So when the Fed begins to raise interest, what's going to happen... the Dow falls 600 points in one day?
Remember the housing bubble was brought on by low interest rates...the party cannot go on forever.
So when the Fed begins to raise interest, what's going to happen... the Dow falls 600 points in one day?
Remember the housing bubble was brought on by low interest rates...the party cannot go on forever.
Investomaniac wrote:
So when the Fed begins to raise interest, what's going to happen... the Dow falls 600 points in one day?
Remember the housing bubble was brought on by low interest rates...the party cannot go on forever.
what will happen? nothing. Because this has been talked about for around 3 years. It is crystal clear that the fed will start raising interest rates probably mid/end 2015.
it is usually surprises that kill you - not conventional wisdom.
(and it's not fair to say the housing bubble was brought on by low interest rates - insane bubbles are sort of living creatures - they feed on themselves - mass hysteria. interest rates are far, far lower now than in 2005 - where's our housing bubble now?)
ko, I have thrown something to the trading gods. I have sold a 2% position in convertible bonds. I will likely reinvest it in traditional bonds.
Usually when I panic out of something that is a very bullish signal.
Nearing close, down 225 to 16,818
Panic can be utilitarian, if you do it at the right time, and in the right way.
And most of all, if you get lucky.
Watch for some almost-inexplicably good news to be released Thurs or Fri, and for the markets to get a bump.
The continued erosion is, however, encouraging. Unlike "officials", I'm not seeing this as a correction yet, even where things are down 10% from highs.
Buy, buy, buy!
agip wrote:
Investomaniac wrote:So when the Fed begins to raise interest, what's going to happen... the Dow falls 600 points in one day?
Remember the housing bubble was brought on by low interest rates...the party cannot go on forever.
what will happen? nothing. Because this has been talked about for around 3 years. It is crystal clear that the fed will start raising interest rates probably mid/end 2015.
it is usually surprises that kill you - not conventional wisdom.
(and it's not fair to say the housing bubble was brought on by low interest rates - insane bubbles are sort of living creatures - they feed on themselves - mass hysteria. interest rates are far, far lower now than in 2005 - where's our housing bubble now?)
Overlay a chart of Fed Funds and Hovnanian (proxy for the housing market) for the period of 2004-2006. Two steps and a stumble. There were two steps by the FED at the beginning and end of 2004. HOV topped 6 months after the second step, and everything was down from there.
This time we have a corporate profits bubble--corporate profits as a percent of GDP is the highest it has ever been since the government started keeping stats in 1929. Just like you could not predict that the top of the RE market would lead to Merrill-Lynch failing as an independent company, you cannot predict what will happen when this bubble bursts. Only that the results will be bad for people dependent on almost record low interest rates.
HOV = proxy for new house market, which is allegedly critically dependent on interest rates.
DJIA up 1.35% YTD at today's close.
Corporate profits are disparate. They currently seem large due to cost-cutting, and to a lack of re-investment due to shareholder demand for immediate yield in the face of ailing share prices.
To the extent that companies are borrowing to re-invest rather than using profits, because rates are so low, that would be an encouragement to keep rates low, which is precisely what has happened--i.e. you have your cause-and-effect reversed: the profits are an effect, not a cause.
Predicting what will happen when this effect bubble bursts is not the point; predicting why, when, and to what extent that bubble will burst, is.
Also, windowing data as narrowly as you have is seldom, if ever, useful IME.
agip wrote:
Chicken Little wrote:OMG! The Dow is nearing 2% below its all time high. The sky is falling! The sky is falling!
stocks other than US blue chips have been suffering much more - the rest of the world is down around 8%, and many categories much worse than that.
You aren't seeing the true damage to stocks if you look just at the SP 500 or Dow.
Is it not common for some sectors to go up while others go down, or remain flat? This hand wringing is much ado about nothing. If you can't stand the heat....
Futry wrote:
agip wrote:stocks other than US blue chips have been suffering much more - the rest of the world is down around 8%, and many categories much worse than that.
You aren't seeing the true damage to stocks if you look just at the SP 500 or Dow.
Is it not common for some sectors to go up while others go down, or remain flat? This hand wringing is much ado about nothing. If you can't stand the heat....
agreed
but the point is that EVERYTHING is down close to 10%...except US blue chips (although they are getting there). It's not like half are down, half are up. it's 99 problems and the dow ain't one.
We haven't had a 10% correction for 2 years or more - so it does hurt a little extra.
Well 3% is still a long way from 10%...at least in terms of the Dow. And given the run up over the last few tears, I don't really think a correction will hurt as much as you suggest. That is unless you haven't taken advantage of the bull market. As for a correction, we'll see. I'm not convinced that the market is overvalued.
Maserati wrote:
Nearing close, down 225 to 16,818
Panic can be utilitarian, if you do it at the right time, and in the right way.
And most of all, if you get lucky.
Watch for some almost-inexplicably good news to be released Thurs or Fri, and for the markets to get a bump.
The continued erosion is, however, encouraging. Unlike "officials", I'm not seeing this as a correction yet, even where things are down 10% from highs.
well there is a jobs report tomorrow- you're saying it's been cooked?
really, man? really? you think people are that corrupt?
there is a lot of simple profit taking going on - lots of money has been made.
I'm thinking that since oil is falling and gold has done nothing...the primary worry here is an economic slowdown, not war and disease. In wartime, gold and oil generally rise, not fall. Certainly china and europe and russia are slowing economically.
but on the other hand, lower prices in oil and gold could be just the result of a stronger dollar. I wonder what they have been doing in euros.
it's only been 30 minutes today, but riskier assets like small caps are up more than blue chips. that's a relief.
agip--
Corruption is rampant, but that's not my point.
My point is that various players, including the government, try to "shape" the market, to "guide" the economy. Look at what the feds are doing with/to the banks in terms of regulation, and look how the banks are responding.
It's a complicated system, and attempts at shaping don't always pan out as intended--which is why there is a large array of metrics that are used and reported, why they are tweaked over time, and why data are filtered.
The interesting thing is that these kinds of shaping attempts--like the published "jobless claims" on Thursday and the inevitably "good" jobs report on Friday--can actually be effective, but in real-time only. These are classics, the immediate market effects of which are fairly predictable, usually.
But this real-time management does nothing, longitudinally. Longitudinal consistency has been sacrificed on the altar of temporary stopgaps. I won't go into detail on the use and modification of metrics, but suffice it to say that the economy as described today by today's metrics is not directly comparable with that in, say, 1998, described by 1998's metrics.
So the managers manage the market mood swings in real-time through metrics and selective news (like constantly plugging leaks on a ship full of holes), while at the same time trying to ensure that the structural qualities remain sound (such that the ship continues on its course). So, at the same time as they fiddle daily, they work on interest rates and leverage ratios.
The point is that this is all fairly predictable. The tools are now in place to enable fairly quick, and well-targeted responses to events. Everything will fall, immediately, if the power grid goes down. If that happens, any and all trading and large banking will be halted temporarily--but until that time, the short- and medium-terms are taken care of, and in my mind, fairly predictably.
The only real problems are infrastructural failure, and whether or not real long-term problems manifest at an unmanageable level. Regarding the second point, it has begun to happen, which is why we have recently seen the Fed running out of any and all tools except for the interest rate--and in some countries they have run out of even that, resulting in a negative interest rate.
The only thing you can do about long-term problems are 1) be very rich, or 2) prepare for the apocalypse. Other than that, you may as well live your life and respond to short- and medium-term things only.
So looking at the market over a couple of years span, or even on the span of a weekly cycle, it is no surprise that we can hear on Thursday the tuning (jobless claims) of the inevitable "Friday Fiddle" (jobs report).
And those metrics are manipulated every bit as much as is the GDP number. Although manipulated, in the short-to-medium term the numbers are not useless; in fact, in the short-term, manipulation may actually increase their utility.
So, no surprises this week, at all.
Since you brought it up agip, look at the SP500, now under 1940.
That's getting interesting.
DJIA down 46 an hour into trading, but gyrating. That's OK as long as the larger trend is downward.
Maser:
I haven't read your post yet carefully, but I just want to point out that a negative econ report just came out in the midst of a stock market correction when people are starving for good news:
Oct 2 (Reuters) - New orders for U.S. factory goods posted their biggest decline on record in August, payback for an aircraft-driven jump a month earlier.
The Commerce Department said on Thursday new orders for manufactured goods dropped 10.1 percent. That was the largest drop in records going back to 1992.
Stripping out transportation orders which were depressed bya plunge in the volatile aircraft component, new orders were
down a more modest 0.1 percent.
Economists polled by Reuters had forecast total new orders received by factories would decline 9.3 percent.
Oil companies dropping on falling crude oil prices.
Positive labor report had no impact.
I'm not calling a bottom here, but small caps are positive today even as the blue chips are down half a percent or so.
that is usually a good sign - I'd expect today to finish positive.
tomorrow who knows.
Regarding the negative report, read the post. A report never stands on its own, it is put into the context of events, and other report. A good report means that interest rates are going up and therefore has negative effects. A "bad report" may be released just as a test vehicle, to observe response.
This kind of testing happens in media all the time.
All of this is why it is not important to pay attention to the day-to-day babble unless you are day trading, and to make up your own mind on longer-term trends, using your own metrics--and I'm not talking technicals.
DJIA now down 112 near mid-day. A pretty big reversal will be needed to end up in positive territory, and I don't see any reason for that to occur.
Here's the thing: although the situation is getting interesting, I'm still not tempted. Leaving the office now to watch from home.
I don't want to come off sounding like some sort of "guru" with all this stuff. There's no hokus-pokus about it, just life experience combined with observation, and some very good personal contacts. I could buy today and have made out extremely well. My problems are avoiding buying, and working alternatives to the market.
Anybody here trade forex?
Dow in positive territory.
Closes down 4 to 16,801
Unchanged
What will be interesting to me will be if the index drops tomorrow, even in the face of the so-called "jobs report" that will come out.
Nobody seems to be buying ROW.