History lesson: “No big decline has ever been fully predicted.”

by EightFolding

The first six months of 2022 were the worst the stock market has had in 40 years. We tend to think that the growth and abundance and relatively easy money of the past 20 years will continue, but what if it doesn’t?

What if, like the Trump era, the pandemic, the climate crisis, and other major events that took many people by surprise and re-shaped the world, the US stock market and global economy is changing in fundamental ways that require we change and move away from popular ‘common sense’ about how to invest?

Here’s some history, some opinions, and some analysis to consider as we make investing decisions. Please share more in the comments – evidence to the contrary is especially welcome. Please do share evidence that this isn’t a crash, and note that evidence doesn’t mean just repeating “DCA!” or “just buy an index fund!” or “markets always eventually go up!” without paying attention to the facts of this moment and responding to the indicators that suggest this may, or may not, be a crash in progress.

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“In the spring and summer of 1929, the U.S. economy was riding high on the decade-long winning spree called the Roaring Twenties, but the Fed was raising interest rates to slow a booming market and an increasingly vocal minority of economists and bankers were beginning to wonder how long the party could possibly last.

In 1929, popular prognosticators like the Yale economist Irving Fisher swore that if a correction came, it would look like a harmless slump, while others predicted a jagged cliff. But nobody, absolutely nobody, could have foreseen the stock-market slaughter that happened in late October.”

(Here Are Warning Signs Investors Missed Before the 1929 Crash: www.history.com/news/1929-stock-market-crash-warning-signs )

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“Before we see a bottom, it will be at least the end of 2023. The S&P will be down roughly 86% before this is over, and the Nasdaq will be down 92%.

“This is not another correction,” he emphasizes. “This is a crash that has been put off now for 13 years. This is not something you sit through.”

(Harry Dent: Crash of a Lifetime Is Here; Sell Stocks Now: www.thinkadvisor.com/2022/08/29/harry-dent-crash-of-a-lifetime-is-here-sell-stocks-now/)

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“From the November low in 1929 to the April 1930 high, the market rallied 46% – a 55% recovery of the loss from the peak.

In 1973, the summer rally after the initial decline recovered 59% of the S&P 500’s total loss from the high.

In 2000, the NASDAQ (which had been the main event of the tech bubble) recovered 60% of its initial losses in just 2 months.

In 2022, at the intraday peak on August 16th, the S&P had made back 58% of its losses since its June low. Thus we could say the current event, so far, is looking eerily similar to these other historic superbubbles.”

(Entering The Superbubble’s Final Act: www.gmo.com/americas/research-library/entering-the-superbubbles-final-act/ )

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“Since 1995, there have only been three instances where margin debt increased by 60% or more on a trailing-12-month basis. It occurred immediately prior to the dot-com bubble bursting in 2000, just months prior to the financial crisis taking shape in 2007, and once more in 2021.”

(Where Will the Bear Market Bottom? History Offers a Very Clear Clue: www.nasdaq.com/articles/where-will-the-bear-market-bottom-history-offers-a-very-clear-clue )

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“Among 97 regional housing markets measured by Redfin, the average market saw 34% of home listings get a price cut in July. That’s the highest ever reading on Redfin.”

( How fast sellers are slashing home prices in America’s 97 biggest housing markets: fortune.com/2022/09/04/housing-market-map-home-price-cuts-redfin/)

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The Federal Reserve is already too dovish

Core inflation may stay elevated

Quantitative tightening might have a big future impact

Low labor market participation will hurt profits

Overly optimistic credit markets will likely weaken

(5 charts that show the stock market rally is doomed to fail before the end of the year: www.businessinsider.com/investing-stock-market-crash-recession-rally-strategy-advice-risk-ubs-2022-8)