The Next Big Crash - Are You Prepared?

[Muck]

yes, agree with bibi.

for blue chips to half its value already means catastrophic damage.

i dun see the possibility of the average blue chip dropping 90%. cos that would mean sti drop till 300points left? how is that possible?

Yanlord Land comes close too.
Yes, it won't be likely that the avg sti blue chip to drop 90%, quite simply also because of survivorship bias - they would have rotated the stock out of the index on its long way down.
At this point we're not anywhere near a bear.

[Temperament]

i wonder how bernanke sleeps at night knowing so many people's lives depend on his every word.

don't think he gives a **** that's how much he cares. He is going to retire soon anyway and next person need to clean up his mess...

Same as A. Greenspan. In fact someone in US. suggested his pension should be stopped for doing such a lousy , messy, horrible job in his watch. How about Singapore's PAPYs? Ha! Ha!

[kazukirai]

I still remember the index going down from 3800 to 1600, but i was still bery new to investing. I think this time unlikely to crash as much as the index came off from a lower 3450 level.

Valuations were also very different then compared to now.

My data shows that the P/E of the STI at end '07 was about 12-13x, the 'normalised' PE10 was a whopping 30x. Spread of STI PE10 yield over the 10 year SG bond was less than 1%.

Compared to the present...

May '13, P/E approx 13+x, PE10: 15+x and spread over 10yr SG bond was about 5%.

So while markets are getting whooped, it's from much less lofty valuations.

[Temperament]

The benchmark Nikkei dived 6.35 percent, or 843.94 points, to 12,445.38, slicing about 20 percent off its peak last month above 15,600, and meeting the definition of a bear market. (Today O. K.) What's NEXT???

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yes, agree with bibi.

for blue chips to half its value already means catastrophic damage.

i dun see the possibility of the average blue chip dropping 90%. cos that would mean sti drop till 300points left? how is that possible?

Some one posted a chart to show STI component stocks relative % of recovery since 2008/2009 GFC. . Jardine C & C recovered 450 %. Next F & N 400%. So Blue Chips can be Blue/Black chips also if market falls more than 50%.

[KopiKat]

Crash or No Crash (Yet?) is not that important... for now...

What's important is that the almost 200pts drop in STI for the month of June (not even half way yet), must be a very interesting (frightening?) experience for newbies. Especially more so for those who'd joined in the "easy" game of "stocks investing" late (after seeing others making "easy money" for most of 2012). The more aggressive you'd been, the more you'd shouted the battle cry "No Risk, No Gain"... the more you ought to be doing the real learning now... Yes, also "No Risk, No Pain"...

Take stock of your holdings now. If it'd dropped a lot more than the STI (as a simple benchmark), analyse why. Perhaps you'd entered at too high a valuation? Or, the fundamental is weak? If not, can buy more if it's now even cheaper? If it'd dropped less than the STI or even went against the tide, also analyse why.

Even after being in the game for so long, I also can't tell you which direction the market will go.... I just continue to focus on what I feel comfortable with. If I need to do something, I'd stare at my stocks again and again, looking at the numbers I'd compiled and try to think as objectively as I can on what I should do next. At current prices, which is better value?? I ponders to myself... Perhaps, I'll just do nothing on most days... It's the school hols after all! Busy with kids' activities... Anyway, most of my stocks were analysed and bought for long term reasons... I'm not going to let the gyrations of the stock market affect my daily life...

PS. The current drop is tiny compared to the one many of us survived in '11 (-17%) and not even near the one in '08 (-49%). It has not even reached the % drop of last year, May... Up or down, more learning opportunity to come? Good Luck to all...

[Ben]

Every crisis presents an opportunity, if you look hard enough. Before this correction, the yield for all the stocks in my watchlist is less than 5%. After the bashing in June, some of them are getting close to the 5% yield level again, and if the correction continues, and I think it will, there will be opportunity to buy stocks that give >5% yield again. The critical question is do you have money to buy now? And if yes, how much can you buy? So in stock investing, money management is as important as stock picking. For myself, I think my stock picking skill is only average, but I have good money management habits and self control. How I develop these habits? From many years of experiences plus silly and painful mistakes.

[Temperament]

Every crisis presents an opportunity, if you look hard enough. Before this correction, the yield for all the stocks in my watchlist is less than 5%. After the bashing in June, some of them are getting close to the 5% yield level again, and if the correction continues, and I think it will, there will be opportunity to buy stocks that give >5% yield again. The critical question is do you have money to buy now? And if yes, how much can you buy? So in stock investing, money management is as important as stock picking. For myself, I think my stock picking skill is only average, but I have good money management habits and self control. How I develop these habits? From many years of experiences plus silly and painful mistakes.

Well put! Well done!

[Stockerman]

These are the personal views of Peter Morici, a professor at the University of Maryland's Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:


Wall Street is cooking up another crisis--making shoddy loans and selling worthless securities to investors hungry for higher yields than certificates of deposit and government bonds offer.

Dodd-Frank banking reforms imposed very costly regulations on mortgage and commercial lending. Regional banks, which have solid knowledge of smaller businesses, could not bear these costs and sold out to large Wall Street institutions. Now a handful of money center banks control more than half the deposits and lendable money.

Although big banks have branches everywhere and are flush with funds, they don't know much about which businesses are likely to repay what they borrow.

Banks aren't carrying many mortgages on their books--they are merely conduits for Fannie Mae--but business loans have recovered to pre-financial-crisis levels. And the bank examiners at the Comptroller of the Currency, the Federal Deposit Insurance Corp. and Federal Reserve are alarmed about their lending standards.

Too often loans are made to businesses with inadequate cash flow--paper profits are important to stock investors but banks focus on cash flow to evaluate whether an enterprise can pay up each month. Also, many loans carry weak covenants and collateral.

Banks are lending at today's low interest rates with alarmingly long maturities. That is troublesome because banks' cost of funds go up and down as the Federal Reserve tightens and loosens monetary policy.

Many economists expect gross domestic product growth to pick up the latter half of this year and next, and for the Federal Reserve to start pushing up interest rates. Then banks will lose money--lots of it--on five- and 10-year loans made today. If the economy doesn't pick up--economists have been known to be wrong--then loans made on questionable cash flow and weak collateral will fail.

Either way, banks are at the casino again!

But alas, banks are shunting off a lot of their risky bets onto witless investors--thanks to the new boom in derivatives trading. Remember those nifty bonus-generating contraptions that made 28-year-old MBAs millionaires and wrecked AIG and Citigroup.

Manhattan financiers are once again bundling questionable corporate bonds and bank loans into investment securities--Collateralized Debt Obligations--for sale to wealthy individuals and retirees through hedge funds and unethical brokers.

When the losses on shaky bonds and loans come, big banks, bless their generosity, will spread the headaches around. Wrecked personal finances and broken dreams will follow, and consumer spending will slow, taking the economic recovery into the drink.

Not to be out done by their predecessors, today's modern bankers are also writing lots of "synthetic securities." Those generate returns to investors, not from the cash flow on loan repayments, but rather from bets made by third parties about whether loans will succeed or fail. Those have as much place in sound banking as nepotism does in government employment.

As in pre-crisis days, the total value of derivatives outstanding is many multiples of the actual value of the U.S. economy. When the loans and derivatives fail, many who have made promises to pay up won't have the cash--just like 2008.

Look for bank balance sheets to be rocked, lots of wealthy folks to file for bankruptcy, and the economy to suffer another migraine.

Depressing? They don't call this the dismal science for nothing.


Write to Peter Morici at pmorici@rhsmith.umd.edu and follow him on Twitter at @pmorici1.


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(END) Dow Jones Newswires

June 13, 2013 09:18 ET (13:18 GMT)

[felixleong]

what we know for sure is the market has already corrected 10%
it may go lower it may go higher or it may go sideways
I can't predict it neither do I think most investors can predict it
if one can predict the direction tomorrow one will be super rich and wouldnt be in this forum
therefore from a value investor point of view we must ask ourself 1 important question
are the stocks in my watch list undervalued and attractive enough for purchase?
if the answer is yes then just go ahead and slowly keep buying as investors panic and sell out cheap ^^

[TheMillennium]

what we know for sure is the market has already corrected 10%
it may go lower it may go higher or it may go sideways
I can't predict it neither do I think most investors can predict it
if one can predict the direction tomorrow one will be super rich and wouldnt be in this forum
therefore from a value investor point of view we must ask ourself 1 important question
are the stocks in my watch list undervalued and attractive enough for purchase?
if the answer is yes then just go ahead and slowly keep buying as investors panic and sell out cheap ^^

But the thing is when will it be the best time or low price to buy?

eg. If a stock with very very good fundamentals is valued at $1 but share price was 80cents in the past week, and today became 60cents.

Would you buy? Knowing that the value is $1(assuming all correct valuations and calculations homework).

Or wait till another day when it goes to 50cents or even lower.

Afterall, the $1 is your own opinion but as long as the market does not agree or notice the stock, it will never ever reach the true value?