PART 2 of 2
The systemic market risks lie in too many people being on the same side of the trade. That's effectively what causes a bubble to deflate. The tech bubble of the 90s deflated because EVERYONE had YHOO, AMZN, INTC, JNPR, ARBA. And everyone tried to sell those same small number of stocks at the same time.
So what we have now is a group of 77 million people who own the same 600 stocks, and who are becoming risk averse. It doesn't take a rocket scientist to realize that if you have 77 million people who own 600 stocks and are attempting to preserve capital that you're going to have a problem of massive proportions.
The markets are down 10%+ already this year and the boomers are sweating. Their fingers are hovering above those sell buttons. It will take just take a tiny fraction of those anxious people to crack open markets. That in turn will create wave after wave of panic as the 77 million boomers try to preserve whatever they can of those 600 stocks. Because of their concentration in the same stocks, bids will crumble, indices will tumble, and selling will accelerate.
There has been an argument that boomer retirement selling will be spread over many years as they slowly and leisurely retire. That's in a fantasy world. In the real world, someone approaching retirement in a chaotic market takes the money before the other 77 million people take it. It's the prisoner's dillema (a Nash equilibrium problem) in full effect. As risk soars, individuals take the money while they can. As people take the money while they still can, risk soars. Who the hell cares about a 15% tax penalty if it means you avoid a 90% value meltdown in a long protracted crash?
You end up with 77 million sellers on 600 stocks, with no one on the other side of the trade. Will the baby boomer's kids be on the other side of the trade? No way in hell, since they're up to their eyeballs in debt. What about the Chinese? They're on the brink of their own bubble crash too. In effect, there is NO ONE on the other side of the trade. The earnings power that gave us stable bids in the 80s and 90s and managed to make the 87 and 97 "crashes" irrelevant no longer exists. Crashes now are serious because there is no guarantee that they will bounce back.
There is also one other major reason why this will be deep, fast, and hard: tech bubble. Many of the more wealthy boomers have painful memories of the tech bubble crash of 2000, and will not be nearly as willing to "ride it out" this time. They know first hand and in fresh memory that sometimes a market doesn't bounce back and that "buy and hold" is a fallacy. This is critical to understand as a psychological underpinning of the coming crisis.
I predict that over the coming few months we will continue to see a staggering and relentless crash in the markets. Also, a crash doesn't have to be a 1 day event. We will start seeing it get pounded into submission as boomers panic and smart money lets them panic. 77 million people on the same side of the trade with no one on the other side has never occurred before, but it soom will. And since even after a crash tens of millions of people will be severely underwater, there will be no bounce back, as rallies will be sold into. This will indeed be a crash that will result in a long, deep depression.
p.s. If you are smart and understand how Wall Street works, you will know precisely why this meltdown began on January 1. It is no coincidence. There is a very good reason why January 1 was the perfect day for it all to begin, and the reason completely validates and supports my theory above.
The boomers created this monster, and now they will kill it.
Read the great review from the future.. 2010.. in todays headlines.. bottom line-Goog expands and grows as it always does. your analysis is valid though, for non dynamo companies as mentioned. Goog simply is on a roll that is far from over. It is the safest place to be..cause it owns the space and creates new ones...but i agree, crashes are ugly...stay in cash and stay in goog... that's what i am doing and it is working, albeit better in a few days post blowout earnings..
Next 350 point dip without recovery confirms JRMFL's Theory of Systemic Failure as first published when he warned of the double-threat of gold rally/massive mbs failure.
The next dump is the Second Gun and the market will quickly head into a 20% or better Failure Collapse as Program Trading Pukes past PPT's safety nets.
Nice job. I agree with your theory and I vividly remember Oct 87 and Oct 89 (I made a considerable amount of money with OEX Puts). I think what we are facing will make 87 and 89 look insignificant. Thanks for your insight.
the economy depends on agreement and activity. singapore-everyone agrees. and they are active. thus if u r nervous, be there. in the good ole us of a we neither agree or are active.. hence the boomer nerviness. we will see. goog is a bit insulated hopefully. should be..
A long, silly post based on a a false premise filled with baseless conjecture.
It might as well say that Martians are going to come suck all the Wall St. traders into their space-ships and fly off.
It makes about that much sense.
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People (baby boomers at the end of the boom) are willing to believe that they won't get any social security when they retire (due to demographics) but they fail to believe that there will not be more sellers than buyers before they retire.
It is every man and woman for themselves out there.
Don't worry, it's just your standard of living during your retirement.
Good luck y'all
Agree. I find it fascinating how many baby boomers vehemently deny that there is at the very least a RISK of a crash created by their fellow boomers trying to preserve capital.
It's boomer denial. Denial = greater probability that it will actually occur.
Scary, scary stuff.