Down Day in the Market !

[redduck]

Cramer's piece intrigued me, so I did some more digging and found this https://www.bloomberg.com/view/articles/2018-02-09/inverse-volatility-products-almost-worked

...If you think that a certain market move should make your instrument go up and it makes it go down instead, I'd say you don't understand enough to be invested in that instrument in the first place.

Sometimes an instrument becomes unpredictable (especially as you age). But so what? Just because you can't predict what market move will make the instrument go up or down you think a person shouldn't be invested in that instrument? What are the options? (I don't really want to know).

 

[FIREmenow]

Random headlines around the interwebs that are funny when juxtaposed to each other:

• Market sell-off is a temporary fluke
• VIX blowup is the tip of the iceberg
• Market volatility can be controlled by regulation
• Stock market could drop by a third
• Stock selloff creates bargain blue chips
• Stock market downturn will be short-lived
• Investors should have less exposure in the market
• Blink and you'll miss this market's windows of opportunity
• The Equity Market Is Giving You A Huge Opportunity
• History suggests the correction isn't near over
• This is the stock market crash we needed

 

[Mulligan]

NW-Bound: you are digressing ... or maybe not.

This is a lot of what drives markets. A lot of people found they had a few Civics in their pocket last year, and started spending. The wealth effect, if you will.

Some of this was consumer goods, some was investing, maybe even bitcoin.

I know I "blew that dough" last month feeling good to buy my retirement laptop that should serve me a few years. Honestly, today I might think twice.

So, getting back to the rest of the USA, many people spend, spend, spend per paycheck. No investment at all. There are plenty of professionals who get a raise, and get a new car lease up to the next level. Or get into the country club.

Is this bad? I don't know, maybe not. It does drive certain sectors of the economy. It certainly is bad for their retirement!

Joe, I just got a letter today notifying me my after tax pension check is being increased $201 a month thanks to the tax cut. No spend spend spend here with that money. Its going in the bank to be used at a later time to pay for the future tax increase to pay for the tax cut!

 

[kcowan]

or to pay for Medicare and Social Security which are both unaffordable now that the store has been given away...

 

[calmloki]

You are all scaring me. We haven't sold anything, though the gal feels we should have taken profits a week or so ago. I just am paralyzed due to a lack of place to put any sale proceeds. Rentals and loan payments to us more than cover our expenses and getting excited about having years worth of cash earning a whole 1.75% at Ally for the next 9 months seems silly. I want to be selling the rentals and living the carefree passive income life; the last couple years have been rewarding to the funds we invested. Yahoo! - sell the rentals and dump the proceeds into stocks and bonds! Waawaaah. guess it's just life. and it could be worse.
Chart: Visualizing the Global Millionaire Population

 

[copyright1997reloaded]

All of those people who sold, still have to figure out where to put their money. Sure, interest rates are "up", but is that still where folks are going to want to keep their money long-term?

When times are good an investor worries about return on investment. When things are falling apart an investor worries about return OF investment.

Once the market was down some, there had to be some margin calls going on (both individual and more importantly institutional). This forced selling is possibly one of the reasons why the afternoons have seen increases in volume and increases in volatility. In addition, companies are unable to repurchase their own securities past 3:15pm, which makes the end of day processing more 'fun' as that support is missing.

 

[NW-Bound]

I think it was Ben Graham who said that long term, the market acts like a weighing machine, while in the short term, it acts as a voting machine.

I think his point was that we should focus on the long term.

Lots of quotes I like, but I am fond of this one.

"Capital is like a rabbit. It flees at the first sign of danger" -- Anon.

 

[njhowie]

Also, Yardeni has updated his bull/bear report - I think he does it weekly - showing the current correction https://www.yardeni.com/pub/sp500corrbear.pdf

Back in 2007 I was in attendance at a talk he gave. He had called for 14,000 on DJIA and he was explaining/apologizing that he didn't expect it to happen so soon after he made his call. In response, he upped it to 15,000. Guess what happened next?

 

[Lawrence of Suburbia]

Lots of quotes I like, but I am fond of this one.

"Capital is like a rabbit. It flees at the first sign of danger" -- Anon.

It's nowhere near as endearing, though.

 

[NW-Bound]

True. But with capital (money), you can buy all the rabbits you care to cuddle.

That brings to my mind another quote.

"They say money is not everything, but look how many things it is" -- Anon.

 

[NW-Bound]

When times are good an investor worries about return on investment...

Not so much worry as greed. Just a few weeks ago, my son-in-law told me he read on reddit that a guy took all his money to put on bitcoin. The market return last year of 20% was not enough, and he wanted more.

When things are falling apart an investor worries about return OF investment...

They do. One click on the mouse, and they are back out in cash. If they can log in to their brokerage that is.

 

[NW-Bound]

Back in 2007 I was in attendance at a talk he gave. He had called for 14,000 on DJIA and he was explaining/apologizing that he didn't expect it to happen so soon after he made his call. In response, he upped it to 15,000. Guess what happened next?

Can you blame him though?

"The market is already at 14,500 and you said 14,000! Are you expecting a crash? You want us to sell?"

So, of course he had to raise it. Tough job!

 

[Lcountz]

OK..there are about 14 trading days til the next "jobs report" and the other reports that come out on that day each month....( actually the payrolls for Feb will come out a few days earlier....

So if it's really GOOD, what do you think that will mean? Meanwhile, if interest rates keep rising, and oil drops, and auto sales start to slip as people realize they are NOT as wealthy as they thought....and the deficit spending level sinks in....and the newbs who didn't even know what the DOW was in 2008-9 see thier balances dropping...and mortgage rates start rising...

Hope I'm wrong....

I have two cats.....first we'll fight for the food, then they will BE the food!!!! (JOKE JOKE JOKE!!!!) .

I plan to just hold tight for now......and I'm thanking goodness I "took the pension" instead of the lump sum!!!

 

[copyright1997reloaded]

All bull markets end badly.
All bull markets end badly.
All bull markets end badly.

The question is, has the bull market ended?

Most bull markets don't end without an inversion of the yield curve, and typically not until 12 months or so after the inversion. [An inversion of the yield curve occurs when the 2 year treasury rate is higher than the 10 year rate.]

Here's a good source for 10 year - 2 year spread data (just change the scale to max to see more historical data): https://fred.stlouisfed.org/series/T10Y2Y. While the spread has come down it is still positive.

This is part of the reason why I don't think we've seen the end of the bull market yet.

 

[audreyh1]

All bull markets end badly.
All bull markets end badly.
All bull markets end badly.

The question is, has the bull market ended?

Most bull markets don't end without an inversion of the yield curve, and typically not until 12 months or so after the inversion. [An inversion of the yield curve occurs when the 2 year treasury rate is higher than the 10 year rate.]

Here's a good source for 10 year - 2 year spread data (just change the scale to max to see more historical data): https://fred.stlouisfed.org/series/T10Y2Y. While the spread has come down it is still positive.

This is part of the reason why I don't think we've seen the end of the bull market yet.

Yeah looks like the flattening trend reversed 2 weeks ago. I don't think we'll be inverting any time soon.

That doesn't mean the markets won't have a good selloff.

 

[UnrealizedPotential]

I sure did make some mistakes when I first started in 1995. I have gotten better over time. I still make mistakes , but I learn more every year. Investing to me is something I enjoy, and when you enjoy something you naturally get better at it because you are learning all the time.


I would say among the top things I've learned is to have a proper asset allocation. Also to not panic when the market goes down. Those two things are huge. Just those two things alone really help in any kind of a downturn.

They are basic, but very, very important.

 

[audreyh1]

On Feb 1, CAPE10 had reached 34.1

By Fed 9 it had only dropped to 31.7 - still in nosebleed territory exceeding any other time except mid 1997 - mid 2001. This is still above the Nov 1 2017 value of 31.2.

 

[foxfirev5]

Will I still get a decent equity dividend this quarter? Probably. Likewise my Bond Funds and CD's will be paying me this month. So I guess there's nothing to buy or sell, other than letting the surplus accumulate and buy more higher yielding CD's. No need to market time or rebalance (Boglehead Term). Plodders prevail.

 

[UnrealizedPotential]

On Feb 1, CAPE10 had reached 34.1

By Fed 9 it had only dropped to 31.7 - still in nosebleed territory exceeding any other time except mid 1997 - mid 2001. This is still above the Nov 1 2017 value of 31.2.

So this is different from the forward earnings of the SP500 and Nasdaq, and the Dow? Is that correct? I think they are a different way of measuring the PE ratios of the market. I have no idea which one is better or even how either one is calculated. Do you have any thoughts on that?

I am not sure but I saw somewhere where it said the SP500 had a pe ratio on Feb, 9,2018 of 24.46. I think that is forward earnings. I am not making a case for/against as I don't understand it really.

 

[mamadogmamacat]

Finally got around to my monthly checking, about a week late (what a week too I suppose). Down 10k in my taxable accounts and down 11k in tax deferred. meh But who knows what the future holds. basically back where I was last Halloween. I'm liking that Cramer theory about the volatility derivatives I mentioned back somewhere in one of these threads as the cause. Easy to understand and easy to track their liquidity going fwd too. What fun.......no where near the point of fighting my cats for their food yet

 

[NW-Bound]

You are all scaring me. We haven't sold anything, though the gal feels we should have taken profits a week or so ago. I just am paralyzed due to a lack of place to put any sale proceeds. Rentals and loan payments to us more than cover our expenses and getting excited about having years worth of cash earning a whole 1.75% at Ally for the next 9 months seems silly. I want to be selling the rentals and living the carefree passive income life; the last couple years have been rewarding to the funds we invested. Yahoo! - sell the rentals and dump the proceeds into stocks and bonds! Waawaaah. guess it's just life. and it could be worse.
Chart: Visualizing the Global Millionaire Population

About your lack of place to put your stash, well we all have the same problem. What can one do other than to say hello to belt tightening and no more "blowing dough"?

And your linked article says the US has 4.3 million millionaires. Don't know how they measure it, but the article says networth, which should include real estate. Hah! In California, that probably means someone who has a $1M equity in his home, but still has a mortgage. And then, even with $1M in investable assets, a 4% WR is just $40K/yr.

Indeed, the article added:

The vast majority of millionaires (90.0%) globally have fortunes between $1 million and $5 million, and you’re probably not going to find many of them with a sprawling mansion or a new Rolls Royce in the garage.

In fact, most millionaires drive a Ford.​

No Lamborghinis. The dough is already earmarked to buy food and pay for shelter.

 

[Hamlet]

So this is different from the forward earnings of the SP500 and Nasdaq, and the Dow? Is that correct? I think they are a different way of measuring the PE ratios of the market. I have no idea which one is better or even how either one is calculated. Do you have any thoughts on that?

I am not sure but I saw somewhere where it said the SP500 had a pe ratio on Feb, 9,2018 of 24.46. I think that is forward earnings. I am not making a case for/against as I don't understand it really.

CAPE10 earnings are the average over the last 10 years. It is meant to even out the business cycle.

The 24.46 is the last twelve months earnings, I suspect. Both of those measures are very high by historical standards.

The forward PE should be a fair amount lower, since corporate taxes have been lowered dramatically. How much lower is highly debatable, though.

 

[NW-Bound]

...
The forward PE should be a fair amount lower, since corporate taxes have been lowered dramatically. How much lower is highly debatable, though.

This is a long thread, so I will repost some info here.

One more thing I forgot to mention about P/E: effect of expected growth.

As of Oct 2017, the expected earning of the S&P was such that the 2018 forward P/E is 19. Barring any calamity that prevents that from happening, the recent price cut of 10%, if it stays, means the forward P/E will be 17.

That's reasonable. Another reason for me to stay.

 

[NW-Bound]

The problem is how much of that earning growth is a one-time effect, and how much is due to true organic growth. If anyone has seen some info, please share.

 

[calmloki]

About your lack of place to put your stash, well we all have the same problem. What can one do other than to say hello to belt tightening and no more "blowing dough"?

And your linked article says the US has 4.3 million millionaires. Don't know how they measure it, but the article says networth, which should include real estate. Hah! In California, that probably means someone who has a $1M equity in his home, but still has a mortgage. And then, even with $1M in investable assets, a 4% WR is just $40K/yr.

Indeed, the article added:

The vast majority of millionaires (90.0%) globally have fortunes between $1 million and $5 million, and you’re probably not going to find many of them with a sprawling mansion or a new Rolls Royce in the garage.

In fact, most millionaires drive a Ford.​

No Lamborghinis. The dough is already earmarked to buy food and pay for shelter.

Ahh. i had just focused on the part that noted that millionaires comprised 0.2% of the global population. No desire to exist in the ruck, but I need to remember where I am.. Good fortune.