The Ongoing New Financial Era Thread

psu_dad
Posts: 1589
Joined: Sun Aug 13, 2017 6:59 pm

Re: The Ongoing New Financial Era Thread

Postby psu_dad » Mon Dec 03, 2018 2:01 pm

If you need some validation as to one of the factors impacting the continued fall of the DOW, I think you just got it.

But that doesn't mean pushing back at China didn't have to happen. The market has reacted adversely this year every time the Federal Reserve announced a bump in the interest rates. That had to happen also.
Klaatu barada nikto

Blue&White
Posts: 2621
Joined: Sat Aug 12, 2017 10:01 am

Re: The Ongoing New Financial Era Thread

Postby Blue&White » Mon Dec 03, 2018 3:54 pm

But that doesn't mean pushing back at China didn't have to happen

Agree. I've said a number of times that I don't think Trump's position on China is fundamentally wrong. What I think is wrong is his bull-in-a-China-shop (no pun intended) answer to everything. It turns out that trade wars with authoratarian regimes who are not accountable to their citizens are actually not easy to win. And, they are even tougher when said regime is not only they primary holder of all the debt you ran up prior to taking office but are expected to buy all the debt you created with your recent tax cuts.

What happens if Trump impacts the Chinese economy to a point where they no longer subisidize all our debt? What is the impact of that? I have no idea what the answer to that question is, but from what I read that is potentially a big issue.
Is it baseball season yet?

psu_dad
Posts: 1589
Joined: Sun Aug 13, 2017 6:59 pm

Re: The Ongoing New Financial Era Thread

Postby psu_dad » Mon Dec 03, 2018 4:35 pm

China may be a "primary" holder of our debt, but they're certainly not a "majority" owner. They and Japan each own about 5% of it. Japan doesn't receive as much negative attention because they're seen as much less hostile, for lack of a better word.

And I'm not aware of any consensus that China buys our debt because no one else wants it and we're totally screwed if/when they dump it. They buy it because they believe it to be a good investment. Perhaps we have a vested interest in keeping them economically viable, but that works the other way as well. We buy more of their crap than any other country.

Would I prefer that Trump be polite & firm? Of course. But if loudmouth-jerk & firm is the only choice, I'll take that. It's better than polite & do-nothing.
Klaatu barada nikto

Blue&White
Posts: 2621
Joined: Sat Aug 12, 2017 10:01 am

Re: The Ongoing New Financial Era Thread

Postby Blue&White » Tue Dec 04, 2018 1:23 pm

Well, on the plus side, it's still above 25,000.

:shock:
Is it baseball season yet?

psu_dad
Posts: 1589
Joined: Sun Aug 13, 2017 6:59 pm

Re: The Ongoing New Financial Era Thread

Postby psu_dad » Tue Dec 04, 2018 1:40 pm

This time I actually saw this coming. It's been happening all year. And at this point, I think attributing the ridiculous volatility in the market this year to world events is a fool's errand.

I'm convinced that this is just the professionals, who do the bulk of the trading, playing a numbers game. I believe the numbers associated with the current economic conditions have the professionals believing that the "proper" level for the DJIA is around 25000. On numerous occasions this year, the market has made a run at 26000 and each time the professionals decide to take a quick profit and beat it back down with a sell-off. Then, with the market beaten down to a level that represents a better value, the buying begins anew.

I think any other explanation is just BS.
Klaatu barada nikto

Blue&White
Posts: 2621
Joined: Sat Aug 12, 2017 10:01 am

Re: The Ongoing New Financial Era Thread

Postby Blue&White » Wed Dec 05, 2018 8:11 am

I'm convinced that this is just the professionals, who do the bulk of the trading, playing a numbers game. I believe the numbers associated with the current economic conditions have the professionals believing that the "proper" level for the DJIA is around 25000. On numerous occasions this year, the market has made a run at 26000 and each time the professionals decide to take a quick profit and beat it back down with a sell-off. Then, with the market beaten down to a level that represents a better value, the buying begins anew.

I've been thinking about this comment since I read it yesterday. Basically, what you're saying is that the market moves not on the basis of market forces but because of the actions of a handful of institutional traders and their view of where the market should sit at. And, any other explanation other than rampant manipulation is bullshit.

If that's what you believe, then that's what you believe, but I find it a bit tough to swallow and, more to the point, see no evidence to support that. Do I see evidence that institutional firms are able to game the market and possibly influence it in short bursts and duration? Sure. Any who has read up on high frequency trading will probably believe that is true and, despite the assurances of former SEC Chairman Mary Jo White there seems to be plenty of evidence that firms involved in HFT were gaming the system at the expense of everyone on this forum and probably the vast majority of Americans. But, that wasn't because they were manipulating the market but because they were front-running it.

I guess what I find to be bullshit is the explanation that the market is not a factor of macro economics but the factor of just an inside agreement. I'm a huge skeptic on the integrity of our financial system but that is just a bridge too far for me to accept. Maybe it's true. It's not that I think financial firms are above it. I'd just like to see the evidence to support it.
Is it baseball season yet?

psu_dad
Posts: 1589
Joined: Sun Aug 13, 2017 6:59 pm

Re: The Ongoing New Financial Era Thread

Postby psu_dad » Wed Dec 05, 2018 9:24 am

For the record, I'm not suggesting there is anything improper going on.

At the end of last year, I read a number of articles about the crazy growth in the DJIA that occurred during the year. Several analysts seemed concerned that the growth was not commensurate with the moderate growth in the economy. They felt that the growth in the DJIA may be more related to the demand for stock, rather than the underlying "fundamentals" of the corporations represented by the DJIA. Many of them thought the DJIA was maybe "ok" at its level at the time (around 24500-25000) but that any future growth in the DJIA without MAJOR growth in the economy would suggest that stocks were becoming over-priced.

I believe that the "smart money" has decided that given the current economy, the DJIA at/below 25000 is an indication that there is some value in buying and that as it approaches 26000, stocks start to become over-priced and it's time to sell. And Wall Street firms now hire a lot of very bright guys with degrees from MIT and Stanford to make assessments like that using complex mathematical models and megatons of data.

------------------------------

Look at a plot of the DJIA for this year. The same patterns repeat themselves over and over and over. A drop below 25000 in the DJIA produces an upswing in buying and when the DJIA approaches/exceeds 26000, a sell-off occurs. Then look at a 3-year plot of the DJIA. This year is a friggin roller coaster compared to the previous two years. And it has not been a uniquely tumultuous year in terms of world and national events.
Klaatu barada nikto

Blue&White
Posts: 2621
Joined: Sat Aug 12, 2017 10:01 am

Re: The Ongoing New Financial Era Thread

Postby Blue&White » Wed Dec 05, 2018 11:49 am

But economic growth is the primary factor.

I think that Presidents and governments in general get too much credit and blame for the ups and downs of markets in particular and economies in general. But, there are things that governments can do that have real economic impacts. The Clinton administration turbo charged the housing market. The Bush administration allowed banks to push money and risks into opaque off shore entities so ven sophisticated instituational investors were unable to fully grasp what was going on (someting that certain advocacy groups begged them not to do). Those two things had real impacts on the economy. Trumps policies on taxes and tariffs also have real impacts on the economy. I agree that it is impossible in real time to look at any one day, any one month or even any period of months - of market movements and say "it is because of [x]". With time you can do that but not in the moment. So, when you see a headline like "Dow falls 800 points due to uncertainty about tariffs", while it makes good copy it's absurd. You can't pin one day on any one thing.

All that said, economic policies are going to have longer term impacts - period. They may not be understood while they are happening, but there will be impacts. And, studying history of these types of actions gives us some insight as to the cause and effects of certain actions. We know from history what tariffs can do. we know from history what changes in interest rates can do. Or swings in the price of oil. That doesn't mean that all situations are the same, obviously, but we have some idea of cause and effect now.

Point is - while we can't specifically point to Trump's trade policies, or any of his policies, and say "this policy is causing [X]", we equally shoulnd't ignore the probable outcomes of what he is doing or dismiss economic changes as unrelated simply because we can't prove in real time the connections.

oh, one final thought - I find it very easy to believe something improper is going on with the markets. I don't know there is, but I'd be more suprrised if we weren't all getting taken advantage of and ripped off in some illegal way we don't know about.
Is it baseball season yet?

psu_dad
Posts: 1589
Joined: Sun Aug 13, 2017 6:59 pm

Re: The Ongoing New Financial Era Thread

Postby psu_dad » Wed Dec 05, 2018 12:38 pm

I actually don't disagree with most of that. I've just come to believe that the dominant factor in the performance of the market this year is that we're in a year-long correction. In 2016 and 2017 (combined) the DJIA increased by nearly 39%. That's a ginormous number. Even if the DJIA grows by 0% this year, you still have a 39% growth over three years. A very big number.

I believe the smart money has decided to "pump the brakes" on the crazy growth in stock prices the previous two years. Not because they're illegally "manipulating" the market, but because the economic data doesn't warrant continued crazy growth in stock prices. And the smart money is content to grab short-term profits via sell-offs where they can. That's not against the law. No one is compelled to keep buying and buying if/when they believe stocks are becoming over-priced.

And it doesn't mean that a world-wide plague of locusts or a zombie apocalypse or government stupidity doesn't affect markets. I'm not suggesting that.
Klaatu barada nikto

Blue&White
Posts: 2621
Joined: Sat Aug 12, 2017 10:01 am

Re: The Ongoing New Financial Era Thread

Postby Blue&White » Thu Dec 06, 2018 9:24 am

Dow futures down 350 before the opening. This should be fun.
Is it baseball season yet?