Dow Falls 2997 points worst drop since 1987 crash(mortgagerateguru.com) |
Dow Falls 2997 points worst drop since 1987 crash(mortgagerateguru.com) |
[0] https://en.wikipedia.org/wiki/List_of_largest_daily_changes_...
(Not saying we're there yet, just asking if such a point exists, and when.)
[1] https://www.nytimes.com/2020/03/14/business/economy/trump-po...
[2] https://www.washingtonpost.com/outlook/2020/03/12/truth-abou...
I think there's going to be a little bit of a bounce tomorrow and then resume drilling.
Today, Boeing lost its credit ratings, and is begging Washington for bailouts. Zero interest rates don't help much.
Here is the question - what investment vehicle, if any, would you consider for looking into when wanting to presumably enter this situation in say 4-5 months? Ideally say some medium term returns, not benefit after 30 years.
Sorry for possibly annoying question to the experts, just looking into some guidance
Realistic timeline for this seems months.
I'm very confused. On the one hand I have all the things I've been reading in the papers about workers being superfluous.
But yet on the other hand when I just look at the evidence, it seems like companies really, really need workers.
I wonder what will happen when this is over...
This fall is pricing in the inevitable waves of bankruptcies in the service industry.
for services they could just automate making bookings with a deposit and not show up. or a little zoomba vacuum thing could show up.
wouldn't be inflationary as cash is being destroyed like mad as we are all replaced by robots, so that won't be a problem.
Now is not a good time to sell your stock holdings (at least not anymore). This smells of a panic right now.
I think a severe recession is all but guaranteed at this point. Let's hope we get through this with no more than that.
Before the GFC the index was 1550, and after it was ~760 (~50% drop)
At the peak of the dotcom boom it was generally under 1500. In 2002 after that crash it was 800. (45% drop)
The recent peak was ~3380. A 50% drop is ~1700, which is almost 30% below where we ended today.
The question to ask yourself is how does this collapse compare to the dotcom collapse and the GFC?
The dotcom collapse affected internet businesses and was contagious (sorry) from there.
The GFC start with banks and finance and was contagious from there.
This starts with pretty much every industry, and has immediate impacts on supply and demand. It's going to be very ugly.
In this case, on the other hand, the primary mechanism is "people can't work/aren't going out and buying things". That's absolutely going to "go back to the way things were", in some sense. It's just a question of how long it will take, and how much damage will be dealt in the meantime. But it feels very different from those other ones, which could be good or bad.
Put differently, the GFC was like organ failure: things couldn't just heal, they had to be reworked and replaced. The current crisis is like a knife wound: the basic problem will heal on its own, but in the meantime you have to keep from bleeding out and hopefully avoid necrosis.
This is not how markets work.
Not sure why a crash has to be expected or should be the norm.
South Korea, China, Singapore are encouraging and seeing a return back to (almost) normal life. Granted, we're not dealing with this nearly as effectively and there may be a 2nd wave to come. But at this point they seem to make the case for optimism.
I don't have a full understanding of the Repo market, but I do get it at a moderate level. I understand that it acts as the "lube" to our financial system and It's obvious it's not functioning correctly. What effect will this happen on the growing corporate debt that's out there? What effect will the lower revenues have on the ability for business' to pay back the debt and interest?
These are questions I have, but don't necessarily have factual answers for. However I don't feel good about the answers to them and for that reason do think were in for a recession.
Exogenous shocks usually don't provoke recessions but is going to be like a planet-wide tidal wave. Things are going to be very different at the end. Huge, efficient enterprises may well end up even stronger but would the market for a given medium sized enterprise even make sense? We don't know.
A significant cause for the massive drop today is that indicators out of China are that the disruption is much, much larger than anyone accounted for.
A few days ago there was a guy talking about refinancing his house and putting 20% of the value into the market[1]. He asked whether it was a bad time. I said it was a bad time -- not that it was going up or down but that there is enormous uncertainty and a long way to drop -- and got moderated down to the gray. The non-gray comments were all that this is a great time. Buy 'em on sale is a claim that has been foolishly made again and again.
No, it isn't a great time. Anyone deluding themselves that there is a market "bottom" that it is bouncing off of has been proven wrong repeatedly. Over the past couple of days the federal government has done more to try to fix the markets than they did during the entire housing crash, but compressing it all into a weekend. They have essentially nothing left.
And here we are, staring into the abyss.
Things will improve, and at one point we'll laugh about this and consider it all an overreaction, etc. But there's a lot of downside between now and then. And if history is any example, once we bottom out we'll hang around for a while.
[1] Oh add that we have historic debt levels, bubbled house prices in some areas, and the simple idea of financing the current, elevated value of a house seems risky.
They have very good control of their borders and the (medical) resources to act in case of trouble. Not only that but I think they have learned a few lessons after the 2002-2004 SARS outbreak.
Anecdotal, but while in Hong Kong (2014) there were a few things that stood out:
- they had thermal screening for ALL passengers - while walking towards customs an agent asked me to take my hat off and pointed to the thermal cameras. In contrast, at Bucharest's airport they were set up 3 weeks ago. As of 2019, there were 1.2M Romanian citizens living in Italy, about 600k in the northern part.
- banners against spitting in the trash bin - coming with a big fine. More generally speaking, a general state of cleanliness which can't be found in many EU capitals.
- no toilets in the subway - might be sources of contamination. And when you finally found a public toilet, they were as clean as they can be.
I think there are better odds of finding a cure fast than for Europe to contain this. Note, the evening before the Milan area lockdown people were rushing to the train stations - Schenghen area is borderless.
Of course. Do you think people will stop working, going out, watching movies, buying cars, etc forever?
Every market decline, people think the world is going to end. But the world just keeps chugging along.
During the 2008 financial crisis, people were predicting the end of the world, bank runs, financial collapse, etc. The most recent ebola scare, people were talking about pandemic, every hospital being at capacity, death rate, triage and the end of the world.
In a few years, we'll do this all over again. The markets will be reinflated, the markets will decline, we'll have another crisis, the news will feed panic for ad money and people will go out of their minds. Then things will return to normal.
If these health policies undershoot their targets in term of number of people infected, then we may have to deal with this virus again next fall/winter, so add a few more months of similar pain.
I just don't see how this will not have lasting effects. Even in Dec 2008, at the very worst of the crisis, you had deep discounts in shops, but at least you could consume. But here all malls will be basically closed.
I worry this will go so far that it’ll take a very long time for worldwide business to heal due to layoffs and wrecked personal finances killing demand even when we’re past the corona spike, and by then weapons like Fed’s lowered rates will have already been used.
I wouldn’t be surprised if we’re leaving this year with a -50% stock market value and 5-10 years for everything to get back to speed and valuation like it were.
It’s not even uncommon advice to not be heavily into the stock market if you have less than a >7 year savings horizon for these reasons.
Even if this is only a relatively mild recession like 2000 or 1973, we'll be seeing 1600 - 1700 SPX or at least 30% below today's close.
Today, Vanguard and Fidelity wanted to sell 6M shares of $ROKU after hours through Morgan Stanley. That's how things will go.
It is a panic, but its justifiable to panic over the entire economy being shut down for an undetermined amount of time. No person on earth can say when this will end, given what we currently know about the virus, whether its possible to become reinfected, and how effective our strategies will be.
I'd love to make large buys of stocks at a time like this, but I have no idea whether my job/company/industry is safe. Last time I was laid off from work was particularly rough for me, and I'm only just now getting back on my feet.
The uncertainty of the situation is probably making many others think twice before buying/spending so that's going to make it harder for stock prices to recover in the short term.
If you have stocks in a pre-tax retirement account like a traditional IRA in the US (or RRSP in Canada?), now could be a good time to sell them, move the money into a post-tax account like a ROTH IRA (or TFSA?), then buy the equivalent number of stocks there.
You will pay reduced taxes because the value of the stocks is relatively low, then pay no tax when you finally withdraw from the ROTH. (All else being equal and imho, the market is likely to recover over time)
That is, if you don't mind the risk that the market might massively rebound in the middle of the transaction.
There are a bunch of assumptions here. Do your own research and don't blindly believe a stranger on the Internet. Make sure you understand the taxes, fees, penalties, or whatever you will have to pay.
I've made that mistake before.
If. Make your own decisions.
Since 2008 money means something different. The fed will keep releasing liquid funds for banks to buy up all the cheap stock. Or the US government might even give away money to keep consumer spending going. Either way it will expand the money supply enough until the SP500 goes back to 3000 even if 3000 equals 1500 in 2019 money.
But that's exactly what a good many fools are doing, which explains the downward price pressure.
> I think a severe recession is all but guaranteed at this point. Let's hope we get through this with no more than that.
I suspect it's going to be remembered as a redistribution of wealth from hotter heads to cooler heads.
we can already observe this on the health side, there was quite a good amount of monitoring and collaboration (too late and too little) but nothing compared to 100 years ago pandemic for instance
we have a bit more tools to work with and a bit more knowledge. hopefully (hopefully) we can flatten the dip too :)
Recession yes, severe, maybe not. (thought I admit the possibility) I think if the current distancing measures curtail the spread, then by July (maybe sooner) things could begin to inch back upwards. Then it's a matter of how much the next flu season impacts things, but by that time we should also be within 6-8 months or so of a vaccine. Recession for the next 1.5 years is definitely in the cards, but this is a unique circumstance with a unique, specific cause. If that cause is removed, a return to normalcy shouldn't be so far behind that a recession is "severe".
...with that being said, I feel really worried about American economic stability long term now. Governors are closing restaurants and businesses leaving tons of folks out of work while providing minimal safety net coverage. Even liberal states like New York are ignoring the downstream economic effects these closures will cause. If most Americans truly cannot afford a $500 surprise bill, we’re in for a very, very rough ride.
In a standard fear cycle (Google it), we are only at the middle stage between denial and fear. There is an acceleration downwards that we have not experienced yet (Crypto 2018 and China 2015 are good examples if you want to look back at recent history). Wait for that to happen first. You also can feel the time to buy when people are very distraught and demoralized by the endless drops. Twitter activity will change a lot, trust me.
A good way to read when to buy is, aside from seeing that everyone is completely mentally exhausted and demoralized, is that the VIX is around 30% and dropping, and distribution is over with accumulation channels being formed, which is when multiple supports are being built. This is when bulls and bears are in equilibrium, with bears quite exhausted but still exuberant. If you want better certainty, at least wait for the stock you want to buy to cross the 200 SMA, because it is a good indicator that the stock is being rationally valued once again.
My point is that DCA is only good if the trend favours it. It is central limit theorem where you reduce the variance by multiple sampling. Good shorters DCA downwards as well, so you are fighting these people too if you are DCA-ing now.
This is not to say the stock market is not in freefall, but there are much better indexes to track general market movement.
1929 was stock being leveraged off mortgaged homes and loans, that was clearly no sustainable.
2000 was the dot com burst.
2008 was mass defaults on home loans.
Is there any reason why apart from slow business for 2 months due to corona and the oil war (that resulted from corona causing a loss in demand), the economy can't juts go back to being business as usual once this all passes over ?
Is there a particular kind of asset, the collapse of which will seal this drop as a proper depression ?
On the other hand, if the US goes into lockdown for a month or more, there's a significant chance that we could be returning to a world very unlike today. The market does not like this kind of uncertainty, and an house of prevention would have been worth $10 trillion dollars of cure.
Also schools - how will additional schooling later on make up for the lost service & revenue (schools need students to get tax revenues)
Until we (in the US) see a few senators, a justice or two and / or the VP/president/etc succumb to the disease we haven’t hit peak panic.
~50% of the workforce is about to be out of a job for a few weeks. A large portion of Restaurants are about to go bankrupt, daycares are about to go bankrupt. Houses are about to drop in price (no money, and elderly dying).
The reality is, this could be worse than the Great Depression. At least if we keep this up for any length of time. What we are doing right now is seizing the economy and if we close down everything, it’s going to be hard to start back up.
Governments are going to crumble because of this.
Long term (a year out) things should be improving. But IMO we have a long way to fall. I wouldn’t be surprised if banks start folding.
You'll know it's time to buy when the advice you get from permabulls like the mortgage industry is to sell.
What will happen in between? Failed rally after failed rally. Bear market rallies are extremely effective destroyers of capital. The suck the gullible in and spit out the bones.
By the time it's really time to "pick up some stocks based on crushed valuations," nobody will care about stocks. And nobody will care about or believe the rally.
https://www.multpl.com/shiller-pe
There are problems comparing the P/E over time periods this long, but it is a cautionary datapoint.
Probably just too much free cash for banks.
But this comes after a decade-long record bull run that's been begging for a 15% correction. Treasury yields were inverted a few months ago, last week bond prices got disjointed from their underlying assets, QE has been incessant since 2008, rates are at literal zero - the bull market was fake, propped-up and political; there is nasty sausage festering in the belly of our financial system and it's set to explode. Get ready for at least another 30% drop.
Or:
The internet is truly the greatest invention of all time. There is nothing more valuable than the exchange of ideas. We have only begun reaping its rewards. It will be responsible for another 100 year bull run of greater magnitude than the industrial revolution. Not only is innovation at record levels, but the pace of increase of innovation is at record levels. The bull run was not fake, P/E levels of the S&P are in line with historical averages [3]. We are taking Coronavirus very seriously and China has shown that you can "flatten the curve" when you do [4]. This will blow over in a few months and the economy will be right back to where it was. But the stock market is forward-looking and can recover in an instant, the buying opportunities are now.
[1] https://imgur.com/a/aq2yw70 (chart)
[2] https://imgur.com/a/EOWR4Kf (chart)
[3] https://imgur.com/R0zpJiP (chart)
[4] https://imgur.com/VTMOeh9 (chart)
The second round will be over-leveraged investments being uncovered, as any leverage they had in stocks evaporates.
Given that the over-leveraged loan situation was out of control during the 2008 GFC, and nothing structural was done to change behavior, it's extremely likely we're going to see some secondary changes.
I don't think the country is in the mood for shareholders to get bailed out unless individuals get bailed out first... and I don't see that happening.
My question is: if we assume 20-40% of people in the U.S. are drastically underestimating how bad the virus is going to be, then they are more likely to hold their stock until there is finally "proof" that the virus is as bad as everyone with some amount of scientific understanding knows it is going to be, at which point we would expect some portion of these people to panic sell. Wouldn't that indicate that in an event like this, we're not betting on essentially random fluctuations of an emergent economic system, but rather on many people not understanding the trajectory of the virus?
In other words, it's almost like a prediction market at this point — you're betting against other people about how damaging the virus is going to end up being. Am I off base here?
Getting laid off is sometimes better than surviving the shit show that is now to come. Quitting for new work, even better.
Seize the moment, people. Do not be a victim. You can rebuild your careers. Do not stay with a butcher.
This sounds just insane to me. "Quitting before you find a job" is bad advice even in very good economy.
You can't feed your family on AAPL.
-- ex trader 2021
I feel for those stuck holding this particular bag of shit. Fortunately I pulled out after the last TSLA earnings call, and look forward to the future shopping spree once the dust settles.
But what do you do if you got lucky selling now?
I sold three weeks ago figuring it would be bumpy ahead, but I don’t want to miss the bottom entirely. Now I’m thinking the low risk strategy is to buy very slowly over a long period.
Imagine if our reaction to this disease, to prevent human death and suffering... will cause so much poverty, hardship, and social instability that the outcome is more human death and suffering, than if we had just let the virus run its course and had just gone about our daily lives accepting the losses.
I sure hope we are doing the right thing. Makes you wonder.
So: how are you sure that the parameters of the pandemic are something, the system can handle? Is there any precedent for that? What reason is there, that our society (that's the people, making up this system) can't overcome this crisis with something different?
rites
It's amazing. I think I'm a pretty smart guy and I'm finding it very difficult not to second guess these choices. And the worst time to make choices like this is during financial crisis.
Businesses, big and small, are going to take a huge hit from this that will take a long time to recover from. Probably more than most (all?) of is have seen in our lifetime.
Seems like this is something we’ve never faced before, and it’s not that highly unlikely that we’ll see some pretty nasty and long-term impacts from this.
1. Today's drop is sort of misleading because it followed an irrational (IMO) low volume rally on Friday. We're still roughly flat from last week.
2. A recession is pretty much what we're ASKING for in order to stop the virus. People need to stay away from one another. So if it's not online, the business should be closed.
3. (bonus point) Unlike systemic recessions (like 2008), this one is purely externally driven (like 2001) - which means it's temporary. Whether we deploy a vaccine, deploy anti-virals, flatten the curve, or just suffer, it'll still be over in a maximum of 18 months. Since stocks are valued by their 20 year forward earnings, the market is very much oversold. (the exception being for companies that is going to go bankrupt in the next year due to cash flow issues - and receive no bailout).
This is not a small issue. If businesses are closed for two or three months, I believe half of the businesses in this country will be close to bankruptcy.
You can't just assert it's temporary. You can say, "The causes of this downturn are temporary."
We have no idea what the market will do in the future. We have strong evidence it will recover, but that's not the same thing.
I too am hopeful, but I think there is 10-15% chance of massive long term economic downside
This can't be stressed enough. It may take a while but everything is going to be alright and normal again.
A lot of the companies that do survive, will take a huge beating by the government, forcing them to be more resilient (to supply chain problems, short-term lack of labour, ...), reducing expected profits.
I 100% expect made in USA (or made locally for other countries) to be the selling point of both Trump and the Democratic candidate the next election. Most certainly after a shock like this.
I'm not saying this isn't likely the most profitable action, I just don't see how the principles are consistent with each other. The former is conservative; the latter is wildly speculative and risky.
In one sense, standard investing advice is to periodically rebalance between investment classes when your holdings diverge too much from you desired profile. In this, for a "simple" investor, that would probably mean transfering from bonds to stocks; since the portion of your portfolio that is in stocks recently fell substantially below your desired portion.
Assuming an efficient market, it is almost a no brainer that you should rebalance. Since your risk profile didn't change from a month ago, and stocks are being correctly valued, your portfolio is now overly conservative.
If you dont believe the market is effiecient, the question becomes 'in what way is the market inefficient?'. If you believe it is now undervalues stocks, you should buy them since they are now on sale for a bargain price.
Personally, my view is that the market is irrational, but I don't know how; so I am planning on not reballancing until after the dust settles. This minimizes the downside risk caused by me not knowing what I am doing.
Same asset, lower price = less risk. The only thing which is up for debate during a panic is "is it the same asset now? How similar?"
My personal feeling the last 2 years was that the market was higher than it should have been. So I avoided buying equities. Now that the market is going lower I'm considering buying again.
Buy low, Sell high.
for hand sanitizer only.
Entered the workforce right after 2007, in my 16, after moving to Singapore from small town Russia as an exchange student. Financial fortunes of my patents went nowhere, and I had to keep myself afloat for pretty much 2.5 years.
Made not so bad money selling low end electronics to the third world on Alibaba, and such.
Then, my parents made me dump all my money on the best things since sliced bread: "Business Education" in Canada. So I will "never ever be in need, and be making money like those big men from America"
Wasted 3 years of my life on that, it was useless.
And in 2014, they made me buy an apartment in my hometown under an immense pressure, and "or else" threats for me "not having a chance getting a wife, without one"
A month later, the Russian roubles folds, property prices collapse. And I just parted with $78k USD, having just a few months of savings left, while my job in Canada was burning.
Somehow, I recovered. 5 months later I got $29k back to Canada. Life was good again, I got my first Canadian girlfriend.
Then at the end of 2015, when I just began making big plans for my life again, my troubles began to mount again... It was found out that my last employer in Canada was for some reason unable to secure LMIA after applying for it for 3 times in a row.
I tried every option to extend my stay in the country, but the government was hellbent on reducing the amount of work permit holders, closing every legal workaround for extension. I spent tons of moneys on immigration lawyers, without avail.
I decided to cut my loss short, and leave in 2016.
Having to leave Canada after 6 years, leaving a lot of money there, and almost getting a family, was a bitter, bitter loss. I was enraged for month.
After leaving 10 years abroad, I was completely unable to fit in Russian society of the day, and got robbed just weeks after arriving.
After doing few remote gigs, and throwing tons of money left and right to sweeten my grief, I got to think of going to China, a country whose manufacturing Industry I owe most of the money I earned in my career.
Been working in China since 2016
Ironically, the most normal part of my life began in the least normal country of them all.
My last relationship was a beautiful 29 years old self made entrepreneur, and an owner of a chemical factory. I dated her for a while, but had to leave for a series of extended assignments abroad. After returning just 10 month later, I found her already engaged to somebody more enterprising than me :(
Again, fortunes cut short just few centimetres away from the finish line. This bittersweet life.
Now, when China is descending into mass madness again, I am risking to loose everything again.
Don't forget, the market can drop 20% a day for awhile. Plenty of smart folks are sitting on the sidelines with cash, but time will tell if this is the trigger for a much larger longer-term 2020 deleveraging.
Markets aren't even where they were pre-Trump election yet, so this 30% haircut from the top isn't even a "correction" from some viewpoints.
I personally wish I was ballsier back in 2008/2009 (Ford for $1, BoA for similar prices, etc), but it'd also be premature to jump into this market if you truly think it's the tip of a recessionary iceberg. Recessions take 3-6 months minimum to spill over into WallSt. If you're not jaw-agape at the prices of some of your favorite companies, it's probably not the bottom just yet.
Further, if you take the pessimistic view (ala Japan Nikkei), you might get stuck holding stock that never recovers. Be patient.
They also understand the effects of not closing right not in outlook of a deadly decease without available treatment.
Do not, I repeat, do not attempt a short without understanding all the risks.
When you buy a stock for $10, the most you can lose when that stock goes to zero is $10. In theory, when you short a stock at $10, your loss is infinite as the stock goes up higher and higher. In practice, your broker will most likely force you to cover that short long before that. Just know that the loss can be big and fast.
You should apply strategies you are most comfortable with and please do your research before attempting anything besides a long term buy and hold of index funds.
https://www.marketwatch.com/story/coronavirus-stock-market-p...
What do you suggest they do? Keep restaurants open? Also - I think they're hoping that people will still order restaurant food - just at home and have it delivered.
...might be a boon for Chinese restaurants, ironically.
To me technical analysis of the stock market is the modern equivalent of a shaman predicting next year's harvest. It sounds very convincing but there's little scientific evidence that it can predict anything accurately.
If you haven't done this then you really shouldn't give authoritative-sounding advice here.
Noob here. I've worked out what the rest of your post meant. What does the quoted mean?
We haven’t. It’s been 12 years since the last bear market.
I was literally 20, in college, and with nothing to even think about investing.
How many are too young to even remember 2008?
[1] S&P 500 (-11.98%) https://finance.yahoo.com/quote/%5EGSPC?p=^GSPC
[2] NASDAQ (-12.32%) https://finance.yahoo.com/quote/%5EIXIC?p=^IXIC
[3] Russel 2000 (-14.27%) https://finance.yahoo.com/quote/%5ERUT?p=^RUT
I wonder how much of the performance of GOOG/FB/AMZN is VCs funnelling cash to overvalued startups building a brandname who then funnel said cash to GOOG/FB/AMZN for advertising and overpriced AWS services? Not that I think the trillionaire companies are going anywhere but I suspect they may be hit harder than people think they will be.
Dow Jones is bad index but the narrow number of companies is not the worst part. DJIA is price-weighted index which is completely arbitrary and there is no reason for that. They can't add Berkshire Hathaway into the index without completely changing the rules. BRK-A price is so high. Index would track only BRK-A after that.
Well, I believe the reason is that it's much easier to calculate on hand-cranked mechanical adding machines. There is a reason, but it's obsolete.
It's a huge vicious cycle that will almost certainly lead us into a deep recession in the short term, and will likely require huge fiscal interventions by the major governments of the world to prevent an outright depression (as all the remaining monetary options have already been used up to little effect). It's telling that Senator Mitt Romney was floating a temporary Yang-style UBI today... even a week ago that would have been unthinkable to hear from a Republican, even a moderate like him.
If you contract a pandemic disease, collective action must be taken for the good of everyone else. If you break your leg falling of your roof on a bender, you and only you should foot the bill. This isn't hard: supporting collective action against Coronavirus doesn't mean M4A is a good idea for more normal situations.
So, the cause is that the Fed has been propping an economy that is ripe for a recession and a reset. The coronavirus is the trigger that will force the hand.
Kinda all leads into a perfect storm, and now have whole generations having grown up with no saving mentality and a have today, pay tomorrow expectation that if things ever go back to normal, real interest rates that encourage responsible spending instead of artificially stimulating an economy. Well, it will be a huge education for many and as always, the people end up paying for it.
...but probably not. Banks are very well capitalized these days - much much better than 2008.
Just takes one queue at a bank, few social media posts and next thing, all those branches have queues due to panic and end up with a self fulfilling prophecy so to speak.
Heck, if people can panic buy toilet roll, nothing is out of the reach of stupidity.
That's a good question. Right now the market is reacting to on-the-ground realities. The follow-on question you are asking gets to: what will be the aftershocks?
The thing that I'm concerned about is the amount of risky business loans[1] that have been handed out in the past decade because rates were so low and mutual funds were looking for high returns. If a lot of businesses go bankrupt and that, in turn, puts the banking system at risk, then things would be ... bad.
[1] including businesses taking "no covenant" loans to—in some cases—pay their earlier investors dividends!
In terms of depression vs recession, to put it simply, the risk is that we move into a situation from which escape is difficult. For example, and this is a hypothetical, everyone in airlines loses their jobs, this causes demand to fall, more people lose their job, supply falls, etc. Depressions destroy resources. Recessions reallocate resources.
So I don't think this looks particularly serious...if policymakers act promptly. This means ensuring that credit is supplied to companies that are solvent and firms that insolvent are shut down. The only thing that looked bad going into this was everything going on in tech, and the level of corporate debt (and its distribution). There is still a huge amount of complacency here (a big part of this cycle has been ETFs...I talked to a quant the other week who is neck deep in corp bond indexes who confidently told me defaults wouldn't rise...the guy has never looked at a balance sheet in his life).
But one very bad sign is gold and govt bonds falling with equities. This is probably being caused by someone running a risk parity strategy trying to get out of their positions but it could also be a sign that liquidity is disappearing (and people are selling whatever they can sell). Equally, last week the momentum tech stocks weren't really selling off, and now they are really starting to tank (although this is probably a good sign long-term, short-term people are clearly panicking).
Also, as a point of history, there was no "mass defaults" in 2008. The default rate definitely rose substantially and there was a liquidity crisis but this ended up working itself out and the vast majority of these assets came good (we know because the govt bought them all).
I'm no expert here, but weren't the French literally rioting a few months ago..? And beyond the markets: you keep downplaying this and 2008 as not "being serious." I mean sure, maybe for your portfolio - but can we avoid trivializing the gravity these economic movements can and will have on the lives of millions of people?
For reference, I work at a bank. The opinion is my own. The problem has to do with a run on the bank.
All banks are currently reporting negative earnings. Most banks rely on credit, and revenue from said credit. If that breaks down (because people can’t pay). They collapse.
I think the fed can bail them out. I also think that requires printing money so inflation will be high.
If all of this doesn't work, whats left?
Much of the fall so far is bringing prices back to reasonable levels after a record-setting bull market. Not that that's especially fun news; between that and a genuine recession coming up, a lot of people will lose a lot of money. But it means that, as scary as this is, it may also be necessary, and even beneficial. (In the "long run", that is, and in the "big picture". Still sucks for a whooooole lot of people for a very long time.)
https://en.wikipedia.org/wiki/New_York_Stock_Exchange#20th_c...
I think doing so now would be a massive disaster as it would cause extreme panic.
Since they wouldn't be able to sell stocks, they would start selling everything else they've invested in.
Same would go for anyone else requiring cash.
Then everyone holding the other stuff that is liquid, will sell it because why hold onto a plummeting asset when the only reason to own it is the value?
The 'no buyers' scenario in fact did play out two weeks ago, there were 1.8 million shares of Shell for sale on the Amsterdam exchange without buyers. Shares to be sold without reserve, and yet, no buyers. It took a long time to fill those orders and that's why Shell did not have a price on the board during that time. Never, ever, happened before.
There are several definitions of money supply, but I don't think asset valuations are included in most of them.
Source needed.
Stock market crashes absolutely destroy money by any reasonable definition of the money supply.
If I have $100 and I buy a stock worth $90 from you, there's $100 in the economy.
If the stock goes up to being worth $110, there's still $100 in the economy.
If the stock goes bust, there's still... $100 in the economy.
Mind sharing that definition? I don't see that quite squaring with this: https://en.wikipedia.org/wiki/Money_supply#Empirical_measure...
However, keep in mind, a market down 30% requires a 43% gain to break back even.
One minor point the Federal Reserve has pulled all of their levers to keep credit moving.
The Federal Government has yet to do any fiscal stimulus, which is what's really needed here. If the US government decided to go into $2T+ of debt over the next few weeks and directed that spending at individuals instead of industry bailouts, then I predict the economic consequences of this event would be much shallower than it would be otherwise. They can borrow this money at damn near zero interest right now.
> And here we are, staring into the abyss.
Just in the Seattle area, we've had 10's of restaurant closures announced. The Tom Douglas restaurant group has laid off a good portion of its 800 employees. So the Seattle area alone has probably lost >2,000 jobs already. That's probably seriously on the low side.
I truly think we're looking at a staggering number of unemployed in this country within a few months. Like, great depression staggering. The GFC was terrible, but every neighbourhood service business did not suddenly have 75% of their business disappear or were forced to close. This is much, much different. These jobs will go away in a flood and come back in a trickle. Without a vaccine, we will need to hold some level of countermeasures for up to 18 months - nobody will go out to eat, etc.
All you have to do is have an unlikely intersection of events (one being a bust) and you have a crash.
This is why I think the economy on the other side could look so radically different. What if every coffee shop and brewery went out of business... and had no reason to re-open? Could something completely different fill the void?
Our state and many others have closed schools, made all restaurants take-out/delivery only, barred gatherings of > 10 people, etc. I don't know how the small businesses are going to survive more than a couple weeks of this.
When you sell a stock for less than you bought it (like if you sell something right now that you bought less than 3 years ago) you can subtract that from your capital gains taxes. This works even when you turn around an immediately buy something similar (but not the same, you'll have to wait a month to buy the same thing back).
There is a limit to the amount of tax losses you can claim for a given year, but you can claim the rest of your losses in the years to come.
I'm not sure if you'll actually come out ahead, since everything you buy today will have a lower cost basis and thus will increase your capital gains taxes in the future.
For now, wait and see if I just invoked Cunningham's Law. :)
https://www.cnbc.com/2020/03/16/coronavirus-makes-airlines-c...
I'll be curious how this affects package delivery, personally. A lot of 2-day shipping flies on those passenger planes. If anything shipping volume will be up but there will be fewer planes to put it on.
* I kid, I kid. Mostly...
While you may actually be in a position to time the market, my understanding is that empirical evidence suggests that the vast majority would be better off not trying to time the market. And that people who mechanically follow rebalancing procedures will tend to outperform those who rebalance based on some kind of intuition or market calculation.
The moment I step out of a train arriving at central station it smells like piss and a bunch of drunk homeless people perform a spitting contest.
Per https://www.thelancet.com/journals/laninf/article/PIIS1473-3... it seems that the basic reproduction number is over 2. Which means that herd immunity only sets in if under 1/3 of the population is vulnerable. Which means over 200 million Americans get it.
The alternatives are permanent lifestyle changes, or a successful eradication of the disease worldwide.
If S&P drops ratings for many companies, many banks will end up holding bags; in which case, the fed will come to rescue these banks.
I'm not sure I agree with this statement. The repo market may not help or hinder corp debt directly, but I think it very much so effects corporate debt.
Corporations presumably get their loans from banks. What facilitates banks to make these loans? The Repo market. What happens if the repo market collapses / shrinks / endures instability? Banks most likely, would not be able to make as many loans and the rate for future loans would increase due to lower supply and higher demand.
On top of future loans, this could have a negative impact to current outstanding loans held by corps. I'm not 100% sure the terms of corporate loans, but if they have variable rate loans with banks, this shrinking of loan supply coupled with increased demand for liquidity would surely hurt some of these corporations.
What repos do: swap one kind of IOU (I owe you) with another kind of IOU. This doesn't make banks to issue new loans to distressed companies, any more than you/I can give loans to a dead beat. During good times, everyone is happy to issue loans.
What would a housing correction look like? Demand still outstrip supply in hot markets, so the worst thing that'll happen is that the housing prices will have a slight dip, and that's it. Also, with the Fed lowering interest rates to zero and possibly lower, that'll continue to inflate the value of assets such as houses.
Full disclosure: I've been short term short the market for the last three weeks.
You hit the exact peak of the market before deciding to short? Wow. Can you share with us your prognostications on just how "short-term" you expect this to be, or will you update us with hindsight on that, too?
"I've been short the market" after a 30% draw-down is the new version of all prisoners claiming they're innocent. It's never "I started to get defensive 6 months ago" or "I went to half cash expecting a crash near-term". Top tick and went short. Every forum, every time.
This is where /r/wallstreetbets has it right: if you aren't going to post your trade in advance or verify it, don't talk about it.
I just don't tell people that I chickened out and covered on the first rally...
(or that I then put it all into GLD...)
If you have a healthy emergency fund in cash to cover your liabilities for 6 months (or even 1 year to be more conservative in this environment), what is the problem in throwing every bit of cash that comes your way (paycheck savings, ...) and you won't need for a few years, at the stock market as it goes down? Over decades the stock market has had an IRR or 8%+, and that IRR includes crashes like these.
No it doesn’t.
This is what I mean and what I do, by always allocating the same amount of savings per year, in good or bad times [1]. You can see how in 2008 such portfolio had a drawdown of more than -50%. Despite that, it performed well above the 8% IRR I mentioned.
Another interesting data point, by investing lump sums of money at the very peak of every market cycle, immediately followed by a massive crash [2]. I believe the IRR in this case is still above 7%, which is absolutely phenomenal considering the horrible investing timing.
If you don't agree, please tell me exactly why I am wrong and why you are right, so I might learn something. I come to HN to read HN-quality comments, not Reddit-quality content. Thank you.
[1] https://www.portfoliovisualizer.com/backtest-asset-class-all...
[2] https://awealthofcommonsense.com/2014/02/worlds-worst-market...
DCA-ing on the way down means I will at least buy lower than a year ago. I have no way of knowing when we will bottom out, or if it will be -25%, -30% or -50% and beyond.
Frankly they need the federal government to step in.
The US govt just said that strict social distancing measures could last till August, plus there could be a recession coming. It's entirely possible that many people could be laid off and may run low on emergency funds if this goes on long enough. And many Americans could be facing huge medical bills to pay for treatment.
I'd say it's extremely likely that some unfortunate people are going to need to do hardship withdrawals from their 401ks to avoid eviction. Not everyone is in such a secure position that they could be cut off from their assets all in the name of calming the financial news.
[1] https://www.investopedia.com/investing/selling-a-losing-stoc...
30% of 70 is 21. So a 30% gain at 70 gets you to 91.
1/.7 = 1.429
0.7 * (1 + 0.43) ~= 1
It might be more intuitive with round numbers. If you lose 50%, you need to double (+100%) to get back to your original value.
70 * .43 = 30.1
70 + 30.1 = 100.1
The people that got in in 2008 made out like bandits. The people that wait until 2010 or later missed out on a lot of the gains.
Come up with a good definition of "low" and "high" when you don't know the short/medium term future, and you'll have figured out this whole "investing" thing better than anyone else!
‘It’s Just Everywhere Already’: How Delays in Testing Set Back the U.S. Coronavirus Response[1]
[0]: https://www.vox.com/science-and-health/2020/3/12/21175034/co...
[1]: https://www.nytimes.com/2020/03/10/us/coronavirus-testing-de...
In contrast, Japan, Taiwan, Singapore, Thailand, and Hong Kong got right on top of it, and early. They're also the only countries seeing a flat rather than exponential trend right now. Which means their hospitals are not at threat of being overwhelmed.
Let's not forget screwing up the manufacturing of the test. [1]
[1] https://www.cdc.gov/coronavirus/2019-ncov/about/testing.html
In November, Goldman Sachs was calling for 3.5% Global GDP growth. They are guessing, like the rest of us.
You're right, there's a lot of research that goes into the forecasts. What I meant was the results are no better than guessing.
>They would have likely been right
I would have likely been right about every forecast I've ever made if it wasn't for unexpected things happening.
Covid19 had started in China in November, when the forecast was made. How did they account for it in their models? "It won't matter" was a huge miss.
How about this one?:
"According to Goldman Sachs, Brent and WTI crude oil spot prices could average $63 per barrel and $58.5 per barrel, respectively, in 2020."
We're at <$30. I mean, they correctly anticipated the breakup of "OPEC+", but blew the forecast tremendously.
https://marketrealist.com/2019/12/oil-prices-outlook-goldman...
You can endlessly Google examples. My point isn't that I'm better, but that Goldman Sachs' predictions are nigh worthless. And that's before taking into account any conflict of interest.
The swings, and combined with high leverage positions, can wipe out firms.
Your account is FDIC insured up to $250,000.
If you look at June 2007 to Feb 2020 (missing the current dip), the return is 8.75%.
"Remember in 2020 when everyone lost their jobs and their houses and their retirement because some octogenarians died from a bad cold?"
Thanks to the lack of testing we have no idea how bad this is. And due to the severity of the worst case scenarios and relatively high probability of them be happening, in the absence of more information, an overreaction is indeed prudent.
That’s what people don’t get. Uncertainty often increases the need for more action, it doesn’t reduce it.
Consider this merits aside, even if quarantine saves everyone and lack thereof kills everyone; we don't know that yet.
If you are a mayor of Podunk, Nebrahoma, you have two choices. You can join in the quarantining with everyone else, and whatever damage that causes is not your fault. If someone literally comes to a town hall 2 years later to tell you they lost their job for 2 months, were evicted, got addicted to drugs and their life is ruined now, it will still be blamed on the virus and global economy and whatnot.
Now, if you don't join, not only you won't achieve much due to the others' actions - if anything goes wrong you will be blamed for every dead grandma and your political career is over.
There's really no incentive to not max out the quarantine theater, regardless of the relative merits of the measures taken.
Theoretically if someone released a miracle cure today that could be distributed in 2 weeks, you'd witness the greatest bull rally in the history of the US over this remaining week.
All that to say you don't really need to guess on this one right now. So long as we don't see a flattening/slowing of the US infections curve, markets will continue trending downward as compounding negative impacts/expectations on those 2nd/3rd-order economic effects begin to pile up. For now, the right answer is to stay out of the market.
Over the next 4 weeks you'll have all the data you need to decide if this will return as a monster bull rally or a long-term 2020+ drag on the economy. Keep an eye on your COVID-19 dashboard. As soon as the data starts to flatten out, consider an entry point. (with the caveat it doesn't return in full force based on season - look into the 1918 flu). If infections continue to accelerate though (which they currently are), stay out.
I don’t know any other investment which is completely passive that will statistically allow me to grow my capital over the long term. So yes, I will rely on 100 years of data I have, and to prevent Nikkei I try to diversify using a healthy international allocation. If you have a different investing vehicle to suggest, please let me know.
Land, seeds, livestock and ammo. If you're worried that the market might collapse so hard that it won't recover in your lifetime, then trading money for lasting goods while money still has value is the best course of action.
Personally, I'm not convinced it's going to get that bad, but I have friends who have gone down that route. They all prefer their new lives to their old ones.
Index funds aren’t necessarily safe. Nikkei index has never recovered from its 90s high. NASDAQ took 15 years to recover. Know the risks.
For me, the answer is a resounding No.
Maybe they are right.. but like you just said- these are prices just a couple years ago. The modern world has never seen what is going on, and the economic impacts are almost unfathomable.
Claiming we are near a bottom just because it's dropped a lot is naive.
It is a global issue, but at the end each economy will be affected locally.
Let's just hope the human cost could be contained.
Fair enough.
> I think the fed can bail them out. I also think that requires printing money so inflation will be high.
If things go that way, I don't think it has to result in inflation. The thing is that, when a bank collapses, some money disappears (because of fractional reserve banking). If the Fed prints exactly the right amount of money to counterbalance that, it doesn't have to be inflationary. (The Fed could mess it up, of course...)
The money doesn't disappear when the bank collapses. It disappears if the loans that defaulted and caused the bank to collapse are written off instead of being assumed by some other party. If the borrower's inability to pay is only temporary, the loan probably won't be written off; it will just be restructured, and the money won't disappear.
So, you're right, but I think my overall point still stands.
That's not what you're describing:
> All banks are currently reporting negative earnings. Most banks rely on credit, and revenue from said credit. If that breaks down (because people can’t pay). They collapse.
That isn't a bank run; it's not having a hedge against credit default risk.
A bank run would be all of the depositors trying to withdraw cash at the same time. But there's no reason for them to do that because their deposits are insured; even if the bank fails, their money won't go away.
> I think the fed can bail them out. I also think that requires printing money so inflation will be high.
The Fed is already printing money; they restarted quantitative easing along with the latest rate cut. I agree that this will cause inflation--in fact, if the printed money ends up, in effect, guaranteeing people's insured deposits, it will most likely cause more inflation than the previous rounds of QE did, since that money will likely be spent (whereas in those previous rounds of QE most of the printed money just sat in the banks' accounts at the Fed, since the banks were unwilling to lend it out).
Once COVID-19 passes I would expect more of the same. For reasons that aren't entirely understood, inflationary effects of monetary stimulus are highly attenuated, at least for the average consumer, although they clearly contribute to the ever increasing wealth of top earners, not to mention financial assets. Who knows how long we can keep going down this road.
In the 1929 crash there was a run on the banks because there was no confidence in their survival. The world going to a wartime economy and increasing public spending reinvigorated things but it eventually caused high inflation in the US by the 1960's - one of those factors in the country's "1970 turning" in many policies. Fear of the balance sheet getting out of control again created the strategy of huge bailouts in the latter part of the 20th century, but a downside of doing it just through lending is the "crowding out" of those actors who aren't given bailouts - which in prior recent crashes were generally individual workers, homeowners and retail investors who just took it on the chin and were told to lower their expectations.
This time is different. The attention is on individuals and their problems, and I'm seeing an uptick in discussion of UBI and benefits beyond the existing trend. There isn't faith in this crisis being solved through the existing toolset.
https://www.washingtonpost.com/business/economy/corporate-de...
We can’t go back to the way things were if the global supply chain is damaged or completely stopped. And that’s not even considering local businesses that may never come back after this is over.
Public spaces on the other hand (retail, restaurants/bars, travel destinations), are just totally infeasible to make safe until things are fully over with. That's a serious cut to demand that just has to be waited-out.
This to me is more akin to a natural disaster which wipes out large amounts of our economic infrastructure in the form of consumer spending. How do people and businesses bridge the gap? Businesses are already over-leveraged due to incredibly cheap debt. Some have good balance sheets and will survive, but many many will not. Most small businesses cannot survive 2 months without being in business, let alone 6. The solution can't be for them to take out loans which they'll never be able to pay off.
The thought that this is just an acute problem that will go away is wishful thinking. The effects will be further and wider than many of us can imagine right now.
China printed money in the past 10 years on a scale we've never before seen in history (300% Debt-to-GDP). They remain in a trade war with the US, are being blamed for the virus and their economy has shut down. Things aren't "going back to normal".
You claimed the the GFC and dotcom bust "revealed fundamental problems in the marketplace", but "In this case...the primary mechanism is "people can't work/aren't going out and buying things". That's..going to "go back to the way things were"
To which I explained to you there are fundamental issues with this as well, mainly the world's second largest economy is messed up, royally. What context did I miss?
You're missing my point. I'm not arguing that the loan defaults are independent of the bank failures; obviously they're not.
I'm arguing that the loan defaults, and the consequent bank failures, by themselves don't cause money to disappear. For money to disappear, the defaulted loans have to be written off, instead of restructured. If they're only restructured--i.e., the borrower negotiates a new payment plan with the new lender (whoever takes over the bank's assets when the bank fails)--then the money doesn't disappear. And, as I said, since the borrower's inability to pay is only temporary, caused by an external event, I expect most of the loans to be restructured, not written off.
That depends on the bank's cash flow position and their reserve assets. It's quite possible that the bank might not be able to sustain, say, a couple of months of loans not being repaid even if the loans are ultimately going to be restructured.
Of course, one obvious way to forestall this would be to extend short-term credit to the bank itself. IIRC this was done during the 2008 crisis. I have not seen talk yet of that being done now, but I would not be surprised if it were.
> the primary mechanism is "people can't work/aren't going out and buying things"
As soon as it's safe, people will very quickly start working and consuming again. The world around that mechanism will have changed - some businesses will have closed, some jobs will have been lost, some personal finances will have taken a hit - but people's desire to work for income and spend money on goods didn't break. It's only being blocked for a little while. The circumstances around that are an independent question.
Your premise is at fault ("this is about buying goods"). The virus is a catalyst, not a cause.
Do you know if the Chinese economy will ever recover in the way you claim? Are you even considering the world outside your country? This is bigger than a few people not going out to bars and restaurants. Industrial production has been slowing for months, global debt was increasing exponentially for a decade, political tensions are rising globally, people are dying around the world because of government mismanagement of a pandemic.
You can keep repeating that things will go back to normal when people start shopping again, but if that's the extent of how you view what's happening now, you're likely wrong.
Disproportionately affecting people outside of prime working ages.
> political tensions are rising globally
For now, and they will eventually subside. Because they always do. And always will.
> Do you know if the Chinese economy will ever recover
Why wouldn't it (eventually)? Demand will change, but people aren't going to forget how to work, how to buy, or how to build. There is a _ton_ of cultural infrastructure that goes beyond physical infrastructure and ultimately, unless we were all building stuff nobody actually wanted or could use (e.g. dotcom bubble) the economy will eventually recover.
We don't know the timing, or the extent that bad assets will be kicked out (e.g. mortgages), and we also don't know to what extent money printing has erased savings, but ultimately there's a tremendous amount of cultural and physical infrastructure that will continue to exist, and a tremendous amount of demand that will return.
This is why you have a robust social safety net. Not because the liberals and hippies think lazy people are entitled to free stuff; because everything - everything - is built on faith that the bottom won't ruin "you," specifically.
https://finance.yahoo.com/quote/tvix?ltr=1What's 'a few years' mean to you? The Nikkei hit its high of 40K around 1989-89 and hasn't traded above 80% of that in the 30 years since.
We will continue to provide workers and consumers over the coming decades - economy-wide demand will return once the crononavirus threat subsides.
I'm guessing the above poster meant something more like "period of society-wide economic hardship" by recession. By that more colloquial definition, you might say the great recession lasted through 2014. The stock price plummet, however, was largely finished for most of that period of hardship.
I have no crystal ball; I can't tell you where we are going to be. But if the above poster meant "We're past the plummet, all that's left is the slow climb back to normalcy" then their comment makes more sense.
What you are suggesting is market timing. I am not very good at it, and I don't think most people are. You not only have to know when to sell, but you have to know when to buy back in. You have to get it right twice.
You should not try to time the market. And hopefully you don't really mean "buy back in" (meaning your panicked and sold, you should just be adding/averaging down). Just look for general buying opportunities and don't kick yourself if the market falls a bit further before it rebounds.
Sure loss harvesting is nice but those credits still represent money lost, and said loss far exceeds any taxes on gains I'll be making for a while
To anyone else, recognize that the citizenry is not limited to being passively investing in stocks, yet many of them are when they shouldn't be.
People in all the other markets say "buy the dip" arbitrarily too, and many of those markets are often inversely correlated to the stock market. So just repeating what your favorite investment guru once said does not give you any more insight than the next person.
They all fell.
Huh, I didn't consider this possibility because I can't imagine the underlying index (this one's related to the S&P 500) going up enough for that to happen. But then again, I suppose those speculating in XIV didn't expect those volatility spikes either.
For me, though, I figure the downside is capped for the relatively small amount of money I put into this 3x inverse ETF: if the fund goes all the way to $0, then I've only lost the original investment. (But also, if it goes to $0, that's probably a good thing for the rest of my portfolio.)