With a PE of 14.22 on SPY - A Crash is Impossible

A

aeliodon

There is absolutely NO WAY this market will crash like RBC says it will.

Sure GM/F/Chrysler will all be bankrupt soon. But there's enough private equity, hedge fund, sovereign wealth funds to bail these companies out 100 times.

Sure all the financial will soon be trading at book value. But again there is enough PE/Hedge/Sovereign money out there to bail out the entire US financial system along with GM/F/Chrysler.

Sure we will correct 20% from the all time highs. Maybe even *gasp* 25% from the highs. But that is still one of the weakest bear markets in history.

There is no way we crash over 50% from the highs like the 1920s or 2000-2003.

The world is still awash in super cheap money. And the valuation correction that began in 2000 never really ended. We laying the foundation of a huge bull market. The absolute worst case senerio is a 5 year sideways grind.
 
Quote from aeliodon:



There is no way we crash over 50% from the highs like the 1920s or 2000-2003.

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Are you the same guy who said there is no way housing prices would ever fall?
 
Quote from seasideheights:

Are you the same guy who said there is no way housing prices would ever fall?
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No that would be Convertibility in the Housing Rolling Along 2 thread.

As far as RE - it will correct in the same way equities have since 2000: 5-10 years of sideways grind not moving much in nominal terms but getting killed in inflation adjusted terms.
 
Quote from aeliodon:



As far as RE - it will correct in the same way equities have since 2000: 5-10 years of sideways grind not moving much in nominal terms but getting killed in inflation adjusted terms.
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Trust me when I tell you that most parts of the country are getting pinched badly in nominal terms, and slaughtered in inflation-adjusted terms.

If Shiller is right, the pain will last for a long time, and you are correct, the most important metric will be inflation-adjusted, gut-wrenching pain.

Those who bought their houses to enjoy and live in, and as an extension of their lifestyles, desires and interests, assuming they can afford them, have little to worry about.

Those who speculated, are getting crushed, and will get buried in the end.

Homes have excessive carrying costs, too.
 
We're going through a period where popular paradigms about the application of capital are being reconsidered. Old methods of valuation will be discounted and this will include the use of quantative ratios in the field of fundamental analysis.
 
Quote from FerdinandAlx:

We're going through a period where popular paradigms about the application of capital are being reconsidered. Old methods of valuation will be discounted and this will include the use of quantative ratios in the field of fundamental analysis.
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Maybe. I certainly don't know. But this does sound very much like "It's different this time".
 
To crash we need: (1) Euphoria (2) A PE over 25 and (3) systemic risk/meltdown.

(1) and (2) clearly don't apply in this case and Fed/PPT has acted to prevent (3) many times since 87.

In regards to (3) the Fed will simply grant all Americans access to the discount window. Bring your shower curtains as collateral to the nearest reserve bank and receive all the funding you need to buy more oil from the Arabs and useless plastic from the Chinese.
 
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Quote from dcraig:

Maybe. I certainly don't know. But this does sound very much like "It's different this time".
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Markets will behave in pretty much the same way as they always have, though I expect that they will become subject to more stringent regulation. What I meant is that the perception of valuation and risk will change. Old models that were used to determine those factors will be changed thoroughly as a result of them having failed to signal the current financial crisis.
 
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