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Interpreting a market plunge

economist.com

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Re: Interpreting a market plunge

#41

Post by mhroth »

f_allwein wrote: post #37
EliRivers wrote: post #29

HODL, right! I am, anyway. The standard advice ("Buy low-cost index funds with dividends reinvested, keep buying on a regular basis, let it ride and don't worry about the plunges and the peaks") told us this would happen, and here we are. How to interpret it? I'd go so far as to ask should we interpret it? They get paid for coming up with reasons why things happened (after the fact, I note, although the Economist has…

Had to Google HODL and learned it means 'hold', in the context of crypto currencies losing value. Can't comment on that, but for stocks, definitely yes. Historically, the market has always recovered from slumps. I know this does not mean it always will, but lots of people dropped out of the stock market after the crashes in 2001 or 2008 - for them, it would have been wiser to hodl.

HODL is "hold", but it's also "Hold On for Dear Life".

Re: Interpreting a market plunge

#42

Post by Apocryphon »

Here's a question - people often refer to the 2008 recession as a once in a lifetime event. On what basis do they make that statement- because mortgages can't possibly pop as massively twice? What's to prevent another industry (in recent years often rumored to be student loans) from doing the same? Who's to say not another sector is as rotten as real estate was?

Re: Interpreting a market plunge

#43

Post by pbhjpbhj »

f_allwein wrote: post #37
EliRivers wrote: post #29

HODL, right! I am, anyway. The standard advice ("Buy low-cost index funds with dividends reinvested, keep buying on a regular basis, let it ride and don't worry about the plunges and the peaks") told us this would happen, and here we are. How to interpret it? I'd go so far as to ask should we interpret it? They get paid for coming up with reasons why things happened (after the fact, I note, although the Economist has…

Had to Google HODL and learned it means 'hold', in the context of crypto currencies losing value. Can't comment on that, but for stocks, definitely yes. Historically, the market has always recovered from slumps. I know this does not mean it always will, but lots of people dropped out of the stock market after the crashes in 2001 or 2008 - for them, it would have been wiser to hodl.

The market as a whole recovers, but what proportion of [indexed] stock?

What's the expected recovery time? (Say average for a randomly selected 10 indexed stocks).

FWIW this is an academic enquiry, I'm too poor to gamble.

Re: Interpreting a market plunge

#44

Post by icebraining »

paganel wrote: post #14
EGreg wrote: post #11

Earlier quoted context omitted.

Why do we need to fight inflation? Prices rise because people can afford to buy things at higher prices. So what's the problem?

Inflation is a very regressive economic phenomenon, so to speak. When it rises it tends to affect poorer people the hardest because they don’t have the negociating power towards their employers to keep their salaries’ increases above the inflation rate and second, and equally important, a larger portion of their incomes goes towards base purchases (food, gas for their cars or public transport passes etc), so if the p…

The alternative argument is that inflation is a progressive economic phenomenon, because it reduces the real value of debts (which are mostly owed by the poorer to the richer) and of accumulated wealth, whereas salaries end up adjusting even if with a bit of delay.

What's the reality? Beats me!

Re: Interpreting a market plunge

#45

Post by hueving »

fwdpropaganda wrote: post #23
thisisit wrote: post #18

Earlier quoted context omitted.

Why today(and Friday)? People track government data to form opinions. and first Friday of the month is very important because of a data point called Non-Farm Payroll or NFP. It is known to cause a lot of movement in the markets. Lot of brokers will tell you not trade during the announcement. You can see a lot of opinions on what was expected to happen on Monday by googling for NFP. Case in point: https://www.cnbc.com…

> Second, it seems you think these decisions are binary - to be or not to be or rather sell or not sell. It's not that simple. Lower markets doesn't mean everyone has sold off all their shares. They just reduce probabilities of their losses by reducing exposure. No. Obviously when I say "everyone decided to sell" I'm speaking figuratively. In any case, thanks a lot for that link. Cool stuff, I didn't know about the N…

>So here's one for you. If your reasoning is correct I would've expected to see treasuries down (which indeed was the case Friday). Instead they went up. How do you explain that?

Treasuries become risk aversion vehicles during large equity sell-offs. Whatever downward pressure was put on them for a hypothetical rate raise was dwarfed by the fear driven movement from stocks into bonds.

Why into US treasuries you might ask. It's because they are a nearly risk-free way of parking money at a better rate than the money market while maintaining good enough liquidity to easy sell back out of the position.

Re: Interpreting a market plunge

#46

Post by saagarjha »

mhroth wrote: post #41
f_allwein wrote: post #37

Earlier quoted context omitted.

Had to Google HODL and learned it means 'hold', in the context of crypto currencies losing value. Can't comment on that, but for stocks, definitely yes. Historically, the market has always recovered from slumps. I know this does not mean it always will, but lots of people dropped out of the stock market after the crashes in 2001 or 2008 - for them, it would have been wiser to hodl.

HODL is "hold", but it's also "Hold On for Dear Life".

As far as I know, “Hold On for Dear Life” is a backronym conceived to provide explanation for “HODL”.

Re: Interpreting a market plunge

#47

Post by qubex »

f_allwein wrote: post #37
EliRivers wrote: post #29

HODL, right! I am, anyway. The standard advice ("Buy low-cost index funds with dividends reinvested, keep buying on a regular basis, let it ride and don't worry about the plunges and the peaks") told us this would happen, and here we are. How to interpret it? I'd go so far as to ask should we interpret it? They get paid for coming up with reasons why things happened (after the fact, I note, although the Economist has…

Had to Google HODL and learned it means 'hold', in the context of crypto currencies losing value. Can't comment on that, but for stocks, definitely yes. Historically, the market has always recovered from slumps. I know this does not mean it always will, but lots of people dropped out of the stock market after the crashes in 2001 or 2008 - for them, it would have been wiser to hodl.

HODL — Hold On for Dear Life (pretty demented, largely speaking)

Re: Interpreting a market plunge

#48

Post by headmelted »

fwdpropaganda wrote: post #12
thisisit wrote: post #8

The bigger concern is on the interest rate hikes. Low rates were expected to help kickstart the economy and prices and wages to increase. What has happened instead is that all the cheap money has caused asset inflation. US companies now have record amount of debt. Too fast increase in interest rates will cause their debt obligations to balloon and lower profitability. Though this will take couple of quarters to fully…

You see, the problem that I have with these kind of "explanations", is that those facts have been around for a long time. Why is it that precisely today (well, yesterday) was the day that everyone decided "right guys, we're selling equities"? The things you describe explain why people keep their finger hovering over the "sell" button, they don't explain why precisely today they decided to press it.

I don't live in the US, and my understanding of how the electoral system works out there is not fantastic, but it would also seem like there's some impact from the existential dread of democrats taking majorities in your mid-term elections.

A lot of the run up since the end of last year was based on Trump's new tax plans, which the left were very much against, so it makes sense that measures would be taken to roll that back were they to be in a position to do so - and I'd expect that people are nervous because (unpopular as Trump is in polls) no-one knows how that's going to go.

It seems (like here in the UK to be fair) that it's going to be a toss of a coin as to which extreme your economy is swung towards in the next election.

Also, new money is entering the financial markets all the time that doesn't have the past experience of the ups-and-downs. People can be well read on the topic and still not have a steady hand when it comes to the first turbulence event they experience with their savings, so there will always be (or at least, has always been) a proportion of panic sellers in the market at any one time.

(edit: This reads like I'm very right-wing. I'm really not, all I mean is that the market has gone up because of the big giveaway that might be snatched back again soon.)

Re: Interpreting a market plunge

#49

Post by adventured »

crdoconnor wrote: post #38
thisisit wrote: post #8

The bigger concern is on the interest rate hikes. Low rates were expected to help kickstart the economy and prices and wages to increase. What has happened instead is that all the cheap money has caused asset inflation. US companies now have record amount of debt. Too fast increase in interest rates will cause their debt obligations to balloon and lower profitability. Though this will take couple of quarters to fully…

>Low rates were expected to help kickstart the economy and prices and wages to increase. You're confusing the sales pitch used to justify low interest rates with what they were expected to do. They were expected to bail out insolvent banks and save them from the consequences of their collective bad decisions. Not raise wages. Not kickstart the economy. Fiscal stimulus is how you do that and they knew that. Had politi…

> They were expected to bail out insolvent banks and save them from the consequences of their collective bad decisions.

They were also expected to - and did - bail out homeowners, having taken the hit of losing ten plus trillion dollars in fake housing value. The Fed also took trillions of dollars worth of junk mortgages off the market, dramatically accelerating value recovery for home owners.

US home owners received the largest bailout in world history by a factor of 10. The Fed successfully fully reinflated the housing bubble.

The four giant US banks are making ~$90 billion a year in profit. US home owners gained $20 trillion in fake housing wealth from the bottom, courtesy of the Fed's zero rate asset reinflation party with record low mortgage rates. It's obvious who got the sweetest bailout there.

The big banks love higher interest rates. Their profits go up substantially as rates go up. If they had their way, rates would be a lot higher. Rates have been kept so artificially low, for the benefit of the housing market and the stock market (ie ~100 million of the wealthiest people on earth that reside in the top 1/2 income bracket and own everything in the US).

Re: Interpreting a market plunge

#50

Post by f_allwein »

pbhjpbhj wrote: post #43
f_allwein wrote: post #37

Earlier quoted context omitted.

Had to Google HODL and learned it means 'hold', in the context of crypto currencies losing value. Can't comment on that, but for stocks, definitely yes. Historically, the market has always recovered from slumps. I know this does not mean it always will, but lots of people dropped out of the stock market after the crashes in 2001 or 2008 - for them, it would have been wiser to hodl.

The market as a whole recovers, but what proportion of [indexed] stock? What's the expected recovery time? (Say average for a randomly selected 10 indexed stocks). FWIW this is an academic enquiry, I'm too poor to gamble.

The stock market as repressed by big indexes like Dow Jones etc. Look at the historic data, then you can calculate for yourself... eg http://www.macrotrends.net/1319/dow-jones-100-year-historica...
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