
Are we heading towards another market crash? - Apane
I would consider myself a passive investor - I don&#x27;t tend to check the market too often as I&#x27;m mainly invested in large U.S index funds.<p>However, as of late every-time that I do check the market it seems to be in the red. One of my holdings is the Vanguard Index fund and it&#x27;s constituents are all large fortune 500 U.S companies. Needless to say, it&#x27;s not a bad representation of where America is economically at given anytime.<p>So the fact that it&#x27;s been on a downward spiral has raised some red flags for me, should we be worried? Is it likely that we are towards a recession?<p>For anyone with knowledge of economics it&#x27;s a known fact that market corrections have to happen roughly every 10 years or so but we&#x27;re pushing 6 at this point from the 2008 market crash.<p>Any thoughts, input here would be great.<p>Cheers!
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taprun
Almost certainly. The entire economy is running on smoke and mirrors.

Take a look at this article that describes how companies are borrowing money
to buy stock in themselves in order to push up their own share prices:
[http://www.washingtonpost.com/business/economy/companies-
tur...](http://www.washingtonpost.com/business/economy/companies-turning-
again-to-stock-buybacks-to-reward-
shareholders/2013/12/15/58a2e99c-4aef-11e3-9890-a1e0997fb0c0_story.html)

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nicholas73
Companies borrow money to rebuy shares when their earnings are greater than
the interest cost. If your earnings are rock solid, then you earn a return by
rebuying your shares. Of course nothing is guaranteed so you need some margin
of error.

Interest < Earnings * risk

Not surprisingly, when interest rates are low, companies borrow more money to
do this. It's also a feedback cycle where companies pay higher prices to buy
their own shares. But it's still worthwhile because money is cheap.

Thus, answering the original question, a market crash won't likely happen
until interest rates rise. Recently there have been data that suggests the Fed
might be able to raise rates, thus the mini sell off. But there is nothing
solid yet. It's not the big scare, but the environment is building that there
could be one. Doesn't mean it'll happen though.

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nicholas73
By feedback cycle I mean that companies tend to do more backbacks when the
market is high. Which seems counter-intuitive, but makes sense because the
market is biased higher when interest rates are low. And then company buybacks
push it higher.

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brogrammer90
Probably. Despite all the propaganda, a bunch of "passionate" 20 something
developers slinging javascript code are not worth $100K+.

