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Interpreting a market plunge

economist.com

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Re: Interpreting a market plunge

#131

Post by EGreg »

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…

So then simply raise the minimum wage. Or better yet, institute unconditional basic income because more and more jobs are being automated.

Re: Interpreting a market plunge

#132

Post by andrewmcwatters »

TekMol wrote: post #62

I hold 50% of my assets in shares and 50% in money. I cannot decide if I should hope for the stock market to go up or down. What do the wise people of HN think?

You're either naïve or have little to no assets. At particular cash volume thresholds, it doesn't make sense to hold that much in percentage.

Re: Interpreting a market plunge

#133

Post by TekMol »

andrewmcwatters wrote: post #132
TekMol wrote: post #62

I hold 50% of my assets in shares and 50% in money. I cannot decide if I should hope for the stock market to go up or down. What do the wise people of HN think?

You're either naïve or have little to no assets. At particular cash volume thresholds, it doesn't make sense to hold that much in percentage.

Hard to say as I don't know your definition of 'little to no'.

Re: Interpreting a market plunge

#134

Post by TekMol »

danmaz74 wrote: post #87
TekMol wrote: post #76

Earlier quoted context omitted.

I never said that we can show that an asset is overvalued, I simply described what actually has happened in the past We cannot even say in hindsight what was overvalued. We don't know if an asset was overvalued in the past. Because the value of an asset lies in the probability function of the future returns. Which can never be found out.

In terms of market value, you can say a financial asset was overvalued at time X if it later decreases a lot in vale, and undervalued the other way around.

What if it does both as most assets do?

Apple was worth $500B in 2012 and $300B in 2013. Does that mean it was overvalued in 2012? Or was it undervalued in 2012 because it is worth $600B in 2014?

Re: Interpreting a market plunge

#135

Post by barnfire »

Apocryphon wrote: post #42

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?

Everyone is waiting for a dramatic bubble to pop. I think it will be a slow decline followed by generations of stagnation. You can't discharge student loans, so young people can't buy new cars, houses, things to put in houses, etc. At the same time the value of such degrees are going down as more and more rush to get them. Health care costs are eating up the income/savings of everyone else.

The companies that will do well in the future are those that cater to a low-income demographic. I hear Dollar General is doing very well.

Re: Interpreting a market plunge

#136

Post by fnordsensei »

EGreg wrote: post #130
fnordsensei wrote: post #17

Earlier quoted context omitted.

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?

Unless conversion is instantaneous, they all need to store wealth. From the time it takes for you to get your salary until you spend it for example.

Inflation guarantees that your salary is worth less when you spend it than when it was paid to you.

If inflation is high enough for you to worry about it, the solution would indeed be to convert it as quickly as possibly to something that is better at storing value.

At some point, people might start trading the thing that stores value really well and just retire that constantly depreciating currency.

Re: Interpreting a market plunge

#137

Post by tinymollusk »

Apocryphon wrote: post #42

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?

The basis of that statement, in my opinion, is human bias. Experts protect their reputation to the external and internal (psychological) world by saying that nobody could have predict the specifics that led to that event.

Nicholas Nassim Taleb, as much as people here seem to dislike his personal style, has written extensively on these types of events. He calls them Black Swans, and says while we may not have predicted the 2008 crash, we would be wise to assume there exist unforeseeable/non-modeled events that would have non-linear impact on the system.

I think of it this way: future events* will occur that will invalidate our models and have outsized/nonlinear impact on the KPI we care about. Our blindness is because there are so many baked-in assumptions and possible futures we can't mentally model for them. Any single "Black Swan" event has a vanishingly small probability of coming true, but the sum of the Black Swan probabilities is the important metric, not any given one.

Taleb's thinking is filled with judgement of his peers, and his egotistical writing style is bombastic. His themes, however, from his trilogy of books, marries human psychology with rare outcome events to form an interesting contrarian take on the world.

* 1987 crash, dot-com crash, the Great Recession, etc.

Re: Interpreting a market plunge

#138

Post by fwdpropaganda »

Economics4u wrote: post #94
adventured wrote: post #33

Earlier quoted context omitted.

The 10 year treasury yield has recently strongly overtaken the S&P 500 dividend yield. That aggressive shift is guaranteed to end such a bubbly bull market run. https://assets.bwbx.io/images/users/iqjWHBFdfxIU/i9Zchv.nY_N... The treasury move since September is one of the most aggressive of the last five years. What happened is simply an inflection point. Markets operate heavily by trigger points. Those are getting t…

Why look at dividend yield when many large companies pay no dividends? The earnings yield on stocks is a bit over 5%. The 10 year isn't even 3%.

I would guess the relevant metric is called "real returns": capital appreciation plus dividends minus inflation.

Re: Interpreting a market plunge

#139

Post by Bromskloss »

grasshopperpurp wrote: post #124
taneq wrote: post #105

Earlier quoted context omitted.

> 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).

Presumably – hopefully – people save anyway to avoid plunging into said safety net. It might be unpleasant, both the knowledge of having not been able to provide for yourself, and the standard of living that you might be limited to if you're deep in the net.

Re: Interpreting a market plunge

#140

Post by Chickenality »

pbhjpbhj wrote: post #128
mcintyre1994 wrote: post #51

Earlier quoted context omitted.

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 lo…

A lot of indices are something like "Top [N] stocks weighted by market cap in [industry/region/country]". You could call those stocks 'picked', but it's not as though someone is doing some deep analysis of the companies' fundamentals or trading history in order to decide which stocks make it into the index. I think that type of analysis is the kind of thing most people think of when they hear about 'stock picking'.

Yes, no index is perfect. But most of them provide more diversification than the average person would be able to achieve by manually managing a portfolio.

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