More Worried About Markets Now Than Any Time Since 2009

[34rlsa]

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Originally Posted by ejman Good heavens. And we are supposed to be the sane ones at this board? Don't just stand there. Panic! Lets see, Tokyo is up over 6% - Run for the hills!

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Originally Posted by audreyh1 You can't explain short-term market movements - and certainly not from the news. Expecting markets to be "logical" is an exercise in total frustration.

Case in point from tonights Bloomberg headlines:

Japan’s economy contracted in the final three months of 2015 as the nation struggles to break free of a cycle of expansion and contraction despite more than three years of the Abenomics program.

Japan's Economy Contracted Again in Final Quarter of 2015 - Bloomberg Business

[unclemick]

Quote:

Originally Posted by ejman Good heavens. And we are supposed to be the sane ones at this board? Don't just stand there. Panic! Lets see, Tokyo is up over 6% - Run for the hills!

Of Course. Football is over til next season. Will Peyton really retire? Should I switch to the Chiefs as 'my team' now that I'm pretty much settle/married in KC? Should I buy/sell 'a few good stocks' or is that just shifting deck chairs on the Titanic?



heh heh heh - meanwhile the big dog on the porch is Target Retirement with those Vanguard computers automatically re-balancing their little electronic hearts out while I ponder these great questions. . It only took 40 years of investing to figure out maybe I should go full auto lifecycle index fund.

[marko]

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Originally Posted by ejman Good heavens. And we are supposed to be the sane ones at this board? Don't just stand there. Panic! Lets see, Tokyo is up over 6% - Run for the hills!

+1
Panic? We don' need no stinkin' panic!

The way I look at it 2008 was an odd blessing. It showed me that even if the (almost) worst happens, things straighten themselves out come back to an equilibrium pretty quickly.

As far as the current news cycle, things never turn out as dire as they're supposed to be and, as always, those with resources (financial or intellectual) find a way to prosper.

I'm always reminded of my notorious granddad who went out in the midst of the 1930 Depression and bought up foreclosed property.

[karen1972]

I feel like people are in the 7 year cycle panic.. ie because it "should be due any minute now" which in itself could be self-fulfilling. To me this is 100% based on oil.. So until Opec figures out how to slow the oil production and get oil prices back above $40/barrel, there will be a continuous selling of investment by these countries to raise cash for day-to-day expenses.. they have a serious cash flow issue right now and their trillions in profit are sitting in the various markets having to be liquidated.

So I don't think that will cause a "crash" but a continuous slow bleed. Obviously this will put pressure on banks and US Oil which there will be bankruptcies and defaults; however, many banks can re-cover by just a simple minor increase in interest rates as they are poised to really profit from ANY upward movement in interest.

Given the serious nature of OPECs bleed..they will figure out a way to stop it, I'm assuming sometime in the next few months and then things will return to normal.

[audreyh1]

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Originally Posted by marko +1 Panic? We don' need no stinkin' panic! The way I look at it 2008 was an odd blessing. It showed me that even if the (almost) worst happens, things straighten themselves out come back to an equilibrium pretty quickly.

There were extraordinary measures taken to bring things back into "equilibrium" quickly. Don't discount that. Wouldn't have happened on its own.

[nun]

Quote:

Originally Posted by marko +1 Panic? We don' need no stinkin' panic! The way I look at it 2008 was an odd blessing. It showed me that even if the (almost) worst happens, things straighten themselves out come back to an equilibrium pretty quickly. As far as the current news cycle, things never turn out as dire as they're supposed to be and, as always, those with resources (financial or intellectual) find a way to prosper. I'm always reminded of my notorious granddad who went out in the midst of the 1930 Depression and bought up foreclosed property.

For anyone planning to finance retirement with a 60/40 portfolio, and requiring a 4% WR, a basic belief that future markets will perform at least as well as historical markets is required. So if you are relying on a 60/40ish portfolio you should not be bothered by a bear market because you know that the long term return of equities and bonds will provide your income. If you are worried maybe a 60/40 approach isn't right for you.

[nun]

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Originally Posted by target2019 I'm not familiar with how correlation is measured, but isn't it a statistical formula, rather than a chart?

Comparing the gradients of the two charts might be instructive.

[Mulligan]

Quote:

Originally Posted by ejman Good heavens. And we are supposed to be the sane ones at this board? Don't just stand there. Panic! Lets see, Tokyo is up over 6% - Run for the hills!

Well, I should have mentioned, I just didn't do this. I have been all in on preferreds stocks for last 2 years. And before that mostly CDs and IBonds. So technically I am more aggressive now.


Sent from my iPad using Tapatalk

[ERD50]

emph mine...

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Originally Posted by nun For anyone planning to finance retirement with a 60/40 portfolio, and requiring a 4% WR, a basic belief that future markets will perform at least as well as historical markets is required. ....

No, it is based on an outlook that future markets will perform no worse than the worst of the historical markets. Of course, there is no guarantee of that, so one should have some sort of plan to adapt if we do have a worst than historical worst case scenario.

If markets perform 'as well', on average, a 4% WR will end with a large pile for heirs or extra spending.

-ERD50

[nun]

Quote:

Originally Posted by ERD50 emph mine... No, it is based on an outlook that future markets will perform no worse than the worst of the historical markets. Of course, there is no guarantee of that, so one should have some sort of plan to adapt if we do have a worst than historical worst case scenario. If markets perform 'as well', on average, a 4% WR will end with a large pile for heirs or extra spending. -ERD50

"no worse than the worst" vs "at least as well", maybe the use of one phrase over the other is the difference between the pessimist and the optimist. But the point is well taken it's the bad years that matter, not the good. I think we agree that with the performance of past markets a 4% indexed WR and a 60/40 portfolio has a very high probability of not entirely depleting the portfolio after 30 years. So I don't understand why people have any worries at all about a short term bear market.......maybe that's a little disingenuous. The people that are not worried will probably be just fine, but it's the worriers that don't understand the statistics that go into the Trinity study and make bad decisions in bear markets that will claim a that 4% and stock markets don't work for retirement income.

[target2019]

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Originally Posted by target2019 I'm not familiar with how correlation is measured, but isn't it a statistical formula, rather than a chart?

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Originally Posted by Lsbcal I personally am using the term correlation loosely here. It's easy to do a correlation analysis using the Excel function CORREL. One just gets the monthly data from Yahoo and runs the function. By why do a formal correlation? You can see from the charts and performance data that these are not highly correlated markets. Yes there is some mild correlation but nothing like > 0.90. In the crash of 2008 the correlation went up. Is another one coming? Who knows.

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Originally Posted by target2019 A question comes to mind. Is it possible that correlation is coming into play in the last year or so? Perhaps a weak correlation is growing stronger?

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Originally Posted by nun Comparing the gradients of the two charts might be instructive.

I think we've established that there is some correlation, but it is not >.90.

As mentioned in my second post quoted above, based on recent reading in the last year, some believe that these two markets have become recently correlated, but the long-term relationship is uncorrelated. One graph for a shorter time period probably requires more data.

Of course anyone can look at one graph, and see a gradient. It is what it is, I suppose.

[HFWR]

In 2008-2009, the only non-correlated asset in my stash was a total-market bond fund. Everything else crashed with near perfect correlation...

[Lsbcal]

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Originally Posted by HFWR In 2008-2009, the only non-correlated asset in my stash was a total-market bond fund. Everything else crashed with near perfect correlation...

Right, correlations are not static. When markets go down a lot the correlations go up between equity classes.

[Hermit]

Quote:

Originally Posted by unclemick ... heh heh heh - meanwhile the big dog on the porch is Target Retirement with those Vanguard computers automatically re-balancing their little electronic hearts out while I ponder these great questions. . It only took 40 years of investing to figure out maybe I should go full auto lifecycle index fund.

Having spent time in my early software years doing independent review of very critical software, no way I'd put my trust or all my eggs in that automated basket! I know what lurks in their little, deevish minds!

[harley]

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Originally Posted by HFWR In 2008-2009, the only non-correlated asset in my stash was a total-market bond fund. Everything else crashed with near perfect correlation...

I'm pretty sure you had other assets in your stash whose value was unaffected (or possibly made even more valuable) by the market crash.

[CaliforniaMan]

With all the negative talk in the news (and even here) I am getting a little worried that I will miss the fall. I re-balance Dec and June, and kind of hoping that the market will drop into June so I can sell some bonds and pick up cheap equities. Now I am actually getting a little worried I won't be able to re-balance into equities in June if the market recovers.

One thing about the current market I find it little strange there is so much concern over cheap oil presaging a recession. Aside from those in the oil industry cheap oil is great for the economy. Recessions come from rising energy costs, not falling ones.

I don't know why I am not more concerned about the economy, it is just that this current drop seems more like an old fashioned panic than anything else.

[Lsbcal]

CaliforniaMan, I agree with your sentiments. Now you have added a new twist, a rebalance panic. Fear of missing a buying panic.

Since I don't rebalance into declining markets, I'll just sit tight.

[audreyh1]

Quote:

Originally Posted by CaliforniaMan With all the negative talk in the news (and even here) I am getting a little worried that I will miss the fall. I re-balance Dec and June, and kind of hoping that the market will drop into June so I can sell some bonds and pick up cheap equities. Now I am actually getting a little worried I won't be able to re-balance into equities in June if the market recovers. One thing about the current market I find it little strange there is so much concern over cheap oil presaging a recession. Aside from those in the oil industry cheap oil is great for the economy. Recessions come from rising energy costs, not falling ones. I don't know why I am not more concerned about the economy, it is just that this current drop seems more like an old fashioned panic than anything else.

Using rebalance bands instead of dates can help with this. If your allocation gets out of whack by X%, you can rebalance.

My gut feel us this nastiness may last all year. There are other shoes to drop. The oil companies going out of business haven't shown up in the bank loan results yet. Futures contracts delayed the inevitable. E ought to keep the markets unsettled for quite a while.

[nun]

Quote:

Originally Posted by audreyh1 Using rebalance bands instead of dates can help with this. If your allocation gets out of whack by X%, you can rebalance. My gut feel us this nastiness may last all year. There are other shoes to drop. The oil companies going out of business haven't shown up in the bank loan results yet. Futures contracts delayed the inevitable. E ought to keep the markets unsettled for quite a while.

I rebalance whenever my AA diverges by +/- 5%.....if Vanguard will let me that is.

[imoldernu]

With nothing invested, nothing to gain or lose, it's a fascinating hobby to watch what looks like a game of street craps, as the bits and pieces that make up the world economy change by the minute.
Changes that confound the most experienced "experts". Who knew that Russia and Saudi Arabia would agree to oil production limits? Well, maybe many guessed, but who guessed the caps would be at the current high limits?
The crystal ball gazers may have guessed that China would plow in more debt to leverage the yuan, but did they guess that it would be to build more ghost cities? Can the leveraged Chinese corporations continue their mounting debt until the economy makes the big turn?
Knee jerk responses in the markets that move the averages up and down by 1% to 3% in a matter of hours... Was it because some of the savvy investors here on ER, called their brokers this morning?
Watching the "charts"... and even better watching the comparisons of the charts to earlier market movements is just fascinating. With a little patience, it's easy to prove almost any scenario... depending on who is "proving" the prognosis. Comparing daily, monthly, yearly or multi year slanty lines certainly proves something, but "proofs" come retrospectively, and for every winner, there are many experts who chalk up their bad guess as an anomaly.

Sooo... will Draghi's assurances on economic strength keep the European markets calm? Will the world continue to ignore Japan? What will happen to Almond prices?

So I lied about not being invested... My tiny portfolio has dropped by more than $1200 since last December. I'm trying to learn why.