I know we must be close to the bottom

[soupcxan]

Since I spotted this headline from the AP:

"Stock market plunging into pit of despair"

Stock market plunging into pit of despair: Financial News - Yahoo! Finance

With phrases like "pit of despair" being bandied about, we've gotta be close! Aw, who am I kidding, the bottom may still be miles away. However, at least the P/E ratio of the S&P is down to 10.7, the lowest it's been since the early 1980s.

 

[Notmuchlonger]

Well we aren't too far from 0. At least it will bottom then

 

[CuppaJoe]

I've caught three falling knives recently and am itching to catch two or three more, maybe Friday or Monday.

I like the idea of a turnaround after the election, that would be one uncertain item off the table.

 

[ladelfina]

There are such things as negative interest rates, and they walk among us.

The Fed is paying banks to keep both excess AND REQUIRED capital reserves. That sounds like below zero to me. (This is not even getting into price inflation.)

Fed Adds Liquidity, to Pay Banks Interest (Breaking News) at SmartMoney.com

How much will we individuals have to pay banks to keep our deposits in the future?

 

[FIRE'd@51]

The Fed is paying banks to keep both excess AND REQUIRED capital reserves. That sounds like below zero to me. (This is not even getting into price inflation.)

How do you figure that? Banks are required to keep reserves (I think 10%) for their transaction accounts. Generally banks earn no interest on these reserves - now they will. This has nothing to do with negative interest rates.

 

[ladelfina]

I don't "figure" it... it's in the news:

Fed Adds Liquidity, to Pay Banks Interest (Breaking News) at SmartMoney.com

WASHINGTON (Dow Jones) -- The Federal Reserve on Monday announced it will start paying interest on banks' required and excess reserve balances and that it would also boost the size of one if its key lending programs for cash-strapped banks.

Of course banks earn a sort of interest on reserves in the first place.. they earn it on the 900-1200% or whatever it is they can loan out off of it. Now they will collect interest from the Fed (i.e., us taxpayers) even if they loan nothing.

 

[audreyh1]

Yeah, I think we're close too!. I've already caught a couple of falling knives this year - ouch!

But this is so powerful! This week is a CRASH, not just a bear market. So I'm hoping for a strong V out of this. Sure, it'll be tested a few times, but you just can't keep going down parabolic like this forever. At some point there is a strong snap back.

Audrey

 

[FIRE'd@51]

I don't "figure" it... it's in the news:

Fed Adds Liquidity, to Pay Banks Interest (Breaking News) at SmartMoney.com


Of course banks earn a sort of interest on reserves in the first place.. they earn it on the 900-1200% or whatever it is they can loan out off of it. Now they will collect interest from the Fed (i.e., us taxpayers) even if they loan nothing.

Again, I ask, what does this have to do with negative interest rates? If banks could also loan the reserves they would earn interest on them, but they can't loan them. That's why they call them reserves. Now they will earn interest, which they can then use for more loans or to back more transaction accounts which they can lend out.

Maybe you should stick to your area of expertise - The Soapbox

 

[ladelfina]

Sorry if I don't have your sophisticated financial acumen.. Mr./Ms. FIRE'd@51, but I'd appreciate your holding off on the insults and the condescending tone unless you know better than I what is going on.. I don't -entirely- but do you?

To me, if anyone has to PAY a bank to keep their legally-required capital, or any capital at all, that translates to me as negative interest. Doesn't matter if it's me the depositor or me the US taxpayer doing the paying.

That this is necessary to keep the inverted debt pyramid up for the interim only confirms the theories I have been culling from others and posting here (to general ridicule of the above sort) for several months.

Where is the natural limit of such tactics?
What interest is the Fed paying and how high will they go?

This proves there is no money and there are no banks. Any bank being made these payments is effectively insolvent, and the Fed paying them to stay in business is a hidden form of nationalization. They might as well be loaning the money outright and cutting out the profit-taking middleman.


You want to split hairs about the poor banks not being able to loan out these reserves? Fine.
Try zero. Z-E-R-O reserves.

13 SEC. 128. ACCELERATION OF EFFECTIVE DATE.
14 Section 203 of the Financial Services Regulatory Re-
15 lief Act of 2006 (12 U.S.C. 461 note) is amended by strik-
16 ing ‘‘October 1, 2011’’ and inserting ‘‘October 1, 2008’’.

http://financialservices.house.gov/essa/ayo08c04_xml.pdf

which refers to:

SEC. 202. INCREASED FLEXIBILITY FOR THE FEDERAL RESERVE BOARD TO ESTABLISH RESERVE REQUIREMENTS.

Section 19(b)(2)(A) of the Federal Reserve Act (12 U.S.C. 461(b)(2)(A)) is amended--
(1) in clause (i), by striking `the ratio of 3 per centum' and inserting `a ratio of not greater than 3 percent (and which may be zero)'; and
(2) in clause (ii), by striking `and not less than 8 per centum,' and inserting `(and which may be zero),'.

http://www.govtrack.us/congress/billtext.xpd?bill=s109-2856

Now are ya happy?

Infinite money.

 

[Retire Soon]

It looks like Friday will be another exciting day on Wall Street. S&P futures are down 27 Points. Japan is not looking any better with the Nikkei down 10.25%. I thought we were getting close to a bottom yesterday, but I am now becoming less optimistic.

 

[clifp]

I am selling everything tomorrow.

Now we have a bottom.

 

[riskadverse]

I am selling everything tomorrow.

Now we have a bottom.

This may be one of the best indicators yet. When the "buy and hold" types throw in the towel.

 

[REWahoo]

This may be one of the best indicators yet. When the "buy and hold" types throw in the towel.

That seems to be a popular theme:

"...at least historically, some die-hard adherents to buy-and-hold eventually give up the faith -- when things get bad enough. And when this conversion does take place, a bottom is probably not that far away."

The bottom is still to come, says one market timing indicator - MarketWatch

 

[FIRE'd@51]

Sorry if I don't have your sophisticated financial acumen.. Mr./Ms. FIRE'd@51, but I'd appreciate your holding off on the insults and the condescending tone unless you know better than I what is going on.. I don't -entirely- but do you?

Not entirely, but better than you do, whence your quote below.

To me, if anyone has to PAY a bank to keep their legally-required capital, or any capital at all, that translates to me as negative interest. Doesn't matter if it's me the depositor or me the US taxpayer doing the paying.

The reserves belong to the banks, not the Fed. The banks are not paying the Fed to hold the reserves. That would be an example of negative interest rates.

Let me try to make this simple for you, with a main street example. If you buy a house in NY and put the required 10% down payment into an escrow account which earns interest, that is not an example of negative interest. If you payed the lawyer interest for holding your deposit, that would be negative interest.

Maybe if you would read your own links, you would better understand these concepts.

 

[Hal3]

Stop loss on the market?

This may be one of the best indicators yet. When the "buy and hold" types throw in the towel.

Financial advisors always say you can't time the market so just buy and hold unless you are nearing retirement.

But investors will use a stop loss on a stock that they hold all the time.

Why not a stop loss on the market? Why not pick a number to sell all stocks and get out without any emotion or hand-wringing?

Is it just because financial advisors historically are stock salesman and it breaks their secret code of honor?

Why should riskadverse wind up selling now with great agnuish when he could have just set a 10% (for example) stop loss and sold out back then?

Honest opinions?

 

[Hal3]

Use of Middle English discouraged on this board.

Not entirely, but better than you do, whence your quote below.

whence (like thence) is most often used nowadays to impart an archaic or highly formal tone to a passage (thefreedictionary.com)

We are discouraging the use of Middle English. Here and, frankly, everywhere.

Whence, thence, lo and behold, hearken, and, especially, methinks - just stop.

 

[2B]

Since I spotted this headline from the AP:

"Stock market plunging into pit of despair"

Stock market plunging into pit of despair: Financial News - Yahoo! Finance

With phrases like "pit of despair" being bandied about, we've gotta be close! Aw, who am I kidding, the bottom may still be miles away. However, at least the P/E ratio of the S&P is down to 10.7, the lowest it's been since the early 1980s.

Just remember that the PE ratio involves earnings that can change too. When the earnings of the S&P drop by 50% then the PE will be back up to 21.4. Hmmm, doesn't look to good then.

By the way, most market bottoms acutally occur at "high" PEs and usually for this reason. Someone will obviously challenge me to put up my data which I don't have time to do right now. I'll defer to CFB if he chooses to support me or let my end of the thread die.

I'm still unhappy we haven't reinstituted the uptick rule. I hope they are looking for naked shorters. I can't believe the massive dumping of stocks done over very short periods in the last week involved "real" shares.

 

[2B]

Yeah, I think we're close too!. I've already caught a couple of falling knives this year - ouch!

But this is so powerful! This week is a CRASH, not just a bear market. So I'm hoping for a strong V out of this. Sure, it'll be tested a few times, but you just can't keep going down parabolic like this forever. At some point there is a strong snap back.

Audrey

I've avoided catching any falling knives by sticking with the asset allocation and index funds. My normal insticts would have put me deeper and deeper into this market hundreds of points ago. By now I'd have been totally loaded up with "too big to fail" financial firms that many would have already failed or taken over for pennies on the dollar.

Who would have thought this could happen? The locked credit markets are beginning to wipe out the general economy. I'm afraid this may be the "big one."

I'm still hanging in with my index funds. I'm panicing like everyone else but so far I'm not doing anything about it. Will I be so "calm" if another 25% of my net worth disappears?

 

[2B]

I am selling everything tomorrow.

Now we have a bottom.

Go for it. Thanks for taking one for the team.

 

[W2R]

whence (like thence) is most often used nowadays to impart an archaic or highly formal tone to a passage (thefreedictionary.com)

We are discouraging the use of Middle English. Here and, frankly, everywhere.

Whence, thence, lo and behold, hearken, and, especially, methinks - just stop.

Methinks thou speakest for some other forum from whence thou cameth previously? Lo and behold, we haveth no problems with Middle English or even Pirate-speak here at the E-R Forum.... Aargh!!

 

[W2R]

I am selling everything tomorrow.

Now we have a bottom.

Isn't that a little extreme? What made you decide to do this right now?

I am curious but not meaning to be critical - - believe me, I think most of us are pretty freaked right now. What effect will this have on your ER income and your ability to live a lifestyle reasonably close to that to which you are accustomed? What was "the last straw"?

 

[Sarah in SC]

whence (like thence) is most often used nowadays to impart an archaic or highly formal tone to a passage (thefreedictionary.com)

We are discouraging the use of Middle English. Here and, frankly, everywhere.

Whence, thence, lo and behold, hearken, and, especially, methinks - just stop.

Would Old English be good with you then? Or maybe Pig Latin?

 

[harley]

Methinks thou speakest for some other forum from whence thou cameth previously? Lo and behold, we haveth no problems with Middle English or even Pirate-speak here at the E-R Forum.... Aargh!!

Indubitably. Tally ho! Forthwith! Groovy!

 

[ziggy29]

Just remember that the PE ratio involves earnings that can change too. When the earnings of the S&P drop by 50% then the PE will be back up to 21.4. Hmmm, doesn't look to good then.

By the way, most market bottoms acutally occur at "high" PEs and usually for this reason.

This is why P/E is a terrible measure of valuation in a down economy.

Personally, I think the ratio of ten-year earnings yield of the S&P 500 (that is, the inverse of PE10) over the one-year T-bill rate is a pretty good indicator of valuation -- the higher the number, the more attractively valued the market is. P/E is only part of the story with stock valuations; the rest of it depends on the return you can get in relatively safe investment alternatives. A P/E of 10 may seem cheap but if Treasury notes are yielding 8%, the market isn't giving enough of a premium to take the risk.

 

[harley]

whence (like thence) is most often used nowadays to impart an archaic or highly formal tone to a passage (thefreedictionary.com)

We are discouraging the use of Middle English. Here and, frankly, everywhere.

Whence, thence, lo and behold, hearken, and, especially, methinks - just stop.

Now that I reread this, I'm becoming suspicious. If you are "we", then you must also be "they". "They" are the ones who've caused all this brouhaha, and "they" are always the ones to blame for all of "our" problems. Pitchforks and torches, brothers and sisters! We have a target!