Stock Market Crash on the Horizon?

Monday, December 02, 2013

Traders work on the floor of the New York Stock Exchange on November 22, 2013. In early trading the Dow Jones Industrial Average was little changed after closing above 16,000 for the first time ever. (Spencer Platt/Getty)

The stock market is at historic levels, but analysts are starting to voice concerns right as more casual investors are rushing to join in. Roben Farzad, economics reporter for Bloomberg Businessweek, discusses what's driving the growth and why "mom and pop" may have terrible timing.

Roben Farzad: "This Chart Says it All"


Roben Farzad

Comments [22]

mike on long island from long island

the stock market is the worlds largest pyramid scheme, its been that way for years . companies that produce no profits pulling in lots of money. nobody wins unless someone loses. you need to get in and get bumped to the top of the pyramid by other peoples money coming in after you, and hope the money doesnt dry up before you cash out. the govt keeps interest rates at zero, to force people into the market. that pumps up the dow, and creats the illusion of prosperity, or at least a recovery. great for politics, not so good for most people. every single lesson we learned from the great depression, forgotton. every regulation to keep it from happening, that kept it from happening , all repealed. the great a$$-wipe of all times , greenspan, said markets are self regulating. they sure are, they run away , if unchecked, until they blow up. now is he doing reputation damage control, screw him. a car engine with a stuck throttle is self regulating, it will rev unchecked until it explodes, end of problem. some self regulation. the market will do the same thing. when it happens , the insiders will walk away with all the bottom of the pyramids money, there will be some BIG winners ( called 1 percenters) . with a small # of exceptions, its not investing, its ( rigged) paramutual gambling. i saw 2008 coming a mile away. i was a small businessman, and just from listening to people speak, and seeing how warped they had become, i sold it and got a safe job. one yr later i saw the layed off multitudes on the LIRR, with expressions of loss, and all their possesions in bankers boxes. it was heartbreaking. i hope with all my heart i'm wrong, but i doubt it. big money always wins, we have ceded control, we are the sheep.

Dec. 02 2013 07:13 PM
Mr. Bad from NYC

@ superf88

Oh, by "Bank" I thought you meant "Bank"... ROFL. In any case it's not I who missed your point but you who missed mine. The benighted, mismanaged and deeply corrupt countries (not like OURS) you mention as needing our "Fiscal Transparency" to feel confident about investing in our markets are not actually choosing to do so but are in fact OBLIGATED to do so. Why?

Well because oil trades in $'s only. That's what the Petrodollar is, it is a gun to the head of the rest of the world that FORCES foreign governments to hold large US currency reserves just to do business. That's what all this stuff coming out of China and Russia is regarding an "alternate reserve currency" or "basket of currency's". They do not admire our pristine and oh so well governed markets and government - but they DO have to dance to our tune and support the dollar and therefore US equities and especially Treasuries that our denominated in dollars. For now.

Dec. 02 2013 06:36 PM

re: "Mr. Bad"

I actually have no problem w your comment "The U.S. is most certainly NOT the world's (governments?) bank simply because they hold Treasuries." (I'll happily leave the defense of that construct that for Bush's politicians who orchestrated that scenario in the first place, along with the Obama wimps who kept it in place.)

You aren't listening -- my point is the opposite of that.

USSR, China and Arabia invest in the US (be it treasuries, stocks, real estate or other vehicles -- it will always be one or more at any given time) because the US is a safe, well governed and fiscally transparent country with a strong military, professional civil servants and undisputed borders -- *relative* to their own countries. In China, you can't even breathe the air, for Pete's sake. This is what I mean by a bank -- a safe place to hold and invest your dollars.

For these reasons, I also resent Bush and Obama for not letting the US banking system fall on its face and reform naturally, according to the laws of Capitalism. By now we would be seeing a superior system taking the place of Citi, Chase and the other players who continue to benefit from the Fed's Nervous Nelly policy of fiscal management. No wonder nobody steals radios from cars anymore. Those guys are cube jockeys now, rich ones.

And no, I'm not selling anything, this is insight from the inside. Gratis. But why do you bring up Europe as a "better alternative?" Are you selling something? Good investment is never a zero sum game.

Dec. 02 2013 02:38 PM

Yes, this is worst part about gold compared to equities...not only does it not pay dividends it costs money to hold it! You have to either pay someone else to store it (but then how can a paranoid goldbug trust it will be accessible in an emergency) or store it yourself which means paying for insurance and security not to mention the always lingering risk of violent theft. This is a similar problem for fine art. Once you factor in the cost of insurance over 30 years or however long you hold it what seems like a big profit really is only around the same as the S&P but at least you get the pleasure and prestige of having a Warhol in your condo where as having a pile of gold bullion in your basement offers no aesthetic benefits and emits an odor of neurosis.

Dec. 02 2013 12:15 PM
Mr. Bad from NYC

Gold is a useless, non productive asset. It will always have a little value, so what? I'm so sick of all these morons coming out of the woodwork pitching gold like it is somehow immune to market forces. In a deflationary collapse gold will be annihilated the same as any other asset only you can't eat it, live in it or even trade it. "Hello, Merchant, can you break a Kruggerand?" LOL, OMG, brilliant. Add to that the real risk of having it stolen or being killed for it. "Hey, I have all my money in gold, a liquid, untraceable asset that you can exchange anywhere for cash. It's all in a safe in my house. I sleep easy, lemme tell ya'!"

Dec. 02 2013 12:00 PM
jgarbuz from Queens

To Bad

I'm not a "gold bug" but do think it plays a role. Like any commodity, and like the stock market, it goes up and down. But gold is a commodity of limited quantity and doubtful if a lot more of it will be found, especially with growing environmental concerns about gold mining. The dollar is being challenged by other currencies and being propped up. And gold is still something that many people want, and some industries need. So I'm not a "gold bug" but it would be stupid to ignore certain facts.

Dec. 02 2013 11:48 AM
Mr. Bad from NYC

Truth is that if you're a dunce you buy gold and watch it crash when people start selling because gold is only useful as a hedge against inflation. It pays no dividend and the stupid gold bugs who pitch it are always screaming the sky is falling same way they have for thousands of years. Always wrong. Meanwhile they point out that over the last 20 years gold has trebled in price while the truth is that gold has trebled in the last five years and is headed back down to where it started around $500-$900. Meanwhile return on the S&P 500 over the last twenty years is 400% with dividend reinvestment. Durrrrr...

Dec. 02 2013 11:43 AM
jgarbuz from Queens

"A $10,000 investment: your returns with gold and stocks

"Had you invested $10,000 in gold bullion in 2001, your initial investment would have grown to $62,484 by 12/31/12 – an amazing 524% percent increase.

That same $10,000 investment in stocks of the S & P index would have gained $2,294. That’s only a 22.9% increase."

Dec. 02 2013 11:43 AM

Brett Arend of Market Watch writes the same thing (down to "Mom and Pop have terrible timing" quip:

back in August.

Dec. 02 2013 11:34 AM
jgarbuz from Queens

The truth is, if you track the price of gold historically, and the Dow average over the same period, there hasn't been all that much difference, and with less headaches.

Dec. 02 2013 11:32 AM
jgarbuz from Queens

Gold today has dropped to $1225 an oz, but it was $400 in 1992. So it has still trebled in 30 years. The Dow was $6000 in 1996. Today it is $16000. Frankly, gold has been less risky over 30 years.

Dec. 02 2013 11:28 AM
RUCB_Alum from Central New Jersey

Focusing on keeping up with the CPI is a losing strategy. Keeping up with GDP growth is the more appropriate goal.

Over the last 50 years, GDP has a CAGR of about 6.5%. CPI only 4.4%

Dec. 02 2013 11:25 AM

Does this mean 401K's are doing well?

Dec. 02 2013 11:15 AM
jgarbuz from Queens

The stock market and gold coin prices have gone up about the same over the last 20 years.

Dec. 02 2013 11:15 AM
Bob from Westchester, NY

Isn't Mr. Farzad's story about the waiter just a re-packaging of the 1929 crash legend of Joe Kennedy and the shoeshine boy giving stock picks?

Dec. 02 2013 11:13 AM
Bubba from nyc

QE is helping pump the Japanese stock market - up 18%.
Look at this stock market.
What's funny to me is how people speak of the stock mart as a barometer for the economy…"Look at the stock market" they say - no! Look at the FED's QE-4EVER - 85 billion a month!
Even Clinton said there will be inflation down the road [look at his hour speech at the '12 DEM convention].

This country could have health care for all, it could have amazing schools, it could have low poverty and high employment - if people would just turn their back on the stock market.
The idea that we all need to be 'invested' in moving jobs overseas, cutting taxes and weakening gov regulation to prop up profits and corporations is KILLING the USA.

Dec. 02 2013 10:36 AM
Mr. Bad from NYC

@ superf88

The U.S. is most certainly NOT the world's (governments?) bank simply because they hold Treasuries. Nobody is buying them now other than the FED, they are simply stuck with them now. There is also the EU/UK as an alternate market with high transparency and rule of law ... Once the petrodollar dies and the buck loses it's reserve currency status look out below ... Are you selling mutual funds to mom and pop? Talking your book?

Everyone knows that absent radical action like rational default (The Chicago Plan) there will be a massive deflationary collapse. Look for a major "credit event" next year. Then a massive FED pump and then it's all over. Fed is already pushing on a string.

Dec. 02 2013 10:30 AM
Joe Mirsky from Pompton Lakes, NJ

From my book Ornamentally Incorrect.

Irrational Exuberance

“Business Will be Fine in Nineteen-Twenty-Nine, This jingling product of one sloganwright's mind lightly expresses the conclusion which seems to be reached almost unanimously by the multitudinous authorities who have been engaged during recent weeks in predicting the business and industrial trend of the new year.”
— The Literary Digest, January 19, 1929

"The depression in Wall Street will affect general prosperity only to the extent that the individual buying power of some stock speculators is impaired.”
— November 9, 1929, quoting The New York Sun

"Unless all the economic experts are off their trolleys, the spring of 1930 will see a tremendous flood-tide of prosperity, because the slight depression of the fall of 1929 was due to lack of confidence rather than economic reasons."
— January 18, 1930, quoting The Emporia Gazette (Kansas).

Copyright © 2013 Joseph Mirsky Jewelry Inc

Dec. 02 2013 10:17 AM

(Sure, China, USSR, etc. also have pretty high-achieving stock markets generally over the last decade. But those investments are coming out of the "quick buck" portion of most portfolios I'd guess -- not the "risk management" portion.)

Dec. 02 2013 09:39 AM

Until oil rich middle eastern countries, former USSR, and China become civil societies, ruled responsibly and sustainably, the US financial markets will continue to rise. Our markets offer a relatively stable investment alternative for to those places in the long run (7-30 years), for the thousands of foreign investors and sovereign wealth funds seeking to invest responsibly.

As I first wrote here in 2000, the US is the world's bank and will continue to receive a substantial portion of the world's investment funds for reasons of risk management alone. Plus our pizza is better.

I suspect anyone who has lived outside the US for any bit of time puts the above observation in the "rain is wet" category.

Dec. 02 2013 09:35 AM

I'm daily surprised that a stock market crash and its inevitable financial and economic crisis has not been announced sooner as they seem to be the stodgy prerequisites to allowing government authorities to "rescue" the politically powerful from their follies, in the name of protecting the well-being of us all. Most recently "operationalized" by programs such as "TARP", the "GM Bailout", and the "Affordable Care Act", (? "rational comprehensive immigration reform" ?). After all each of these wealth-transferring regimes has reportedly tended to generate a net social gain as well as a financial one.
My only puzzlement is that a "crash" or "crisis" needs to be declared. Wouldn't we be much more advanced if we realized we were always in a state of crisis, and engaged in these shenanigans on an ongoing, continual basis - somewhat like the Khmer Rouge of the 1970's?

Dec. 02 2013 09:03 AM
Ed from Larchmont

Let's hope not. But we have turned against God, toward evil deeds, what can we expect to happen?

Dec. 02 2013 08:07 AM

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