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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?

#281

Post by JumpCrisscross »

int_19h wrote: post #269
JumpCrisscross wrote: post #169

Earlier quoted context omitted.

Gold's price is not supported by its instrinsic value, I'll give you that. But the "forest" test is absurd. By that definition computers, chemotherapy and candy have no instrinsic value. Gold's value comes from its (a) millennia-long history of stably holding value across cultures and technological domains and (b) its tangibility and physically-enforced scarcity. Its intrinsic value is a fraction of its market value,…

> Gold's value comes from its (a) millennia-long history of stably holding value across cultures and technological domains That's recursive - you're basically saying that gold has value because it has historically being valuable. Which begs the question of why it has been valuable. I'm not saying that this doesn't add some (most, in fact) value to gold. I'm just saying that this isn't a property that is enabled by an…

> this isn't a property that is enabled by anything specific to gold

With money, you want five things: fungibility, durability, portability, cognizability and stability [1].

On fungibility, gold is an element. It can only be extracted, not produced in a conventional sense. In fact, before the 1669 discovery of phosphorous, humans had only purified, from oldest to newest, copper, lead, gold, silver, iron, carbon, tin, sulfur, mercury, zinc, arsenic and antimony [2].

Out of those, lead, gold, silver and mercury are chemically stable, though only gold and silver are also physically durable. Both are easy to recognize, though more metals are "silvery" in color than yellow.

Gold won due to stability, in large part because of a few flukes. For most of human history, growth was flat and gold mining was minimal. When we actually started growing, the major powers were using gold. The rate at which they added to global gold supplies happened to mirror their economic growth; this gave gold a few decades of price stability. That memory, together with the millennia of use, forged a cultural memory in the furnaces of the industrial revolution that remains, vividly, to this day [3].

> That's recursive

Cultural memories, like trust, are re-enforced by network effects. Your observation is correct. Gold got where it got, in part, due to luck and then just stuck.

Can that be replicated? Perhaps. I personally think our obsession with gold is silly. But engineering that properly means understanding why it happened in the first place. At least amongst Bitcoin enthusiasts, I come across the types of comments you see others making in this thread, as opposed to bona fide introspection and defenses.

[1] https://en.wikipedia.org/wiki/Money

[2] https://en.wikipedia.org/wiki/Timeline_of_chemical_element_d...

[3] https://core.ac.uk/download/pdf/6252203.pdf

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

#282

Post by Animats »

deafcalculus wrote: post #187
Animats wrote: post #125

Earlier quoted context omitted.

No, the 2008 crash wasn't a black swan. It just came from the debt side, rather than the equity side. It was clear this was coming. In 2004, I wrote this, on my "downside.com": [1] The next crash looks to be housing-related. Fannie Mae is in trouble. But not because of their accounting irregularities. The problem is more fundamental. They borrow short, lend long, and paper over the resulting interest rate risk with d…

Do you think there's another housing bubble now?

To answer that, look at the ratio between median house price and median income. Historically, that's around 2.2. Freddy Mac says 3.5 is the new normal. It got up to around 4.7 before the 2008 crash, and peaked around 10 for California.

This is a measure of whether people can make their mortgage payments. When that ratio gets too high, foreclosures rise.

The Economist has an interactive chart, but, annoyingly, they don't let you see the absolute ratio number, just its trend.[2]

[1] http://www.freddiemac.com/research/insight/20160531_how_to_w... [2] https://www.economist.com/blogs/graphicdetail/2016/08/daily-...

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

#283

Post by TuringNYC »

pillowkusis wrote: post #18

A site like this seems dangerous at best. Nobody can predict the stock market. Nobody can predict when a stock market is more likely to crash. This site tries to indicate otherwise. Whatever causes the crash it probably won't be one of the indicators listed here.

The real problem with these sites is that it is super easy to overfit to historical data. Try enough indicators and enough parameters and you can fit historicals to the dot. Except, no one knows how the model performs on a go-forward basis. On Wall Street, these are often easy to debug -- you just run on live data, often with live trading to see if the signal is real. However, with economic data, the velocity of new data is too low to really test models on a go-forward basis...so you just have a theoretical model, likely overfit, that has little predictive value.

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

#284

Post by TuringNYC »

apsec112 wrote: post #67

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.

Agreed, these are good indicators because people are actually backing these "predictions" with money...as opposed to theoretical models with no skin in the game.

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

#285

Post by xyzzy4 »

JimboOmega wrote: post #213
JumpCrisscross wrote: post #80

Earlier quoted context omitted.

> market valuation expressed as market cap as % of GDP This metric makes little sense for this use case. Consider two countries. They are identical in every way except in Country A 90% of the companies are publicly-traded while in Country B 10% are. Country A will have a market cap to GDP 9x Country B's. Does that mean Country A is 9 times overvalued relative to Country B? The objection works in-country, too. Saudi A…

So I've had a fundamental complaint about Market Cap to GDP at least since 2005, which I've never gotten a good answer to: There's this expectation that the market returns 7-10%... a number much in excess of the actual rate of GDP growth (over any significantly long period, anyway) That can't continue forever. Especially in aggregate across the world. At some point the public market has captured substantially all the…

5% of the returns is the profit being reinvested (for example stock buybacks), 2% is inflation, 2% is real gdp growth.

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

#286

Post by chrisweekly »

PDoyle wrote: post #119
pdog wrote: post #69

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]. (Basic…

Wow, really interesting read. Thanks for the link. Only trouble is that once people find patterns like this, they have a habit of disappearing. Hopefully this one is based on solid enough fundamental market forces that it persists after its publication. It was published in 2013 so we won't know for sure until after 2023.

> "... once people find patterns like this, they have a habit of disappearing."

Hah! Grammatically, "they" refers to the people (not the pattern).

IMHO, sometimes these details matter, as in:

"Let's eat grandma!" vs "Let's eat, grandma!"

or

"know your shit" vs "know you're shit"

:)

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

#287

Post by pishpash »

PDoyle wrote: post #119
pdog wrote: post #69

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]. (Basic…

Wow, really interesting read. Thanks for the link. Only trouble is that once people find patterns like this, they have a habit of disappearing. Hopefully this one is based on solid enough fundamental market forces that it persists after its publication. It was published in 2013 so we won't know for sure until after 2023.

The 10-year window is kind of arbitrary, and knowledge of this pricing model won't erase the pattern, but may change the window over which it is effective to something much shorter as timescale compresses.

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

#288

Post by harryh »

pdog wrote: post #69

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]. (Basic…

In the same blog as your reference [1] you can find one of the more thought provoking essays I have read in the last little while. It's a discussion about how easier stock market diversification should lead to permanently higher multiples on earnings.

http://www.philosophicaleconomics.com/2017/04/diversificatio...

Highly recommended.

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

#289

Post by coliveira »

pdog wrote: post #69

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]. (Basic…

The idea definitely makes sense, but what is the use of this graph? It only shows past returns based on information we already know. Far more interesting is the realization, which is not news for people who observe these things, that prices cannot go down until there is a crunch on the money supply. After all, the allocation of stocks usually remains constant or goes up when prices are going up, so only money supply can change the dynamic of price escalation. The same happens on the way down, because prices are decreasing, the allocation naturally reduces, even if investors want to keep it constant. Only new money supply can reverse the trend of equity price declines.

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

#290

Post by wsxiaoys »

mzh0 wrote: post #267
babaganoosh89 wrote: post #232

Earlier quoted context omitted.

I actually made an automatically updating chart for this using FRED data: http://financial-charts.effingapp.com TLDR: The correlation did go down a bit since publishing but still seems alright.

I saw lot's of suggestions above, how about making it on github so anyone can hack it?

Just found its repository here: https://github.com/effinggames/financial-charts
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