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Uh, oh.. Is the market yesterday &today any indication of investors realization of real problems....
or just "one of those days"? All I've been hearing this year has been "downgrades", "no REAL changes to fix anything", "double-dip and/or recession chances higher" etc., etc. Are we likely to have another 2007/8 in terms of percent of investment loss (for those of you with crystal balls)?
Is the kind of volatility we've had since August the strongest sign of continuing downward trend?
When was the last time you saw the Dow futures down more than 250 points proir to the open? 1090 on the S&P would be a 20% decline from this year's high.
Reply to @Flack: Thanks, Flack. That's my problem. I didn't start tracking daily returns until the end of 2009. So I have no idea if there has been this kind of daily volatility during more "normal" markets where it all "smooths out" in the longer run. S&P now at 1136, doesn't seem much further to go down to get to the 20% decline, so should that be good news that we could be nearing bottom?
Nearing a bottom? Could be as the computer buying should kick in as we near that level. Actually, tracking daily price movement can drive you crazy... and I'm proof of that Best to just relax and look in on the market on a weekly basis. Then look at the pirce MOVEMENT in relation to one or two simple moving averages as that will smooth prices. When the moving averages are climbing, you're fine. When they roll over and start to decline, you want to watch more closely. Other than that, life is a party.
Somewhat sickening moment for me: in TNH at $185. The stock drops to $160 the other day with no news, bounces back to $172, I get out at that point and now the stock was $128 this morning. Lost a couple of bucks, but talk about nauseating price movement.
Reply to @scott: You're a braver "man" than I, Scott. I wouldn't dare try to time the market during this mess. But I'm really sorry this one didn't work out for you... I'm sure you have lots of others than have done well.
Reply to @Flack: Here's hoping..... I tried to check M* for moving averages lines. I tried SPY for S&P500, but M*'s usual option next to Chart feature didn't show moving average option. Do you know how I can get M* to give me moving averages for the main investment categories?
Thankfully not a big position and some other things have been doing well (I had a few bucks sitting in cash yesterday and put it in shorts - not enough to make a difference, but something.), but this is a day where nothing is really doing well aside from treasuries, and I will continue to fail to understand who wants treasuries at these levels, unless this is completely a repeat of 2008 (and even then, I'd rather just not be in anything than be in treasuries at record low levels.)
Reply to @CathyG: Cathy, I think you have to use an open-end fund to get the MA lines on the chart feature. So try, e.g., Vfinx, the Vang. S&P 500 index oef.
The features are different if you start with an etf; no idea why, just that inscrutable M* logic, I guess. You also can't chart an oef against an etf if you try to do it from an etf page, but it works if you go in the other direction - start with an oef, and add an etf.
Thanks for the reminder; I did a check on my stock funds ~ 2-3 weeks ago, and they were all in death-cross-land except for the Vang consumer staples etf, Vdc. I think utility etf's have ++ momentum now too.
Reply to @scott: I think you hit it with the reference to 2008, Scott: fear of another 2008. As in, Greece/Euro:2011 = Lehman/CMBS: 2008. Hard to believe, Greece being unique in the euro-zone and so small a part of the continent's economy as a whole. (Spain and Italy have lower debt:gdp ratios than we do.)
I wish they'd just go ahead and default & go back to the drachma. Look at Iceland ... they told the financial vigilantes to go to hades and hardly anyone except a couple of banks remember now how much hot water (geothermal joke) they were in, not that long ago.
Reply to @AndyJ: I didn't think this was going to end well a few years ago, but I continue to be surprised with how bad things have been allowed to get - and that's really what happens when cans get kicked down the road for ages. Greece is bad enough and that's inevitably going to default, but I think there's more than that that isn't being said and the unknown (the dominos as a result of that) is going to - in itself - cause pressure to the downside. How many shorts that have been burned again and again won't be there to cover if we really get a large move down? I dunno. I have a small short on today, but I don't want to have to sit there and try shorting this thing continuously, I'd rather just throw my hands up and walk.
Additionally, people acted like the banks were great values. I said they were not, I'll still say they are not.
That said, I do not want to be in the market if BAC goes under, as that will take a lot else with it (and there's not going to be trying to force what's left of BAC to merge with someone else.) BAC going under will be like a black hole.
Operation twist will not help the banks, and if we really do get another 2008, BAC, C and quite possibly others (AIG?) will be gone if they do not get bailed out/nationalized/whatever. If BAC goes and then causes a domino effect, then it is 2008 all over again (and possibly worse if it gets disorderly, which I think it certainly could.)
The interconnected nature of the system and the fact that - I've said it before, I'll say it again, these banks learned absolutely nothing from 2008 - will cause huge problems if Euro-land really crumbles.
I would think that people would rather be in something like Kraft or P & G than a treasury bond or in cash earning nothing, but apparently not. Coal stocks and some other names (Alcoa) at or near their 2009 lows. So you have something like Alcoa at a 2009 low, and the rest of the market here. Now is that panic in names like ANR, AA and FCX, or are those ahead of the rest of the market?
Finally, if we do revisit the lows - I don't think we will, but nothing would surprise me these days - forget it, as you won't have anyone wanting to touch the market again for a generation.
Edited to add: Peter Schiff just on CNBC and I completely agree - either you get QE3 or you're going to get TARP2 because all of these banks are done for.
Reply to @AndyJ: Thanks for your follow-up, Andy. The Vfinx worked fine - but looks pretty dismal if I am reading moving averages correctly. I looked at the performance for VDC - and was really surprised that it went down so much in 2008. I thought Consumer Staples were supposed to do better in strong down markets as don't people still need to buy the basics? (I had realized that M* needs the first entry to be mutual fund before you can chart etf's, etc. in the Chart function - very strange.)
Reply to @CathyG: This is what I was saying yesterday. It's remarkable to me that people would rather have treasuries at these levels than a Kraft, a P & G or other, similar companies, but that's what you're seeing again. Additionally, as I mentioned yesterday, you have coal stocks (ANR) and some other stocks that would be indicative of economic activity (Alcoa, Freeport) at or near or appear to be headed towards (see Fedex) 2009 lows when the market was at about 40% lower. My concern is are those stocks indicating where things really are and much of the rest of the market simply hasn't caught up yet?
Reply to @scott: At the point of capitulation they will sell and then the market will bounce. They will continue to stay out. Market will move 50-80% from the bottom. Along the way they will trickle back in and greed will reassert itself. It is human nature. The battle between greed and fear continues.
FWIW, I think the volatility has very little to do with the average investors, and their knowledge of economics and world events. It has a lot to do with hedge funds, program trades, and the instant-ness of rumors and news.
Reply to @CathyG: Re: Consumer Staples stocks, nothing was spared entirely in '08, although at -17% for Vdc vs. -37% for the S&P5c, they probably looked pretty good by comparison. And they beat bond funds like Lsbrx.
Are there that many individual investors left in the market? Go back to the '90s or even the early '00s, and there were a great many normal people invested albeit, mostly in 401K plans. Of the folk that weren't scared away by the dot.com meltdown or the mortgage crisis, how many were forced to liquidate their holdings or even their 401K?
This is all supposin' sort of stuff, as I have no numbers. However, the market doesn't feel like a lot of folks are involved. It feels like the hedge and institutional funds, active players and a few folks with minimal equity exposure. Geez, the middle class has practically been exterminated and they made up a lot of the 'street money'.
This lowering of broad market participation has resulted in much greater volatility as those investors left are active while those that have withdrawn were passive.
I think it's the new norm as I really don't see Main St. coming back to the market. Most can't afford it and those that can choose not to.
What has been your perception from behind the curtain?
Reply to @BobC: Thanks, Bob, that sounds exactly right.... which makes trying to figure out investing based not upon reality, but upon the calculations of machines and high-end traders, that much more difficult.
Reply to @AndyJ: Thanks, Andy. I'm really surprised that Consumer Staples has not performed a lot better during the down times... maybe they just haven't caught up to reality yet. How awful is this situation to be relieved at a -17% loss because you could have lost -37% or more.
The only other thing that performed well in 2008 was managed futures. Rydex Managed Futures (RYMFX) was up 8% or so. Managed Futures would potentially do well in another 2008, as if we get a consistent trend down, those funds will go short.
Reply to @scott: Thanks, Scott. It certainly would have been nice to have RYMFX yesterday as that was one of VERY FEW funds that gained yesterday. I was really surprised that NONE of my Intermediate Bonds gained anything, and even my safest short-term bond lost money.
P.S. We're moving both our Mom's to a new Assisted Living facility during next 30 days. I've made 3 pages of "to do" list for each, so won't have much time to even check in here. I just hope the market doesn't completely crash during this time.
Reply to @CathyG: Rydex Managed Futures was the first Managed Futures product (I believe) made available to the retail investor. It is long/short (based on trends) financial (t-bonds and developed currencies) and commodities. The positioning is changed once a month. In a crazy market, it doesn't fare terribly well with re-positioning only taking place once a month. However, in a sustained trend either way, it does pretty well, as it did in 2008.
That said, there have been a number of new managed futures products in the years since, many of which are much more complex, and re-positioned as often as daily, such as Grant Park Managed Futures (GPFAX) or AQR's (AQMNX) or a few others. The funds, either actively managed or computer-driven or both attempt to capitalize on trends either up or down (long/short) in many different instruments around the globe.
Managed Futures does best with a sustained trend, so it does not always do well, but it is a good diversifier with a small portion of the portfolio.
Best wishes for everything to go okay during the move/s to assisted living facilities.
You ask a very good question, rono. My perception is that more individuals than ever before are what we call "in the market", if for no other reason than the fact that pension plans are becoming extinct, forcing individuals into 401k plans if they want to have any hope of retiring at some point. That being said, I also believe that individual investors, whether they are invested by choice or by necessity, continue to have less and less influence in the day-to-day goings on of the stock markets. On a longer time frame that is probably similar to market cycles, you and I can have some impact on the degree and length of a bull or bear market, simply by deciding to be in or out (more on that later).
Individuals for sure have an impact on specific funds they buy or sell, if there are enough of them making the same decision at the same time. But I think this is mostly influenced by the general trend of the markets, i.e. I decide to sell out of my funds, not because I have lost faith in the manager, but because I am scared of the current conditions of the markets. That, in turn, causes funds to have to liquidate positions, which has a bigger impact on the markets. And the bigger the fund, the more problematic this becomes.
It's darned hard for a lot of individuals to avoid the emotional, gut reactions that from a psychological standpoint are among our most basic. Seth Godin writes about our "lizard brain", which is the primitive, emotional center of the human brain (technically called the amygdala) that is responsible for fear and rage. It tends to take over the more fearful and upset we become, and it can sabotage success. How else can you explain the lemming-like reaction to something like Meredith Whitney's laughable prediction last December of massive municipal bond defaults? As Godin says, the first step in controlling our reactions to these kinds of things is to recognize that our initial reaction may not be the most appropriate one, and indeed may not be appropriate at all. Probably a good thing that I hardly ever look at my own portfolio!
As you suggested, there are a lot of former investors who bailed during the 2008 crash, who are still on the sidelines, and who may never get back in. But my experience is that if the markets ever do resume a more positive trend, and that trend sustains itself and keeps building on itself, at some point these sideline folks will start to trickle back in. Unfortunately, most of them will enter the markets at the worst time...right before the peak. It happened in 2000, again in 2007, and it will happen again, no doubt.
A larger percentage of investors than in the past are now trying to get in and out of various mutual funds and ETFs in an often ill-fated attempt at timing. My experience is that while this might have positive results on a short-term basis, it is almost impossible to be successful over a longer time frame. Individual simply do not have access to all the technical anaylisis tools that hedge funds do. And, heck, most of them are right less than 50% of the time.
Investors need to really spend time to know 1) how much cash flow do they need, or will they need) from their investments, 2) how long that stream of income will be needed, and 3) what kind of allocation they will need to keep it all going? The scary part is that a lot of folks have totally unrealistic expectations. For the most part, we use a 4-5% long-term expectation, with a 3% inflation factor. If folks can produce a positive lifetime income projection with that kind of expectation, chances are they might be ok. But with most folks holding a lot of dollars in cash accounts and CDs, there is no way this can happen.
The sad truth is that being on the sidelines is even scarier than being in the markets from a time horizon standpoint. And it does not help that CNBC, Fox, and the other so-called news sources are concerned only about headlines, which really is detrimental to most individuals who get caught up in the emotion of day-to-day rumors.
The picture is not bleak, but for a lot of folks who have habitually been controlled by their "lizard brains", it will be darned hard to realize a reasonably positive financial future. Having a plan and keeping a long-term goal in mind is even more important now than it was 10-20 years ago.
Buying a little Greenlight Capital RE (GLRE) this morning, likely for a mid-to-long term holding. Not much and I'm still not particularly positive overall (I do lean towards the idea that things do look on the bleak side), but thought it was an attractive entry point. (Greenlight RE is a reinsurance company whose float is invested, somewhat Berkshire-like, with David Einhorn's hedge fund (which is long-short). Do your own research first.
Comments
1090 on the S&P would be a 20% decline from this year's high.
Could be as the computer buying should kick in as we near that level.
Actually, tracking daily price movement can drive you crazy... and I'm proof of that
Best to just relax and look in on the market on a weekly basis.
Then look at the pirce MOVEMENT in relation to one or two simple moving averages
as that will smooth prices. When the moving averages are climbing, you're fine.
When they roll over and start to decline, you want to watch more closely.
Other than that, life is a party.
Go to www.stockcharts.com
or www.barchart.com
The features are different if you start with an etf; no idea why, just that inscrutable M* logic, I guess. You also can't chart an oef against an etf if you try to do it from an etf page, but it works if you go in the other direction - start with an oef, and add an etf.
Thanks for the reminder; I did a check on my stock funds ~ 2-3 weeks ago, and they were all in death-cross-land except for the Vang consumer staples etf, Vdc. I think utility etf's have ++ momentum now too.
I wish they'd just go ahead and default & go back to the drachma. Look at Iceland ... they told the financial vigilantes to go to hades and hardly anyone except a couple of banks remember now how much hot water (geothermal joke) they were in, not that long ago.
Additionally, people acted like the banks were great values. I said they were not, I'll still say they are not.
That said, I do not want to be in the market if BAC goes under, as that will take a lot else with it (and there's not going to be trying to force what's left of BAC to merge with someone else.) BAC going under will be like a black hole.
Operation twist will not help the banks, and if we really do get another 2008, BAC, C and quite possibly others (AIG?) will be gone if they do not get bailed out/nationalized/whatever. If BAC goes and then causes a domino effect, then it is 2008 all over again (and possibly worse if it gets disorderly, which I think it certainly could.)
Take a look at Morgan Stanley's exposure to French banks, which is 60% larger than its market cap. http://www.zerohedge.com/news/morgan-stanleys-exposure-french-banks-60-greater-its-market-cap-and-more-half-its-book-value
The interconnected nature of the system and the fact that - I've said it before, I'll say it again, these banks learned absolutely nothing from 2008 - will cause huge problems if Euro-land really crumbles.
I would think that people would rather be in something like Kraft or P & G than a treasury bond or in cash earning nothing, but apparently not. Coal stocks and some other names (Alcoa) at or near their 2009 lows. So you have something like Alcoa at a 2009 low, and the rest of the market here. Now is that panic in names like ANR, AA and FCX, or are those ahead of the rest of the market?
Finally, if we do revisit the lows - I don't think we will, but nothing would surprise me these days - forget it, as you won't have anyone wanting to touch the market again for a generation.
Edited to add: Peter Schiff just on CNBC and I completely agree - either you get QE3 or you're going to get TARP2 because all of these banks are done for.
Are there that many individual investors left in the market? Go back to the '90s or even the early '00s, and there were a great many normal people invested albeit, mostly in 401K plans. Of the folk that weren't scared away by the dot.com meltdown or the mortgage crisis, how many were forced to liquidate their holdings or even their 401K?
This is all supposin' sort of stuff, as I have no numbers. However, the market doesn't feel like a lot of folks are involved. It feels like the hedge and institutional funds, active players and a few folks with minimal equity exposure. Geez, the middle class has practically been exterminated and they made up a lot of the 'street money'.
This lowering of broad market participation has resulted in much greater volatility as those investors left are active while those that have withdrawn were passive.
I think it's the new norm as I really don't see Main St. coming back to the market. Most can't afford it and those that can choose not to.
What has been your perception from behind the curtain?
peace,
rono
The only other thing that performed well in 2008 was managed futures. Rydex Managed Futures (RYMFX) was up 8% or so. Managed Futures would potentially do well in another 2008, as if we get a consistent trend down, those funds will go short.
P.S. We're moving both our Mom's to a new Assisted Living facility during next 30 days. I've made 3 pages of "to do" list for each, so won't have much time to even check in here. I just hope the market doesn't completely crash during this time.
That said, there have been a number of new managed futures products in the years since, many of which are much more complex, and re-positioned as often as daily, such as Grant Park Managed Futures (GPFAX) or AQR's (AQMNX) or a few others. The funds, either actively managed or computer-driven or both attempt to capitalize on trends either up or down (long/short) in many different instruments around the globe.
Managed Futures does best with a sustained trend, so it does not always do well, but it is a good diversifier with a small portion of the portfolio.
Best wishes for everything to go okay during the move/s to assisted living facilities.
Individuals for sure have an impact on specific funds they buy or sell, if there are enough of them making the same decision at the same time. But I think this is mostly influenced by the general trend of the markets, i.e. I decide to sell out of my funds, not because I have lost faith in the manager, but because I am scared of the current conditions of the markets. That, in turn, causes funds to have to liquidate positions, which has a bigger impact on the markets. And the bigger the fund, the more problematic this becomes.
It's darned hard for a lot of individuals to avoid the emotional, gut reactions that from a psychological standpoint are among our most basic. Seth Godin writes about our "lizard brain", which is the primitive, emotional center of the human brain (technically called the amygdala) that is responsible for fear and rage. It tends to take over the more fearful and upset we become, and it can sabotage success. How else can you explain the lemming-like reaction to something like Meredith Whitney's laughable prediction last December of massive municipal bond defaults? As Godin says, the first step in controlling our reactions to these kinds of things is to recognize that our initial reaction may not be the most appropriate one, and indeed may not be appropriate at all. Probably a good thing that I hardly ever look at my own portfolio!
As you suggested, there are a lot of former investors who bailed during the 2008 crash, who are still on the sidelines, and who may never get back in. But my experience is that if the markets ever do resume a more positive trend, and that trend sustains itself and keeps building on itself, at some point these sideline folks will start to trickle back in. Unfortunately, most of them will enter the markets at the worst time...right before the peak. It happened in 2000, again in 2007, and it will happen again, no doubt.
A larger percentage of investors than in the past are now trying to get in and out of various mutual funds and ETFs in an often ill-fated attempt at timing. My experience is that while this might have positive results on a short-term basis, it is almost impossible to be successful over a longer time frame. Individual simply do not have access to all the technical anaylisis tools that hedge funds do. And, heck, most of them are right less than 50% of the time.
Investors need to really spend time to know 1) how much cash flow do they need, or will they need) from their investments, 2) how long that stream of income will be needed, and 3) what kind of allocation they will need to keep it all going? The scary part is that a lot of folks have totally unrealistic expectations. For the most part, we use a 4-5% long-term expectation, with a 3% inflation factor. If folks can produce a positive lifetime income projection with that kind of expectation, chances are they might be ok. But with most folks holding a lot of dollars in cash accounts and CDs, there is no way this can happen.
The sad truth is that being on the sidelines is even scarier than being in the markets from a time horizon standpoint. And it does not help that CNBC, Fox, and the other so-called news sources are concerned only about headlines, which really is detrimental to most individuals who get caught up in the emotion of day-to-day rumors.
The picture is not bleak, but for a lot of folks who have habitually been controlled by their "lizard brains", it will be darned hard to realize a reasonably positive financial future. Having a plan and keeping a long-term goal in mind is even more important now than it was 10-20 years ago.