Down goes the Dow

Ghost of Igloi wrote:

seattle prattle wrote:

So maybe the markets are forwarding looking, just not that far forward to the time when this becomes a real problem.

That makes no sense when the Fed cannot reduce their balance sheet. It is already a problem. Furthermore, all the crazy market moves, crypto, SPACs, excessive valuations, zero price discovery in bonds, and the kicker—inflation. But OK, the “forward looking market” believes it is not a problem. I’ll buy that.

You forgot NFTs .

I don't pretend to understand them, but apparently they are a thing, in no small way! "Non-fungible token". What a name. LOL!!

agip wrote:

anyway, all time highs for the US today - all major indices.

huah.

I know, right?! Them bulls sure be crazy!

I just bought some iBonds. 7% interest for now, capital guaranteed by the US gummint, no interest rate risk, inflation adjusted....world's best investment right now.

Although the base rate is 0 so if inflation goes down so will the interest rate. But even if there is deflation the base rate won't go below zed.

on the other side of the spectrum, my momentum strategy funds went insane - one was up 4.7% and the other 2.5%. Today.

So much money sloshing around. When it zeroes in on something, whooooosh.

You all see Avis go up 200% this week?

agip wrote:

on the other side of the spectrum, my momentum strategy funds went insane - one was up 4.7% and the other 2.5%. Today.

So much money sloshing around. When it zeroes in on something, whooooosh.

You all see Avis go up 200% this week?

YEs, and BBBY also.

Crazy.,

That is the problem with being out of stock, the uptick is just massive,

Like Tesla late in the day today. I thought about selling it 20 times yesterday, and glad i didn't.

Likewise, I intend to rebalance, but markets sure make that a tough one to execute on...

agip wrote:

I just bought some iBonds. 7% interest for now, capital guaranteed by the US gummint, no interest rate risk, inflation adjusted....world's best investment right now.

Although the base rate is 0 so if inflation goes down so will the interest rate. But even if there is deflation the base rate won't go below zed.

Nice,

Looked into it just a bit and I like how they adjust for inflation twice per year. Hard to go wrong, and what might be cause for concern - holding for 20 years, is actually not a limiting factor for us older people in that we would want some fixed income components going forward, indefinitely.

agip wrote:

on the other side of the spectrum, my momentum strategy funds went insane - one was up 4.7% and the other 2.5%. Today.

I'm guessing they must be leveraged, based on them being quite a bit higher than most momentum ETFs.

danube steak wrote:

agip wrote:

anyway, all time highs for the US today - all major indices.

huah.

Even Hussman Strategic Growth fund had fantastic run of ..... ooops only one day. It is back to negative with being down 0.49% today. Alas.

You don’t pay attention in class danube. I told you the other day mutual funds are priced a couple of hours following the close at Net Asset Value or NAV. Being an open end fund, the share numbers (can fluctuate daily) are noted, and then divided into the value of securities to get NAV, or per share price. Today’s NAV for HSGFX was up 0.98%, or a better performance than the S&P 500.

It’s me, the system won’t let me post from my phone under the same name.

I have had more than my fair share of participation in this madness, but it drives me nuts. It’s a socialist way to run a society.

Stocks go up due to price inflation driven by money printing and outright gov buying. That makes us here richer, especially relative to those not in the market. To equalize, the gov adjusts taxes and welfares, and we pay involuntarily. It is a creeping, increasing degree of control over “private “ assets. They take back what they give, and then some.

This is not to mention price inflation elsewhere in the economy.

I feel like I’m being taken for a ride, with somebody else driving. I don’t like it.

I have yet to hear a convincing description of the mechanism of a sustainable rationalization (crash), with all the protective measures that are in place.

Everything’s wrong. It is all fake, and I am nervous. I might make big buys and hold through mid-May.

remember that there has been huge money printing since 2009 but we had only 2% inflation until covid hit.

so all that printing didn't do much devaluing of the dollar for a long time. I'm sure some went to securities but from what I understand mostly it sat in banks, not doing much of anything. Because the post-financial crisis banking regulations made them keep tons of cash.

that said...if money printing/QE WERE to find its way to securities...this is what it would like like. Tons of cash chasing a lot of dumb assets. So I am concerned also.

Yep but the big question is for how long, whatever this is, is sustainable.

Maybe it is demand brought forward. Maybe margin. Maybe money leaking from banks. Maybe international rebalancing. Maybe other things.

Really hard. This action is without precedent in my experience. Dotcom was so long ago, it is only an echo, and I didn’t get burned at the time. I remember having been nervous, like now.

I’m much advanced now versus then, but I still feel like this is once again the time to proceed on intuition and interaction rather than on data, and it is that feeling that makes me nervous.

Have a hood workout! I am just finishing weights for the night, ugh

At the time of the Financial Crisis the Fed balance stood at around $800 Billion. The week of March 9, 2020 the Fed balance sheet was $4.3 Trillion; so it grew by $3.5/Trillion over eleven years. This month the balance sheet will have doubled to $8.6 Trillion in just 20 months. The rate of change and the enormity of it is different. Even with the updated pace of the so-called tapering of asset purchases that balance sheet will increase to $9 Trillion by summer. Or an increase by half of the size of the 2009 balance sheet in a matter of months. If passed, the Democratic spending plans will require more Treasury debt issuance, and more Fed bond purchases. Demographics and current trend of GDP growth makes it highly unlikely this balance can be reduced. Congress seems unwilling to pass tax law that negate Fed asset purchases or a reduction of the balance sheet. The enormity of the problem is unsolvable without pay back (pain).

To explain this, I fall back on one thing Racket said - there's precious few alternatives other than the markets to seek any decent returns.

With that, I keep catching drifts that the broader public has woken up to the realization that the markets are a viable path to wealth.

And the more stories about 1) index A, B, and C set new ATHs yet again today, and 2) wealth disparity is being exacerbated in no small measure due to the stock market and owning stock (hint, hint, hint), and 3) this has gotten to a level where the govt. has to step in to right-size this inequity, in the form of Cap, Gains tax, taxing stock trades, etc, and 4) new speculative vehicles are drawing in masses and markets enjoy some spillover therein., the more people jump in so as to not risk being left out.

And spectacles like the Robinhood.Game Stop debacle just sends a message that says, hay, there's money over here to be made.

No doubt, though, the Fed and Central Bank manipulations are largely enabling this.

Racket?! I said that on here first, I think before Racket even appeared! In an early bavk-and-forth with ...Igy! Of course😂. Where is Racket, anyway? Wasn’t he going to go on some long trip?

Oh, and while the point has been sound, this year it fails. Certain RE has been spectacular. Most everybody has done pretty well on their primary residence, esp considering tax.

M@serati wrote:

Racket?! I said that on here first, I think before Racket even appeared! In an early bavk-and-forth with ...Igy! Of course😂. Where is Racket, anyway? Wasn’t he going to go on some long trip?

Oh, and while the point has been sound, this year it fails. Certain RE has been spectacular. Most everybody has done pretty well on their primary residence, esp considering tax.

Except Zillow…..😹

New ATHs for SPX, Naz, R2k.

Even gold is up today, although far off its ATH

The only way the Zillow venture could have succeeded would have been to have packaged the properties and sold them in tranches to institutional investors. If I understand correctly, that's not what they were doing--plus, IMO they would have need to have gotten them for better deals than they did, in order for that to have worked.

Speaking of tranches, let's think back to subprime, our most recent experience to everything having gone south. Why did the subprime market collapse, is the situation today in any way analogous, and do there now exist mechanisms that would have addressed or prevented subprime back in the day? These are questions that I hope may be useful to ask.

The market collapsed initially due to loan default in the various bonds. Why exactly did homeowners default? There was a range of loans, from real ones, to zero payment until refi, so there was a range of reasons for default, but presumably the lowest-quality loans defaulted first. These were NINJA ARM's, with teaser rates that reset. A big reason for default would have been that the home price did not rise as expected. What about today? House prices continue to rise. How? At least in part because of governmental indirect price support via low rates as set by the Fed. Problem solved.

The next-worst loans may have been those where the rate reset beyond the borrower's payment ability. What about today? Rates don't reset because prime is static and historically low. Problem solved.

How about those situations where the rate is still low, but a borrower has bad circumstances and can't pay anyway. Default. What about today? Foreclosure moratorium. Problem solved.

Other bad loans may have been due to dissolving rental revenue schemes. Today? PPP, etc. Problem solved.

So it looks like things on the individual level have been addressed. Loans used to be made to those who had no business getting one. We are now in that situation but much worse, where everybody is in over their heads everywhere, where there are no qualifying standards for anything, let alone a residential mortgage. The gov will just try to backstop everything. They do it with loans now, but it is just a matter of time before they extend that to everything. They are now talking about doing away with bar exams, engineering certification, medical school accreditation, etc. And they plan to backstop it all with social policy. It will require ever-more intervention, of the type we have seen in the housing finance market.

What about the CDS's and CDO's of subprime? There are still mortgage bonds, they are still rated, and they are still re-packaged and sold. There are CDO's and CLO's, with putatively stricter margin conditions. Now, the thing is corporate debt. This paper is flying everywhere. Do the same corrective mechanisms exist for, or apply to, today's corporate debt? Absolutely they do, with the added backstop of the government actually directly purchasing corporate bonds. It is as though they are the Germans, pensions, etc. of yesteryear, who bought the subprime mortgage CDO's, only the fix is in--they control the quality of the underlying loans! They are more than a direct market participant, effectively buying their own product. They ARE the market.

Will corporate debt collapse under such conditions, even with the announced taper? They put their money where their mouth is, and showed that they were willing to assume their own risk, but are trying to slowly retreat from that position. Since they have no qualms about participating directly in markets, one has to wonder what their new market role will be. Who owns all the corporate bonds, what is their relationship to government, and will the government turn on them, or at least no longer support the bonds through the maintenance of favorable conditions? Who is now underwriting CDS's on corporate debt, and how is it priced? Is liquidity still at a premium?

Many questions. Not looking for a CDS play on corporates, just wondering aloud about the shape of the future.

The Financial Crisis event marked as the beginning was the collapse of a Bear Stearns hedge fund (analysis below). The problem was one of leverage at first, and then counter-party risk. Can you trust the other financial partner to cover their obligations?

I do believe event triggers are after the fact discoveries that become part of the historical record. In my view the similarities of this bubble to the previous two bubbles were Fed policies that encouraged bouts of unhinged speculation. The difference this time is the extent, and recklessness of Fed policies.

M@serati wrote:

Racket?! I said that on here first, I think before Racket even appeared! In an early bavk-and-forth with ...Igy! Of course😂. Where is Racket, anyway? Wasn’t he going to go on some long trip?

Oh, and while the point has been sound, this year it fails. Certain RE has been spectacular. Most everybody has done pretty well on their primary residence, esp considering tax.

Yeah, but I think he means it - about money going into the market because of lack of alternatives.

I mean really, you've been talking real estate; you've been talking of collecting art; you've been talking about crypto.

I suppose you could be pointing that those wouldn't be viable alternatives for other investors, and that would be the cogent point, granted.

Anyway, sorry about the omission, but the Professor did profess it very succinctly a time or two.

Nvidia.

Up like 13% on the day.

Almost like those Robinhood traders decided to pump it or something.