-6590-49c6-8baa-5ad8c527fbcc?ftcamp=traffic/partner/feed_headline/us_yahoo/auddev

 

Cheers!

Nah, I'm speculating with SPY puts so that's not going to work.

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On 8/18/2022 at 8:47 AM, Gamecock-YT said:

Yes but the meme stock crowd will get washed out soon enough. I'd argue with some market fundamentals starting to tip over the bulldozer is quickly catching up to the penny picker-uppers.  In 20 years we'll look at r/wallstreetbets as the modern day equivalent of the 1920s bucket shop. Until then it's just a waiting game. Enjoy the circus.

 

You own puts?  

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