Dow Falls 2997 points worst drop since 1987 crash • Hacker News Board

Re: Dow Falls 2997 points worst drop since 1987 crash

#431

Post by alexpetralia » Tue, Mar 17, 2020, 1:59 AM UTC

Zenst wrote: post #231

koheripbal wrote: post #104

Earlier quoted context omitted.

Bankruptcies can be pretty damaging. If we see a lot of loan defaults, we might see a banking crisis. ...but probably not. Banks are very well capitalized these days - much much better than 2008.

Banks can cover some things going wrong, sometimes, not everything going wrong at once. 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.

Isn't there FDIC insurance for precisely this reason? I have no reason to believe that the counterparty here is illegitimate.

Re: Dow Falls 2997 points worst drop since 1987 crash

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Post by nodesocket » Tue, Mar 17, 2020, 2:03 AM UTC

rjbwork wrote: post #371

nodesocket wrote: post #60

Earlier quoted context omitted.

Great point, all the "big boy" traders who have been raking in profits on put options, VIX volatility, and leveraged inverse etf's eventually will switch their trades to bull. However, keep in mind, a market down 30% requires a 43% gain to break back even.

Don't have to be a big boy trader to do that. I'm up nearly 200% since last Monday just trading on Robinhood. yeah I didn't get my max returns due to their system being fucked a couple of time but I'm steady making money.

Good for you, but don't really appreciate the gloating as I losing my savings and retirement hand over fist.

Re: Dow Falls 2997 points worst drop since 1987 crash

#433

Post by bhl » Tue, Mar 17, 2020, 2:07 AM UTC

screye wrote: post #52

I am not well versed in the economics of depressions, but almost all the ones I know of were preceded by some monetary imbalance or the explosion of a bubble based on falsely propped up ownings. 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 du…

If I had to bet, it'd be a corporate debt bubble propped up by the Federal Reserve low interest rates and practice of quantitative easing. As the coronavirus creates a supply shock, businesses aren't going to be able to produce enough goods to sell and as a result, they will default on their debts. Similar to the 2008 burst, this is going to cause a ripple effect in the financial industry where banks are going to try to deleverage, inadvertently causing a credit crisis that slows down the global economy because no bank will want to lend out to something that's not a sure bet. How did the Federal Reserve start this? Because by having credit easy to attain, companies were willing to issue riskier bonds with higher yields.

Re: Dow Falls 2997 points worst drop since 1987 crash

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Post by rconti » Tue, Mar 17, 2020, 2:08 AM UTC

gizmo686 wrote: post #175

rconti wrote: post #95

Earlier quoted context omitted.

Every time I see this, I fail to grasp the logic. So you had money sitting on the sidelines for safety during boom times, and you elect to put it in a riskier asset class during a panic? 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.

Its not fundamentally crazy. 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,…

yeah, the rebalancing is a very fair point and perhaps something my long-term (401k) needs. I don't think it's being done automatically today.

Re: Dow Falls 2997 points worst drop since 1987 crash

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Post by lowdest » Tue, Mar 17, 2020, 2:12 AM UTC

kibibyte wrote: post #357

lowdest wrote: post #319

Earlier quoted context omitted.

Good advice, but the IV on most puts makes them incredibly expensive right now. I prefer shorting the 3x long etfs.

I'm curious, why short the 3x long/bull etfs instead of going long on the 3x bear ETFs?

Two reasons: leverage costs will drag the performance of the 3x to worse than 3x over time, and in big drops there's a chance that the 3x ETF may actually implode like the XIV ETN did a while back. Those work in your favor if you're short but may or may not be worth the cost of borrowing for your situation.

Re: Dow Falls 2997 points worst drop since 1987 crash

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Post by tjs8rj » Tue, Mar 17, 2020, 2:17 AM UTC

mgolawala wrote: post #11

To put it into perspective, the last time the market behaved like (multiple drops of this magnitude) this was 90 years ago, in 1929, and it was at the start of the Great Depression. Today was the second largest percentage drop for US Markets in history. 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…

Except a stock market crash and a recession are two different things. Beyond temporary contraction in demand, and supply line disruption in China, the US still has solid fundamentals and I see no reason why things wouldn't just pick up again in a few months. Do you have reason to believe otherwise?

Re: Dow Falls 2997 points worst drop since 1987 crash

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Post by AnimalMuppet » Tue, Mar 17, 2020, 2:23 AM UTC

pdonis wrote: post #414

AnimalMuppet wrote: post #330

Earlier quoted context omitted.

OK. But those loan defaults are what lettergram feared would cause the banks to collapse. So they're not independent. The bank can collapse from other reasons, and loans can default without the bank collapsing, but in the scenario lettergram was talking about, loan defaults cause the bank failures. So, you're right, but I think my overall point still stands.

> those loan defaults are what lettergram feared would cause the banks to collapse. So they're not independent. 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,…

But if they're going to be restructured - if they're solid enough for that to be possible - would the bank fail? If I understand correctly, the bank becomes insolvent when the loans are written off. (Note well: I am not a banker.)

Re: Dow Falls 2997 points worst drop since 1987 crash

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Post by adrr » Tue, Mar 17, 2020, 2:37 AM UTC

wltprgm wrote: post #413

adrr wrote: post #225

Earlier quoted context omitted.

I am not advocating or suggesting anything, just stating what I am doing. My theoretical downside risk is that spy goes up 100x, my 401ks also go up 100x. I am trying minimize my risk at the expense I may give up some gains if there is bounce up. Index funds aren’t necessarily safe. Nikkei index has never recovered from its 90s high. NASDAQ took 15 years to recover. Know the risks.

As somebody else has said, put options are available. You must be really confident to short at all

I also have puts. The cost to get into puts it extremely expensive, I am going to have to pay 125% of my gains into premiums to get any decent downside protection for my main assets. That can easily go to 0 and came close when we had that spike on Friday. Shorting index funds is far less risky. Has any index every set off the tripwire for an upward swing? If spy wasn’t hard to borrow, Id be exclusively shorting. Want to see crazy premiums look at puts on the JNK etf.

Re: Dow Falls 2997 points worst drop since 1987 crash

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Post by tjs8rj » Tue, Mar 17, 2020, 2:39 AM UTC

jader201 wrote: post #353

ineedasername wrote: post #345

Earlier quoted context omitted.

>I think a severe recession is all but guaranteed at this point 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 th…

You’re assuming things will return to “normal” after things start improving. 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.

Why? This demand contraction is sector specific and largely due to a temporary shock. Tons of companies are doing fine, and local, state, and fed have programs to stop-gap a lot of these issues (interest-free loans, tax cuts, loan freezes, QE, etc). Why do you think these aren't enough for the next 2 months or so?

Re: Dow Falls 2997 points worst drop since 1987 crash

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Post by tjs8rj » Tue, Mar 17, 2020, 2:41 AM UTC

kaitai wrote: post #169

m_a_g wrote: post #122

Earlier quoted context omitted.

>...this one is purely externally driven (like 2001) - which means it's temporary. This can't be stressed enough. It may take a while but everything is going to be alright and normal again.

If economic impacts to less-well-off people continue, though, we're going to see significant impacts on consumer spending. If economic impacts wipe out every small business without enough cash to stay afloat for 2 stressed months, we're going to see significant consumer spending, employment, and consumption impacts. Fine, everything will rebound in eight weeks... except for my local taco place, ramen place, pizza pla…

Except local and state Govs have thought of that. Many localities and states have rolled out rent-freezes and interest-free loans to stop-gap those issues.