Question to old timers(those who traded back in 1987)

[chump]

It's all just cyclical...people get all melancholic about it towards the top as though the future is going to be somehow radically different ,but it won't be...the market will sort it out if people are patient enough to allow that to happen..the problem has been that people are not patient so they bid up the price in fear of having to pay more tomorrow...that can happen when inflation is rife and wages are rising etc etc...but if incomes are stagnant and costs in financing have been tightening you'd be brave to think 'real' prices were going to be meaningfully higher tomorrow...just be patient, build your capital meantime ...years ago it was exceptional for people to own theirown homes at the ages that young people today expect to do so......so we have an expectation problem to adjust to as well.
Young people who can't afford to mortgage at this price level with a 'margin of safety' built in should take the 'hard' choice and stand aside until they can otherwise they just increase their chances of ending up in the 'basket case' with all the rest who couldn't make the 'hard' choice. Instant gratification has a cost.

One of the problems we face is 'ignorance' (without conotations)...a couple of years ago I was in conversation witha a couple of guys while on holiday..they were both mid management types ,one with a US blue chip...they were talking and I was listening....they were asserting that property prices would keep on going up by 10% pa ,no doubts !
I enquired if this was possible even if incomes were only rising by 3 to 4% with inflation at half that ?...oh yes ,they said ,it's been going on for years now so why shouldn't it keep going on!
You see these two wouldn't even be your first choices for being 'ignorant' so what does that tell you about the larger universe. If at that time I had any doubts that I should be out of that market then that conversation alone would have been enough to clinch it.
LOL..the problem with waiting for a greater fool to sell to is it might end up being you.

 

[Rhody Trader]

You see these two wouldn't even be your first choices for being 'ignorant'

It's amazing how stupid smart people can be when you take them out of their field of expertise. I bet those guys wouldn't ever be caught thinking in similar terms when talking about the work they do for their jobs.

 

[chump]

I appreciate the point you make Rhody,but the issue in question is one that affects most all of us at some time or other so how well equipped are 'we' in general to make such decisions ?

 

[Rhody Trader]

It's a fair question. I think the biggest part of the answer comes down to education and experience, just like it would for any profession or avocation. The more you know and the longer your experience, the higher the probability you are to make good assessments and well reasoned decisions. The gentlemen you spoke of no doubt have long years of experience in their fields, so you would certainly expect good judgement in that regard. They clearly lacked the same in real estate, so were heard to utter rather ignorant statements.

Others before me have commented on how trading needs to be approached like anything else - with the realization that it takes time, practices, study, etc. to become proficient. The problem with trading/investing is that it is often made out to be easy. Sure, at it's most basic level (executing transactions) it is, but being a long-term success is another story. I can't recall anyone saying that being a manager or an accountant or a lawyer is easy. We take for granted that the pursuit of a profession requires a lot of work along the way. Trading does not seem to be equated to something like that.

 

[Lightning McQueen]

Probably. Young people must find a way through, somehow, but mortgages are so much these days that lenders are making them more attractive. 40 years, for example and when rates go up today's mortgages increase by hurtful amounts of money.

I wonder if the cult of home ownership has had its day? After all, nothing lasts forever.

Split

I dont recall too much of how the world and markets worked in 87, I wasn't actually looking teletext was the only media of choice for the casual observer on markets and the like back then, plus news stories on tv...yuppies and their red porsche's etc. Anyone remember the TV series Capital City?

I remember finding my first house in 87, I had blown all my hard earned cash on booze, cars and birds, what to do? ah ha! 100% mortgage to the rescue...oops, bugger it didn't earn enough to get one of those, turned down everywhere locally...what to do now I thought :idea: I'll try for a mortgage in an area thats got massively higher house prices than my area, bingo! one Greenwich Building Society mortgage for £38k later, I moved in

I still have that house, I remortgaged it in 2005 to help fund the purchase of the house I currently live in, the first being let..still got the first tenant in, so haven't suffered any void periods yet, which is fortunate.

Looking at it from a sensible perspective, today I'm probably over borrowed and carrying way too much debt for my own good but its manageable up to another 1% on top of where it is currently, then the pain will kick in and I'll have to dump house one to reduce overall debt.

I don't think I'm doing too bad for a mid forties, low paid factory worker (yes manufacturing still exists in the UK), who failed his CSE's

Lightning

 

[Nut]

all those who traded markets back in 1987, doesn't the entire situation at the stock market looks like it was in 87? Panic, no liquidity, credit problems etc... Yesterday the Fed, in a surprise announcement in Washington, cut the so-called discount rate yesterday by 0.5 percentage point, to 5.75 percent, market wizards in Schwager's book say: " go against the Fed and central banks of other countries". I'd appreciate your opinion on the situation, even if some of you are not trading today...

Old timers indeed, ruddy cheek if you ask me. See the attached charts which go back a long time, one is quarterly the other annual. This will perhaps put 87 into perspective when compared with the overall bull market.

The financial systems at the moment are under pressure for different reasons than in 87, in 87 interest rates were rising now they are more likely to fall to maintain liquidity. The danger of course is that this fuels more debt which in turn then leads to higher rates.

It's my view that the roots of 87 actually began here in the UK when Nigel Lawson the then chancellor raised rates unexpectedly. The fact is rates should have been raised sooner but in small amounts. Why did he have to raise rates at that time? Because to do so sooner would not have been politically expedient, rates were maintained at low levels to ensure the Conservatives won the election. This delay sent the housing market ballistic.

So why did the subsequent recession take place? Because here in the UK the political will for recession was there, a recession at that time was what the government of the day wanted. I do not think this is the situation at this moment in time. In fact in 87 the government went out of it's way to exacerbate the situation.

To be fair to them though they did ensure equality and this was the first time ever in British history that the South of England went into recession. This was a major factor in the eventual defeat of the Conservatives. Along with a bit of corruption, scandal and monetary incompetence at a time when millions were on the dole.

Todays problems are the result of poor business rather than Government actions and some pain may be experienced in certain sectors especially if the banks adopt a more cautious view towards loaning money. I think however that this view would be limited to only the risky customers. The banks need to keep doing business.

The time to worry is when the politicians are appearing on the TV saying the underlying economy is fundamentally sound, when you here this run for the hills.

Thats about it from me other than to say that I do have what should be a potentially major timing point marked for the final quarter of this year. Now before all you youngsters rush off to the market I must point out this point in time does not imply direction. It could be either up or down, its too early to tell yet.

Cheers Nut

 

[chump]

You're using the wrong charts that's why they look misleading and also why your perspective does not quite hit the point. That is, you are using linear charts. For really long timeframes you need charts that are logarithmic so that percentage moves are more comparable...this iis instead of the absolute moves shown on linear charts..
look below for example.

 

[chump]

highlighted this one so it is clearer

 

[ammo]

i dont know where to find it but i'm pretty sure the p/e s were at 28 times earnings

 

[chump]

the underlying issues are virtually always the same....boom ,overinvestment , cyclically high profits, P/E's priced for perfection , and then the big one anything that induces uncertainty....whoops there she blows

 

[chump]

this a better chart for that period to really get the perspective

 

[Splitlink]

the underlying issues are virtually always the same....boom ,overinvestment , cyclically high profits, P/E's priced for perfection , and then the big one anything that induces uncertainty....whoops there she blows

Except that every time there has been a bust the planet has been able to provide for the next boom. It is generally known, although some will ignore it, that there is much less fossil fuel and many, many more humans on the planet today . So, we will find our energy needs from other sources! Perhaps so, but I have a feeling that from now on, we will, always, be short. Now, in Spain, we are told that chicken, one of the world's most important sources of meat is going to increase in price because of the price of cereals to feed them. The corn is being converted into fuel.

The next boom may come but the last one is, gradually, getting nearer.

Split.

 

[dbphoenix]

Now, in Spain, we are told that chicken, one of the world's most important sources of meat is going to increase in price because of the price of cereals to feed them. The corn is being converted into fuel.

One hopes that eventually it will be cheaper to let chickens range free, like they used to, and that chickens will once again taste like chickens, like they used to.

Db

 

[chump]

Jesus...chinese PORK.....spanish CHICKEN.....french BAGUETTES....what's next up I wonder....japanese SUSHI ?

 

[firewalker99]

Jesus...chinese PORK.....spanish CHICKEN.....french BAGUETTES....what's next up I wonder....japanese SUSHI ?

Actually, Belgian chocolates!

My favourite chocolate is about to cost 50% more! not kidding

 

[shortorlong]

Jesus...chinese PORK.....spanish CHICKEN.....french BAGUETTES....what's next up I wonder....japanese SUSHI ?

we will eat cake, no-one has said that is going up in price, I'd like to see them run their cars on cake.

 

[dbphoenix]

we will eat cake, no-one has said that is going up in price, I'd like to see them run their cars on cake.

If you have cake, what do you need with a car?

 

[jacinto]

Jesus...chinese PORK.....spanish CHICKEN.....french BAGUETTES....what's next up I wonder....japanese SUSHI ?

no, the next thing it will be english food.....pay more for something that is worth nothing :cheesy:

edit: should have said.......pay more for something that tastes of nothing, and is worth nothing but that is too expensive to feed chickens and pork with :cheesy:

 

[Hook Shot]

Eerie similarities continue...

1987
S&p500 topped on 25th Aug
first pullback 22 September (28d)
Lower high.. 2nd October (10d)
Crash 16 October/19th October (14-17d)

2007
Spx top 16th July.... (Closing high - 19th July)
first pullback 16th Aug (31d) or 15th Aug on closing basis (27d)
Lower High (?) 24th August (8d) .......

IF this uncanny timing continues...we might have a crash within 2-3wks.

Put another way we might be heading into a crash as of today....

data from yahoo finance

 

[grantx]

Jacinto,

“english food.....pay more for something that is worth nothing”. Typical of the English – always pay over the odds, especially for houses – and Spanish villas.

Hookshot,

“IF this uncanny timing continues...we might have a crash within 2-3wks.” Or not as in 88 – 2006. However, I wouldn’t be surprised at a further sell-off – everything for us is against us (you could substitute “us” for “US” and therefore, the global markets, except China). Honest, I’m not an analyst for Goldman Sachs. Really, I’m not.

Grant.