Correction time, is it finally happening?
Or is it too early to post Ron Paul.gif?
Pretty exciting. Take your guess, we'll see in a week who was right. Make sure to see the top comment below by UFOinsider.
Tuesday update:
**Thursday update: **
**End of the week update: ** I'd say the thread winning calls are from EnergyHou, traderlife and Dm100 so far. Many made longer term calls that might be proven correct in the next 2-3 weeks.
Also I'm a bit disappointed because I didn't get to post the nuclear Ron Paul version ''it's happening/you didn't listen/why didn't you stop it/you only had to listen''.
Idk, but it feels good when you sell at the 52 week high, then everything starts dropping even below the price where you bought. It is exciting.
ITS THE END OF THE WORLD AS WE KNOW IT
TRADITIONAL FINANCIAL INSTITUTIONS CAN'T SAVE YOU NOW
Everything is fine, just a healthy correction to clear out all the players that contributed to the parabolic rise last 3 months.
This is obviously profit taking combined with algorithm selling.
GDP is increasing. Unemployment is low. Tax cuts passed. Inflation is within range. No macro events.
Is the market due for a correction? Sure. Is this 2008 all over again? Highly improbable.
And if you haven’t been taking profit all this time, you deserve to lose money.
The macro event is interest rates. The economy cannot handle a rise in interest rates but the central bank's hands are tied. There was too much QE from 2008 on and it cannot allow that money to enter into circulation with rising velocity.
I’m as bullish as anyone.
But tax cuts are meaningless. Because deficit spending at a close to full employment economy just leads to rate increases.
The economy is no where near "close to full employment." People have simply given up and dropped out of the pool of those actively searching for work, distorting the official statistic.
why the fuck is TNA getting MS for this? he's spot on. great economic backdrop (quibble all you want about the details, we're in global synchronous growth, and that's inarguable), so no need to worry about a recession in the short term. until the yield curve inverts, I'm a buyer.
also, if you guys are freaking out because we're 10% down from a record high, I would've hated to see you in 2008, or even August 2011 for that matter.
one of my gray haired partners says this smells like 1987. if he's right, strap in kiddies.
I’ve lived through the tech bubble and the financial crises. People just need perspective. I’m buying on the dips. If I’m wrong, oh well. Long time span.
Interest rates have been rising...which caused stocks sensitive to interest rates to selloff...ultimately causing the stock indices to selloff....this caused Risk Parity funds (big, long stocks and long 20yr bonds) to liquidate last week (So, Friday, they were selling stocks and bonds). Today, trend following CTA funds (long stocks, short bonds) took Friday's close as an input, and they hit the liquidate button....so they sold stocks (just like Risk Parity funds) and the BOUGHT bonds (unlike RP funds). And that's where we are today.
Add into the mix short volatility funds are blowing up (XIV will go bankrupt overnight...among others)...that will cause margin $$ to come from somewhere...so the short vol "investors" will be selling what they own to come up with margin $$. This will cause a fire sale. In the near future, there will be good stocks to be had at bargain sale prices.
Curious what you see 18-24 months down the line?
expect the stock market to chop around these lower levels for the next 4 weeks....then rally back to the highs...and then selloff again to these lows, all within the next 6 months
Yeah, this is the correction everyone's been calling for. Not a recession, not a crash.
Before you start buying in your personal account, look for the VIX to start coming down.
In true forced sale bottoms, you sometimes see a V-shaped bounce like we saw in October 2008 and during the flash crash. But usually it doesn't come anywhere close to going all the way back up. That's why I think it's smarter to wait for the VIX to start coming down before you go out there and start buying hand over fist. Wait for the selling pressure to at least slow down a bit before you get in.
The futures market is already telling us we'll be down tomorrow. My guess is that we might see another down move the size of today.
It's not just a correction, it's a pre-war selloff.
Hyperbole or prophesy? I don’t know. I just don’t know.
Asia security advisor just went in records commenting that a strike on N Korea will help the gop this fall. But the current bunch says all sorts of stupid shit then does something else, so who the hell knows.
That there’s no consistently communicated policy is cause enough for concern given the chaos that comes from not being able to plan anything.
I find it hilarious you got pood on but a war would be the typical political distraction from a failing economy,especially from the chicken hawk crowd.
Dibs on the upstate bug out hideout if they drop the big one
For the record I'm totally with you on this one (and you know that I'm a bit more of a Trump supporter than you, albeit grudgingly). If Trump starts a war with NK as some sort of political gambit, it would really piss me off.
For that matter, if Trump tries to fire Mueller, I want him out. And Sean Hannity is sounding pretty desperate right now.
In any case, foreigners can't find Chicago on a map, so I'm pretty sure I'm safe from NK. For now.
If you’re an academic, the market never corrects: it’s always correct. YOU just got it wrong. Theoretically speaking of course...from a certain point of view.
Reality is, market participants collectively and individually get things REALLY wrong. All. The. Time.
One of two things happens now: We go into a downturn, or markets bounce back within a few weeks or so, climb for 3-9 months(ish) and THEN we go into a downturn, albeit a worse one.
Why? I call this post “it was late and I was tired” but here goes. Rising interest rates will force a rotation from equity positions to debt positions at a time when borrowing is superfluous. High corporate cash reserves rule out increasingly expensive debt financing needs, so you will see declining equity AND debt market prices. Not so bad in and of itself and would probably stabilize if it weren’t for the game of hot potato where no one wants to be left holding a sharply discounted asset....hence the impending sell off arms race that acts as its own self fulfilling prophesy.
BTC and other digital toys crashing in the midst of this will weaken retail investors confidence in markets, and worse, reduce their risk appetite at a time when they should be looking for opportunities in a more volatile environment. Expect a shift to things like money markets or cash aka withdrawal from markets, further depressing prices (but not value). You or I losing a grand in the markets doesn’t spook us but the average joe blowing a month’s pay won’t want to go near markets for a while. The irony here is that a bunch of people won’t want to believe things are going south, hence the battle cry “fake news” until some point where they lose so much they have to sell off. I personally see a btc crash catalyzing a bad downturn, not unlike housing in 2006-7.
Sentiment? It was increasingly confident, as evidenced by growing participation for the better part of a decade. Now it’s approaching irrationally euphoric, convinced of its own genius, expecting riches, and indulging in FOMO and excess....which never end well.
The things that can salvage the current economic position won’t happen. Rates certainly won’t be lowered and wages won’t go up fast enough. While rates are low, Japan has already deployed negative interest rates thus proving it possible...but let’s be real, it’s politically infeasible here at this point. And it’s true that a handful of companies are touting one time $1000 bonuses (500 bucks after taxes lol) for some employees or whatever nonsense but that’s hardly enough to prevent a price drop caused by static demand and over supply of all asset classes. People have to have more money in order to spend more money! Consumer debt rising would only delay and intensify a blowout. The only things that push wages up in any meaningful way over the long term is either legislation raising the floor (minimum wage hike will not happen in current political environment) or sustained low unemployment...but if markets are tanking then rest assured unemployment will rise.
Even if the tax cut talisman somehow caused the economy to somehow simply outperform and beast mode through the next year, it wouldn’t change the outcome. Globally, so much conflict and disruption is brewing that it would be a drag on all growth. N Korea is seeking to become an Iran type regional player, Iran has become a regional player, Uk is tearing itself away from Eu, Turkey and half a dozen other countries are poised to tear themselves apart....and how about Greece and a dozen other unresolved messes. I don’t care to build out the list but feel free to add on.
And even that would be fine; US policies could be a source of mitigation but I frankly don’t see it happening. Despite large amounts of aggrandizing talk, the only meaningful policy deployment in a year was a tax cut, but in every other instance it appears some strange deliberate mismanagement is rampant. The upcoming congressional elections will only push the partisans to their corners, making support for real solutions unlikely. Thinking a tax cut will solve the world, well, history tells us otherwise. Let’s wait and see how that goes. Don’t bet the farm on it!
The closest to any reinvestment in the US economy I see is the sad used car salesman act hilariously trying to get the American public to pay for a border wall. Walling the US off from a neighboring ally is in the same ill conceived vein of thought as picking a trade war with China....and that looks like it’s going to happen too lately. (Never mind the libertarian view that it is now harder for Americans to LEAVE if they wanted, and US citizens now have less absolute freedom). Maybe companies will put repatriated cash to work, but not enough is coming home given other countries are cutting taxes to keep the capital there. Plus let’s be real, companies don’t prime the pump, they drink from wells other people dig.
Bush overextended us, Obama was wayyyy too reluctant to get entangled in international affairs, but trump and his crowd don’t even seem to have any clear grasp of how to understand what is going on...and no will to be global leaders. They seem to think everyone should applaud the opportunity to service the US, so, I find their approach laughable. They’re like Sacha Barron Cohen’s character in “The Dictator” who acts like people should feel honored to blow him. Good luck with that.
What I was hoping to see....a massive infrastructure redevelopment campaign....has been substituted with massively corrupt appointments, gross incompetence, social discord, scandals, an active FBI probe, and a president more interested in maintaining a strong social media presence than spending even one solid day learning from career experts how anything works. And I’m watering down the criticism as much as possible given this is an economic analysis and not a political brainstorm. One does not have to be a democrat to see this as self evident.
I’m not optimistic and have moved to cash positions, and I look forward to some extreme bargains. Actually, full blown financial panics are not always a bad thing...from a certain point of view.
Or who knows, maybe I just have too much time on my hands and the DOW will be at 50K next year. Anything is possible.
Really good post but there's something I disagree with. The US doesn't need to be a global leader, nor it can afford it any longer.
The collapse of the US middle class has been going on for decades now, nobody managed to turn it around. The middle class are the moderate voters you are seeking, their numbers are shrinking, which leads to polarization and partizanship and that's what you have. If the US loses its bulwark of economic stability, then you can forget about internal political stability as well. No kind international agreement or invovement can fix that.
From the outsiders perspective, if you are economically and politically unstable, you lose your moral ground to lecture anyone else on their system. You can't afford global ambitions when your backyard is a mess.
There's an even bigger problem: not so many realize this and even those who do, have no good solutions whatsoever.
Maybe. Maybe not.
Isolationism always seems to come back and bite us in the ass. It’s in vogue lately, but so are the hot iron and tide pod challenges. It’s a travesty that the perception among the citizenry that global stability is “too expensive” at a time when we “can afford” tax cuts. There’s no such thing as a power vacuum, someone always steps in to be in charge...the only pertinent question is who? America’s role in the world is a separate conversation, or maybe its own forum completely, so I’ll just leave it at that.
Disagree with you on BTC catalyzing a big downturn like 06-07. BTC is nowhere near big enough to cause that sort of disruption. Moreover, financial institutions are not holding BTC and are not levered to the hilt while doing so (as they were with subprime). BTC is mostly retail investors and tech anarchists with tinfoil hats.
What I do think could cause a more serious downturn is 1) surprise appearance of much higher inflation than expected, 2) somewhat related to the first point, but a more rapid increase in rates than expected at a time when there is still a lot of leverage in the system. This would cause debt burdens on consumers and the government to jump handily. This could lead to more political dysfunction around deficits and income inequality.
That said, financial institution balance sheets are in much better shape than they were in 06/07. We may have a recession, but I don't foresee anything close to an 06/07 crisis.
The average person has started putting money....too much money....into these toys. They’re getting burned now, and they’ll also want to dial down as much other risk as possible. More to the point though, it’s the crisis of confidence in markets that this causes. Even if a financial advisor knows better, when your client calls you up and shouts MOVE ME TO CASH, you do it. BTC is going down around the same time as the general markets? Must be time to pull my money out, goes the thinking.
To be fair: you’re right. Overall the the economy is much stronger but looks who’s at the helm. Accomplishment in a whole year: tax cut aaand basically picked a fight with everyone who isn’t in his immediate circle. Too busy with nonsense to deliver anything else and it only looks like it’s going to get worse. Get mad, blame the dems, it doesn’t matter...I’m pointing out how it is. There should have been mobilization efforts around an infrastructure plan a year ago, instead we are in a Twitter war with third world banana republics.
The confirmation of incompetence will be when they start beating the war drum. Then all hell will break loose.
As stated above, I’m not optimistic right now.
Maybe I just need coffee.
you're clearly intelligent, so I'm not going to name call and launch ad hominem attacks. I'll just suggest that you seek opinions from both sides, because it's quite obvious you have a glass half empty view of the world and have probably held this thesis for many years and are now feeling vindicated that you're seeing a 10% decline from a record high.
I suggest letting the data guide your thinking. yes, we're overvalued, but show me when there's been a bear market without an economic recession? also, show me an economic recession with an upward sloping yield curve. all of those factors can change on a dime, yes, but right now, I'm not seeing any reason to hit the panic button.
you've put your money where your mouth is, I've put about 20% of my reserves to work. let's discuss this again in 12 months :)
to clarify, I define a bear market as a 20%+ decline that takes at least a year to unfold. there have been only 2 times when the market declined significantly outside a recession and it was over in 6 months of less (cuban missile crisis and 1987 crash). in other words, if there's not gonna be a recession, there's not a reason to act like it.
furthermore, this is only the US, there's plenty of opportunity outside our borders, despite what ray dalio just did
If you’ve been sitting on cash and have a long-term horizon, start buying this morning.
"It is different this time." - Rate hikes, Dollar strength, S&P 500 correction incoming? (Originally Posted: 09/29/2014)
Is it really different this time round? More often than not that phrase tends to go around the room, with various reasons justifying how the current scenario is different from the previous ones and the implications around it.
Whilst backward looking, history tends to be one of our favourite indicators at predicting market tops and bottoms because it projects a false (subjective) sense of security. So how is this incoming rate hike different?
1994 versus 2015 (predicted) -> Alan greenspan versus Yellen Alan pretty much dropped the bomb on the rate hikes whereas Yellen steady like a dove has been injecting dovish comments all year round, indicating that the impending rate hike will be slow.
However I have my doubts about the market's ability to effective factor these subtle differences into bond prices. Or perhaps the capitulations of short bond positions over the past year has injected sufficient fear to shake investors off the eventual, yet unassuming hawkish story.
On first thought, any news of a confirmed rate hike should send bonds on a bearish run, equities to tumble and USD to rally. And it does seem like the market is getting ready to position itself for this - USD strength is beginning to extend, 10yr yields are rallying. But the missing piece is still the EQUITIES picture. S&P 500 just refuses to step down from its 2000 pedestal.
So, is this an opportunity or a divergence? ( Is it really different this time round?)
Another troubling thought is the ECB's QE in this phase and it's effect on the markets. I am unable to fathom the implications with this mixed picture. Any thoughts?
P.S. Apologies for the messy writeup, just chucking various thoughts in there.
Sure, Europe and Japan policies have something to do with it. The Fed would probably protest suggestions that U.S. policy need to heed monetary policy elsewhere but global weakness argues for a more careful approach. That we didn't see a collapse in certain EM countries during the aftermath of taper tantrum is rather fortunate. Geopolitical risks are relatively high.The bid for Treasuries early this year has been attributed to many factors - I'd probably attribute a good deal of the price action to unstoppable Foreign bids: there are big players in this arena that many have not heard of, whose demand far outstrips that of any other market partcipant. Question is whether the fundamentals in the US is deemed consistent with this buying.
An initial attempt at putting a fundamental backdrop to the curve flattening I've seen went along the lines of "the US economy is in no danger of oveaheating, moreover the Fed will hike before there is risk of overheating". Not much of a description but think it's consistent with the data. US data, while improved, is nothing to write home about: still too many part timers out there that can't find full-time work, many job gains still in service sector (though PMI has been solid), wage compensation though improved recently still isn't convincing. On this latter point, one also has to consider whether higher prices will lead to workers successfully demanding higher wages - I'd argue no. Rates are low, but mtg. underwriting standards are relatively high vs. 2006. Increased bank regulatory pressures can translate into tighter money going forward. History is useful, but let's not forget Taper tantrum which tightened financial conditions and set us back. Yellen has rationalized the move by arguing it snuffed out some financial instability, but rate hikes to snuff out financial instability is off the table - there was never such a third mandate. The Fed is not a democracy, hawks can make as many speeches as they want, but the doves hold more sway. Tightening is on the table, but many considerations will give the doves pause.
Onto practical matters, where my own opinion on conditions has little relevance, the market seems to be setting up for Wednesday's FOMC. Some attribute this to the talk of forward guidance revision and research papers (SF Fed and Street FI Research) arguing that the curve is priced too dovish. The papers are nothing new, everybody knows the curve has been priced dovish vs. FOMC dot charts, if some re-pricing occurs so be it. Lot of Fed speak getting bent out of shape about the "considerable time" phrase. It's a bit silly from a communications standpoint that the consensus is for this to be dropped, yet the rather explicit dot chart doesn't seem to receive as much scrutiny. Risks have definitely shifted to a hawkish outcome, but even if fwd guidance is changed and dot charts move steeper, I suspect tactical hawkish re-pricing will be re-traced again. We're not in 1994, and concerns about 1937-1938 are not altogether unwarranted.