Stock market roller coaster
The jitters continue:
The Dow Jones Industrial Average briefly fell more than 1000 points””its biggest ever one-day point decline on an intraday basis””before recovering to trade 194 points lower, or 1.3%, at 16265. The S&P 500 fell 1.4%, while the Nasdaq Composite Index was down 0.9%.
The Dow entered a correction on Friday, falling 10% from its recent peak, following its worst week since 2011.
Monday’s moves came after a sharp selloff in Chinese shares accelerated, wiping out gains for the year. Oil prices fell by around 4%, while investors headed for relatively safe assets such as U.S. government bonds. The yield on the 10-year Treasury note recently was 2.025%, having dipped below 2% for the first time since April.
[ADDENDUM: Just to clarify, today’s roller coaster ride ended with the market down 588 for the day.]
It is scary. I feel for those good souls who saved and invested all of their lives to fund their retirement. They have been whip sawed for awhile between negligible interest income and market volatility. I know the market had a good run, but for the older investor with finite resources it would have been hard to take full advantage of that, because it looked more and more like a bubble forming. Now, here we are, and they have precious few options.
What really frosts me is Obama gets no credit in the MSM for the weakest recovery since WW II and the low labor force participation.
Do the media think that Obama’s policies have no effect on the economy?
If you are not a day by day trader, and we are not, then you have to be in the equity market for the long haul. We are seeing the beginning of a major correction. IMO, and in the opinion of many others, a 30 percent drop is in the long haul not something to panic over. The FED pumped up the market artificially with QE, which was intended to prop up the TBTF. It was a craven, corrupt, and doomed to fail stupid move. Capitalism is all about letting the chips fall where they may. Crony capitalism is all about the collusion of big government with big banks and corporations. Crony capitalism never ends well.
Diversification of one’s assets is the way to ride out the rollercoaster. We are on paper worth 2 million, but we do not place our wealth on paper only. Farm land, rental property, precious metals – in your own possession, and means of sustenance are what it takes to be as secure as we ‘little’ people can be.
I mentally discount my investments worth by 30% to adjust for the bubble effect of the Fed. My main worry is that I’m too optimistic.
Only down 588? Cool. Someone spent in the neighborhood of $300~$600 million dollars to check the crash. Money that is now gone.
At this point it is all fiction. I’m surprised the fed doesn’t just issue values for stocks directly, and commodities. It’s all fiction. The only reason stocks are even at the level they are, regardless of today’s slip, is because there is nothing else to put money into in a time when money is being printed and might as well be being tossed out of helicopters. Only the rich are getting money dumped on them, so far. All fiction.
Parker, the people I spoke of do not have time to think in the long term. Many, as I reminded my own FA–once again– do not have enough years left to take a hit and patiently wait for recovery. Besides, they need the income now. They worked and invested in 401ks and IRAs so that they could enjoy a secure old age. They thought they did right by any standard.
I am thankful that for various reasons, I am not describing myself. But, I know good people who fit the mold.
Part of the problem is simply a result of cycles–which we were told not so long ago were history, because brilliant government, and government sanctioned, functionaries knew how to dampen them. Of course, these government operatives and their crony capitalist buddies are a big part of the problem. Then, in an intertwined world we are also susceptible to the vicissitudes in other economies–and governments, some even dumber than our own.
BTW, I am hearing stories once again of mortgages with 3% down payment. Watch for the housing bubble, and whatever other calamities that follow, as government once again steps in to solve the problem.
I read somewhere recently that there is a car loan bubble, similar to the housing bubble, where anybody who can fog a mirror “qualifies” for a loan. I presume it’s an attempt to boost car sales.
Oldflyer,
As Oldflyer, I assume you are older than me. However, I am just shy of 70. Through the inheritance of about 52 acres of sweet Iowa soil, many years of living frugally and investing wisely in assets outside of equities and bonds, we are as secure as we little people can be. All along we did invest in equities and bonds and on paper – much like the donald – we are relatively wealthy, but we also realized more tangible assets were our fall back possession. Let the chaos of another great depression come, me and mine will survive.
This was in response to China, and what’s going on there isn’t over.
If the Chinese government didn’t stop the collapse of their stock market, it was either because they were unwilling or unable. There’s no reason to believe their market has bottomed out.
IMO, I think they’ll fall another 50% from where they currently are, or at least 18%.
When that happens, there will be no way for US markets to say afloat.
This is just the beginning.
The People’s Republic of China is not the only government regime whose legitimacy depends on a rising stock market.
(Parker, I agree with you in theory — your long term perspective recovering from a 30% drop has heretofore been correct historically — but do you not also see that this gangster government & crony capitalism have destroyed social trust? It may take a generation or two to recover that.)
I have no answers for the short term.
William Bernstein is necessary reading, in my opinion. He is certainly no alarmist. Here is a link to a chart on how to handle the “four horsemen” of investing:
http://imgur.com/9ivmdZu
They are inflation, deflation, confiscation, and devastation. The times are deflationary. God forbid any devastation. If you want to see a revolution in this country, try to confiscate the boomers’ 401ks.
The problem is deflation. The deflation comes from all the debt that is still being worked out from 2008.
That is why QE never triggered inflation as most expected. QE was propping up the insurance and banking industries, which are still working off the CDSs, MBSs, and other assorted debts on their books. The low interest rates forced too much money into the stock market and also resulted in many companies borrowing at low interest rates to buy back their stock. Stock buy backs make it appear that earnings are rising. That is why, over time, many investors equated QE with good earnings and a rising stock market. I have heard many pundits say they worry that a rise in interest rates, which the FED seemed about to do in September, was going to clobber the stock market. The problems in the ECM didn’t seem to phase them, but the China stock drop and the approach of September has scared a lot of the hot money out of the market.
This market drop, coupled with the China chaos, makes it unlikely that the FED will raise rates in September. IMO, to do so would be like throwing gasoline on a fire. If the drop continues below 20%, I expect the FED to announce more QE in the hopes of stabilizing things.
What is happening in China is similar to the Wall Street crash in 1929. Many small Chinese investors have been speculating in their market on margin. They have to sell to meet their margin calls. Until these small investors are wrung out of the market and the selling abates, the Shanghai index will continue downward. No one knows when that will be.
As to the real condition of the Chinese economy – no one really knows because their true economic numbers are not available to most people. We do know that demand for their products has been soft for the last 7 years. (The period of the Obama recovery. 🙁 ) We also know that their frenetic infrastructure building has outpaced their ability to pay for it and populate it with working people. That is why their demand for commodities has dropped (Dropping commodity prices worldwide in the process.) in the last three years. The best thing that could happen for China would be a revival of the global economy and demand for their manufactured goods. At present that isn’t in the cards because most countries are now experiencing deflation.
If the auto loan bubble here in the U.S. pops, it will result in more deflation as a huge amount of value disappears. The housing market is frothy in a few places in the U.S., (It’s on fire in my neck of the woods.) but the speculation and liar’s loans that were common back in the 2001-2007 period are not happening……..yet. I think this market correction will slow real estate and keep it from getting too exuberant. Nothing good can be expected in the way of government policy until Obama is gone. Massive deregulation, opening up oil/gas drilling along with allowing oil exports, building Keystone XL, lowering the corporate tax, spending on our deteriorating infrastructure, and being openly business friendly are a few things the government could do to get things moving again. Won’t happen while Obama is in the WH, or if Hillary becomes the next President.
Neo,
I think overall the correction will continue. If the Dow only drops another 700 to 1200 points I think things will be ok overall. Anything more than that and I think the panic selling really sets in.
This has been expected for some time. Try reading the fine print in your 401k. I noticed a few years ago that they began limiting how many funds that could be sold at one time. Mine happens to be only one sell order at a time.
So instead of one earth shattering thud like we had in 2007-08. We will get week long sell offs like this.
And while Parkers point is a sound one. It also depends upon how long term he is talking about. Right now the market is grossly overvalued. And like the real estate bubble when this pops it may not make up the difference in anything under a decade.
The fed simply used up all the arrows in its quiver to help markets recover the last time. We cant borrow those sums of money again. Interest rates are already at near zero. And we have been devaluing our currency with quantitative easing (money printing) for years now.
We have painted ourselves in a very bad corner. The last few decades our response to financial troubles (among others) has been to exclusively kick the can down the road.
Heard on the news that the Chinese stock market fell over EIGHT percent, which is Real Bad.
errrg
Fasten your seatbelts; it’s going to be a bumpy ride.
1) The American market is about three times any rational level… probably four times what one would expect to see at the bottom of a bear market.
2) S&P earnings figure to be absolutely PUNKED when the currency shifts are addressed by GAAP treatment.
3) So you’ll see a roll over in S&P earnings at the same time that KSA, Red China et. al. HAVE to exit the market due to external pressures.
4) No small amount of the selling pressure is coming from KSA// Kuwait sovereign wealth funds — now being tapped in a major way as a direct consequence of KSA’s price war in oil.
5) The currency// trade war between Tokyo and Beijing will not be letting up any time soon.
6) Red China built an economy on VOLUME not profitability. It’s the crux of most of her current ills. Poverty stricken proles are no basis for a consumer led economy.
7) The chronic sand bagging of silver and gold in futures pits// paper trades markets will end in tears. The Morgue will not be able to unwind its positions. ( I’m rather surprised that The Morgue has not bought out a slew of silver mining firms. )
8) It’s not possible to safely short most securities due to systemic corruption within the system. The only role of the pubic is to be the patsy. Wise investors are absolutely not wanted, as they’d queer the markets.
9) Momentum following hedge funds are quite happy to follow a down elevator.
10) The general public will continue to be fleeced by the insiders. The corruption within the SEC // NASD is nothing short of breathtaking.
Since these financial // economic crimes are hard to explain to a jury — they persist.
I’d just like to thank the commenters on this thread for their astute comments – especially OldFlyer, parker, Jimmy J., and blert. The last ten years in the U.S. have been nothing short of a massive crime against prudent savers and retirees.
…and thanks again to Neo for your great blog!
paying off this mornings margin call…
oh well…
parker Says: Crony capitalism is all about the collusion of big government with big banks and corporations. Crony capitalism never ends well.
you just described classical fascism…
ie. the left calls fascism (a socialism) chrony capitalism because people naturally dont like that collusion against them… they then dont mention that what they want is state ownership of everything, which is even worse!!!!
chrony capitalism is the communists term for facism, which attributes to capitalism the manipulations of fascism which is NOT capitalism any more than their solution, communism, is.
basically they claim that since capitalism allows fascism to take over without going after the fascists, the only viable system is the punitive deadly communism, which will avoid facism by removing the market itself and putting all ownership into the hands of politicians.
1) capitalism, the people protected from government and companies by the state
2) fascism socialism, companies and state against the people, once the state betrays their job towards the people whom they claim to protect
3) Communism socialism, the people are enslaved to work for the state which is everything, with a few owning it all collectively, including the people
calling it chrony moves the goal posts…
once in the middle, you can get people to run to the wrong goal and score for team enslavement
Mythx Says: Right now the market is grossly overvalued.
actually not… in 2008 we were trading 29 times earnings… The average market P/E ratio is 20-25 times earnings. Current S&P 500 PE Ratio is 19.08
so no. its not overvalued.
what it is is over etf
that is, huge amount of the market are in the hands of fund managers who when something happens run for the doors and sort it out later.
so stocks that have NOTHING to do with china are hammered.. VLO got hammered despite that it benefits from cheap oil as an input, so the oil price down helps them (and their finished products can be sold outside the US)
the saudies are doing what they did in the 1970s… or dont you notice how many old buildings even in obamas socialist video of things have slanted roof dormers… and angled to the south… today they waste energy as their surfaces get extra hot, but they were for the solar business that the saudis put out of business then when contracted caused the rationing… (which fuelded the chicken little contingent who yelled peak oil, peak oil, peak oil)
well, it was a given that the saudies would pump and ruin their wells to collapse the market in oil, and collapse the solar industry, to which obama just pleged another few billion to toss into it.
ie. if solar is more expensive than fossil fuels, then collapsing fossil fuels will make solar many times more expensive!!!!
the saudies been doing it for ages, and you can even find interviews where they explain what they do.. they know no one will pay attention to things that matter that way..
the contraction will come once the saudies damage their wells from overpumping!!! which is now starting to occur…
this is just a correction after a long rise without one. the US economy is not coupled with the chinese economy in terms of investments and so on. and theirs dropping with our high dollar means that we will be able to get products from them cheaper.. even more so with the yuan devaluation…
the bigger problem is that the ETF managers are not all that bright and run like scared rabbits causing this crapola to be worse than it would be…
remember they were edumacated by the chicken littles of academia…
i see this as a buying opportunity… and it will hit bottom soon, as there is nothing to keep it going down… other than irrational fear… and irrational fear is a buying opportunity… and you know it when everything drops and there is no systemic reason (like the CRA) large enough.
i am not even worried at all about it…
and am just avoiding selling so as to gain when it pops back like in the recent past… in fact it popped back so fast that those that sold off didnt have time to get back in!!!!
watch the vix… when it goes down again to more reasonable territory, thats when things are close to a bottom.. you cant call it, but there are things that are more likely then than not… a vix that hits 45 is not one of those things that indicate a bottom.
🙂
i got back into the market again a few years back and we turned 83% in the first year… and did more the second… this year i am down 16% with things situated to change that later… so i am not worried one iota…
if i worry, then you can bank on the fit hitting the shan given all the reading and studying i do…
there is nothing here but uncertainty
and the market HATES uncertainty
[which the left does not comprehend when they say the market loves war… really? the most uncertain of things is loved by the market? no, its loved by a few big players who can work it at the expense of all otehrs… what markets love is stability and predictability to remove uncertainty in what random things cant be stable or predictable]
esterday the Dow saw its biggest intraday point drop in history when it plunged 1,089 points at the opening bell. The reason: economic trouble in communist China
here’s Max Baucus, whom Obama nominated to be Ambassador to China, on the expertise he brings to the job: “I am no real expert on China.”
Senator Max Baucus, one author of Obamacare and one of its biggest proponents, admitted in 2010 that he never read the bill. He said that reading the bill would be a waste of his time. Now, Baucus, “a key architect of the healthcare reform law,” warns that implementing Obamacare will cause a huge train wreck.
such good hands…
Imagine if they were leading in a big war!!
you can be sure the ones that started the most wars in human history are imagining it… but they are torn… they would wait if it was a biden warren presidency next..
the vix is way down…
it was up over 40%.. but now its down
29.01 Down 11.73(28.79%) 11:23AM EDT
time for the liberal idiots with yellen to start opening their mouths and clobbering the market over saying nothing of any substance… cue them in 10, 9, 8, 7, etc…
hang seng
21,404.96 +153.39 (0.72%)
Is today a DEAD CAT BOUNCE?
probably… but the market is clear over and over that it doesnt want to go down… why? cause where else on the planet would people put their money and stuff?
take it out, inflation takes its value away – you lose wealth
go into bonds, and the yeilds are so low, not the 8% of the prior big drop that was structural, so you cant even beat inflation with what they are giving…
stocks are really the only game in town
buying real estate is ok if you have the cash, but wait. when the rental market gets overaturated, boy are you gonna see lots of losses… LOTS of them… i am seeing 20% vacancy rates on mortgaged properties converted to rentals…
tons of empty investments losing value without proper maintenance. which is why i decided NOT to join them and will wait a bit as i do other things….
like start small cottage businesses that use cheap labor that is not permanent… hopefully that will pan out, but now my issue is high rent for working space…
but since my employers have not given me even a cost of living raise in 11 years, and i am out the child and home the 250,000 dollar difference i am out of… well. i am just working on making my wife ok.. then i hope for some event that erases me as i am an expense without a future or anything like that.
my family is everthing…
nothing else matters to me, not even me…
🙂
I’m usually a ride it out kinda invester but retired now … I bailed yesterday with most of my gains.
I’ll jump back in when I see something that shows me this craziness is slowing down.
As I mentioned to Book a few years ago, the stock market is a convenient wealth redistribution scheme for rich, politically connected, cliques.
They have insider trading which allow them to sell their stocks at high value, and then the rest of you have to sell at lower value, lower than what you invested.
Legal, transparent, easy distribution of money from the powerless, to the powerful. They do this all the time, but sometimes the pyramid scheme collapses like the dot com bust, and everything resets to their real values.