Quote:
Originally Posted by ReplayRandall
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That wasn't too bad of a post.
I quoted Zweig where he said there are three crucial conditions for a bear market:
1. Extreme deflation. This is not present in 2019, but the fed just cut rates. Perhaps they fear deflation because deflation is what happened during the great depression?
2. PE ratios of 18 or above. The current PE of the S&P is around 21 [and falling], which Zweig says is bearish. However, he says the exception is when profits are low (causing high PEs) because of a business downturn. This was the case in 2016 with poor earnings when this paper was written, but it may also be true in August of 2019.
3. Inverted yield curve. An inverted yield curve last occurred in early August of 2008."
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So fast forward to March 2020.
1. We have not seen extreme deflation, yet, but we might. Look at oil prices. Look at employment. When people have no money all the inventory sits in warehouses. If companies want to move that inventory they will have to lower prices on the products. That means they make less and have less to spend on new inventory and so on and it becomes a vicious cycle until we enter a depression. That's why the gov needs to inject massive amounts of cash into the little people's pockets. They government should also go on a massive building program like the New Deal. That's what got us out of the Great Depression. Maybe the New Green Deal this time around? The Great Depression also brought us WWII due to the rise of nationalism in Europe. And now England has left the EU. The EU was created to avoid WWIII. But this can be discussed in the political section of PA -- although politics is economics.
2. The PE Ratio of the SP500 is around 18.50 and has been falling. But the E in PE is falling that's why the PE Ratio is getting higher -- there is a major business downturn.
3. The Yield Curve has been inverted on and off over the past year. It is not inverted today but it is trending towards zero. It could go negative and invert.
So the gazillion dollar question is what will be the effects of this pandemic on the economy? Will it turn into another Great Depression? Will it bring war? The Spanish Flu is said to have helped bring WWI to an end. So maybe CV19 will prevent a war from happening. It's hard to fight a war when everyone is sick.
http://ww1centenary.oucs.ox.ac.uk/bo...rst-world-war/
