Down goes the Dow

Steve,

Not really, but have a good weekend.

Igy

More fuel for the fire. This is a podcast that Goldman-Sachs made on 8/11. "Brittle Markets: The Risks From Falling Liquidity" What are they talking about? Not the stock market; The BOND market:

http://www.goldmansachs.com/our-thinking/podcasts/episodes/8-19-2015-strongin-himmelberg.html

People who think bonds are going to protect them, might want to rethink that.

The point is wrote:

Obvious.

When the market goes down, you guys downplay your losses by telling yourself it is "just noise" and "healthy". You know, truly insightful and technical terms. You do not want to consider the probability that at some point in the near future there will be yet another massive sell-off and those in the market will lose their shirts.

All bravado and self congratulation when the market goes up; whistling past the graveyard when it goes down.

Incorrect! At least for me that is all incorrect. Completely wrong.

There are no losses until you sell. So, even though we are bumping up against an almost 10% drop (well...actually, it got there...got to 16,505 today and needed only to get to 16,515, so we have a correction!), I haven't lost a thing because I haven't sold.

Corrections are absolutely healthy for the market, and we've been long overdue for one. Weeds some people out and encourages new investors.

Anyone who loses their shirt in the stock market is a fool. It is so easy to safeguard against that. Buy stocks when you are working. Buy as much as you can but always 15% of your income minimum. Plan to retire with ZERO debt and a paid for house that you live in, OR enough money earmarked to handle rent increases until you die. When in retirement have 3 YEARS of expenses in liquid account (not stocks), and if the market tanks, use that and other sources of income (Social Security, rental income, etc.) to tide you over until the market recovers (because it will). If it takes 3 to 5 years or even longer (and that's fine because the SS will help you get to that point) to return to where it was, then fine. Better to have $1 million at 70 than at 65 because you have to pay for fewer years of living at that point.

Most people don't have the stomach for the stock market which is why most people aren't in it and even those that are, at least half of them need to either change their attitude about it or get out.

A proper investor takes the gains and dips as a given. Never too giddy when the market climbs and never too gloomy when it drops. Look at the movement of the market as an average (and it is UP over time; 73% of calendar years), invest money you don't need today and leave it there.

Klondike5 wrote:

What's the bottom?

I am betting sub 13,000

Are we under 13,000 yet?

That's the bet.

steve perry wrote:

So some are positive, some are negative. Kinda like stocks.

Not the ones he was talking about. Those are positive.

You must be down on the year. :)

Didn't see coach d's post before I posted mine, but I agree about people watching Asia and closing positions before the weekend hits.

Also, there are lots of people retiring, and nearing retirement, and have been since 2000. They not only shift to bonds, but they take money out altogether. These people, and there are more and more of them every day, absolutely care about a 50% drop. Heck, they care about a 25% drop, because they don't know how long it will take to make it back.

Some like Flagpole think that it is good enough to have 2 yrs of cash to ride out market disturbances, others disagree, and get nervous about drops.

Looks like the close today is 16,450, down 530 on the day.

OK so what is different between now and earlier this year at the all-time high? Nothing, other than that some people took profits, and others took losses, unless one believes there has been some actual, real economic contraction.

I believe that is true, overall, and that some of this drop represents an actual, currently perceived future loss of profitability of companies; how much of this drop, I don't know. If price and profitability are proportional, then if all the price drops were due to this mechanism, that would account for a currently perceived future 10% loss of profitability (not necessarily economic activity).

Without getting into the weeds, I think some, if not all, of this drop is real, even if one believes that stocks were fairly valued above 18k this year.

interesting that small caps were down just 1.2% today while big caps crashed down 3.1%

that's not bad news.

Didn't see this interview. But I believe this scenario is realistic and is more scary than a sudden crash. That is a long term bear market lasting years akin to what Japan has experienced. I have read Shiller's articles over the years and he knows what he is talking about.

Ghost of Igloi wrote:

Robert Shiller appeared on CNBC and remarked on the over valuation in the domestic market and how he feels the general direction will be down. He did add that this process could take years.

I would tend to call that bad news. Obviously the downturn in the S&P is being driven by China and global currency devaluations. That is hurting U.S. multinationals engaged in global trade. You would therefore hope that small caps that exclusively do business domestically would be holding up well enough. After all, economists generally maintain that the US economy is continuing to do reasonably well. A drop in small caps suggests that may not be the case.

agip wrote:

interesting that small caps were down just 1.2% today while big caps crashed down 3.1%

that's not bad news.

couple of reasons to call it good news:1) when traders get more comfy with risk, they tend to buy small caps. so it seems at least some traders are trying to get ahead of the curve and buy them now, betting on a rally next week. 2) when traders/funds need to dump big dollars - like 100 million dollars, they do it in big caps because they can absorb the sell. so when you see a huge dump in big caps and not in small caps...it can mean that this is panic and stupid sales. rather than stock by stock decisions. When there is panic, usually the selling is just about over temporarily anyway. 3) your macro analysis is fine, but it works in a long term sense, not the day to day trading that makes the market move like this. 4) the bad news part is that small caps have been hurt worse recently, so they already took their lumps.

ryan foreman wrote:

I would tend to call that bad news. Obviously the downturn in the S&P is being driven by China and global currency devaluations. That is hurting U.S. multinationals engaged in global trade. You would therefore hope that small caps that exclusively do business domestically would be holding up well enough. After all, economists generally maintain that the US economy is continuing to do reasonably well. A drop in small caps suggests that may not be the case.

agip wrote:

interesting that small caps were down just 1.2% today while big caps crashed down 3.1%

that's not bad news.

agip wrote:

interesting that small caps were down just 1.2% today while big caps crashed down 3.1%

that's not bad news.

Why do you think it's not bad news?

If you think it's not bad news... care to venture what it is?

Worth noting... IWM is underperforming SPY over 1-month, 3-month, and YTD.

steve perry wrote:

So some are positive, some are negative. Kinda like stocks.

Ghost of Igloi wrote:

Steve,

Not really, but have a good weekend.

Igy

How so?

* wrote:

Klondike5 wrote:

What's the bottom?

I am betting sub 13,000

Are we under 13,000 yet?

That's the bet.

Certainly a decent chance the OP will be vindicated before all is over.

And, there is a very good chance that he/she will have the opportunity to buy back in lower than their 15,000 exit point... even adjusted for missed dividends.

So awesome all the hype of building up to 18,000+ during the 2 years since this thread was started. After all that work, all the hot air, & it took only a month to chop off over half of the entire gain from 15,000 to 18000.

Fun stuff.

Not a chance in hell.

Ghost of Igloi wrote:

POTO>0,

You a little grumpy after a bad day in the market. Perhaps Mommy will make you a cup of hot chocolate.

Igy

Tell your mom that I'd prefer lemonade, given that it's summer and all.

Not a bad day here. Opened a new account today.

Steve,

I assume you mean stocks go up, bonds go up, so what the big deal. Bonds just by their nature have less volatilty than stocks. It is correct that low quality bonds or junk bonds are more correlated with the stock market. On the other hand high quality bonds have substantially less volatility than stocks. One current belief is that Treasury bonds are extremely overvalued. The inflation of the late 70s and early 80s distorts the data, and current yields are closer to the norm than many realize. That said, high quality bonds are more correlated to interest rates. The bond world is so much different than the stock world, and many investors miss the nuances.

Igy

POTO>0,

Do you mean no chance at 13,000 Dow? If so, I'll take that bet!

Igy

You're on.