Equities going parabolic - Is the crash near?

[vand]

OK, one look at the general stock indices shows me that they have totally taken leave of their senses. All risk has been disregarded and we have going into the blowoff irrational exuberance stage.

I don't know how much longer this will go on, maybe we are very near to the top, but I can guarantee that when it all falls apart a lot of people will lose their shirt and the outcome will be epic.

[oliversw5]

I sold everything I had and put it into metals...Am I a fool? Time will tell

[sixgun]

i sell PUT options in the VIX so i follow this closely. This is the volatility index for the S&P index. In simple terms the VIX measures fear in the market. The amount of PUT options traders are buying to hedge themselves against a fall in stock prices. The VIX has been very low for a long time now. There is absolute complacency in the market.

The VIX will always revert to the mean. We saw this level of complacency in 2007 prior to the 2008 crash. The Fed may well raise rates next month, there is the Dutch and French elections, either of which could break the EU. North Korea is launching missiles. There is constant conflict in the Middle East. The stock market is at all time highs without earnings to support these nosebleed heights.

It is speculated that the market is being pushed high so the insiders can get out at maximum profit.

Every parabolic move ends in a similar move down.

[sovereignsteve]

1 hour ago, sixgun said:

It is speculated that the market is being pushed high so the insiders can get out at maximum profit.

It's been done before so no reason it shouldn't be the case now.

[vand]

6 hours ago, sixgun said:

i sell PUT options in the VIX so i follow this closely. This is the volatility index for the S&P index. In simple terms the VIX measures fear in the market. The amount of PUT options traders are buying to hedge themselves against a fall in stock prices. The VIX has been very low for a long time now. There is absolute complacency in the market.

The VIX will always revert to the mean. We saw this level of complacency in 2007 prior to the 2008 crash. The Fed may well raise rates next month, there is the Dutch and French elections, either of which could break the EU. North Korea is launching missiles. There is constant conflict in the Middle East. The stock market is at all time highs without earnings to support these nosebleed heights.

It is speculated that the market is being pushed high so the insiders can get out at maximum profit.

Every parabolic move ends in a similar move down.

 

Sounds like a very smart low risk/high reward play.

Ii'm monitoring VIX and will look to buy into a long position. When volatility returns it tends to spike, for that is the nature of sell-offs. One look at the VIX chart shows that it doesn't go for more than a few months without having a spike, although if/when the crash truely arrives I don't think it'll be a small spike like we've seen mostly, rather I expect it to jump to massive levels.

[vand]

The Investors Intelligence sentiment index is off the chart.

https://www.investing.com/analysis/weekly-market-summary-200176113

[Pete]

I thought when the FTSE rose after the Brexit referendum it was bound to fall back so I sold a fair chunk of my funds.
The pundits reckoned the market would tumble so I was happy that I had a nice pile of safe cash, ready to buy back into the market once it had collapsed.
Now that the market has risen by almost 10%, I feel I was too quick to sell.
Is the market over-valued and due a correction ?

I'm afraid whatever you read or hear - if you buy it will fall and if you sell it will rise.

The financial gurus reckon the USD will strengthen due to the Trump effect and interest hikes so gold is predicted to fall by 8% this year.
The Euro is slowly weakening so is this a good time to buy & hold dollars - perhaps ?
Yet the USA is technically bust with massive debts ( like us in the UK ) so who would have the courage to buy dollars ?

There are people making fortunes whilst others are loosing their shirts so I am not convinced there is any fail-safe strategy for investing - other than diversification across many products keeping PMs to about 10-15% max of total wealth.

[onlyroadtoheaven]

Slight pull back yesterday although PMs had a great day. With this in mind I was surprised mining shares were generally down across the board.

I do worry that Trump is trying to convince himself of his policies and actions every time I hear one of his press conferences. I hope he does actually know what he is doing but happy I have some sovereigns if all does go spectacularly wrong.

[Bumble]

Corrections of 20% are a normal feature of stock market activity and are part of the 'creative destruction' process by which weaker companies are shaken out. We haven't had a substantial fall since 2008 so arguably we are overdue, but a fall doesn't necessarily mean a disaster.

By some measures, such as CAPE, stock markets are expensive on average. On the other hand you can buy companies like Shell and BP and get a 6% dividend yield; these are only overvalued if you are sure they cannot maintain this dividend.

There is substantial disagreement in the media about the strength of the economies of the developed countries. Some commentators are upbeat and maintain that we are slowly recovering; others are downbeat and hold that we are heading into an ongoing slump. President Obama's "the American economy has never been stronger" is of course ridiculous hyperbole.

Stock market participants are sensitive to expectations of interest rate moves. Given the huge amount of debt, there is little room for rates to rise. Maybe we will see 0.5% this year, maybe 1% over the next 2 to 3 years, but we cannot get rates back to historical 'normal' levels of 5-6% unless a lot of the debt is defaulted on. If real rates stay low, this is good for stocks, real estate and precious metals. If debt is defaulted on, nobody is going to want to be left holding bonds.

If there is a rush of people taking money out of the stock market, other investment sectors are almost certain to rise. Usually when investors go 'risk off' they move into bonds, real estate and precious metals. It is not safe to hold lots of cash, given how unstable the banks are. Bonds are already expensive and cannot go much higher without yields going to zero. Real estate is a mixed bag: there are probably some places to find bargains, but if you are relying on rental income, a slump will bring increased delinquencies and owners of real estate will be a prime target for wealth taxes.

There are plenty of unknowns. We don't yet know whether President Trump will get budgetary approval for a large programme of infrastructure expenditure. We don't know whether insolvent banks in the eurozone will fail. We don't know whether Greece, Italy or France will want to leave the euro and trigger a partial debt default.

The good news is that precious metals are looking bullish on almost any plausible scenario. Gold can only go down if
(a) There is a strong economic recovery. Fairly unlikely.
(b) Real interest rates rise. Unlikely, unless (a) happens as well.
(c) Some countries that are major holders of gold ban its ownership. Possible.
(d) Someone works out how to mine gold from asteroids, or by electrolysing sea water. Very unlikely.
(e) All political uncertainty and wars come to an end. Extremely unlikely.

[sovereignsteve]

4 hours ago, Bumble said:

It is not safe to hold lots of cash, given how unstable the banks are.

Therein lies the problem and the reason world stock markets etc are making new highs even though everyone knows the economies cannot justify them. There is no safe haven for cash and no safe investment that generates a decent return.

Too much money in the world as a result of all the QE folly of successive central banks.

[Bumble]

Greg Hunter posted a YT video interviewing David Stockman >https://www.youtube.com/watch?v=7xgNncFHAng<  It's 26 minutes long, but the main point of interest is that Stockman reckons that Congress will not approve a budget ceiling on March 17. If the Treasury runs out of money, the president has the authority to allocate funds directly, i.e. he decides what gets funded and what doesn't, and he can close down any part of the federal government to meet the income constraints. Stockman used to be the budget controller under Ronald Reagan, so he knows how Washington works. This sounds like a scenario that could trip a stock market fall.

[sixgun]

i have noted that insiders have been selling their stock. i see the smart money is moving out.

The dumb money has been buying. i have seen this time and time again. 

This happens as we approach the edge of the cliff. 

 

[vand]

How does the saying go..

 

Bull markets are born on pessimism, grown on skepticism, mature on optimism, and die on euphoria.

 

I would say that we are pretty much at the euphoria stage: "The Fed has got your back!!"

[ApisMellifera]

 Pictures says thousand words

Is the bubble going to pop?

[Paul]

Those graphs certainly seem to put things into perspective, upward cant continue forever and ever.

When, when, when though that is the question ??

At least a lot here have got their safe haven 'barbarous relic yellow metal' ready in this giant global game of financial musical chairs

[vand]

"Earnings growth? We don't need no stinkin' earnings growth!"

 

http://www.macrotrends.net/1324/s-p-500-earnings-history

[BaldyBob]

What the graphs fail to show is how much money has been pumped out via QE since 2000. Taking that into account I would say the FTSE is fair price. If it was over 9000 I would worry. 

Of course, people have been saying a crash is imminent for years (I was one of them), and will be right eventually. All we can do is hedge our bets. I would not be fully invested in PM's or equities at the moment.

[sixgun]

The important point is the video i posted.

I have seen this before - the market goes up. There is a significant rise in the market and during all the buying the smart money sells.

i remember in 1987, Thatcher won the election that summer. There was still all the Champagne Charlie Big Bang euphoria.

At that time the smart money was leaving. i remember reading how Jimmy Goldsmith had sold out. He was a big name market player whose son married a Rothschild. He was one of the smart money people.

The market cracked in the September and fell but bounced only to crash on October 19th Black Monday. i remember this exactly. My birthday was on the Sunday. 

i had bought PUTS in various companies duirng the fall in the September but as the market bounced i got scared out. I kept PUT contracts in GKN as they were virtually worthless and not worth selling. On Black Monday they were worth £18 000. 

The smart money is leaving the market. We will look back on this and say the writing was on the wall. A crash is at hand and the smart money will have left the building. 

[Oystonousted]

I am new to the world of precious metals so am asking what % of my wealth should be in gold and silver please?

Here's what I see at the moment;

Stock markets are overheating due to massive investment due to lack of real alternative due to years of low rates

inflation will become an issue and interest rates will increase slowly. As rates increase £s will exit the stock market

Wages have not and will not keep pace with the increased cost of goods. From a personal level the cost of some imported foods has increased over 30% since Brexit. 

Supermarkets will increase prices and consumers will tighten their belts. 

Mortgage payments will go up and people who have unsecured personal debts will struggle to maintain payments and default pushing rates higher. 

Apparently a large % of the U.K. Said that they only have between 1-3 months savings put aside should the **** hit the fan.  Having worked in finance and personal lending I reckon that's not far off. 

Anyone of a number of political or threats to world piece in 2017 could trigger an increase in economic uncertainty and push gold higher. 

I suppose what I am asking is that £1000 oz gold seems high but within next 12-18 mths could be looked back on as a good entry point should things go sour. 

Thanks

 

[Bumble]

@Oystonout
I'm not a financial advisor, so treat everything I say as just a suggestion for your consideration.

Investable wealth can be divided across many different asset classes: bonds, stocks, cash, precious metals, real estate, collectables. The best percentage to allocate to each class depends on all kinds of things about you: your age, your employment status, your current and prospective income, your outgoings, your risk tolerance, your financial objectives, etc. There is no one best answer. Traditionally, financial advisors used to recommend a 5% to 10% allocation to gold and/or gold stocks, though these days most do not. This may be because advisors cannot earn a commission by advising their clients to buy gold, or it may be just that they consider gold to be too volatile.

Your assessment of the likely future developments in the economy are ones I agree with. Financial commentators who agree with this pessimistic assessment (such as Marc Faber, James Rickards, Peter Schiff, Bill Fleckenstein, John Rubino, and others) typically claim that having at least 10% of your wealth in physical precious metals is a good idea. Marc Faber recommends 25%.

What works for you will depend on how much you have and what you can afford to put at risk. I suggest thinking of physical gold and silver as an insurance policy rather as an investment. It is there to hold its value over the long term and protect your savings from inflation, defaults, and crashes. If you want to speculate on the price of gold, gold mining stocks are an attractive option, but they are much riskier, and will likely crash if there is a general stock market crash.

As of right now (March 2017) although gold is close to £1000 per ozt, it has been higher, e.g. in 2016 and in 2011-12. There is certainly no reason why it could not go back above previous highs. Silver is currently lagging behind gold and is comparatively cheap at £14. Silver is more volatile than gold, but you could probably do a lot worse than buy some silver coins at current prices. If you are in the UK, buying from Silver-To-Go is a tax-efficient option, and if you buy British coins, such as the Britannia, they are exempt from capital gains tax. If you want to buy gold coins, I suggest sovereigns. They are smaller and more convenient than the big 1 ozt coins, and are recognisable worldwide.

Other ways of buying gold are described in this article: http://thesilverforum.com/articles/articles/how-to-invest-in-gold-r4/

[Oystonousted]

Bumble

Some good pointers thank you

[sovereignsteve]

10% seems a sensible amount for a long term passive investment portfolio, mainly as @Bumble says, as an insurance. However, if you were wanting to be more active and adjust your holdings depending on the values of the different investments, I would suggest more than this in the current climate. Stocks are at all time highs and are overvalued by most metrics, therefore being underweight this asset class is sensible. Bonds are still too expensive, commodities a minefield, property too uncertain, therefore a little more insurance is sensible. At current prices PMs are still good value IMO and would therefore be suitable for a long investment.

[vand]

Physical PMs are firstly an insurance policy, secondly a store of value, and only after these roles should they be considered an investment, so do not worry too much about your entry point or if it is up or down by 10% next year, just buy a sensible amount consistently and then be grateful if gold has NOT tripled a few years, for if it has then you know some very bad things are unfolding in the world.

[Oystonousted]

Thank you everyone for your comments

I had already decided to purchase some gold and silver coins not purely as investment although that would be an added bonus.

My opinion is that silver has more scope for an increase than gold should the markets see a downturn. On this basis I had planned to purchase some tubes of 1oz silver coins. Taking into account Premiums, VAT, delivery costs and risks of purchasing i have been looking at Goldcore's silver kangaroo bullion coins?

I am still interested in collecting some 1/4 oz britannias from various years and possibly some gold Australian nuggets (look impressive) but recent discussion has also made me think more about just adding some plain old gold bullion with low premiums eg sovereigns.

Any thoughts please

 

[SilvergunSuperman]

Percentage-wise, I think it also depends on how much you have to invest. For example if you had a million quid in the bank and wanted to diversify, it's probably not recommended to buy £200k of physical gold & silver, but if you had £10k cash then I think buying £2k PMs would be a good idea.

Personally since buying a house I've been on a mission to get the mortgage paid off so I'm lighter in cash than I could be, and my PMs/cash ratio might look overly weighted toward PMs. But the alternative would be a more 'normal' ratio and more debt so I'm comfortable with it.

Re bullion - you really can't go wrong with sovereigns, although I find it a bit dull so added some flavour with other universally-recognised bullion coins like French francs & Aussie nuggets.