Sell Everything before Market Crash !

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 1987 stock market crisis is Black Monday. Interest parity arbitrage trading and currency war fueled the 

Asian Crisis in 1997. It involves borrowing a cheap currency with low yields and investing in a stable currency with higher yields to earn spread income, known as positive carry. Hence the name, carry trades.


Concept explained : Currency Carry Trade : by Investopedia

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.

 In theory, rates and prices should reach an equilibrium so there is no arbitrage. But this was a special time in financial markets. Japan wanted to manage the yen to promote its export-oriented economy. Other Asian countries with currencies pegged to the dollar had just opened their capital accounts and were attracting foreign investors with higher yields. The money poured in and strained utilization capacity until local authorities interceded in late 1998, and the party ended.




The GFC (Global Financial Crisis ) surfaced first in 2007 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 ….


Chotto Matte




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 ! “


Cheers !


< 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 . >




" I Don’t Know the Key to success , but the key to failure is try to please everyone.” By Bill Cosby

Comments

  1. There will as usual a final great push before all hell come. I think a rally will come first, then come the storm. It is always play out in this manner. I think a final strong rally coming, to trap more people.

    ReplyDelete
    Replies
    1. Hi !
      Everything seems random as what Nassim Taleb mentioned in his book " The Black Swan "..
      Market could move in any direction. ...hard to predict. .
      Cheers!

      Delete
    2. Hi STE,

      Yes it's true that we can't predict but yet isn't the reason for market crush due to frothy valuations?

      The funny thing is that while US market ain't cheap but Singapore's can't be consider expensive.

      However when US market tanks, I'm sure our's will too.

      Sigh. Our market is such a laggard.

      Regards,
      FFE

      Delete
    3. Hi FFR,
      Yup ! You are right that Singapore market seems lag behind US and has been so long ,, while US market eg SP 500 is above 1 SD but our STI still below regression line ,,, is also very true that while US stock tank ,, whole world's stock market will follow ,,,regardless of what your valuation level ,,, by that time...cheap will become cheaper !
      Cheers !!

      Delete
  2. 风水学上,7运过气,现在行8运。8运旺到2023

    ReplyDelete
    Replies
    1. Ali 兄,
      风水学高手, 授教,授教。。希望如你所言。。旺到2023 !!
      Cheers !!

      Delete
  3. STE,

    Wah! Your blog title eye catching ah!

    Base on the blogs reading, some of us have exited the market > 3 years and wait for the crash. But it did not come. The market is up and up instead. Look like the hot air balloon is still full of steam despite QE has stop.

    Nevertheless, there are some correction along the uptrend such as EU crisis on 2011 (The PIGS), rumour of interest hike.

    So, when is the market crash? No body know. Mr market is irrational and manic-depressive.

    Not all will panic and sell during market crash. WB is one of the example and so do some of Value-Investment Fund. Their 'market value' will tank but their 'business value' still intact. They will then take the opportunity to accumulate more on the cheap.

    Warren Buffett — 'Be Fearful When Others Are Greedy and Greedy When Others Are Fearful'. Easy to understand but difficult to apply if we don't have the right mindset and guts.

    The crash will definitely come... just that we don't know when. More importantly, we should prepare for the eventuality and react adequately to the opportunity rather than crisis.

    Cheer!



    ReplyDelete
    Replies
    1. Hi Ray,
      Hahaha :) that's also how media use to create their " news headlines "...must be eye catching n exaggerating! !
      Well said! Yah ...Mr. Market is really irrational and manic depressive. .one have to be ready to capitalize the irrationality of the market. .
      Cheers!

      Delete
  4. There are no fixed duration. Something will have to trigger. Oil and Gas maybe Singapore thing but can be world wide since middle east got so many mega projects for big companies. Another World level maybe China debt thing which I never got to understand whether is it a mega problem or not. Everyone is an expert here ...

    Yes Market is irrational. We need to profit from the sentiments.

    ReplyDelete
    Replies
    1. Hi Cory ,
      Yes! As you said ,,, " everyone is an expert here ...." ....until, being proved the other way ... :)
      Cheers !!

      Delete
  5. I take a hard look at the dow historical chart. It seen to me that mkt crash happen in those year ended in "0". Please counter check this and feedback here, Thanks.
    victor

    ReplyDelete
    Replies
    1. Hi Victor,
      The long term return seems random. .not the intention to pick years in certain number. .:) as my last sentence in my blogs mentioned.
      We should not care about such year end number return. .also not the message or intention of this blog post.
      Anyway, pls find the link on below to find out the return of DJ by years ..also ,seems random and not bad in some years ending with 0..
      Cheers ! :)



      http://observationsandnotes.blogspot.sg/2009/04/stock-market-returns-by-year.html?m=1

      Delete
  6. Hi STE,

    Looking at the link above, the only certainty is that there are more up years than down years. So keeping cash and market timing is not the best strategy, but there are many keeping tons of cash waiting for market to drop, hence I am not too convince if this strategy really pays off. But again, this link is for the US market, and many US studies have suggested no market timing and stay invested. Maybe SG market is different?

    ReplyDelete
    Replies
    1. Hi millionfaith,
      Yah ! Market seems having more + ve return than -ve ,,, is not a normal distribution ( bell curve ) ,, but skew toward +ve side ,, I would like to write about this in future blog post.
      Yup ! U are right ,,, keeping more cash could be quite risky if market moving sideways for long period of time. Will Singapore Market be different? ,,, ummmm,, I am not sure sure ,,, :)
      Cheers !

      Delete

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