Down goes the Dow

Maserati wrote:

What do posters think about RBS "sell everything"?

Cataclysmic? Down 10-20% is cataclysmic? LMAO, get real.

margin + oil = currencies

I have already essentially "sold everything", but earlier, when I knew it was smart. I would not counsel anybody to do so, without knowing exactly what levels they bought in at, what they held, what their strategy was, etc.

Strange statement from RBS.

Hmm. Well, I will agree with you on one point - silly that RBS says to sell everything based on even a 20% loss. The Dow anyway, is already down 11+% from its all-time high, and another 20% this calendar year wouldn't be ideal, and there are many things that make me believe we actually could see a bigger drop than that even. Whether to sell really should have nothing to do though with when you bought...it has more to do with how far you are from retirement and how much you rely on those shares eventually going back up -- or not.

62 years old and planning to retire Dec. 2016...well, might be a good idea to either move out of most stocks for a while OR have a plan in place that allows you to live on other income (cash, rentals, Social Security, CDs, etc.) for THREE YEARS while you allow the market to recover if there is a big drop.

That will be my plan. When I retire at about age 60 (perhaps sooner), I will have 3 YEARS of expenses outside of stocks and bonds that will be there in case there is a big drop in the markets after I retire. If it does, I will use that money and Social Security money (gravy if it's there) to live on while the market recovers. Took me less than 3 years to recover after the disastrous 2008 (fall of 2007 and spring of 2009), so big deal. I was too far away from retirement at the time to care.

Always a good idea to diversify, and that includes eliminating your own debt. I have pulled the trigger on my last debt and instead of waiting for May to pay off my house, I just made the last payment. Too volatile to save the money and put in extra in the market...if there were a more clear sign that it would DROP significantly soon, I would have saved that money and put in a lump sum after a big drop...but paying off the house was fun enough. To be clear, I still put money in automatically two times a month and have done so since 1989 and I will continue to do so until I retire in about 10 years (unless there is a MAJOR change to how it all works).

agip,

I wonder what Dr. Kelley thinks:

“Our view is that the risk-reward for equities has worsened materially. In contrast to the past seven years, when we advocated using the dips as buying opportunities, we believe the regime has transitioned to one of selling any rally,” Mislav Matejka, an equity strategist at J.P. Morgan, said in a report.

Igy

Maserati wrote:

Coach d, I have said here many times that I do not use the markets to make money.

I stopped reading right there.

Ghost of Igloi wrote:

agip,

I wonder what Dr. Kelley thinks:

“Our view is that the risk-reward for equities has worsened materially. In contrast to the past seven years, when we advocated using the dips as buying opportunities, we believe the regime has transitioned to one of selling any rally,” Mislav Matejka, an equity strategist at J.P. Morgan, said in a report.

Igy

I think Kelley's view is that Europe and US economies seem good enough, and valuations are not stretched, so he doesn't see a major problem down the road.

he does see serious problems in Asia - economies there are slowing. While in the US and Europe there is growth.

He thinks US corporate earnings will rebound in the 2Q as the oil debacle disappears out of the year over year earnings. He also sees a stabilizing dollar as a strength - if oil stopps falling and the dollar stops rising, corporate earnings in the US will be fine.

By valuation he looks at 25 year averages for forward PE, PS, PB, CAPE and maybe ev/ebitda. By those measures we are right on the 25 year average.

agip,

After market I listened in to Doubleline and Jeffrey Gundlach market outlook. It was an hour and a half of thought provoking information. You may want to dial up the replay.

Igy

High yield debt comments from David Stockman:

http://davidstockmanscontracorner.com/billary-buddy-marc-lasrys-last-rodeo-the-jig-is-up-on-25-years-of-bottom-fisher-bailouts/

NEWS FLASH CRAMER ADMITS TO POOR STOCK PICKS. MORE TO FOLLOW INCLUDING NARJARIAN BROS:

http://www.cnbc.com/2016/01/12/cramer-mea-culpa-i-was-wrong-on-these-2-stocks.html

Finally, someone who admits they were wrong.

Ghost of Igloi wrote:

More on the RBS call:

http://www.telegraph.co.uk/finance/economics/12093807/RBS-cries-sell-everything-as-deflationary-crisis-nears.html

Textbook case of projection.

He won't admit that he was wrong.

A follow up on my Ford investment. Today they announced a supplemental dividend on top of the regular dividend. At the price I bought it I calculate about a 6.5% dividend yield for this year. As I said, along with the tax benefits, I feel fine about putting some money on Ford at current prices. I figure that even if it goes down to below $12 (Its at 12.80 now) over the coming year I will effectively have broken even.

I'm not trying to justify the investment. Just showing how it can be a good calculated gamble chasing a "falling knife". In a way it was less risky than staying in cash because I have the risk of a price pop covered.

To be clear I'm overwhelmingly in cash anyway.

Agree. Adding to this the last market pause shows the coordination of Western markets is excellent. Yes, valuation was lost, but overall a pretty orderly decline in Europe and the U.S. unlike China.

Anyone have any market exuberance indicators they watch?

The skyscraper index is common knowledge.

I'm of course on the other side of this whole deflation thing and starting to see things that make me rather suspicious of what people think is going on:

(1) I see a number of top level people who I would normally count on for "wise counsel" who are becoming totally unglued. In addition to what Igy mentioned with JP Morgan telling people to sell rallies, there was an item I posted recently from Lawrence Summers telling the FED to prepare for the worst, and there was another recently from Mohamed El-Erian saying that even worse than China is that central banks may be losing the opportunity to contain volatility. When I put all of this together, well, it looks like a bottom, not a top. OECD is still suggesting that China will avoid a hard landing, and Goldman is looking for several years of deceleration (that's deceleration, not recession) as they transform their economy to be more consumer-centered. But some of this other stuff is exactly what you see in the media at a major bottom.

(2) I've been short the stuff that China USED to buy since last summer, I wasn't quiet about saying you could make a lot of money doing this, and my family has made a lot in 2015. But what I'm seeing now is that we are making it at a much faster rate and this is getting too easy...and "too easy" usually doesn't last very long. I've seen this before, and the commodity side feels very much like April 2000 in equities. In fact, things like oil, copper, and gold have fallen so much that zero isn't that far away any more.

I don't if there's one massive collapse yet to come, but I'm getting the impression that this China game is about over. I'm not saying BUY BUY BUY, but I'm starting to buy more stocks, Lockheed Martin and (more) Nvidia today.

Whether some EM economies collapse and take their governments (including Russia?) with them is perhaps a different matter:

Sally V,

Wrong about what, the post was from someone else.

Igy

You just made my point for me.

Sally V,

Yes and you made the point for me. I could go somewhere in my response but I don't want to start WW III.

Igy

Can't remember my earlier imaginary screen name, I think this one is close. I had asked Igy earlier about the correlation between Asian and North American stock exchanges, and he answered to the effect that the correlation has been stronger since 2011, or something like that.

The question seemed pertinent to me because we are talking a lot about current NA markets in relation to what's happening in China, and at least over the last week we've seen the DJIA (and TSX) tumble in concert with Shanghai's steep descent. So I wondered whether and how strongly the Shanghai market serves as a bellwether for NA markets, or whether indeed I could safely ignore China.

Igy seems to know a lot so I place some weight in his gut opinion. But as they say, "trust, but verify." :-)

So I've grabbed a bunch of historical daily index data for a bunch of different markets and done some basic comparisons, and then pored a bit more closely into trends. What I've found is that Shanghai and TSX are completely uncorrelated when I look at daily change, and start to get "slightly" (and I mean very slightly) correlated when I look at change over 2, 7, 28 and 180 days.

I can share some plots of ainyone wants to see them.

long time,

One of the factors you need to consider on the correlation is trading hours. That is, a up/down close on the Shanghai will be x-hours before the Toronto close and vice-a-versa. How does that influence either market?

My general thought, and I will leave it up to others to do the research, is in the period where global central banks were easing the correlation would be closer to 1. May be that correlation will breakdown if the Fed embarks on a tightening cycle. Which you do see some hedging coming out of several members in recent days.

I think the bigger questions for investors is whether central banks can continue to influence the direction of financial markets.

Igy

the TSX might be an odd bird recently because of the falling Canadian dollar - I suspect their might be more moving pieces than usual over the last year