Last week, I put forth a Devil’s Advocate argument, Give Me High Gas Prices! The crux of the argument is that high gas prices spur demand from consumers for more fuel efficient cars, which in turn spurs more car manufacturers to fill that demand. The end result is that we get cars with outstanding MPGs, at which point, I can wish for low prices. My dollar goes further and it’s better for the environment. Cue the puppies, ponies, and rainbows!
A commenter brought up that of course it isn’t that simple. It never is. Nonetheless, I still believe there’s a good correlation there.
So this week, I’m going to make a devil’s advocate request for a stock market crash. Why on earth would I do such a mean and crazy thing like that?
I want to buy stocks on sale. I like paying between $17-19 for Facebook. I don’t like paying $45. I like paying in the $500-600 range for Google. I don’t like paying $900.
I’m a frugal guy and like to buy things on the cheap. With the S&P 500 recently climbing to all-time highs, I’m not finding a lot in the bargain bin. I’ve got some cash looking for a home and I can’t find anything that I know and trust at a great price.
I realize that I shouldn’t be so sensitive to the prices. After all, the underlying metrics like earnings are what matters, right? Well stocks look expensive according to the Shiller PE that takes earnings into account.
It may sound crazy, but in my ideal scenario, we’d have the exact inverse relationship to the gas scenario that I mentioned above. Stocks would stay low and for an extended period of time, while I build up a ton of shares. Then we’d see a huge spike and I could sell for millions.
One can dream right?
Tommy Z says
I’m not sure a stock market crash is something to wish for unless you are short the market. Volatility is generally something most investors consider to be a bad thing – especially if you are near or in retirement.
What I would rather see is a gentle moving marketing with rapidly accelerating earnings. This means stock prices could be cheap again if corporate earnings justified current prices.
The reason stocks are so high right now is because of inflation. Fed Funny Money can chase both commodities AND stocks.
Lazy Man says
That’s part of the reason it is a Devil’s Advocate post. It isn’t supposed to be something you wish for or an optimal case ;-).
Lazy – you’re going to get your wish. Hope you are keeping your powder dry so you can scoop up some deals during the fire sale.
The FED’s relentless interventions and manipulations is what has driven all risk assets higher, and their continued efforts may push them even higher still, but underpinnings of the economy and financial system are so precarious at this point that your “stock market crash” is all but inevitable. Just a matter of time.
The majority of people including the sock-puppets in the mainstream news keep asking, “where’s the crash? I don’t see it. I don’t believe a crash coming.”
Reminds me of the tourists running to the beach in Thailand as the sea receded, saying “where’s the tsunami? I don’t see it. I don’t believe a tsunami is coming.”
Lazy Man says
Any idea when it’s going to be coming. I think we’ve been talking about it now for awhile.
In your opinion, is it possible that we just enter a prolonged period of no growth while the economy and financial system stabilize?
The crash will happen on Wednesday October 23rd at 2:14pm PST. Kidding. I have no idea. Nor does anyone else.
I went 100% all in 2008 at the bottom buying stocks hand over fist when blood was running in the street (good timing). That was a profitable move and I did well. But I went 100% to cash about two years ago, which unfortunately, in hind site was too early (bad timing). That move resulted in me missing out on the big stock run up we’ve had as of late, which is about the time when I began opining on your site about a coming crash. So yes, you are right, we’ve been talking about it for a while.
Clearly I underestimated the Federal Reserves power to manipulate the market higher, and misjudged the staggering idiocy of government policymakers to engage in outright fiscal irresponsibility in order to keep the giant Ponzi going.
None the less, my opinion about the ultimate end game – how this all plays out remains in tact, in fact I’m more convinced than ever that this unmitigated mess ends badly. I just don’t have any idea how long the music will keep playing. All I know is when the music stops it will get ugly, and with 18+ trillion in debt, QE and ZIRP (rates at zero) the FED has effectively shot all their bullets – there is very little they can do to stop the mad rush for the exits next time around.
I’m of the opinion that it’s better to be 2 years too early than 1 minute too late, so I’m happily out of the market, and will remain so until stocks go on sale again. At that unknowable time in the future I will be an enthusiastic bargain shopper once again :). Until then … I wait on the sidelines.
Tommy Z says
I think the crash is coming too, but we’re going to crash up, not down.
As the dollar falls off a cliff, stocks and all real assets will have to “crash up,” as the thing they are measured in (dollars) is worth vastly less.
This only works if you can stomach staying in if a huge correction actually does occur. Most people don’t have it in them…
You (and I) may be a bit different, but most retail money flees