Down goes the Dow

Brian Boru wrote:

agip wrote:

please tell me what shady events led to the flash crash.

How would I know? I wasn't in on it.

Tell me how the Dow could drop 600 points in 5 minutes and regain it in 20 without manipulation.

The joint report "portrayed a market so fragmented and fragile that a single large trade could send stocks into a sudden spiral,"[10] and detailed how a large mutual fund firm selling an unusually large number of E-Mini S&P 500 contracts first exhausted available buyers, and then how high-frequency traders (HFT) started aggressively selling, accelerating the effect of the mutual fund's selling and contributing to the sharp price declines that day...

"Automatic computerized traders on the stock market shut down as they detected the sharp rise in buying and selling."[12] As computerized high-frequency traders exited the stock market, the resulting lack of liquidity "...caused shares of some prominent companies like Procter & Gamble and Accenture to trade down as low as a penny or as high as $100,000."[12] These extreme prices also resulted from "market internalizers,"[18][19][20] firms that usually trade with customer orders from their own inventory instead of sending those orders to exchanges, "routing 'most, if not all,' retail orders to the public markets – a flood of unusual selling pressure that sucked up more dwindling liquidity."[13]

While some firms exited the market, firms that remained in the market exacerbated price declines because they "'escalated their aggressive selling' during the downdraft."[10] High-frequency firms during the crisis, like other firms, were net sellers, contributing to the crash.[10][11][12][13]

The joint report said prices stopped falling when, "At 2:45:28 pm, trading on the E-Mini was paused for five seconds when the Chicago Mercantile Exchange ('CME') Stop Logic Functionality was triggered in order to prevent a cascade of further price declines. In that short period of time, sell-side pressure in the E-Mini was partly alleviated and buy-side interest increased. When trading resumed at 2:45:33 pm, prices stabilized and shortly thereafter, the E-Mini began to recover, followed by the SPY."[9] Or as The New York Times reported, "The rout continued until an automatic stabilizer on the futures exchange cut in and paused trading for five seconds, after which the markets recovered."[12]

The joint report noted that after a short while, as market participants had "time to react and verify the integrity of their data and systems, buy-side and sell-side interest returned and an orderly price discovery process began to function," and that by 3:00 pm (EDT), most stocks "had reverted back to trading at prices reflecting true consensus values" and the Flash Crash was over.[9]

[quote]agip wrote:

yes, that is what I do, and I have lost only 2 clients in my entire career and none for 4 years, but it is hard to escape the feelign that I could be doing more for them.

Stop taking their money for your non-existent expertise if you want to do something for them. Not to pick on you individually, but investment advisors are the modern snake oils salesman. Nobody (except big players and inside traders) can tell what the market will do tomorrow, or for the next week, or the next year, or the next ten years. Period.

Brian Boru wrote:

Now a Coach wrote:

[quote]Brian Boru wrote:

Of course all you need do is type "the real Dow" into google and you can find this in several places.

As you will see, the Dow from its peak in 1929 until the early 90s merely kept up with inflation (it has done quite well since); a not unsubstantial period of time of over 60 years.

You're not taking in to account dividends which would have returned you 5% - 10% a year back in those days.

The old dividends argument again. Ignoring the fact that the return on fixed income products -- which is where your money would otherwise be invested let's say -- historically (i.e., always until the last 20 years or so) has exceeded dividend yields.

By the way, what stocks paid 10% dividends back in those days? I do recall money markets paying over 10% in the early 80s

what does it matter what bonds pay? why does bond interest cancel out dividends?

anyway, looks like historic dividend rates for the SP 500 in the mid part of the 20c were centerd around 6%. which is a lot of money.

Brian Boru wrote:

[quote]agip wrote:

yes, that is what I do, and I have lost only 2 clients in my entire career and none for 4 years, but it is hard to escape the feelign that I could be doing more for them.

Stop taking their money for your non-existent expertise if you want to do something for them. Not to pick on you individually, but investment advisors are the modern snake oils salesman. Nobody (except big players and inside traders) can tell what the market will do tomorrow, or for the next week, or the next year, or the next ten years. Period.

k5, just use your name, would you? everyone else has figured out the quoting button - it's an obvious tell.

but to your point,

how and why do you expect schoolteachers and doctors to be good investors?

Brian Boru wrote:

(1) Stop taking their money for your non-existent expertise if you want to do something for them. Not to pick on you individually, but investment advisors are the modern snake oils salesman.

(2)Nobody (except big players and inside traders) can tell what the market will do tomorrow, or for the next week, or the next year, or the next ten years. Period.

Your (2) does not in any way support your (1).

Right out of Wikipedia.

You do realize that is complete gibberish? A mere cover-up for whatever really happened.

For example. "time to react and verify the integrity of their data and systems, buy-side and sell-side interest returned and an orderly price discovery process began to function,"

20 minutes to and verify the integrity of their data and systems? Please.

How about

"'escalated their aggressive selling' during the downdraft.

Resulting in a flash crash and return that had never happened before? Really? Suddenly more aggressive selling than ever before (not counting real crashes)? Why?

And

"a flood of unusual selling pressure that sucked up more dwindling liquidity"

Very unusual I would say. But why such a flood of unusual selling pressure?

I asked a simple question. How about a simple answer?

[quote]agip wrote:

what does it matter what bonds pay? why does bond interest cancel out dividends?

Did you fail basic math? If the Dow is only keeping place with inflation (@ 1929 thru 1991)the only real income (i.e., in excess of inflation) from these investments are the dividends.

The guy who invests instead in fixed income products over the same period has an investment equal to the interest paid less inflation.

Hence to compare the equity investor with the fixed income investor (for this period where equity price increases equals inflation) one has to compare dividend return vs. fixed income in excess of inflation.

It concerns me that I need to explain such simple concepts to you

Wikipedia? Talk about manipulated "facts".

agip wrote:

but to your point,

how and why do you expect schoolteachers and doctors to be good investors?

The smartest thing they can do is not pay for advice. Advice of no value.

Study after study proves that managed funds underperform indices and index funds over the long haul. Which is what happens when you pay fees for no advantage.

Pointing Out the Obvious wrote:

Brian Boru wrote:

(1) Stop taking their money for your non-existent expertise if you want to do something for them. Not to pick on you individually, but investment advisors are the modern snake oils salesman.

(2)Nobody (except big players and inside traders) can tell what the market will do tomorrow, or for the next week, or the next year, or the next ten years. Period.

Your (2) does not in any way support your (1).

Each statement is true on its own. However, if you don't understand how the fact that nobody can predict the market supports the statement that investment advice is worthless, then you really ought to stay off this thread.

Brian Boru wrote:

[quote]agip wrote:

what does it matter what bonds pay? why does bond interest cancel out dividends?

Did you fail basic math? If the Dow is only keeping place with inflation (@ 1929 thru 1991)the only real income (i.e., in excess of inflation) from these investments are the dividends.

The guy who invests instead in fixed income products over the same period has an investment equal to the interest paid less inflation.

Hence to compare the equity investor with the fixed income investor (for this period where equity price increases equals inflation) one has to compare dividend return vs. fixed income in excess of inflation.

It concerns me that I need to explain such simple concepts to you

the quote button.

You are assuming that people knew in advance that the stock market would have a zero return sans dividends. That could not have been known in advance.

their view was that they had a chance for long term capital appreciation plus dividends. they got one, not the other. If they had been in bonds they would have gotten just the interest.

and anyway, dividends used to be more than bonds.

agip wrote:

wha-huh? wrote:

I'm fascinated that you don't consider that people (i.e. those in gov't) who are blamed/praised for the "economy" wouldn't consider manipulating the numbers in a way to make them more appealing. Especially when they believe that consumer confidence is a key to the whole puzzle.

Companies, and leaders in general do this all the time.

Thou doth protest too much.

huh? you think politicians work on the economic statistics? you think Joe Biden is in the BLS entering data?

career bureaucrats and economists make the numbers.

Tell me what you think the path to widespread data fudging is.

Good grief, how could you possibly come up with that inference? No, of course not. Those "making the numbers" (great term, by the way... making, not reporting) report to the politicians. The KEY for a "career bureaucrat" is to keep their career.

Have you never worked in a bureaucracy? My basic life experience with human behavior is that if/when the boss(es) insist(s) on numbers being reported a certain way, they often get their way, either by applying pressure or getting someone else to do it. I have witnessed it in for-profit public companies, for-profit private companies, non-profits, and gov't institutions at the federal & local levels.

Aren't you in your 50s or something? You haven't ever observed this in your life?

It is naïve, dishonest, or intellectually lazy of you to dismiss the possibility (or likelihood) of this happening with critical gov't-reported statistics.

As one of the chief European bureaucrats recently stated "when it becomes serious, you HAVE to lie."

Another observation - when someone actually admits to lying, there is often much more they aren't admitting.

Brian Boru wrote:

agip wrote:

but to your point,

how and why do you expect schoolteachers and doctors to be good investors?

The smartest thing they can do is not pay for advice. Advice of no value.

Study after study proves that managed funds underperform indices and index funds over the long haul. Which is what happens when you pay fees for no advantage.

Wow, K5, this actually makes total sense and I could not agree with you more.

Is this a case of the blind squirrel finding an acorn?

Brian Boru wrote:

agip wrote:

but to your point,

how and why do you expect schoolteachers and doctors to be good investors?

The smartest thing they can do is not pay for advice. Advice of no value.

Study after study proves that managed funds underperform indices and index funds over the long haul. Which is what happens when you pay fees for no advantage.

correct - that is why I recommend only index funds.

So, I'll ask again, why do you expect a teacher or doctor to be able to put together a diversified portfolio and stick with it even in times like this week?

How do they know how much in emerging markets they should have? How much in reits? how much in TIPS? How much foreign vs. domestic? How much stock vs. bond? How much time and interest do you expect them to have for investing?

I don't read any zerohedge links, sorry.

But I can totally understand if you would rather believe in shady characters running the world - mysterious phone calls, unnamable conspiracies, trilateral commissions, etc...lots of unintelligent people believe in that crap. It's a really easy way to live - just assume everyone lies - it's an easy world view to have. Most of the muslim world has accepted wild conspiracy theories rather than accept the problem in their midst.

So sure, go to it.

Me - my experience is that if there were massive and recurring fraud in statistic collection, then many people would report it and be a whistleblower. To my knowledge that has not happened.

I don't like to believe in things with zero evidence. You do. So there we are.

well maybe I went overboard on the trilateral commission etc..but my central point is that despite zero evidence, you believe thousands of bureaucrats and professional economists lie and make up stuff to please unnamed bosses.

That is crazy talk - I'll never understand why people believe stuff like that without any evidence. It's like believing in Santa because you really really want it to be true. But the reverse because for some reason you really really want to keep believing the world is run by dishonesty.

[quote]agip wrote:

correct - that is why I recommend only index funds.

So, I'll ask again, why do you expect a teacher or doctor to be able to put together a diversified portfolio and stick with it even in times like this week?

Why the Hell would anyone have to pay you to recommend index funds? And what makes you so sure that picking a diversified portfolio is such a great idea? And that sticking with it no matter what is such a smart play?

Because that is what the investment industry has told you.

[quote]agip wrote:

You are assuming that people knew in advance that the stock market would have a zero return sans dividends. That could not have been known in advance.

Exactly. Then why would people pay someone for market advice since that someone knows he does not know what is going to happen

K5 detector wrote:

Brian Boru wrote:

[quote]agip wrote:

but to your point,

how and why do you expect schoolteachers and doctors to be good investors?

The smartest thing they can do is not pay for advice. Advice of no value.

Study after study proves that managed funds underperform indices and index funds over the long haul. Which is what happens when you pay fees for no advantage.

Wow, K5, this actually makes total sense and I could not agree with you more.

Light dawns in a place where the sun never shines