The JSE and finance forum for South Africa
General Category => Shares => Topic started by: Moonraker on April 28, 2013, 03:56:19 pm
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Margin:Debt spiking, economies slowing, overexuberant stock markets.
Folks when will it happen, and what are your loss minimising strategies ?
This statement and the image (Barons) is attributed to:
www.hussmanfunds.com
http://www.hussmanfunds.com/wmc/wmc130422.htm
When the cover of a major financial magazine features a cartoon of a bull leaping through the air on a pogo stick, it’s probably about time to cash in the chips.
Rather worrying ..
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Here we go once again. Over the years I have seen these negative posts and charts that show an imminent Double Dip about to happen and this made me sell all and stay in cash. I am now so sorry that I did that as nothing ever happened. Looking back now I could have made at least R400K more if I had not listened to the BAD news and charts. Always climbed back in at a loss.
They might be right this time but I have not seen any fundamentals to compliment the charts for the BIG RED TIDE.
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The short answer to a complicated question:
For me it all depends on two monetary policy decisions this week. First up, Wednesday 1 May @ 20:0 in the US with the FOMC statement (and the rest of the world on a public holiday so by the way ::)) and the very next day @14:30 the ECB with their policy decision. If markets don’t get some sort of a fix, it will get very ugly very quickly. I believe the downturn has already started after mid March highs and no fix will accelerate decline, thus a tussle between expectation vs. reality – expectation being stimulus and up, reality being well, reality and whatever that may be.
Exciting times, going to be a make or break week and I for one, looking forward to it. ;)
As always, only one opinion - make up your own mind.
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If it happens, I'll have a strong drink and double down! :)
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so, what did I miss? :D
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Nothing yet! ;D
But as Orca said, I'm sticking to my guns.. if the market crashes = I'll triple up or more! Think they said it last year as well that it going to crash etc etc, most of the companies made excellent growth the past 12 month's and hopefully it'll keep doing it for a while more!
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The last time that the ALSI was at this level 38895 was on or about 12/12/2012 (wasn't that the great day of reckoning) and then it progressively moved up to 41 047.72 on 14/03/2013 - so in its own right the ALSI has shown quite a large correction. Also there have been many commentators/analysts who have said we are due a correction. I have always worked on the principle that I will sell only when my gardener starts talking about shares and which shares to buy - then I know we are in to serious issues - he hasn't started talking to me yet so I will stay invested. If the market does pull back then this will sort out the people who are in it for greed and speculation - because if you have a long term portfolio you should have more than a number of opportunities to sell a portion of your longer term portfolio and still make a handsome profit and then buy in once the market starts turning up.
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Ahem... Bump :-[
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Though the market has dropped quite a bit this week it is still at 39,070.56 (ALSI) so need for panic just yet - see DOW has made a small recovery so far today :TU:
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I normally don't give views because I don't have any but I give views that I read and listen to from financial analysts.
No crash expected. Ben's speech yesterday about the QE to "ease" off at year end or early next year if economics allow spooked investors. This will not last as they will very soon realize that the "easing off" will actually only happen when the economy starts to recover.
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Orca: What else is Bernanke going to say? They have to stop printing $85 billion dollars/month at some stage otherwise the market will end up doing a run. Either way its going to be negative on the market. The signal they sent and then retracted as panic selling began is a sign how bad things really are. How many people out there really believe that the economy is actually improving?
Of course the economy (read markets) are improving! - the cadaver still has the life support system (QE) plugged in. :LHST:
Every time there is a sign of the QE being reduced markets go all bearish. Problem is BoJ, Eurozone banks, and BoE are all doing QE...So for now its a bit like the Mandela story...
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Latest time-frame I've heard was mid 2014.
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The big question is how devastating will devastating be. As someone who one day plans to live of dividends, it's not something I'm worried about. In fact I think it might suit me.
Sure the total value of my portfolio will be down, but as long as the companies are still profitable, my total dividends will still be the same. It will mean that all the shares will be "going on sale". So for me that will mean being able to get more shares at a lower price. If I have cash on hand then, perfect, otherwise I'll think of pulling from my access bond.
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Rock-A-Bye Baby (http://www.hussmanfunds.com/wmc/wmc130715.htm)
(from www.hussmanfunds.com)
Outside of Bernanke’s counterfactual and economically illiterate “wealth effect” argument, even the members of the Federal Reserve have no idea what transmission mechanism would link further increases in the monetary base to any increase in economic activity or employment. There are already trillions of dollars of idle reserves in the banking system. Why keep pushing on a string when pushing it relieves no constraint that’s binding? You just have more string to tangle, trip on, and reel in later.
In short, QE benefits stocks primarily because investors have come to believe that QE benefits stocks – a belief that is ultimately likely to be added to the long list of extraordinary popular delusions and the madness of crowds. Investing based on expectations of more QE is not an act of analysis or a response to investment merit, but is instead an act of blind faith that borders on superstition.
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10 Reasons Why Sharknado Is Coming To The Global Economy (http://www.zerohedge.com/news/2013-07-13/10-reasons-why-sharknado-coming-global-economy)
In the United States, the mainstream media is breathlessly proclaiming that the U.S. economy is in great shape because job growth is "accelerating" (even though we actually lost 240,000 full-time jobs last month) and because the U.S. stock market set new all-time highs this week. The mainstream media seems to be absolutely oblivious to all of the financial storm clouds that are gathering on the horizon. The conditions for a "perfect storm" are rapidly developing, and by the time this is all over we may be wishing that flying sharks were all that we had to deal with.
Yeah, it seems those great non-farm payroll figures recently released are mainly due to temp and part time jobs - like burger-flipping by teenagers ..
(Sorry, don't want to scare anyone, just higlighting a different perspective...)
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Fair value of the market? One way of valuing the entire market - an average of the Relative Valuations of the Top 40 shares. Currently we seem pretty close to fair value.
Article is at http://sites.google.com/site/sasharingshares (http://sites.google.com/site/sasharingshares)
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A "devastating" market crash can only come out the blue like in 2008 with the Lehman Bros fiasco. We sailed through the Greek saga and Fiscal Cliffs etc. There are no crashes in sight. We had a good year and everything is improving.
This thread should have been called "Market Correction. When ?".
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A "devastating" market crash can only come out the blue like in 2008 with the Lehman Bros fiasco. We sailed through the Greek saga and Fiscal Cliffs etc. There are no crashes in sight. We had a good year and everything is improving.
This thread should have been called "Market Correction. When ?".
What, I get no karma for starting this thread ? ;)
Orca, do you have any rand hedge stocks ? You will need them - or buy some US stocks like Berkshire Hathaway. ZA is in for it (or whatever else you want to call it).
Thanks for bumping the thread. 8)
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Market Crash.
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Geez. Was sweating awhile there. Thought I had downloaded a Naked pic of me.
Hey Patrick. How about adding that imodicon or whatever you call it to the others so we can moer each other.
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Orca, I am waiting for your answer, or are you otherwise occupied ?
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Moon. Gimme info. I know nothing about hedge funds or anything for that matter.
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Moon gone to sleep.
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Moon. Gimme info. I know nothing about hedge funds or anything for that matter.
You know, stocks that provide some protection against a falling Rand because their revenue base is in $, €, ₤, etc. but listed on the JSE.
Stocks like BTI, SAB, NPN. Even BVT now earns under 50% form ZA sources, APN soon around 25%.
(I am thinking of getting some NPN, but not sure due to PE of 45+ The share may have run ahead of itself with a 45% odd increase since the beginning of 2013. What do you think ?).
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I would look into buying NPN with some circumspect due to the following.
My brokers calculation showed it as Fully valued 5 weeks ago.
The MACD also shows that she is overbought. I personally only buy when the gold mountain is below zero.
The RSI is also too high.
Now I see that she respects the BB's to a medium degree. Pushes up the top band which is normal. Has no respect for the middle 20 SMA band but bounces off the bottom band.
The channel has widened lately and she looks like she might be headed for the bottom band from the overbought short term area she is in. And that bottom band is waay down.
I personally would wait a while for an improvement in the above technicals.
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Orca, thanks, I tend to agree with that.
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My brokers calculation showed it as Fully valued 5 weeks ago.
The same broker that said CML was fully valued at R45 :D
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Yes. They also had NPN fully valued 7 months ago. They also had CML fully valued at 2450. That's how stocks work Patrick. Most stocks get fully valued often and still can go up for months until results make them cheap again. Then go through the same cycle again.
That CML fully valued call by my broker was made before the last results and they were correct.
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For what it's worth, bumping this thread.
Read it or leave it - up to you.
The Grand Superstition (http://hussmanfunds.com/wmc/wmc131028.htm)
(Source = http://hussmanfunds.com)
The misattribution of cause and effect in 2009 created the Grand Superstition of our time – the belief that Federal Reserve policy was responsible for ending the financial crisis and sending the stock market higher. By 2010, this narrative was so fully accepted that the Fed’s announcement of further “quantitative easing” was met by equally great enthusiasm by investors.
Complicating matters, the European Central Bank forestalled a currency crisis in Europe through massive purchases of debt from credit-strained member countries. While this action was interpreted as quantitative easing, it actually functioned as a funding operation to weaker countries that was much more akin to a fiscal subsidy from stronger countries like Germany. Still, the fact that it was executed by the central bank and eased the Euro crisis helped to contribute to a perception that central bank purchases of government securities – in and of themselves – are sufficient to support the stock markets indefinitely. Worse, perception creates its own reality in the financial markets, so provided enough investors believe something to be true, the outcome is the same as if it really were, but only for a while.
Don’t misunderstand. Quantitative easing has undoubtedly been the primary driver of stock prices since 2010. But the benefit of having a human intelligence is the ability to evaluate the extent to which there is any mechanistic link between the cause and the effect. If there is not, investors may be resting their confidence on little more than perception and superstition. This is exactly what historical data indicates.
In the case of quantitative easing, there is one variable that is tightly, logically, and consistently linked to Fed actions. We have nearly a century of evidence that the amount of base money created by the Fed (per dollar of GDP) is strikingly related to the level of short-term interest rates. The chart below illustrates this relationship in data since 1929. Yet the same effect is not observed with anything close to the same strength for long-term bond yields. Worse, looking over the full course of history, there is virtually no relationship between the monetary base (level, change, ratio to GDP) and stock returns (regardless of whether one examines concurrent returns, subsequent returns, yields, or estimated prospective market returns).
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PS. The default font size when quoting is too small for me, would be nice if the default was 10pt
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I have tagged this info onto this thread merely because I couldn't find a suitable alternative.
I record highs for the ALSI and the Top 40 and mainly the all time highs, but I don't sit on my computer constantly from 9.00 a.m. to 5.00 p.m. but I do spend a fair bit of time every day on my brokers site.
Today the ALSI closed at 46192.91 (this was not the intraday high, I did not see that figure) and the Top 40 41367.23 (also not the intraday or all time high). However what is important to me is checking how the indices have grown over the last few months.
ALSI Top 40
2/1/2013 40061.75 35630.85
11/3/2013 41011.83 36515.31
31/5/2013 42016.45 37599.86
24/6/2013 38076
16/8/2013 43042.11 38623.63
19/9/2013 44284.57 39705.32
22/10/2013 45357.81 40544.23
6/11/2013 46192.91 41367.23
Both index's have grown substantially and one wonders how far it can still go - we are well into the November to February period which seems to be a better performing period for our exchange even though volumes are very thin in December once schools are closed and the trades close down for Christmas. Should be an interesting few months going forward - a correcting of about 5% would to my mind be healthy just before Christmas
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China move hints at 30% market correction (http://www.moneyweb.co.za/moneyweb-equity/china-move-hints-at-30-market-correction)
South African investors who are smiling all the way to the bank with the JSE All Share Index continuously hitting new highs, may want to keep an eye on Chinese policy makers who recently started moves to weaken their currency. This may be the first step in the bursting of the equity bubble and the start of a slow-down in China which will directly impact South African companies and their profits.
..and I suppose most want to buy, buy, buy, for fear of losing out. Me too, up to a point. Looking at MND. :whistle:
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O well, its bound to happen sooner or later, I'm just surprised its taking so long.
Investors should be excited, its actually very good long term entry points after dust has settled. O:-)
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It'll suck to see all the cash I invested lose a big chunk, but if we get a big correction, and it looks like the recovery begins (again assuming I'll be able to recognise that) I'll pull out as much as I can from my homeloan and go bargain hunting...
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As you know by now, I always tend towards the pessimistic view, but quite frankly I think the emerging market and fragile five
scaremongering is somewhat overhyped. As a long term investor with mainly defensive and Rand hedge stocks, I wouldn't worry
too much.
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Russia to invade Ukraine at 6am tomorrow if it does not surrender. Stocks down over 1% in the US already. Relations between Russia and the US that have built up solidly over the years has broken down to the Cold War era levels.
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Just one word 'GOLD'
I don't buy the gold argument this time. First of all, investors never did as well as they thought they might last time the world looked like collapsing. Plus many Chinese investors have used physical gold as collateral to finance their wheeling and dealing. Now that the wheels are coming off I expect a lot of physical gold to get dumped into the market to cover real cash margin calls.
At the end of the day gold will probably go sideways in dollar terms and down in Rand terms i.e. I expect short term ZAR weakness but longer term ZAR strength as hot money flows into SA on the back of a new carry trade.
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From:- http://hussmanfunds.com/wmc/wmc140602.htm
In my view, investors should be thinking very seriously about the extent of potential market losses over the completion of the present market cycle. It is the wrong question to ask “where else am I going to put my money with short-term interest rates near zero?” The problem with that question is that it carries the implicit assumption that the expected return on stocks is even positive or adequate given the prospective risks. At present, the better question is “do I prefer a zero loss to the prospect of a 40-60% interim loss in a market that is strenuously overbought and overbullish, and has returned to valuations that are more than double reliable historical valuation norms?”
On Friday, our estimate of prospective 10-year S&P nominal total returns set a new low for this cycle, falling below 2.2% annually. This is worse than the level observed at the 2007 market peak, or at any point in history outside of the late-1990's market bubble. It's possible that investors could drive prospective returns even lower than they are now, and valuations even higher than they are now, as investors did during that bubble. Still, even that advance started to be punctuated by abrupt vertical declines or "air pockets" once overvalued, overbought, overbullish features emerged (recall for example the increasingly frequent and distinct peak-trough corrections of 10% or more in Oct 1997, Jul-Oct 1998, Jul-Oct 1999, Jan-Feb 2000, Mar-Apr 2000, and Sep-Oct 2000 even before more severe losses got underway). See Setting the Record Straight for a general review of current valuations and prospective returns.
If your answer is still to take your chances in stocks, my only hope is that you do it consciously, fully aware that you’ve decided to ignore or discount the lessons from a century of historical evidence. The simple fact is that somebody has to hold stocks at present levels, so there’s really no point in trying to convince others to embrace our concerns, or to answer every second-guess that presumes that “this time is different.” I’ll be quite happy if at least stocks are being held by those who understand the full narrative of the recent half-cycle, and have seen, considered, and discarded our work.
"Well bought is half-sold. it takes a lot of hard work or a lot of luck to turn something bought at a too-high price into a successful investment. There aren't always great things to do, and sometimes we maximize our contribution by being discerning and relatively inactive. Patient opportunism - waiting for bargains - is often your best strategy."
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I'm starting to think it's not going to happen. :P
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I think markets crash on average every 10 years, so we should be good until 2018 or so.
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Stay in the market and have some cash available for a small correction and buying opportunities.
just my view for 2014/2015
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Time to revisit this old thread.
Albert Edwards Says Watch Japanese Yen and Be Very Afraid (http://www.bloomberg.com/news/2014-10-02/albert-edwards-says-watch-japanese-yen-and-be-very-very-afraid.html)
Almost 100 percent of investors think we’re at the start of a long recovery,” Edwards said. “It’s already a long recovery. Forget about starting from here.
Remember a 33⅓ % drop means you need a 50% rise to get back to where you were. :)
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This is where SARS are absolutely stupid - if you haven't held shares for 3 years you could get yourself into some trouble if you sell down your holdings to protect your capital. Clearly they are only after the tax and don't give a hoot as to whether you protect your capital against a significant market correction
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I reckon a crash scenario is imminent, similar to 2008/9. Will start selling some come Monday 6/10/2014. CML would be hard hit, but a crash will take
everything down to a greater or lesser extent. Expecting anything between 20% to 50%. (Yes gcr, SARS will not suffer too much).
Two possibilities; sell some/all now, or ride out the crash, but it may take many years to get back to Fridays price levels.
Nothing was learnt in 2008, sovereign debt is now even higher !
Edit: Only my opinion, obviously you all have your own thoughts.
Check the F&G Indicators ! Fear & Greed Index (http://money.cnn.com/data/fear-and-greed/)
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I would not be selling this week. This looks like being a big relief bounce on most markets. Will be clearer towards week end / next week where we go from here.
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At these levels, I would buy. Not sell.
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Dow just bouncing off 200 day moving average. If it holds then we could see a slow and steady recovery from here. If we go back down through this level then man the lifeboats. The lower bollinger on a weekly chart suggests there's at least another 400 to 500 points of downside from here. The monthly chart is quite horrible, suggesting that there could be around 2,000 points wiped off the Dow still. However, I don't think we're there yet.
Any trader should be in cash and sitting on sidelines waiting for confirmation of direction. Investors should still be in the market. This is not a crash (yet).
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Dow recovered nicely overnight. If we rally again today then I suspect we will move up for next few weeks. But the risk of a major downside move still hangs in the air, at least until weekly momentum has recovered a little.
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At these levels, I would buy. Not sell.
Orca, are you talking about CML? Would you be buying more at these levels as I know you said the majority of your portfolio is in CML?
You guys have got me worried about this 'crash' talk and what is the general opinion? Is it imminent? Or won't it happen?
I've got a hefty investment in CML, also in the STXIND so hoping my pension pot is not going down the tubes!
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CML - Orca's
You guys have got me worried about this 'crash' talk and what is the general opinion? Is it imminent? Or won't it happen?
They are only talking about it, may or may not happen. If anybody can accurately predict what will happen with Markets, Rand, Gold, shares, he will be making money (lots) shorting & buying, not talking about it.
I've got a hefty investment in CML, also in the STXIND so hoping my pension pot is not going down the tubes
U only have this 2 for your pension? How long to go about?
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Patrick asked a question that I will answer briefly here.
REITS have fallen quite a bit since June 2013 due to interest hike fears from the FED and thus worldwide, including ZA.
However they seem to have discounted a local repo rate increase of 1%. So far the repo rate has only increased by 0,75%.
REITS are closely correlated to the ZA bond yield, unfairly because they increase their distributions yearly due to rental escalations.
The R186 bond yield has tended lower lately (i.e. their price is higher) @ about 8,15% which is supportive of REITS.
However there is a cautionary. Higher vacancies due to oversupply and the economic woes, plus higher costs due to administered
price increases like electricity that have to be somehow passed onto tenants.
So they are not immune.
The relatively immune ones are those like RES, with large holdings in NEP(I) and ROC, and of course NEP and ROC on their own. They have invested in Eastern Europe and other markets that are hungry for the mall experience. They are also Rand Hedges (or Rant if you are JaDeb).
I am overweight REITS but am nevertheless worried, especially as regards the locally invested ones.
I warned about a crash/severe correction some time ago, but especially last week Friday when Orca wanted to buy, buy, buy. :-X
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There was not enough reason for this selloff. Technicals showed Buy. :'(
My poor CML has been hit hard. The weakning ZAR showed an exit of foreign money out of SA and surely out of Coronation Managed funds and the dip in the markets attenuated this. There goes my pension but come Monday we should see a rally. I hope my broker is correct on this.
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More pain coming on Monday, Orca. Blame the situation in Europe. On Friday there was a glimmer of hope that the US markets would show an upwards blip at the close. However no such luck. Market tanked after Standard and Poors cut France's economic outlook from stable to negative.
Your broker is living in cloud cuckoo land :) It will take a long time for the all share index to reach it's July peak of 52242,12 points. Let's just hope that the correction will bottom out soon. (I am not very hopeful).
All share more or less exactly 10% down from July peak of 52242,12
One can but hope ...
The overall Johannesburg market could follow Assore in a technical upswing, with the 14-day RSI - a momentum indicator tracked by some chartists - showing the main indices are oversold and due for a bump.
Many of the stocks are in oversold territory based on technicals. RSI's and other momentum have broken lower today, in some cases significantly," said Lloyd Priestman, a market analyst at asset manager Caleo Capital.
"We should see some short-term support from these levels as medium to longer term investors look for buying opportunities, given the recent sell off, he said.
(Friday 17:33)
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Markets are heavily oversold on daily and weekly charts. However, monthly chart is only getting going into downtrend. I expect sideways action for this week. If positive, upward momentum this week is not enough to pull markets out of this steep dive then we should see markets getting ready to sell off again towards end of week.
Normally what happens here is you get what's called a bear flag i.e. price goes sideways (or even dead cat bounces) whilst momentum moves from oversold to overbought. The upwards momentum only serves to exhaust the weak buyers before the stronger shorts regain control. Then when momentum turns down again you get another sharp sell-off as the weak buyers bail out.
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So what is it best to do ride out the correction or sell in the hope you salvage a bit of damage limitation?
I'm heavily invested in CML & STX INDI plus A GRAY ORBIS GLOBAL EQUITY FUND & CORONATION INDUSTRIAL FUND
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Hi Yozzi, I think the market has probably already taken most of the pain for now. Crashes happen quickly and we've seen a correction now back to around Feb-14 levels. Whilst there is certainly the potential for further downside I expect this won't be as severe as what we've seen already.
Your Orbis fund should have performed quite well over this period as I believe they hedge and thus perform well in a falling market whilst underperforming in a rising market. Coronation are probably the best of the South African fund managers, or "sheep" as some would say. So my advice would be to ride out any further downside. However, best to hold off putting new money into the market just now.
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If its long term just leave it.
Remember you pay brokers fees and cost when you buy, and sell, and buyback again and there is always tax to consider as well. Eventually, its back where it was though it could be weeks or months. I think you should only take a loss on a share if something really bad happens to an individual company, not a global trend which is fickle most of the time. I always ask myself: In 10 years time, would I care about today's -2% on the Alsi? Usually not.
But that being said, I don't think it is over yet. If your personality and circumstances allow, I'd say ride it out but that is obviously up to you. Good luck on whatever you decide.
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Thanks guys for the advice much appreciated!
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Hi Yozzi, I think the market has probably already taken most of the pain for now. Crashes happen quickly and we've seen a correction now back to around Feb-14 levels. Whilst there is certainly the potential for further downside I expect this won't be as severe as what we've seen already.
Your Orbis fund should have performed quite well over this period as I believe they hedge and thus perform well in a falling market whilst underperforming in a rising market. Coronation are probably the best of the South African fund managers, or "sheep" as some would say. So my advice would be to ride out any further downside. However, best to hold off putting new money into the market just now.
Hi Bevan, I bought the Orbis fund in April at R38 and it went up to over R43 but now back where I started and I also bought Coronation in April at R138 it went to R154 and now back at R144 and sliding! My targets are 30%+ R49 and R180 respectively so plenty of work still to do but I'm in there for the long term so prepared to wait!
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Have the funds paid dividend? If so your slightly better off than where you started...
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Interesting opinions from Forbes analyst Jessie Colombo today:
“Total global debt is about to pass $100 trillion ($20 trillion added since 2009).
This is why we are headed for a GLOBAL financial meltdown, and no country will be spared. Get prepared immediately, because life will change forever.”
https://www.facebook.com/thebubblebubble?fref=nf
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It is interesting. Debt is a given. It will typically always get bigger. The question becomes, at what point do the lenders get nervous about not getting their money back? This is the situation that China is in and why we will probably not see an alternative to the USD as global traded currency for some time.
I'm not sure that we will see a global financial meltdown because any debt blow-out will be controlled through various measures i.e. creditors taking a haircut, more quantitative easing, more printing of money etc. However, one cannot escape the fact that the financial system is engineered 80% of the time to rise whereas nature is much more a natural cycle of birth, growth, then death, coming back to square one again. Our financial system, together with inflation, will never accept this. It is engineered that the rich (the informed and those with access to the markets) will get richer and the poor will get poorer. We do need an alternative and I don't see cryptocurrencies (the block chain etc.) being the answer. What we need is for people to understand sustainability in nature and in the way they live their lives first. Then we can start fixing the financial system.
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Thread revival.
Anyway short extract of article below. Read full version That Was Not a Crash (http://hussmanfunds.com/wmc/wmc150907.htm)
The market decline of recent weeks was not a crash. It was merely an air-pocket. It was probably just a start. Such air pockets are typical when overvalued, overbought, overbullish conditions are joined by deterioration in market internals, as we’ve observed in recent months. They are the downside of the “unpleasant skew” that typically results from that combination – a series of small but persistent marginal new highs, followed by an abrupt vertical decline that erases weeks or months of gains within a handful of sessions (see Air Pockets, Free-Falls, and Crashes).
Actual market crashes involve a much larger and concerted shift toward investor risk-aversion, which doesn’t really happen right off of a market peak. Historically, market crashes don’t even start until the market has first retreated by 10-14%, and then recovers about half of that loss, offering investors hope that things have stabilized (look for example at the 1929 and 1987 instances). The extensive vertical losses that characterize a crash follow only after the market breaks that apparent “support,” leading to a relentless free-fall that inflicts several times the loss that we’ve seen in recent weeks.
Our strategy is to align our investment stance with the market return/risk profile we identify based on observable conditions. There’s no need to make projections about a crash, but it’s fair to say that we can’t rule it out given that every major crash in history has emerged from the 8% of historical market conditions matching what we currently observe (see Risk Turns Risky for a review of cumulative market losses in this subset of history). We can only say that on average, stocks have continued to lose considerable ground under the return/risk classification we identify here, so we remain defensive.
The reason why the word “crash” has been bandied about to describe the recent selloff, I think, is partly because investors have lost all perspective of the losses that have historically been associated with that word, but mostly because it gives market cheerleaders the needed "cover" to encourage investors to continue speculating near record market valuations. After all, everyone “knows” that investors shouldn’t sell after a crash, thus the endless flurry of articles advising “selling in a crash is a textbook mistake,” “selling off stocks during a crash is a terrible idea”, “whatever you do, don’t sell”, “market crash: don’t rush to press the panic button,” “the worst investing move during a market crash,” … you get the idea.
BTW. what % of your portfolios do you hold in cash ?