stock market

Will there be a stock market crash in 2015?

If so approximately what month and what will most likely cause it?

  • Renowned American economist John Kenneth Galbraith, author of The Great Crash, 1929 and Affluent Society, once said:
There are two kinds of forecasters: those who don’t know, and those who don’t know they don’t know.
  • I don't think anyone can ever consistently predict the winds of macroeconomic change. During 2008, hedge fund manager John Paulson was ingenious on calling the short against subprime, but tapping into that same genius has not resulted in accurate macro calls since. His investors have been steadily withdrawing their money.
  • The use of the word "crash" implies an element of surprise, of being caught off-guard. I've never heard anyone say, "I knew I was going to get in a car crash this month. I was right!"
  • Perhaps the better question is:

Are there too many reasons why there won't be a stock market crash in 2015?

The implication is that if the markets and investors have been lulled into a sense of complacency, because of so many things going right, the sense of the market feeling bullet-proof, then maybe the risk of a crash is higher. But even if you were going into a war for the next 12 months, could you predict when you're going to get shot when you put on that kevlar vest? 

  • I think Hyman Minsky's famous quote is relevant:
Stability is destabilizing.

Excerpts below from the article: "Did Hyman Minsky find the secret behind financial crashes?"

  • Most macroeconomists work with what they call "equilibrium models" - the idea is that a modern market economy is fundamentally stable. That is not to say nothing ever changes but it grows in a steady way. To generate an economic crisis or a sudden boom some sort of external shock has to occur - whether that be a rise in oil prices, a war or the invention of the internet.
  • Minsky disagreed. He thought that the system itself could generate shocks through its own internal dynamics. He believed that during periods of economic stability, banks, firms and other economic agents become complacent.
  • They assume that the good times will keep on going and begin to take ever greater risks in pursuit of profit. So the seeds of the next crisis are sown in the good times.
  • Although he trained in mathematics, Minsky preferred what economists call a narrative approach - he was about ideas expressed in words. Many of the greats from Adam Smith to John Maynard Keynes to Friedrich Hayek worked like this.
  • While maths is more precise, words might allow you to express and engage with complex ideas that are tricky to model - things like uncertainty, irrationality, and exuberance. Minsky's fans say this contributed to a view of the economy that was far more "realistic" than that of mainstream economics.
Stock Market Crash 2015
Stock Market Crash 2015