Will there be another market crash in 2017 ?
The unlucky 7
Whenever there is year ending with 7 , the stock market will collapse and have crisis.
For example, the name for the stock market crisis is Black Monday. Interest parity arbitrage trading and currency war fueled the
in . It involves borrowing a cheap currency with low yields and investing in a stable currency with higher yields to earn spread income, known as Hence the name,
What is a 'Currency Carry Trade'
A currency carry trade is a strategy in which an investor sells a certain currency with a relatively low interest rate and uses the funds to purchase a different currency yielding a higher interest rate. A trader using this strategy attempts to capture the difference between the rates, which can often be substantial, depending on the amount of leverage used.
The (Global Financial Crisis ) surfaced first in with the collapse of the U.S. subprime market. In 2008, it turned into full-scale crisis when Lehman Brothers fell. This time was also a carry-trade, the one involving credit ratings rather than currencies. Banks could buy impaired loans and make them into RMBS with inflated ratings provided by willing rating agencies.
These securities were then refinanced in CDOs. The CDO ratings were based on original ratings on the RMBS-they were not updated with real performance information-so if the rating on an RMBS was inflated, it would flow through to the CDO.
What is RMBS and CDO ?
What is a 'Residential Mortgage-Backed Security (RMBS)'
Residential mortgage-backed securities (RMBS) are a type of mortgage-backed debt obligation whose cash flows come from residential debt, such as mortgages, home-equity loans and subprime mortgages. A residential mortgage-backed security is comprised of a pool of mortgage loans created by banks and other financial institutions. The cash flows from each of the pooled mortgages is packaged by a special-purpose entity into classes and tranches, which then issues securities and can be purchased by investors.
What is a 'Collateralized Debt Obligation - CDO'
A structured financial product that pools together cash flow-generating assets and repackages this asset pool into discrete tranches that can be sold to investors. A collateralized debt obligation (CDO) is so-called because the pooled assets – such as mortgages, bonds and loans – are essentially debt obligations that serve as collateral for the CDO. The tranches in a CDO vary substantially in their risk profile.
The senior tranches are relatively safer because they have first priority on the collateral in the event of default. As a result, the senior tranches of a CDO generally have a higher credit rating and offer lower coupon rates than the junior tranches, which offer higher coupon rates to compensate for their higher default risk.
Still don’t believe ? Look at “ Samsung Galaxy Note 7 “ ! which has made the News Headline recently.
Ok , Ok ,, but then how about iPhone 7 ?
Quoted below from USA Today :
“On Friday, the glass was half-empty. Investors dumped shares on heavy volume after a market research firm in Germany, GfK, reportedly showed soft sales in Europe for iPhone 7. Apple shares (AAPL), which had climbed 6% since the company's Sept. 7 launch event, lost 1.7% to $112.71 and dragged on the Dow Jones Industrial Average. “
Still don’t believe ? Look at below chart on so called "Megaphone Pattern" !
So , what will be the trigger point of crash in 2017 ? Commodity (oil ) crash ? China shadow banking problem ? Geopolitical tensions ( North Korea / Middle East ) or iPhone 7 ? etc ….
How about below news and chart from MarketWatch ?
Sell everything ahead of stock market crash, say RBS economists in Jan 2016
In a note to its clients the bank said: “Sell everything except high quality bonds. This is about return of capital, not return on capital. In a crowded hall, exit doors are small.” It said the current situation was reminiscent of 2008, when the collapse of the Lehman Brothers investment bank led to the global financial crisis. This time China could be the crisis point.
The result :
In the 10 months since Royal Bank of Scotland analyst Andrew Roberts issued his headline-making call to “sell everything,” most assets have soared.
So, now what ? Will market crash in 2017 or not ? I think the best answer still the same : “ I don’t know ! “
< Disclaimer : this is not a call to act or sell your stocks , please DYODD prior making any decision and it is nothing to do with Samsung Notes 7 or iPhone 7 if market really crash in 2017 . >