The stock market continues down
I’m not even going to include a link, because you know it’s happening, and you’re probably following it yourself.
Some people are seeing this as a buying opportunity. I’m staying put, though – implementing a little social distancing from the market, something I always try to practice anyway in good times and bad.
What’s driving the fall? I think that – among the usual suspects like automated selling, which exacerbates such swings – it’s quite simply fear of the unknown. The fear is driven by the media and the left, but it’s not limited to that. When entire countries quarantine and/or adopt other draconian measures in an effort to stop the spread of a novel disease that no one quite understands, then people panic. Nightmare apocalyptic scenarios rush in, as well as “facts” that are not really facts, driven by the news cycle and the rumor mill that constitutes social media.
Facts can’t combat it, at least not now. “Wait and see” isn’t the way a lot of people are operating, either.
People may tire of the relentless push of the doomsday scenario, especially if doomsday fails to materialize and the number of COVID infections get under control and the patterns become more understandable and less frightening. Unfortunately, though, in this day and age, for many people, “under control” means zero risk. Zero risk is impossible. But the need for it is what drives phenomena such as that of the anti-vaxxers.
So, have it out in the comments here.
Some Perspective on corona virus:
https://www.powerlineblog.com/archives/2020/03/coronavirus-in-perspective.php
Another – ongoing Seattle flu study that indicates virus has been here circulating for some time.
https://komonews.com/news/coronavirus/seattle-flu-study-allegedly-tested-samples-for-covid-19-against-federal-state-guidelines
Plus my offspring traveled to Thailand this last January and returned with a week long bad cold/flu which I took my turn with (but for me just a mild case).
Way overblown.
What’s driving it is that the market was over-valued and traders have adjusted their expectations of future earnings trajectory. The trailing p/e ratio was running at 24 / 1. The median value of this metric as measured over the period running from 1975 to the present, has been around 18 / 1. A 25% decline in securities prices lets the air out.
Well, as Art Deco observed the market was undoubtedly over-valued in historic terms. But, I am not sure to what extent historic parallels are relevant in the 21st century.
I think that Neo is on target. The market is re-acting to media and politician driven panic, exacerbated by program trading.
Program trading as practiced by the huge pension and mutual funds is a monster. I look at my little portfolio and I see strong, robust companies plunging in value. It is foolish. Even companies that should benefit from the crisis because of their products/technology are caught up. Once the program monster is loose, there is seemingly no human judgement to over ride it. I assume that at some point the programs will dictate a swing to the buying direction. Volatility is going to be the name of the game.
To beat a dead horse–dead horses don’t care–the biggest danger I see is a power grab at all levels of government. Tune any news channel and you are likely to see an official from some level of government declaring an emergency, and dictating restrictive policies, to “protect the citizens”. Viruses run their course, the lust for power seldom does. That is demonstrable from the level of the dictatorial Home Owner’s Association all the way to the upper reaches of national government.
An earlier post had a few comments on algo trading and in this post Neo also comments on “automated selling”. The best way to track the current effectiveness of high-frequency or algo trading is to follow the stock price of Virtu, a firm whose profits are derived solely from this kind of financial activity. You will notice that over the long-term they aren’t exactly making money hand over fist because that segment of the market has turned into an “arms race”. As for “automated selling”, lot of institutions have set rules designed to cut losses.
The depth of liquidity continues to surprise me. The bid-ask spread as well as slippage is still normal, i.e. the decline has been very orderly. Perhaps we don’t hit bottom till we see dislocations in the market structure. As for the general trend, of course the prices have to adjust when countries are bringing the entire economy to halt.
“Another – ongoing Seattle flu study that indicates virus has been here circulating for some time.” – Otiose
The most interesting point of that post to me was this revelation – not a surprise, unfortunately.
Who in the world would have been harmed by them doing the study, the results of which would have remained in-house until vetted I’m sure, as opposed to the good done by going ahead?
BUT BUT BUT muh regulations!!!
Sometimes you have to consider the point of the regulations, not the print.
We don’t have to take RMD’s for another 6 years. With any luck the Stock Market will have recovered by then.
Otiose on March 12, 2020 at 4:16 pm said:
I gather from context that you, Otiose, think this was possibly (even likely) the Wuhan Flu, but you weren’t tested and so there’s no way to know?
My family of 5 is right now on the tail-end of recovering from a virus which roughly matches the COVID-19 descriptions we’ve seen. (Which means it also roughly matches flu and colds.)
We also have not been tested, because testing is (effectively) rationed to only those who show up at the ER with breathing difficulty or listlessness. None of our symptoms were bad enough to warrant a trip to the ER.
For all we know, half of the people who had a sniffle or worse in the last month actually had Wuhan Flu, and already got over it (or are in the process of doing so, like my family).
How can we know what the “death rate” is, then, for any Average Joe who gets it? We can’t. There was a 6% rate from Italy that I saw; but when you normalized for age, it turned into 2% …and even that is obviously a vast overestimate for an otherwise-healthy Average Joe because nearly all the folk tested are only those in serious distress …and they turn out to nearly all be folk with prior underlying health conditions, or elderly, or both.
On the other hand, the scenes in Italy are distressing, and it seems likely we’ll see similar ghost-towns and overburdened ERs here in the U.S. before long…but only in certain places, not nationwide. Hopefully we won’t see the mass graves (a la Iran), but, then again, whaddaya do if the mortuaries are suddenly overwhelmed?
The main problem is the fast rate of infection and spread. The whole population is going to have had it by this time next year: It’s that infectious. But if that happens over 12 months, you only get a lot of doctors working overtime. If it happens over 3 months, you get six-day wait-lists at the ER, and people start dying of ordinarily-survivable things like appendicitis, merely because there aren’t any beds open to take them in.
The situation is serious. But if we can slow down the spread enough that our medical system can handle it, it needn’t be disastrous.
Where possible, everyone should just stay home and watch Netflix, and have supplies delivered by Amazon drone.
Regarding tests, CDC and regulations, and patient confidentiality.
The tests require reagents. The problem was that there was contamination in what they used for the tests, so they did not work right. I suspect China.
The CDC is slow. My retirement job: U.S. Census, collecting data for a CDC study. Every year the CDC is late getting us their sample. This is for something they know they need to do. I can imagine the delays for anything new.
Also, there is the need to defend their turf. I can imagine mid-level admins needing to cover their “…”, before letting test kits out.
Finally, there was the deadly assumption that there were no cases in the wild in the US, so just test those who fit the criteria. So we didn’t look where we needed to look, because of that deadly assumption.
If you violate patient confidentiality, you can go to jail. US census workers sign a lifetime confidentiality agreement to not reveal personal info. If a census worker sees a crime while working, they can’t reveal it, due to a promise of confidentiality when obtaining data.
When a patient signs an agreement, it limits what you can do with the info. So using info from a study where someone agreed to one use, for another purpose, could land you in jail.
The danger of bureaucracy, is that it mistakes process for product. Were all boxes filled correctly? Did everyone sign? A pure bureaucrat does not need to know why they do what they do. See TSA security theater as an example.
There is a dam upstream of San Jose. In 2008 they discovered the dam could fail, and flood the city with a wall of water. After 12 years they still have not started to replace the dam. They still need approvals from various agencies. “We don’t care if we kill people, that box was not filled in correctly”.
I took Obamacare health insurance for the first time this year, but to get the subsidies here in TN, I had to show an income of at least poverty level (about 13K here in TN). To get to that level of actual cash income, I had to take money from my 401K before February 26th. However, to do that, I had roll the 401K into an IRA, which I did during the first week of February. Now, the old 401k had broad fund classes to invest in, not individual stocks and bonds- when I did the rollover, I suddenly had to do more work figuring out what to do, and being a procrastinator, I just put all of it into an intermediate term bond fund- a very lucky choice since it gained about 4% from February 9th until I sold it all Monday morning so that I could start buying selected stocks in this panic. On Monday, I allocated about 5% of the cash, and did so again today during the 2nd panic of the week.
I intend to keep putting 5% into various stocks everytime the Dow Jones drops another 5% from the last allocation.
The scariest part of this is there is serious damage being done to businesses here that won’t just go away if this blows over in a month or so.
The scariest part of this is there is serious damage being done to businesses here that won’t just go away if this blows over in a month or so.
I see you’ve repurposed Paul Krugman’s remarks uttered on 9 November 2016.
In the election betting market Biden is leading Trump for the first time.
https://www.predictit.org/markets/detail/3698/Who-will-win-the-2020-US-presidential-election
Trump has enough time to rectify it but if he doesn’t then there goes the pro-business agenda replaced by a token president with Deep State in firm control. That will turn into a self-feeding loop. After the Oct 1987 decline, which this sharp decline best compares with, it took 2 years to return to the previous highs.
I agree the market has been overvalued, but it is IMO tanked to allow the big players to buy down market. Expect this to end mid May at the latest. Don’t sell, buy.
Art Deco,
WTF! Do you not think small businesses are being hurt by this and may not survive? And these won’t be coming back and they employ people.
This flu is a real thing for vulnerable people but the rapid shutting down of large parts of the community is a massive overreaction and will hurt far more people for far longer than the Wuhan Flu.
There are always businesses which, for any of many reasons, are about ready to fold or be bought out – the owners want to or must stop the business. Some number close to the edge save themselves.
This crisis will kill many more of those close to edge, and even many that didn’t seem close before. Wealth not created, like when a runner falls in a race, can never really be made up.
The “market” has been highly valued, with many thinking it’s overvalued based on historical price/earnings ratios (p/e) or other reasons. Record highs for months. This is a correction, which becomes a big correction as more traders want to follow Yancey’s idea: get into cash now, while the market is going down.
And buy only a few selected stocks of companies that seem strong but were just sent down with market.
Almost all want to wait for the bottom and then buy their chosen shares at the cheapest, or near cheapest prices. Of course, none know when that bottom will come. And there might well be false bottoms, with small rises, which are then followed by further sell offs.
Yes, fear of the unknown. But also – we KNOW that less wealth will be created in the world, and in each OECD country. The companies making that wealth are actually worth a bit less, but at inconsistent differences of industry, strategy, personnel, and all the things that differentiate firms.
Of course, most owners of shares actually WILL do a “wait and see” — but those who have already sold will likely make far more money, this year, than the ones waiting. This likelihood drives more to sell, sooner, making it a self-fulfilling prophecy. Let’s also recall that one can only sell to somebody willing to buy — and these folk are betting that it’s close to the bottom for the stocks they buy. At some point they’ll be the majority.
The number of bankruptcies will likely be increasing, too.
https://tradingeconomics.com/united-states/bankruptcies
Lots of people in restaurants, convention locations, travel, and sports entertainment are losing money. My friend with a major airline is worried about all the service employees. She has good reason.
Market futures up 5% this morning. With any luck, when we bought yesterday, we hit at the bottom of this.
The problem with testing is an obvious case of centralized control working against the interests of patients. Once testing at local labs gets going, which will be very soon, we’ll see that problem go away. Nationalized health care is exactly the wrong direction.
WTF! Do you not think small businesses are being hurt by this and may not survive? And these won’t be coming back and they employ people.
Most small businesses close a single-digit span of years after they are founded; insolvency and failure in these cases is atypical; the modal reason is that the proprietors conclude they could do just as well working for someone else (and with less aggravation). We also have cyclical recessions, where business closures occur in the context of general retrenchment. The notion this does ‘permanent’ damage to an economy is only true in a trivial sense that it’s a departure from an imaginary state wherein capital is always and everywhere optimally deployed and businesses never fail.
I don’t know how to break this two you, but there is cyclical variation in share of people available for work who are actually employed at any given time. However, there is no secular trend toward a contraction in levels of employment. The employment to population ratio has varied between 0,55 adn 0.64 throughout the period running from 1947 to the present. The jobs actually do come back, just not jobs offered by that particular employer.
but it is IMO tanked to allow the big players to buy down market.
[eyeroll].
Here is a page I added to one of my Astrophotography websites that I will update daily:
https://snrcalc.now.sh/covid19
Each day I’ll visit JHU’s GitHub repository and download the time series data for USA Confirmed Cases, Deaths, and Recoveries. I’ll import it into Excel and build Pivot Tables and Charts, then take a screenshot and upload it to my site.
Ideally I would import just the time series data to my website and then let you visualize it with charting software. One step at a time.
A friend just alerted me to this website:
https://www.worldometers.info/coronavirus/country/us/
It contains the same time series data as mine so I’ve decided to make this the first and last day that I update my site.
Thanks for the link, Brian Morgan.