More Worried About Markets Now Than Any Time Since 2009

[target2019]

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

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.

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?

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]

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]

...
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]

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]

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]

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.

 

[HFWR]

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.

Yep, a lot of rebalancing...

 

[HadEnuff]

2 straight trading days in the green!!! Who's worried now??

 

[pb4uski]

I hope you are right, I just started shorting the S&P late Friday.

Well, I guess that is better than late Thursday.

 

[Nemo2]

Share rout has further room to run, $2.4 trillion JPMorgan strategist says

Don't be fooled into thinking the breather in sharemarkets means we've reached the bottom, says Marcella Chow, who watches the world's markets for JPMorgan Asset Management.
The global strategist for the $US1.7 trillion ($2.4 trillion) money manager says she's on edge, her clients are panicky and she's telling them to stash as much as 70 per cent of their money in bonds including US Treasuries. Calm won't return until China's economy improves and central banks regain credibility with investors, she said. She's waiting for oil to fall to as low as $US22 a barrel, and in the meantime she's battening down and trying to avoid volatility.

 

[Gone4Good]

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.

Umm, markets go up and markets go down?

But to your broader point, while I can't predict every economic development that may seem relevant to an ADD addled trader or business reporter, I can predict one thing with absolute certainty: most everyone in the world economy is working hard to make things better tomorrow than they were yesterday. That's a simple idea worthy of investing in.

 

[truenorth418]

I can predict one thing with absolute certainty: most everyone in the world economy is working hard to make things better tomorrow than they were yesterday.

Actually, I'm going to the gym tomorrow, and then I'm going to Starbucks for a coffee while I plan out my upcoming trips to Europe and SE Asia. But, yeah, as long as most everyone else is working hard tomorrow we should be fine.


Sent from my iPhone using Early Retirement Forum

 

[Markola]

The stock market is certain to go down soon. Unless it goes up. Or sideways for a while.


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[james22]

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.

So Ben Graham almost went bankrupt in the ‘30s, and this is an interesting point, I keep thinking about this all the time, so Ben Graham was reflecting in the ‘30s and he writes, if you were not bearish, if you're not concerned about the economy in 1925, not in 1927, 28, 29, but in 1925, there was only a 1/100 chance that you survived the depression, because what'd you have looked at was if you were not bearish in 1925, you'd have seen the crash in 1929, drop 50%, and you'd have come right in and thought of it as an opportunity, because the Dow Jones dropped from 400 to 200, went back up to 300, and the second leg after that was a killer, dropping about 90%!!

GuruFocus Interview with Fairfax CEO Prem Watsa - GuruFocus.com

 

[james22]

I can predict one thing with absolute certainty: most everyone in the world economy is working hard to make things better tomorrow than they were yesterday.

Unfortunately, I believe the hard work of central bankers makes a better tomorrow less likely.

 

[NYEXPAT]

Well, I guess that is better than late Thursday.

Imagine my surprise that the market has cobbled together a three day rally!
As of today's opening I am down 6.6% and can imagine further downside (for me) if the market can reach it's 50 day moving average.

 

[W2R]

Amazing! The market just continues to soar upwards, up, up, and away!

I just love it when it does this.

 

[audreyh1]

Watch it, W2R, - don't get premature on us!

Thanks much for the blast from the past!

 

[jazz4cash]

I have been watching the markets minute by minute lately. I can't help feeling like a huge crash is coming very soon, maybe next week. Why? Unexplained European bank weakness, China is collapsing, non-oil junk bonds VERY weak, gold exploding, NIRP end game for central banks shows no more bullets in the chamber, markets moving in ways not explained by the current news. When Fisher made his four hikes statement this was a signal that the Fed will collapse it.

I am still stunned by of this post, especially the timing. Maybe you are feeling better now but there are still 2.5 days left in the week! In any event I sure hope that I would have gotten out of equities before I came close to this level of anxiety.

 

[audreyh1]

Watching the markets minute by minute, especially if you're looking for something in particular to happen, sounds crazymaking to me.

 

[W2R]

I am still stunned by of this post, especially the timing. Maybe you are feeling better now but there are still 2.5 days left in the week! In any event I sure hope that I would have gotten out of equities before I came close to this level of anxiety.

He still could be right! But you're right too, that there is no need to be anxious about it. The market goes up, down, up, down, and so on, and we just have to grit our teeth and smile as we hang on for the rollercoaster ride.

I have the same feeling as jim584672 that we might be in for a big market crash. But so what? We know it's coming sometime, and if it's not now, then it will be later. Learning how to deal with crashes and bubbles is a learned skill, or at least was for me. Hanging around the ER Forum has helped many of us in learning this skill.