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Interpreting a market plunge

economist.com

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Re: Interpreting a market plunge

#121

Post by walshemj »

lr4444lr wrote: post #70
RhysU wrote: post #53

Earlier quoted context omitted.

I like to think that it's being long on Capitalism.

That's exactly what it is, if not going long on human society itself. So far I've found, without fail, that everyone with a strong distrust of the stock market as something "rigged" or a belief that it's somehow an "expendable" part of investing that doesn't affect them has an objectively very poor to non-existent understanding of even basic facts of economic and business activity. Much poorer than I do, at any rate,…

In the USA probably Folk memories of the 29's crash are still having an effect

Re: Interpreting a market plunge

#122

Post by Talyen42 »

cs702 wrote: post #119

The specter of rising interest rates in the US (driven by higher inflation expectations) appears to be a factor. Fast-growing companies which are investing aggressively today and whose profits lie far in the future, in particular, are exposed to rising interest rates, due to the higher duration of such companies' cash flows. Duration, for those here who don't know, is a measure of the sensitivity of present value to…

If you compare something like Netflix or Tesla, whose valuations are based on the proposition of 10x-ing profits sometime in the future, to something like Apple or GM, whose profits are here and now and may not even increase, would that mean Apple/GM (as an example) might fare better while the market adjusts to rising rates? So far, everything is dropping kind of evenly, it seems, but wouldn't companies with near term cash flows be worth more in a rising rates environment?

Re: Interpreting a market plunge

#123

Post by pbhjpbhj »

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.

It's a chaotic system, if there were logical explanations (in general) then it would be predictable and everyone/no-one would always win the stock market gamble.

Someone found out they had cancer, sold their shares, their broker thought they were acting on a tip-off because the women with cancer mentioned they play tennis with some CEO. The broker, goes short for all they're worth thinking it's their big opportunity, and recommends to others to sell (to guarantee the fall!), stock starts to fall, trips an algorithm that's looking for a particular gradient on index Y, ... meanwhile a rookie at a trading firm sells 1000 something instead of buying ... people who lost on Bitcoin recently are on edge and feeling cautious, a little blip and they want to end their position ... and on and on the snowball rolls.

Someone sneezed in Mogadishu seems just as likely to be the "reason".

Re: Interpreting a market plunge

#124

Post by grasshopperpurp »

taneq wrote: post #105
Economics4u wrote: post #90

Earlier quoted context omitted.

Perhaps you can explain how everyone can save in aggregate? Where do people get this idea that "saving" is somehow virtuous?

> Where do people get this idea that "saving" is somehow virtuous? Savings are a form of safety net, since individuals don't have access to unlimited funds or unlimited credit. The higher the perceived risk of financial trouble (loss of job, a surge in cost of living, etc.) the more savings you need in order to mitigate that risk. Do you really need this explained to you?

Good post. Americans have to build their own safety nets, because the societal safety nets are so poor. If you're standing on the edge of a tall building, you're probably not going to practice gymnastics - unless you mean to post it on Instagram (x_x).

Re: Interpreting a market plunge

#125

Post by cs702 »

Talyen42 wrote: post #122
cs702 wrote: post #119

The specter of rising interest rates in the US (driven by higher inflation expectations) appears to be a factor. Fast-growing companies which are investing aggressively today and whose profits lie far in the future, in particular, are exposed to rising interest rates, due to the higher duration of such companies' cash flows. Duration, for those here who don't know, is a measure of the sensitivity of present value to…

If you compare something like Netflix or Tesla, whose valuations are based on the proposition of 10x-ing profits sometime in the future, to something like Apple or GM, whose profits are here and now and may not even increase, would that mean Apple/GM (as an example) might fare better while the market adjusts to rising rates? So far, everything is dropping kind of evenly, it seems, but wouldn't companies with near ter…

If I'm right about rising interest rates, the present value of companies with near-term cash flows would decline too, but less than the present value of companies with far-out cash flows.

Re: Interpreting a market plunge

#126

Post by marcosdumay »

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…

> US companies now have record amount of debt.

By itself, this state is meaningless. This is exactly what investment kickstarting the economy looks like, as well as wasted investment on useless garbage.

Re: Interpreting a market plunge

#127

Post by marcosdumay »

rmrm wrote: post #92
fwdpropaganda wrote: post #40

Earlier quoted context omitted.

I hear you, but it's still interesting to think that high inflation expectations means both bonds and stocks down, but much higher inflation expectations means stocks crash and therefore bonds is safe so they go up :-) Put differently, I could also argue that bonds up is irrational given higher inflation expectations and this move up will be short lived. Time to short bonds ;-) Will check out older NFP, thanks. > Tin…

Taking that line of thought further, that means if bonds and stocks are both down, then cash is a good place to be...when inflation is up? Investing is hard.

There are gold, FOREX, and commodities. Also, there's a huge difference between high inflation and increasing inflation.

Re: Interpreting a market plunge

#128

Post by pbhjpbhj »

mcintyre1994 wrote: post #51
pbhjpbhj wrote: post #43

Earlier quoted context omitted.

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 idea of an index fund is you're invested in the market as a whole, not a selection of a small number of stocks. So a good index fund will crash when the market as a whole crashes, and recover in line with the market. The entire point is you avoid tying your performance to any selection of say 10 stocks, and typically an index fund will outperform most professional stock pickers.

Funnily enough I was explaining that to someone else this morning ... But, you're not invested in the whole market.

I'd find it instructive to know the answers. I can't imagine no indexed stock has ever failed, nor that the indexes are a perfect insulation - you wouldn't need FTSE250 if the 100 was perfect, they do moderately different things.

Indexes are picked by "stock pickers" they're just picking conservative long, wide spreads AFAIK.

Re: Interpreting a market plunge

#129

Post by pbhjpbhj »

makomk wrote: post #113
RhysU wrote: post #53

Earlier quoted context omitted.

I like to think that it's being long on Capitalism.

That makes me wonder; how on earth would you take a short position on Capitalism anyway?

That's what everyone who makes a fortune on the markets does, they extract value from the system to create personal wealth. The individuals desire is to do just that; that's how the system "works".

Re: Interpreting a market plunge

#130

Post by EGreg »

fnordsensei wrote: post #17
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?

If the salary/pricing spiral goes out of control, the currency quickly becomes worthless. If your $10 today is the value of $1 yesterday, it's very hard to store wealth in such a currency. So people move their assets to a less volatile currency.

Why are currencies needed to store wealth? As we see there are plenty of assets that people are parking their money in. Why not simply use money as a medium of exchange?
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