Are We Dancing On The Edge of The Next Crash?

Given that the stock market is at valuation levels that are apparently the most expensive ever, you have to wonder: Are we dancing on the edge of the next crash?

Doesn't that seem likely? 

And yet we watch the market edge higher and higher, even as events that would typically cause it to tumble come and go.

The latest: the comment from the Big Orange Guy that he would slap 100% tariffs on Chinese goods. Ok, so the market tanked last Friday. But what's happened since? Little follow-through to that. Instead, a bit of dramatic swing, then back to the meandering, mostly higher-ticking action that has characterized price action for some time now.

Of course, today began with a pre-ssession tumble as. But is there going to be any serious follow-through, any real correction, or, a crash? A betting man might not bite on this one if recent history is any indicator. 

What's going on? 

Well, one thing may be the fact that when the market is making its all-time highs at the end of a bull run, prior to a bear market, we find this sort of action. But remember that a Bear market doesn't have to announce itself with an outright crash, as we had in 2008, or - heaven forbid - 1929 (although you do see some talking up 1929 lately).

In 2000, when the market topped after that incredible tech surge, it began its journey into the bear's cave. But it didn't crash. Indeed, the bank at which I worked had a Chief Investment Officer who, at the beginning of 2001, declared that stocks would rise around 10%. He had made the same declaration when 2000 begin. He would make it again at the beginning of 2002. Each year stocks ground down - to the surprise and dismay of all the usual suspects who fist-pump stocks in their robotic manner. (They do get paid to do this, of course.) 

By 2003, there was a sense of "WTF?" as three years of stock losses in a row was unheard of - indeed had not occurred even after the Great Crash of 1929. Attending a conference after this Great Grind Down, we recall the head of major financial institution's bond desk refer to our financial industry's leadership as like a deer in the headlights. (An exoneration for that CIO referenced above? He was apparently not unique in his repeated mistaken positive predictions.)

Naturally, all of this is forgotten. Despite the hand-ringing of those days, once things got back on track and stocks began to tap dance again, no need think about the bad old days. Lessons learned? Not really. Just as with the GFC (Great Financial Crisis) of 2007-2009, all is forgotten, no learned. And so we find ourselves back in the same place yet again - or at least a similar one. 

So...are we dancing on the edge of the next crash? Well, if we look at the 2000-2002 period, it may not be a crash as we saw in 1929 or 2008. But the end result would really be the same. A huge loss for those who put their trust in the inevitable march higher of stocks.

Of course, it all depends on individual circumstance, on your personal needs. If you're approaching retirement and your plan depends on have "X" $'s in your retirement basket, it may be prudent to pare back on stocks if you hold lots of 'em - that is if your well-being will rely on taking income from your investments. You don't want to sail into your post-working year in the lesser basket means less well-being boat. Right?

Meanwhile, we continue in the never-never land of stocks posturing as the all-powerful source of wealth and well-being. They continue to either grind higher or, when slapped down, they simply bounce back again. And there are those who hold that this can continue - well, what, ad infinitum? Does that make sense?

In the end, we always remind ourselves that Wall Street should be seen for what it is: a sales organization. Lots of smart people there, and astute investors to be sure; but a sales organization nonetheless. 

Put another way, their job is to sell you stuff. And the stuff they sell needs to be seen in that light.

So dance away if you like. But if we are indeed on the edge of the next crash (or Great Grind Down), at some point someone slips and then....