Will the stock market and economy begin to crash within a few years?

Question

Greenspan thinks so. He says the current stock market pattern resembles the 1987 and 1998 stock market crash.

http://biz.yahoo.com/rb/070907/greenspan_market.html?.v=6

When I say crash, I am talking about a 40-50% correction or higher. A dip of 10% obviously isn't a crash.

Say, if DOW corrected from 13000 to 10400, that is a 20% correction, and that is a trend towards lower numbers.

Answer 1

Gravedigger is correct. The "advance" off the August 16th low is a bounce, a reaction in the trend. The current advance is about done (the top should be in place by now, if not, by sometime next week - week of Sep. 9-15). Then look for the market to roll over and experience a violent sell of culminating by Mid October (estimating sometime during the week of Oct. 14-20). This sell off should take the Dow down to around 11,200, possibly as low as 10,800. Look for prices to stabilize and actually advance through the end of 2007, but then look for prices to rollover again in 2008 and continue down. This is the beginning of a very brutal bear market that will last till at least 2017, possibly till 2022 and take the Dow down into the 1000 point range.

BMWDriver11 is making assumptions on limited data. Yes, we advanced off the 1987 and 1998 corrections, but BMW is leaving out some MAJOR data. The equity markets run on very long term secular cycles that average 17/18 years in length. The last bear market last from 1965/66 through August 1982 a period of 16/17 years. The "crash" of 1987 was only a correction. We were only 5 years into the new secular bull market. Although the market dropped 22%, the major trend was still in tact, ie, bull. The sell off in 1998 was still within the secular bull cycle. When the markets topped in 2000, that was the culmination of the secular bull market.

Now, most people would argue that we couldn't be in a secular bear market because the Dow advanced off the 2002 low of 7200 and made new all time highs. That is true in nominal terms, but in real terms, the Dow never exceeded it's 2000 top. And the S&P 500 even in nominal terms only exceeded it's 2000 top by a few points and for only 1 day. The broader market did not confirm the Dow advance to 14,000.

There is one gentleman named David Knox Barker that wrote a book called "The K-Wave" in 1995. The book is based off the works of Nikolai D. Kondratiev (sometimes spelled Kondratieff). Kondratiev was a Russian Economists that discovered that capitalists economies followed a long wave business cycle that can last up to 60 years in duration, called the K-Wave. The wave itself in divided into 4 segments named after the 4 seasons; spring, summer, fall and winter. The upleg of the wave is the spring and summer segments. The downleg are the fall and winter segments. According to Barker, the spring segment is marked by mild or beneficial inflation and ran from about 1949 to 1966 (which interestingly enough is when the last secular bull market in stocks ran). The summer segment is marked by runaway inflation and this segment last from 1966 to 1981 (remember the runaway inflation of the 1970's and double digit interest rates). The fall segment is marked as a plateau and a stabilization of prices and according to Barker, this occurred in the 80's.

Now, the LATE FALL segment has the following earmarks (remember, Barker wrote this book in 1995, 12 years ago) - see if if these markers seem familiar. The late fall segment has these characteristics:

- Global system awash in cash (currently world central banks are pumping their money supply at unprecedent rates)

- Financial speculation

- Interest rates decline (from 2001 to 2002 over night rate went from 6.25% to 1%)

- Global stock market boom (all major global stock indices are way up)

- Commercial & residential real estate prices peak

- Bank system weakens

- Greed runs wild (self explanatory)

- Individual investors follow the herd into stocks

- Final speculative stock blow off.

Now, as you read the list above, doesn't it basically describe what is going on right now in the U.S. (and world in general)?

Now, the final segment, the winter segment is about on us. The earmarks of the winter phase is as such:

- Stocks down

- Global stock markets enter secular bear markets

- Interest rates spike in early winter segment and then decline through the rest of the cycle.

- Economic growth is slow or declining through the majority of the winter cycle

- Commercial and residential real estate prices FALL

- Social upheaval and society become negative

- Bankruptcies accelerate and debt eliminated through bankruptcies

As you move deeper into the winter cycle you have:

- Banking system shaken and new one introduced

- Free market system blamed and socialist system introduced

- National Fascist political tendencies

- Debt levels very low after bankruptcies and defaults

- Overcapacity/overproduction purged

- Trade conflict worsens

- View of the future at very low point

- New work ethic develops as jobs are scarce

- Greed is purged

- Real estate prices bottom

- Investors are conservative and risk averse

- Interest rates and prices bottom

- Stock markets bottom and begin new bull cycle.

We are in the late fall cycles of the K-Wave and about to enter winter. Look for a violent sell off in the next 6 weeks or so, a "crash" if you will and the onset of the winter phase of the K-Wave.

Answer 2

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Answer 3

40 or 50% corrections only happen when there has been a bubble in the market such as the dot com boom in the late 90's. In some locations the housing market has had an speculative bubble, but but stock prices are more or less in line with earnings. Company earnings do not vary nearly as much as stock prices and P/E ratios. He said the turmoil was similar, not the run up. Marked turmoil happens when investors are uncertain about the future, but the current problems are due the the mortgage crisis.

Answer 4

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Answer 5

I think the term is inflationary recession :-( and it's coming but when, even the best in the business have been off by a couple of years.

But, if Iran dumps $10 a barrel oil on the market, payable in Euro's, things will get very ugly and quite suddenly.

Answer 6

Well, bear in mind that we also recovered from 1987 and 1998 with a huge boom that lasted over a decade. Yeah, we could have a short term drop, but the US is well positioned for long term growth. For younger investors like myself, corrections at this point present a good buying opportunity. If you're trying to retire though, there are a lot of very safe investments out there that you are probably better off in right now.

Answer 7

NO, it will happen THIS MONTH. Someone with insider info has already made HUGE bets on a stock market crash BEFORE the end of Sept. This is very similar to what happened just before the 9/11 attacks. The Shrub gang is planning on a full out attack on IRAN BEFORE Sept. 21, as well.

Answer 8

Only if the democrats get into the White House. At that point, people will no longer have any money to invest. It will all be stolen by the government. There will be substantially fewer jobs because again, every single democrat wants to tax big corporations as much as they can.

These are the exact things that will destroy any economy.


Hey yasses, my answer comes directly from what the democrat candidates for president have said and from factual history, not the history rewritten by liberals.


bmwdriver11, you must be a graduate of the Freeman Business School. That was quite elegant.

Answer 9

What is seen as "conservatism" in America is really feudalism. They want to restore the type of system that was around in the middle ages in Europe where taxes were collected from the lower classes and redistributed to the kings, lords, counts, barons, etc...

Answer 10

It started in February of this year.

The United States is the largest debtor nation on earth. This was the result of imperial mismanagement. Our bankruptcy is on the horizon and our Empire will fall from its own internal contradictions.