There's a somewhat popular book in some circles regarding a potential financial collapse this year. Granted nothing is set in stone and many predictions never come to fruition, so this isn't a doom a gloom question. Rather it's more of a historical perspective on the likelihood of financial issues this year or in the near future. In September 2001, shortly after America was attacked, the stock market collapsed (date given is September 17, 2001). Then seven years later America experienced another stock market crash of sorts (dated September 29, 2008). This September marks the seventh year since the last crash. I've often heard that the overall stock market runs in seven-year cycles. Do you suspect that this year there is a potential market crash coming? If so, how are you preparing personally and your company for a market disruption?
Is there a potential financial collaspe set for this year?
Answers
I'm more worried about another banking disaster than the market taking a nose dive (and yes they are interconnected).
My feeling is our banks, banking systems and insurance companies are not properly managed, or regulated. Just one small example is JP Morgan Chase, who still is playing with derivatives (and loosing money).
The concept "too large to fail" is the most insulting term I've ever heard and goes against every principle of business. Poorly run companies die, just as poorly run countries end up bankrupt or in a revolt (Greece, Italy and Spain come to mind).
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Wayne - you mention another banking disaster, have you watched the new show on USA "Mr. Robot"?
In the first few episodes the plan is to hack into all banking software and wipe out all consumer debt currently on the electronic books. Since paper records aren't kept like in the past it would make it next to impossible to restore the loan information. The idea behind it is because of how bad big banks are, and that it would correct the gap among the rich and poor. It's very socialistic at its core but has made for an interesting first few episodes.
Your comment about banks jogged my memory about the show.
I've seen snippets... but don't think that it can't happen. Banks, their security or lack thereof is quite evident.
I don't see a financial collapse on the horizon, doesn't mean we will not see some wild swings, but I do feel that we will soon be entering an era of deflation. Several commodities are experiencing price declines because of over-supply; while at the same time several nation consumers are having economic troubles and pulling back. When these situations occur at the same time, commodity gluts are inevitable.
This is one of those predictions where if you repeat year after year after year, eventually you will be right.
Keep to the fundamentals and remember that market corrections are often buying opportunities.
News flash, it is happening today. The China "bubble" has burst and we areonly seeing the beginnings of the ripple effects already. I doubt the NYSE outage was just a "technical glitch". China does not play by the rules, and the illusion of their artificial economic growth is finally being revealed.
I was thinking the same as Ernie. United Airlines and the NYSE both in the same day, but they are not terrorist attacks or related in any way? Interesting..
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Or if your a conspiracy theorist, they are the evil Chinese or Russians try to disrupt our economic and transportation systems.....
I'll go back to my aluminum foil wrapped office now...
I like Regis' take. We might well look to Japan to understand what a post-growth economy might look like. I think there is real danger that the fed might raise rates, which in a deflationary environment would be truly toxic: dramatically cutting domestic spend rates while killing exports.
Wayne's point on banks is well taken, and as the elections approach there will likely be moves to again deregulate, which would add to long term systemic instability. I think that is more a problem in the next downturn.
As to whether we are looking at a crash now: unless the Fed acts, it should be a soft correction at worst.
Do not put any significance based on lengths of time, except movement of stars and planets, and maybe geysers.
The reason the above are "faithful" is because the conditions that cause their movement or spouting is constant and for the most part, are unaffected by outside influences. That is, planets and suns are too big to be effectively altered from the actions that have controlled their movements for eons.
The only possible human interaction that might be measured in 7 year intervals is Israel and its conflicts with its neighbors, but that is due to biblical influences.
the crash in 2001, 2008, and further back in the past were not due to any mystical timeline. They were due to human causes, and in most cases were different causes. The change in causes is due to the fact laws get made to prevent a repeat of causes.
There can be a re-occurrence of similar causes, though. FOr example, there will not be another Enron thievery (because the guys who did it are dead or in prison), but another company might try similar actions. I doubt anyone will be duped by Madoff again.
So, if you want to predict future collapses, research the causes and look for similar signs of those collapses. And if you can identify those signs, you can devise a response plan.
You can devise a plan to create legislation that prevents the causes, but good luck with that. Most likely, the ones making the laws are involved in the causes and will only force rivals to alter their actions but allowing the lawmakers to continue in their schemes.
You can create a plan and try to convince people to follow your plan, but without a track record of proof that you know what you are talking about, no one will listen.
So, you can make a personal plan, and see how well it works for you, and with your success, help those important to you to weather through troubling times. Share your plan with others, open to critique of knowledge, experience and wisdom(which is knowledge + experience). Adjust and review, then prepare.
With that said, what signs, other than dates do you see? What is your plan to deal with those signs?
By the way, consider this: what is different between age 49 and 364 days and age 50? Will your body suddenly alter itself? No, it is a gradual thing. Anniversaries are nothing but milestones to remind you that you are on a path called life, and each one brings you closer to the end of the path.
Are you ready for what happens at the end of that path?
I think you always have to be prepared for any event, positive or negative. You can't be altering your plans based on every change in the forecast by a so-called expert. Your plan should have the right contingencies built in and your rules of engagement in reaction to the economic events. Of course, you need to balance the cost of any action against the probability of any event. You can't cover every contingency.
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Mark - Since we can't cover every contingency, what in your opinion does a healthy balance consist of? If I were to evaluate the cost of an action to the probability of any event, what should I look to evaluate?
Part of me thinks back to the super storm, Sandy, that pounded the northeastern U.S. a few years back, or hurricane Katrina. Making long-term plans for the respective areas would be hard to balance because storms hit the northeast often, but not like Sandy. Likewise, hurricanes happen, but the impact on a city aren't to New Orleans level of devastation, normally.
“Some people make things happen. Some people watch things happen. And then there are those who wonder, 'What the hell just happened?” ― Carroll Bryant
During any financial collapse there are those who figured it out, set the right strategy, and fully took advantage by being on the upside of a downside equation.
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Good point, Gary. I would anticipate the people who made millions during the dot-com era got out just in time before that bubble burst. The same could be said for people who got out of a Ponzi scheme before the maker ran out of fresh funds.
What does the right strategy look like to you? Through what lens do you use to evaluate your personal or company strategy to take full advantage?