Down goes the Dow

Maserati wrote:

"historically 6.1% is the average since 1965"

This is overly-simplistic.

First, under-employment is not measured.

Second, and most importantly, longitudinal comparisons are not possible, as there have been significant modifications to the CPS since 1965. A survey of said modifications can be found here:

https://www.census.gov/cps/files/Techincal%20paper%2066%20chapter%202%20history.pdf

DJIA down around 130 at mid-day to 16,860

yeah, good point. comparing stats from different eras is problematic.

The slide today continues, down 186 now to 16,806 with a few hours to go.

I expect the day to end down, which for me is positive.

Still nothing to get excited about though, but it is now interesting to see how the not-great larger realities are beginning to overwhelm the feel-good distractions.

Mostly cloudy with periods of sunshine.

So, where is the money going? Bonds? Gold? Cash? Other?

Maserati wrote:

So, where is the money going? Bonds? Gold? Cash? Other?

Everything has been out-of-whack for the past 2 years relative to fundamentals due to wreckless Federal Reserve monetary policy.

What happened last time when mis-guided political/monetary policies inflated an asset bubble beyond fundamentals?

Where does the money go when the value of equities plummets?

It just disappears.

What kind of effin system are we living under?

krispy kremlin wrote:

Maserati wrote:

So, where is the money going? Bonds? Gold? Cash? Other?

Everything has been out-of-whack for the past 2 years relative to fundamentals due to wreckless Federal Reserve monetary policy.

everyone says this but I have no clue what it means.

Valuations on stocks are right in line with 25 year averages. Where is this out of whackness? serious question.

I suppose short term interest rates are lower than they would be naturally. Probably. Hard to prove.

And longer term treasury interest rates MIGHT be a little lower than they should be because of QE.

But historically, when GDP is 2.5% or 3%, the 10 year yields pretty close to where it is now. So that would sugggest it is the slowish growth in the economy rather than the fed that is causing lowish interest rates.

Europe and emerging markets now down 12% from their highs - official corrections there.

US overall is down 5%.

yes, I am madly posting to avoid panic selling. Some brokers walk around the block, others post on lrc.

another measure of the damage done to the US - the value line geometric average, which roughly speaking equal weights every stock in the US, is down 9.1% from its high.

I think that reflects what is going on out there - it's getting ugly.

But the average year has a 14% drop, so this is totally normal.

Please Think wrote:

Where does the money go when the value of equities plummets?

It just disappears.

What kind of effin system are we living under?

Hi K5.

Try to contribute something. Even if just more really bad calls.

Old news now, but for the thread record DJIA dropped 272 to 16,719 yesterday, and today is down a trivial 6 after an hour of trading.

NOW it gets interesting, because a lot of people will be tempted, thinking these prices represent a good level at which to get into an index fund.

The world's a smaller place than it used to be, there is less that is new, and there are less places to hide, and to retreat to, sort of. That is a simplified way of describing a great many factors that have been, and continue to be, responsible for the various historical rates of market growth we have seen since, say, the fall of the Berlin Wall.

IMO the recent growth in valuations has been driven in significant measure by a flight to quality. Guess what? There is nowhere left for the best money to go, and the quality isn't all it used to be--yields are down, margin is huge, first-world consumers are getting chiseled and cheap, and credit is getting tighter for the everyman, unless it's a first residential mortgage, and even then.

Sure stuff went down in the dot-com crash, but remember the performance in the preceding 5 years? The ensuing 3-year lull wasn't as devastating as all that, and in the 4th year the gain was back up over 25%. Then markets got crappy and fluctuated until 2008, after which returns were only OK until 2013, when they soared. Unlike 2003, they weren't making up for lost time. It wasn't the same investors getting re-balanced, it was new investors hugely growing the pool.

That's still happening, which tells me that the real rate of intrinsic growth is miniscule or negative, unless US producers are hugely gaining market share--which they may be in certain sectors, but are not across the board.

I therefore see 2013 as anomalous, and temporary, and begging an adjustment. There is a new normal and I think the markets may likely retain the 2013 gains, but I don't think there is any really good reason to go much higher--again, I was thinking something like 3-4% through the end of Q3 2014, and after that not easily predictable due to instabilities.

And again, it's not even intrinsic value that is important, it is value that is able to be realized. It is easy for a company that has a $1B intrinsic value to be valued at less than that when the value of its stock is totaled. There are many obvious reasons for this when you consider how investors actually operate in the market.

So how low will it go before things are reasonably valued, taking everything into account? That depends on things like how highly people are leveraged, and what the costs are of borrowing. Super-low interest rates and fed buying have been to some extent floating the market, but the critical question is to what extent.

That, precisely, I don't know. Nobody does, we all have our guesses. What I believe is that if a 30% drop in 08 must be considered anomalous and is ascribed to some particular dynamic, then it is reasonable to consider a 30% gain in 13 as similarly anomalous, and it is reasonable to ascribe it to some other particular dynamic.

Things are definitely starting to smell sweeter. DJIA now reversed direction and is up a trivial 3 on the day. I'm sure people will be buying certain stocks, but not necessarily across the board. I still see significant bifurcation happening. Fortunately, large ego acts to counter the effects of group-think, which will tend to mitigate the effect, but you will see in the markets what you see in the rest of life: the sphere of creativity and individual thinking shrinking, constrained to every-smaller pools, like the guy who wears an orange tie instead of a lime green tie thinking that he's really something else, really outside the box.

Today, at this level, it will be interesting to see what people believe is worth buying.

Well, it appears that the actual prices have nothing to do with anything, and that it is just the cost of buying that is the concern.

FOMC minutes universally sucked economically, "echoing concerns about a global slowdown."

That is seen as a sign that the Fed will keep the interest rate low, which is the real thing of interest. You wouldn't believe the leverages I'm hearing about right now.

DJIA now up 193 on the day. Nobody was trading anything before the announcement:

http://finance.yahoo.com/q/bc?s=

^dji&t=1d&c=

So, market activity during even this significant dip tells me nothing about either the current pricing of, or the future prospects for, the underlying securities. All that was happening was that people were waiting for the next press release, that we all knew was coming. And after yesterday's losses, it was obvious what was going to happen.

But, it still appears as though it's one step forward for every 1.5 steps back.

Up 210 now on the day.

yipps that was wild.

yr right - people are trading on fed moves right now. Kind of scary. Can you imagine what would happen if the fed announced an emergency rate hike? Dow would fall 500 points. Dollar would go up 2%.

anyway.

I was going to post this this morning, but I hit my lrc quota early. I heard several guys in my office making panic calls to clients to get them to sell stuff - mostly taking profits in stocks that have risen much.

I thought this morning that you could smell panic in the air - mostly in the energy sector, which is getting pummeled. So usually when you smell panic, you either stop selling yourself or do some buying.

wow - I'm poking around the small cap space - they took off like rockets - I havent' seen this for a while. +4%, +5%. I think people trading the Fed tea leaves turned the market, then the trading programs took over and just started buying momentum - extraordinary.

agip, that's not going to happen except in response a market crash.

Hello Again, Naturally wrote:

Please Think wrote:

Where does the money go when the value of equities plummets?

It just disappears.

What kind of effin system are we living under?

Hi K5.

Try to contribute something. Even if just more really bad calls.

I never cease to be amazed by the arrogance of the ignorant

Please Think wrote:

Hello Again, Naturally wrote:

Hi K5.

Try to contribute something. Even if just more really bad calls.

I never cease to be amazed by the arrogance of the ignorant

Ah, now there's the K5 we all know and love!

DJIA down about 138 to 16,856 near mid-day on Thursday.

Nice to see that the downturn is widespread.

Plosser speaks tomorrow at 9am and then Richard Fisher at 1:30pm...hmmmm...what are the chances that either or both of these speeches is canceled? lol

It's no news, their positions are already known.

But I tell you, it will be harder and harder for the powers-that-be to make things look sunny. Just kind of a sober malaise right now, no panic yet.

Now down 184 a few minutes later.

Somebody is making some money on these daily swings.