Financial topics

[OLD1953]

It's not approaching the abyss that's bad, it's how often you do it.

Over the last couple of years, we ran up to the edge (as a world) at least 3 or 4 times, and pulled back. The trouble is, that frequency is increasing and people are becoming jaded.

In 1962 we jumped to the edge, and everyone backed off very quickly. Now it's "ho hum, the edge again, let's buy on the downside".

If we assign a probability of going over of say 10%, then the cumulative probability of the worldwide crash leading to enormous war over the next couple of years becomes a near certainty, given the rate of increase in the frequency of potential crisis triggering events.

And, from what's being said, I have to suspect that computer trading is being set up to take the fall for causing panics.

Also, I'm well aware that there are plenty of smart people working for the Fed and the Treasury who are well aware we are close to worldwide panic and markets dropping past the bottom. They've got a lot of computers and a lot of tools, so the question becomes this, will they attempt to manage a controlled crash, and at least limit the damage? And if so, they'll never ever admit they did such a thing, because the idea of simply accepting that we've got it coming and they did the best they possibly could would be essentially buying the rope and building the gibbit for their own hanging.

But I do have to wonder, as if I was doing it, I'd rattle the market a few times to get as many retirees out as I could, and then let er' drop.

OFC, the other explanation is that the insta-trading "whip half a penny off every move" robots saw a chance to make money on the drop, so they shorted a ha'penny, sold, shorted, sold, and drove the market down by making money on the drop. Then they saw a rise, so they whipped off that ha'penny all the way back up. That's not a market, BTW, that's insanity codified into software.

[Higgenbotham]

While less common and less severe than Fall panics, Springtime panics have occurred in the past. Maybe the closest cousin to today's panic was Grant's Panic, which occurred on May 12, 1884, and was precipitated by a failed bank owned by none other than, you got it, US Grant.

http://books.google.com/books?id=GlqO1a ... CBwQ6AEwAA

[freddyv]

...
There is no chance that the "quants" are going to all of a sudden change their code and rewrite their trading programs. Not to mention, these programs are extremely complex and would likely take a long time and great expense to unwind the inner workings of any of these models and make the needed changes to the code base.

My take away is that, as worldwide financial instability continues to climb, and volatility continues to rise back to extremes, that these automated trading bots will undoubtedly continue to amplify extremes on both sides, up and down, in turn creating a massive and uncontrollable feedback loop. The irony is that this is actually very consistent with George Soros' writings the one major point of differentiation (again credit to John) is that the bots have human nature coded into them, are completely inflexible and do not grow weary, they just keep trading. In effect this is Soros' concept of reflexivity hard coded and highly scaled. Absolutely frightening to consider the full ramifications.
...
Andrew

Some excellent comments Andrew. I am a programmer of very limited skill (I mainly code in Perl with a bit of Javascript and PHP to output and control my millions of web pages or dozens of sites). One thing I've learned about computer programs is that I have to be in charge of them and I assume the majority of programmers are of the same mind. There should be "bottlenecks" built in that allow such control fairly easily. The exchanges themselves are a great place to throttle the speed of transactions; you simply wait 1 second for each transaction to be completed or something like that. Simplicity is the answer but human greed and a lack of true fear and understanding of what might happen is the enemy of the solution.

I was watching Fast Money yesterday because it's where I get my take on what the "Masters of the Universe" crowd is thinking. I was impressed by how seriously they were taking this and at some of the suggestions thrown out. But if implemented and trading is slowed down I think that it just changes the timeline and not the end result. The end result, IMO, is that we have created false wealth and fudged prosperity for over two decades and we have yet to own up to it and pay the piper. Now more than ever I believe that the DJIA will eventually reach all the way down to its last bear market high of around 1,000 before a new bull market filled with "great values" takes hold.

Think that's crazy? Using a level of 150 on the S&P 500 all it would take are earnings flattening at $25 for a few straight years to give us a P/E ratio of 6, which historically would be right in line with great values that could lead to a new secular bull market. Considering the fear now associated with the stock market and the lack of returns over the past ten years this seems not only reasonable but highly likely. The only missing ingredient is a dose of reality and a few more days like yesterday will take care of that.

As for those who insist on using other measurements than trailing 12 months P/E (such as PE 10) you need to understand how warped the past 10 (and 20) years have been in terms of false earnings. That fact makes most people think we could never get back to those historical valuations but in fact make it MORE LIKELY we will get back to, and below, historical valuations.

Fred
http://www.acclaiminvesting.com/

[freddyv]

From Mish:

The Wall Street Journal is asking the question Did Shutdowns Make Plunge Worse?

An excellent point was made that as traders shut down to protect themselves and even the system they may be making things worse by removing liquidity from the market. The answer is simply to limit or throttle the high speed traders ALL THE TIME so that the system is more in control. True, that won't solve the underlying problems but it will reduce the chance of the market literally going to zero because the system has broken down. Simple solutions are the best; adding complex solutions on top of a complex system will only make things worse.

Fred
http://www.acclaiminvesting.com/

[mannfm11]

I have seen yesterday before. It is nothing more than Wall Street stealing. On April 4, 2000,there was a crash that wasn't. The Nasdaq 100 fell over 600 points by 2 PM only to rally to near even by the close of the day. Futures tumbled from limit to limit until they wiped out entire margins of around $60,000 per contract. The violation of a point on the chart by this plunge told me the Nasdaq bull had finally died, which was quickly confirmed.

You might recall the rally on October 10, 2008. You can bet they pulled their bids and set to attack at a point, pulled the asks and rammed the market. That market went up nearly 1000 points in 40 minutes and fell over 400 going into the close. The next day was up 1000. How much stock did Goldman and their cronies force down the throats of the shorts with that ploy.

The point that is being missed is the market is being run by crooks who don't give a damn about who they are screwing. THere will be some really mad people when this game seeks its on level. Yesterday was a harbinger of things to come, ala 4/4/00

[thomasglee]

White House doesn't rule out sabotage in market fluctuation

President Barack Obama has not ruled out sabotage in the near panic on Wall Street on Thursday afternoon.

I was watching on Bloomberg this morning that all the exchanges are pointing their fingers at each other with none willing to take the blame for the supposed computer glitches that supposedly created yesterday's free-fall. It now appears that since their plan to blame the trading houses isn't going to work, they're now looking for another scapegoat. Sabotage will always work.

[abs]

Think that's crazy? Using a level of 150 on the S&P 500 all it would take are earnings flattening at $25 for a few straight years to give us a P/E ratio of 6, which historically would be right in line with great values that could lead to a new secular bull market. Considering the fear now associated with the stock market and the lack of returns over the past ten years this seems not only reasonable but highly likely. The only missing ingredient is a dose of reality and a few more days like yesterday will take care of that.

As for those who insist on using other measurements than trailing 12 months P/E (such as PE 10) you need to understand how warped the past 10 (and 20) years have been in terms of false earnings. That fact makes most people think we could never get back to those historical valuations but in fact make it MORE LIKELY we will get back to, and below, historical valuations.

Fred
http://www.acclaiminvesting.com/

Fred -

I am aware of the trailing 10 year P/E calculations, largely put forth by Shiller and others. At least for the US markets, I think that Tobin's Q-Ratio may be a better metric to use in determining market lows. Here are a couple of links:

http://www.smithers.co.uk/page.php?id=34
http://mla.homeunix.com/q-ratio/

The only bad part is that the data to calculate the Q-Ratio is only available once every quarter and there is usually some delay until the new curves are calculated. The good news is that it gives a very nice, historically accurate, view of market valuations (both lows and highs).

Andrew

[aedens]

http://www.spiegel.de/international/eur ... 66,00.html

We will see.

http://generationaldynamics.com/forum/v ... tein#p4264
Tue Oct 06, 2009 12:16 pm

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http://www.newyorkfed.org/newsevents/ne ... 81031.html

Enhance Market Transparency. Regulators are also seeking to increase the information about CDS that is available to the public. In that regard, we welcome the announcement today by the Depository Trust & Clearing Corporation (DTCC) to publish aggregate market data from the central repository it maintains on credit derivatives. Starting Tuesday, November 4th and continuing weekly, DTCC will release a set of aggregate stock and weekly trade data, including the levels of both gross and net notional CDS traded on the 1,000 largest CDS reference entities. Regulators will continue to work with market participants and service providers to further expand the public release of market data.


A bill that would require speedier disclosure of stock trades by lawmakers has languished for years on Capitol Hill, suggesting Congress has little appetite for new rules on how its members manage their money. The legislation, by Democratic Reps. Brian Baird of Washington and Louise Slaughter of New York, would prohibit lawmakers from trading in financial markets based on nonpublic information they learn on the job. It would also require them to make their financial transactions public within 90 days of a purchase or sale. Currently, those disclosures are filed once a year, and insider-trading laws generally do not apply


At least Hadrian had the brains to manage a Empire.

[freddyv]

Thanks, Andrew, I'm aware of the Q and it is one of the many valuation and timing factors I try to incorporate into my "big picture" view of things. Keep in mind that the Q-Ratio should be skewed like everything else by the false wealth that has been created.

Another issue is the aging of the boomer generation. Aside from their place in Generational Dynamics they are almost certainly going to be a burden on society as they age.

On top of all that is the simple fact that our nation, and therefore our stock market, may be in a long term decline or at least in a slower ascent, as it were. I hope that is not the case but just as we must accept Generational Dynamics into our view history also tells us that all empires must fall. Certainly it's not hard to make the case that our best days are behind us. Even if that is not true I believe that we just moved into the crisis era and that means that we likely have 15+ years of pain and suffering before all the lessons are learned and we can expect things to turn around.

Fred
http://www.acclaiminvesting.com/

Think that's crazy? Using a level of 150 on the S&P 500 all it would take are earnings flattening at $25 for a few straight years to give us a P/E ratio of 6, which historically would be right in line with great values that could lead to a new secular bull market. Considering the fear now associated with the stock market and the lack of returns over the past ten years this seems not only reasonable but highly likely. The only missing ingredient is a dose of reality and a few more days like yesterday will take care of that.

As for those who insist on using other measurements than trailing 12 months P/E (such as PE 10) you need to understand how warped the past 10 (and 20) years have been in terms of false earnings. That fact makes most people think we could never get back to those historical valuations but in fact make it MORE LIKELY we will get back to, and below, historical valuations.

Fred
http://www.acclaiminvesting.com/

Fred -

I am aware of the trailing 10 year P/E calculations, largely put forth by Shiller and others. At least for the US markets, I think that Tobin's Q-Ratio may be a better metric to use in determining market lows. Here are a couple of links:

http://www.smithers.co.uk/page.php?id=34
http://mla.homeunix.com/q-ratio/

The only bad part is that the data to calculate the Q-Ratio is only available once every quarter and there is usually some delay until the new curves are calculated. The good news is that it gives a very nice, historically accurate, view of market valuations (both lows and highs).

Andrew

[freddyv]

Another thought on the Q-Ratio as seen at http://www.smithers.co.uk/page.php?id=34

Just as the stock market's P/E ratio was altered by removing failed companies over the the past 2 years the Q-Ratio should be altered in rather complex ways as failed companies simply disappear. It might seem that the P/E ratio was improved but in the longer run those companies that went bankrupt might have reduced P/E ratios of the indexes greatly as their tremendous losses turned into minor profits. The companies replacing them would not be expect to have such a turnaround.

My point is that, as Richard Russell likes to say, "you can't manipulate the primary trend of the market." Q-Ratios, P/E ratios, dividends, they're all just numbers that the market will swallow and then go about its business of doing what needs to be done. I am attracted to Generational Dynamics because it also operates based on the premise that no one can manipulate it, at least not for long. History is truth and I'm a great believer in accepting the truth no matter how unattractive it may be. History tells me that many days of reckoning are ahead, but I could be wrong.

Fred
http://www.acclaiminvesting.com/