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Show HN: Is the stock market going to crash?

isthestockmarketgoingtocrash.com

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Re: Show HN: Is the stock market going to crash?

#61

Post by krit_dms »

xphilter wrote: post #36
qubex wrote: post #12

Earlier quoted context omitted.

That is already implicit in the Efficient Market Hypothesis' valuation of the total market capitalisation of stocks (that is part of the reason for which the total value of the stock market exceeds GDP).

Right, but this chart ignores that (as far as I can tell). If US listed companies are going to eat more of the global GDP, then it wouldn't be crazy that the value of the stocks will exceed GDP of the country in which it's listed (i.e., the fact that the value does exceed GDP might not be a precursor to a crash).

There's really no reason why GDP should equal market cap. Companies are largely (especially now, since interest is so low) valued on future income, rather than current income.

Look at Amazon and Netflix, both tradin at 200x earnings. This is beacuse investors think they will earn a lot more in the future than they do now. Are they overvalued? who knows.

Re: Show HN: Is the stock market going to crash?

#62

Post by fabatka »

thomascgalvin wrote: post #32
knewter wrote: post #19

Earlier quoted context omitted.

> Seriously, though, this is a real problem and we need to do something the thing we have to do is not borrow money we can't repay. capitalism is a distributed system. borrowing money you can't repay is a broken local protocol. don't try to fix that with anything but fixing it locally.

This is at least partially true, but ignores the "reality on the ground." Even many entry-level jobs require a college degree now, and forgoing a college education makes you unhirable in many markets. Until that changes, "college you can't afford" is pretty much a mandatory expense. There are ways to minimize the cost -- basically two years at a community college and two years at a state school -- but the days of bei…

I think college degree is highly overrated, and higher education is very inefficient overall. But it is like a prisoners' dilemma, where all of the to-be-students would be better off if say 70% of them didn't go to college, but no individual has the incentive to decide so.

They wouldn't need to pay the enormous tuition, and as the job market would change (as far less people would have a college degree), the lack of degree wouldn't hurt them.

Re: Show HN: Is the stock market going to crash?

#64

Post by justin66 »

knewter wrote: post #19
SmellTheGlove wrote: post #15

Earlier quoted context omitted.

I wouldn't worry about student loan debt being a problem. It's very likely that they're going to get a bailout before a bubble bursts. Where on earth did I come up with this, you ask? Easy - I just paid my student loans off last week. It's only natural that everyone else will now get bailed out! Seriously, though, this is a real problem and we need to do something. Even if it doesn't have a direct effect any time soo…

> Seriously, though, this is a real problem and we need to do something the thing we have to do is not borrow money we can't repay. capitalism is a distributed system. borrowing money you can't repay is a broken local protocol. don't try to fix that with anything but fixing it locally.

> the thing we have to do is not borrow money we can't repay.

Literally nobody takes student loans that they are capable of repaying. Why would you, unless you could get a 0% APR?

It'd be nice if young people - possessors of great foresight and fonts of wisdom, all - could predict whether they will be able to repay the very substantial loans they're likely to rack up in college. We are not living in a world, or an economy, where making such a prediction is easy or straightforward.

Re: Show HN: Is the stock market going to crash?

#65

Post by cs702 »

I love the idea, the simple design, and the humble tone of the byline ("no one knows for sure, but there are indicators that can help us guess. We can chart these indicators to give us the illusion of foresight.").

However, I have two suggestions. First, the numeric rankings (such as "5.5 / 10") need context: why not say something like "10 is the highest value reached in the historical record"?

Second, the explanations you give for chosing these indicators need a bit of work, as evidenced by some of the comments and questions on this thread. Most lay readers won't understand why the ratio of total stock market capitalization to annual GDP is important.

Re: Show HN: Is the stock market going to crash?

#66

Post by tveita »

Normalizing household debt against the GDP makes the assumption that we are comparing the debt with the ability to pay for it.

But according to graphs like this, even though the GDP has been rising, median households have not been getting a corresponding increase in income: https://en.wikipedia.org/wiki/Household_income_in_the_United...

So the income we are adjusting against is not necessarily going to the people that are in debt!

Re: Show HN: Is the stock market going to crash?

#67

Post by apsec112 »

I think you could estimate much more accurately with the prices of deeply out-of-the-money put options. Those are effectively a betting market on whether stocks will crash or not. We should expect option prices to take into account every major factor (not just these four), because if they didn't, people would get rich by trading on the "missing" info until prices corrected themselves.

Re: Show HN: Is the stock market going to crash?

#68

Post by marwatk »

vvdcect wrote: post #42
TekMol wrote: post #25

The page strives solely on it's nice graphics, and sensationalist wording. There is little to no content of substance. For example the page calculates "Market Overvaluation" as the US stock market value divided by the yearly US GDP. Hilarious.

How would you calculate Market overvaluation?

Shiller Price/Earnings[1], probably. It looks at the previous 10 years of earnings to do a P/E to try to even out the earnings and get a better picture. But I'd imagine even just normal P/E ratio would be better...

[1] http://www.multpl.com/shiller-pe/

Re: Show HN: Is the stock market going to crash?

#69

Post by pdog »

If you're looking for The Single Greatest Predictor of Future Stock Market Returns[1], here it is: http://www.philosophicaleconomics.com/2013/12/the-single-gre...

This is a long read, but it's worth it. The metric can be calculated in FRED[2], and as a predictor of future returns, it outperforms all of the most common stock market valuation metrics, including cyclically-adjusted price-earnings (CAPE) ratio[3]. (Basically, the average investor portfolio allocation to equities versus bonds and cash is inversely correlated with future returns over the long-term. This works better than pure valuation models because it accounts for supply and demand dynamics.)

[1]: http://www.philosophicaleconomics.com/2013/12/the-single-gre...

[2]: http://research.stlouisfed.org/fred2/graph/?g=qis

[3]: http://www.multpl.com/shiller-pe/

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