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Dow Falls 2997 points worst drop since 1987 crash

mortgagerateguru.com

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Re: Dow Falls 2997 points worst drop since 1987 crash

#181

Earlier quoted context omitted.

I'm pretty sure banks aren't going to start folding. The Fed is ahead of the curve this time (or at least not nearly as far behind it as in 2008). They seem to be pretty serious about doing whatever is needed to keep things from falling apart.

Serious question: what tools do they have left to try and shore things up? They've reduced interest rates to 0. They've injected 1.5T of liquidity. Mitt Romney today just announced they're giving $1000 of helicopter money to every American. If all of this doesn't work, whats left?

Quantitative easing.

Re: Dow Falls 2997 points worst drop since 1987 crash

#182

Earlier quoted context omitted.

Two points. 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 external…

There are so many assumptions in here that are IMO wrong. We're not asking for a recession. And I have no idea what you mean by "externally" driven. Everything is connected in the economy.

Externally meaning an authoritative power told the economy to stop. As opposed to 2008 where the market internally collapsed.

Re: Dow Falls 2997 points worst drop since 1987 crash

#183
post #136

Earlier quoted context omitted.

I think there will be some pent up demand, but some parts of the economy don’t benefit from that —e.g. I’m not going to buy more lattes when things return to normal, I will just go back to my daily fix.

That's not all - some will forego, lose the habit then not re-uptake. Also schools - how will additional schooling later on make up for the lost service & revenue (schools need students to get tax revenues)

> That's not all - some will forego, lose the habit then not re-uptake.

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?

Re: Dow Falls 2997 points worst drop since 1987 crash

#184
post #94

Earlier quoted context omitted.

That is opposite of what you should do. You would just be locking in losses (or greatly reduced profits). As long as you are reasonably sure you can hold your stocks for a few years then just hold on to them. Or better yet, go on buying spree and get cheap stocks.

My read of "I think a severe recession is all but guaranteed" was that OP thinks prices will continue to fall. Am I misinterpreting?

First, there is always the possibility that I could be wrong. The markets could hover around these levels and fall no further. Second, I may not know when to buy back in. Do I back in after they have fallen 10%? How about 20%? Should I wait till 25%? What if it goes down another 3% and then starts to head backup.. and then back down again above these levels before falling another 30%?

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.

Re: Dow Falls 2997 points worst drop since 1987 crash

#185
post #118

Earlier quoted context omitted.

Maybe, but why don't you think the markets will bounce back once we're on the other side of this? Have underlying fundamentals changed longer term? 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.

Not OP but I don't think we'll bounce back as quickly due to the lack of urgency coming from the Federal government. I suspect we'll fall into a vicious cycle of business layoffs, corresponding dip in consumer spending, reduction in r&d/business investment as we are now and after cases taper off which now seems even further away than what it could've been had the CDC/FDA/WH been on top of this earlier. Some countries…

What lack of urgency are you talking about?

Re: Dow Falls 2997 points worst drop since 1987 crash

#186
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…

The only depression you named was 1929. 2000 was barely a recession. 2008 was more severe but...still not really. The US unemployment rate hit 10% which is high...but most countries Europe have had rates at this level for decades. For reference, the current rate in France has an 8 handle.

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).

Re: Dow Falls 2997 points worst drop since 1987 crash

#189

I'm a bit more optimistic about this crash - a significant portion is due to the (important) constraints on society - closing schools and restaurants. Meaning we can look forward to some pent up demand on the other side when those constraints are loosened. 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 mark…

Sorry to single you out, but the fact that people still don't understand that a 1 month+ long lockdown is a certainty means we are nowhere near the bottom. By April the US is going to look a lot like where Italy is at now.

Re: Dow Falls 2997 points worst drop since 1987 crash

#190
post #94

Earlier quoted context omitted.

That is opposite of what you should do. You would just be locking in losses (or greatly reduced profits). As long as you are reasonably sure you can hold your stocks for a few years then just hold on to them. Or better yet, go on buying spree and get cheap stocks.

My read of "I think a severe recession is all but guaranteed" was that OP thinks prices will continue to fall. Am I misinterpreting?

Perhaps. A 30% spy drop is already in predicting recession territory (https://www.investopedia.com/a-history-of-bear-markets-45826...). Even if I was 100% confident there would be a recession, it's still not clear the markets are not undervalued at this point.
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