Rocky start of 2016

[frayne]

I don't get all that worried or excited when the markets take a downturn but this one has me thinking about cause and effect. I realize the China situation is driving some of the numbers but I wonder how much is caused by the uncertainty of the US political climate. Not trying to get political here but I do think there is cause and effect due to the election year and the major differences of the parties and their policies.

Just wonder if anyone has the same sentiment ?

 

[eytonxav]

Seems like the most susceptible sectors in this presidential cycle have been healthcare, energy and defense, and wall street/hedge fund managers/bankers have been villianized. Any how, those same areas have been affected as well in past election cycles.

 

[Meadbh]

I think it's more global than that. Most world economies are not doing well. Brazil in recession. Oil glut. Geopolitical crises. Russian aggression. Lots of uncertainty.

 

[Car-Guy]

No doubt it has some effect. How much?

 

[Gone4Good]

I doubt the FTSE 100 is down ~19% since it's peak because of a U.S. presidential election, or the DAX, or the . . .

In terms of cause and effect I'd look no further than really high stock valuations (U.S. equities trading around 26x PE10 at their peak which is 30% above their modern average and about 60% above their historic average), coupled with a rapidly slowing global growth outlook, a huge debt unwind expected in China with completely unknowable consequences, mixed with fears of the last debt unwind still fresh in people's memories, all at a time when the global central banking system is basically out of recession fighting ammunition.

No, I'd say political uncertainties are the last thing markets are worried about at the moment.

 

[W2R]

As always, I have an opinion and this time it doesn't match that of many of the talking heads. So here goes...

I don't believe any of the reasons that are proposed for market swings, ever. I think the writers desperately want to believe that they can control and/or predict the market so that they can keep their phony-baloney jobs working for the mass media (job description: "prophets"), and that is why they write such foolish things.

But really, when does an investor sit back and think, "Gosh, the elections are coming up, the Chinese are doing weird things, and the Iranians are acting rash again, so I think I'll get out of the market or change my AA?" Well, maybe some, but to me, it seems more likely that the investor would think, "Gosh, I'm retiring next month and I'm getting old so I'll change my AA and also invest my bonus this year instead of spending it on booze and women". In other words, personal issues and events in one's personal life trump political issues every time, IMO.

And even more importantly, I think the market has its own life and cycles and really does not respond much at all to the type of things proposed by the talking heads. This is not very appealing to most people because it means that they can't predict or control the market, but I think it is the cold hard truth.

We are fed what to think by the media and I refuse to swallow it whole. If the hired prophets of mass media really could predict the market, they'd all be retired billionaires. Instead they are scrabbling desperately to come up with headlines, so they can keep their stupid jobs.

I don't get all that worried or excited when the markets take a downturn but this one has me thinking about cause and effect.

I think about it too, and laugh. Anyone who could figure out cause and effect could therefore predict the markets. Such a person would be a billionaire recluse and would be insane to share his/her insights. I don't think that anybody fits into that category.

 

[steelyman]

W2R - you go, girl. Someone posted a link to a one-day free Kindle version of a book called Why Bother With Bonds, a good read in itself but also contains a nice summary of how the talking (or writing, blogging, advising, whatever) heads make their money. It's not from being correct about anything except there are tons of eager people willing to buy what they're selling.

 

[frayne]

So I guess markets are rational and it's the people who are irrational !

 

[ziggy29]

So I guess markets are rational and it's the people who are irrational !

Well, the market *is* people. The people buy and sell stocks, the people run and work at the businesses, the people program the computers that run buy and (lately, primarily) sell programs.

The market moves on fundamentals and economic performance in the long run. In the shorter term it's more likely to be driven by the two primary emotions in investing -- fear and greed.

 

[REWahoo]

...

 

[W2R]

...

LOVE it!!! That's a priceless cartoon and worth saving.

 

[HadEnuff]

As always, I have an opinion and this time it doesn't match that of many of the talking heads. So here goes...

I don't believe any of the reasons that are proposed for market swings, ever. I think the writers desperately want to believe that they can control and/or predict the market so that they can keep their phony-baloney jobs working for the mass media (job description: "prophets"), and that is why they write such foolish things.

But really, when does an investor sit back and think, "Gosh, the elections are coming up, the Chinese are doing weird things, and the Iranians are acting rash again, so I think I'll get out of the market or change my AA?" Well, maybe some, but to me, it seems more likely that the investor would think, "Gosh, I'm retiring next month and I'm getting old so I'll change my AA and also invest my bonus this year instead of spending it on booze and women". In other words, personal issues and events in one's personal life trump political issues every time, IMO.

And even more importantly, I think the market has its own life and cycles and really does not respond much at all to the type of things proposed by the talking heads. This is not very appealing to most people because it means that they can't predict or control the market, but I think it is the cold hard truth.

We are fed what to think by the media and I refuse to swallow it whole. If the hired prophets of mass media really could predict the market, they'd all be retired billionaires. Instead they are scrabbling desperately to come up with headlines, so they can keep their stupid jobs.


I think about it too, and laugh. Anyone who could figure out cause and effect could therefore predict the markets. Such a person would be a billionaire recluse and would be insane to share his/her insights. I don't think that anybody fits into that category.

absolutely agree. If oil is climbing and the market is tanking it's because oil prices are climbing. If the oil is tanking and the market is tanking, it's because oil is tanking.
Makes perfect sense.

 

[razztazz]

And even more importantly, I think the market has its own life and cycles and really does not respond much at all to the type of things proposed by the talking heads. This is not very appealing to most people because it means that they can't predict or control the market, but I think it is the cold hard truth.

I noticed this a long time ago but I was so young then I couldn;t put my finger on it.

People think The Market and The economy are like "Zach & Cody". More or less identical. The operational reality is they are more Like Leopold & Loeb. Often in synch and appearing to be related without actually being related.

Somewhere on this forum is a youtube short clip of an unrecognizable Warren Buffett from 1961 on a TV show saying that sometimes the market is a good indicator of the economy and sometimes it's totally doing it's own thing and doesn't tell you anything about the real economy

 

[RAE]

In terms of cause and effect I'd look no further than really high stock valuations (U.S. equities trading around 26x PE10 at their peak which is 30% above their modern average and about 60% above their historic average), coupled with a rapidly slowing global growth outlook, a huge debt unwind expected in China with completely unknowable consequences, mixed with fears of the last debt unwind still fresh in people's memories, all at a time when the global central banking system is basically out of recession fighting ammunition.

+1. Completely agree with this assessment. As I mentioned in another post, we are in uncharted territory this time, with a possible recession approaching and the Fed out of ammo to do anything to help lessen the pain. I think market valuations have gotten way beyond what the economic fundamentals can support in recent years, because of the Fed's QE 1,2,3 and ZIRP since 08/09.

 

[rodi]

But really, when does an investor sit back and think, "Gosh, the elections are coming up, the Chinese are doing weird things, and the Iranians are acting rash again, so I think I'll get out of the market or change my AA?" Well, maybe some, but to me, it seems more likely that the investor would think, "Gosh, I'm retiring next month and I'm getting old so I'll change my AA and also invest my bonus this year instead of spending it on booze and women". In other words, personal issues and events in one's personal life trump political issues every time, IMO.

I think I needed to rebalance my portfolio. My ratio of booze and women is out of whack.

 

[Bestwifeever]

+1. Completely agree with this assessment. As I mentioned in another post, we are in uncharted territory this time, with a possible recession approaching and the Fed out of ammo to do anything to help lessen the pain. I think market valuations have gotten way beyond what the economic fundamentals can support in recent years, because of the Fed's QE 1,2,3 and ZIRP since 08/09.

Have you adjusted your investments?

 

[eytonxav]

I think market valuations have gotten way beyond what the economic fundamentals can support in recent years, because of the Fed's QE 1,2,3 and ZIRP since 08/09.

Absolutely, my big concern is that these Fed actions will resume/continue for several more years.

 

[Lsbcal]

I know you are all just breathless to hear my opinion.

As I understand it, the US markets are driven by institutional trading. I guess that includes ETF's and funds the little guys like us invest in. Anyway, I think this is mostly driven by what earnings will do maybe 9 months out. It is constantly, second to second, driven by new information that comes up. Sure the political worries are somewhere in there but if they don't affect Apple's earnings, they are a side show.

The current price is all you can see and incorporates all the market participant's best guesses. The price is like an event horizon. Also the theories about what lie beyond the current price are already built into the current price!

My theory: The market is going up eventually so be optimistic. Of course, that theory is already in the market price set my my current AA.

 

[REWahoo]

I'm going out on a limb here and theorizing the problem arose because there are more people who want to sell equities than want to buy them, therefore sellers have to offer price discounts to reduce inventory.

Either that, or its because the ether is out of balance due to a near miss by an asteroid.

 

[Gatordoc50]

The responsible thing would be for the Fed to continue to raise rates and let all of the malinvestment liquidate. I am holding tight with my equities. If the S and P gets down to 1250, I'll be a buyer.

 

[38Chevy454]

My biggest complaint(?) is when the reactions of the market are way out of sync with the supposed crisis of the day. Someone in China farts and then everybody in China panics, which causes the other time zone markets to knee-jerk react, and in the end we get a 2+ percent down day all over the world's markets.

Ever notice it drops in whole number percents, but seems to go up in fractions of percents?

 

[Chuckanut]

One does not get those great returns that allow a generous safe withdrawal rate by buying high and selling low.

That said, I have no idea where the market is going, how long it will take to get there and how long it will stay there. And, where it will go after that.

 

[Mulligan]

My biggest complaint(?) is when the reactions of the market are way out of sync with the supposed crisis of the day. Someone in China farts and then everybody in China panics, which causes the other time zone markets to knee-jerk react, and in the end we get a 2+ percent down day all over the world's markets.

Ever notice it drops in whole number percents, but seems to go up in fractions of percents?

For entertainment I watch business news...Its funny how when Chinese market was heading up to the moon last year, I was barely aware of it. Now they mention it daily when its going down.


Sent from my iPad using Tapatalk

 

[Lsbcal]

One does not get those great returns that allow a generous safe withdrawal rate by buying high and selling low.
...

...and also the volatility in stock markets is the price of entry. One does not get equity returns without getting on the roller coaster.

 

[RAE]

Have you adjusted your investments?

Yes, I did reduce my equity exposure about a month ago, but it wasn't a very big exposure to begin with. So, I am mostly watching this from the sidelines, for now. I have a small pension that is enough to cover most of my basic living expenses, so I use equities mostly as a supplement to the pension, for things like travel and other fun stuff. And yes, I understand that this is market timing, but so be it. If I end up staying out of equities for quite a while (and missing some potential gains as a result), that's fine with me. I'd rather not risk incurring any significant losses with that money right now.