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Market Crash 2025

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GVF newsletter

Stretched valuations and giddy investors provide a ripe environment for clever sounding bears to be plying their trade. Indeed, as fundamentally minded investors ourselves, we’re minded to heed many of the bearish arguments we see today. Yet there are three areas where we think the bears’ arguments are lacking.

The first is they overestimate their ability to time the market. As a new calendar year kicks off our inbox fills up with prognoses for the year ahead. While all of the arguments about share markets being overvalued are compelling today, they were also the same arguments that were being made this time last year.

The hard truth is that expensive stocks can always get more expensive, and history shows no linkage between high current valuations and next year’s returns. The second point that we believe is underappreciated by the bears are the alternatives that are on offer. For Australian dollar investors, with inflation running at a little over 3%, the real (after inflation) yield on a term deposit is scarcely more than 1%. Thin gruel for retirees and those needing a return from their savings. Particularly when it’s far from clear how long you should be sitting in cash (refer to point one earlier).

The final area where we disagree with the bears is more nuanced, and a topic we have written about in our letters for several years now. Share market indices nowadays look nothing like what they were originally designed to be, namely broadly diversified baskets of companies that represented the wider economy as a
whole. The incredible success of a handful of mega-cap technology stocks, and the hollowing out of public markets by private market capital, have left share market indices, and the ETFs that track them, very one-dimensional. Currently just 12 high-growth technology stocks make up 25% of the MSCI All Country World Index, while the US markets as a whole now comprise 66.8%, up from 52% a decade ago. In comparison, China, the second largest economy in the world, makes up less than 3%. When commentators today say markets are frothy and looking precariously overvalued, they are really just referring to the small collection of technology stocks that have come to dominate today’s share market indices, not the vast majority of companies operating in the economy as a whole.

None of these arguments, of course, are to say that a nasty correction isn’t hiding around the corner. Rather than on closer inspection the handwringing being offered by the bears today isn’t any more predictive than usual, just because markets are running hot. The current bull market might end tomorrow. It might also last several more years. When faced with that uncertainty the calibrating factor that investors should turn to, in our view, is their own risk tolerance levels. The alternative, of trying to time when to come into and out of the market, is a particularly poor substitute for constructing a portfolio that is designed to weather the inevitable ups and downs that markets throw our way.

The technology stocks that are leading the market today provide the clearest example of where to do this. Our view is that investors should be weighting their exposure to these technology companies based on their own risk tolerance levels. They should not be accepting as default the very large weightings that index providers and ETFs now allocate to these names. If technology stocks keep racing ahead that may mean you underperform ‘the market’, but ‘the market’ being referred to here is a narrow collection of stocks that is unrepresentative of the wider economy, and more importantly, does not have your specific risk profile in mind. When considering an investment in global markets today, the question you need to ask yourself, in our view, is whether it’s wise for you to have a quarter of your capital tied up in a collection of high risk, high reward investments. For the youthful investors out there, this may well be the right allocation. For those of us with less time on our side, that is a question that should create greater pause....
 
Dona Ferentes said:
GVF newsletter

Stretched valuations and giddy investors provide a ripe environment for clever sounding bears to be plying their trade. Indeed, as fundamentally minded investors ourselves, we’re minded to heed many of the bearish arguments we see today. Yet there are three areas where we think the bears’ arguments are lacking.

The first is they overestimate their ability to time the market. As a new calendar year kicks off our inbox fills up with prognoses for the year ahead. While all of the arguments about share markets being overvalued are compelling today, they were also the same arguments that were being made this time last year.

The hard truth is that expensive stocks can always get more expensive, and history shows no linkage between high current valuations and next year’s returns. The second point that we believe is underappreciated by the bears are the alternatives that are on offer. For Australian dollar investors, with inflation running at a little over 3%, the real (after inflation) yield on a term deposit is scarcely more than 1%. Thin gruel for retirees and those needing a return from their savings. Particularly when it’s far from clear how long you should be sitting in cash (refer to point one earlier).

The final area where we disagree with the bears is more nuanced, and a topic we have written about in our letters for several years now. Share market indices nowadays look nothing like what they were originally designed to be, namely broadly diversified baskets of companies that represented the wider economy as a
whole. The incredible success of a handful of mega-cap technology stocks, and the hollowing out of public markets by private market capital, have left share market indices, and the ETFs that track them, very one-dimensional. Currently just 12 high-growth technology stocks make up 25% of the MSCI All Country World Index, while the US markets as a whole now comprise 66.8%, up from 52% a decade ago. In comparison, China, the second largest economy in the world, makes up less than 3%. When commentators today say markets are frothy and looking precariously overvalued, they are really just referring to the small collection of technology stocks that have come to dominate today’s share market indices, not the vast majority of companies operating in the economy as a whole.

None of these arguments, of course, are to say that a nasty correction isn’t hiding around the corner. Rather than on closer inspection the handwringing being offered by the bears today isn’t any more predictive than usual, just because markets are running hot. The current bull market might end tomorrow. It might also last several more years. When faced with that uncertainty the calibrating factor that investors should turn to, in our view, is their own risk tolerance levels. The alternative, of trying to time when to come into and out of the market, is a particularly poor substitute for constructing a portfolio that is designed to weather the inevitable ups and downs that markets throw our way.

The technology stocks that are leading the market today provide the clearest example of where to do this. Our view is that investors should be weighting their exposure to these technology companies based on their own risk tolerance levels. They should not be accepting as default the very large weightings that index providers and ETFs now allocate to these names. If technology stocks keep racing ahead that may mean you underperform ‘the market’, but ‘the market’ being referred to here is a narrow collection of stocks that is unrepresentative of the wider economy, and more importantly, does not have your specific risk profile in mind. When considering an investment in global markets today, the question you need to ask yourself, in our view, is whether it’s wise for you to have a quarter of your capital tied up in a collection of high risk, high reward investments. For the youthful investors out there, this may well be the right allocation. For those of us with less time on our side, that is a question that should create greater pause....
Click to expand...
I agree. Being a bear is a bad move 98% of the time.

I have always been a bull, and I have always used borrowed money to buy.
The only other time I have been bearish was when Covid started being reported, and that was a nice win.

I do think macro factors count. In this case tariffs. This is a seachange for world trade.
I may be wrong, but the risk seems to have a lot more downside than upside at this moment in time. It's easy to buy back in.
 
DannyB0000 said:
Trump is risking crashing the Stockmarket with his stupidity over tariffs. Tariff pauses and exemptions. Dow jones down more than 1%. Nasdaq down 3%.

He can’t blame Biden or wokeness, this is his doing.
Click to expand...
i don't think the tariffs are stupid ,... dangerous and signs of desperation , sure

but something needed to change
and who started the mess he is trying to extract out of .. ( hint Biden was trying to give education debt forgiveness to help his voters )

if the US had say 10% debt of GDP there are other easy options ( trim a little spending , delay a few projects ) BUT it is on their official figures ( likely to be much more ) more than 110% of GDP

tariffs will eventually increase manufacturing and agricultural production ( unless they follow the EU model )

one could argue this mess is still an extension of that GFC can still rattling down the road
 
Garpal Gumnut said:
From the ABC. Their ABC. The Lefties are worried about a crash which portends that it may not happen although Macquarie has issued a warning as they should.

View attachment 195590

gg
Click to expand...
What's wrong with being a leftie ?, it's a free country.

News shouldn't be bias in any one direction be it, left or right, just present both sides of the story. I refuse to read right wing media.
 
DannyB0000 said:
What's wrong with being a leftie ?, it's a free country.

News shouldn't be bias in any one direction be it, left or right, just present both sides of the story. I refuse to read right wing media.
Click to expand...
i just refuse to digest mainstream media

because they are two sides of the same coin , but seeming to differ solely to attract new advertising opportunities from the larger parties and their supporters
 
It's good to say you'll see more of the bloodbath on wall street if Trump goes through with the other planned tariffs, the past is pretty much indicative of the future here. It's more signs of instability, trade wars, less govt spending, consumer spending down, and more financial pressure on households.
 
mullokintyre said:
Those of us who remember the last big crash, and what caused it, may be somewhat alarmed at the figures shown here for a US company called Susquehanna Securities which has a NEGATIVE net asset value of $346 million, while holding 1.6TRILLION in derivatives.
How many others are there out there in finance land in a similarly sinking boat?
Mick

View attachment 196019
Click to expand...
Let's see what happens on Liberation Day - April 2nd.
 
net savings as a percentage of gross national income is about to go negative.
This has nit happened since 1929, and we know what happened after that.
The US consumer has spent all their savings, maxed out the credit card, their total loan commitments has blown out to 17.5 trillion.
Can't end well.
Mick
1742881443936.png
The us consumer has s
 
Last edited:
mullokintyre said:
net savings as a percentage og gross national income is aboit to go negative.
This has nit happened since 1929, and we know what happened after that.
The US consumer has spent all their savings, maxed out the credit card, their toal loan comittments has blown out to 17.5 trillion.
Can't end well.
Mick
View attachment 196112
The us consumer has s
Click to expand...
Tariffs haven't really hit yet. April 2nd. Yet they are already wiped out.

I saw a table and the amount of people living pay check to pay check has increased dramatically. Can't find it now. But its really high. And that's in a place with no free healthcare.
 

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