Trading halted as U.S. stocks plummet | Hacker News Reader

Trading halted as U.S. stocks plummet

axios.com

651 pointsbatmenace995 comments

I notice that there are many commenters here offering opinions on the future price of equities. Note that nobody has any idea where equity prices will be in one day, never mind one year or ten years' time. As a retail investor (i.e. not extremely rich), you can't gain any advantage over the market that overcomes your transaction costs.

So relax. There's nothing to do here. If you're contributing to a retirement fund, keep buying. As the market falls, you're getting a discount. If you need to retire in the next five years, you should already have started moving out of equities. It's too late to change that now.

Most people don't seem to understand that you don't pull all your retirement out at once, so the market going up or down doesn't really affect that

But it is wonderful for headlines:

"The man who retired on the week the DOW plunged" https://www.barrons.com/articles/he-retired-the-week-the-dow...

But whether you start your retirement at a time the market is down a lot or up a lot can make a surprisingly big difference on how long your money lasts, if you don't adjust your spending.

Doc, it hurts when I do this!

So...

Every medical expense, every food expense has the result of costing more of a percentage of your remaining funds. Many costs can’t be put off.

All costs are on a spectrum of urgency. Food can be put off longer than water. A small plumbing problem can be put off longer than a large plumbing problem. A furnace problem can be put off longer if it's not cold. Replacing a car can be put off longer than fixing the brakes.

There is no such thing as having all your costs due immediately with equal urgency.

On the one hand, you're absolutely right. On the other hand, if I'm putting off food or even general house/vehicle maintenance because of market conditions, my retirement has already failed from my point of view.

If you are that badly off you couldn't afford to retire. For most of the US you have a big spending problem because SS is enough to provide food and basic house/vehicle maintenance. (I know a few people who opted out of SS and then did bad retirement planning - but most people didn't even had the option to opt out of SS)

SS isn't much I'll grant. However it is enough to provide the basics.

I am counting on social security, and I think all the talk about it "running out" is stupid. It runs year by year on the income from that year, so it's completely up to the political will to pay, and whether the people who are working are willing to keep the retired from starving. I assume they will be, because if not, who gives a shit about anything anyway?

Ideally, shouldn't someone planning to retire have already moved more of their money to bonds? Then they could just withdrawal from the bonds portion of the portfolio (which is likely up right now) while the stock market recovers.

However you frame it, there's always a time you start withdrawals. And if when you planned to do that coincides with a dip, of course you'll have second thoughts.

Did so about a year ago based on SMAs and momentum. Only wish there was a cash option to put have them move everything to for the time being, but only had bonds as an option.

Best thing is to watch out for the SMA support levels. Just got through a major death cross and looks to be heading further down

Though you should have options. Don't retire in a down year. Start moving things to safer investments several years before you retire. Don't spend as much that first year. Still the numbers given are good examples and something to keep in mind.

Bonds yields are the lowest they have been since the great recession.

Yields are low because bond prices are high. It's not a bad time to be selling down your bond portfolio right now.

Well you can be fucked by your employers 401k manager. The day my wife quit, she was locked out of here 401k for 2 weeks. They divest everything during that term, and you have no control over the timing. She quit near market peak last year (and began re-investing this week), but say she quit this week? It's volatile enough presently that you could lose $$$ of they decide to sell at a low to boost their stock, and you can't re-invest in time.

>Well you can be fucked by your employers 401k manager. The day my wife quit, she was locked out of here 401k for 2 weeks. They divest everything during that term, and you have no control over the timing.

What type of a company did your wife work for? I actively learn about personal finance and retirement plans and have never heard of a lockout from a 401k.

> It's volatile enough presently that you could lose $$$ of they decide to sell at a low to boost their stock, and you can't re-invest in time.

Short of working for a privately traded company, or being a very well compensated executive, the shares owned by an individual employee are almost always negligible compared to daily traded volumes. "Selling at a low to boost their stock" wouldn't even move the needle.

Edit: One possibility came to mind after posting. Was your wife's 401k balance under $5,000? If so, the company can force liquidation. And to say doing so would help the stock price would only be meaningfully true on a penny stock.

I’m not the OP, but when I left a company where I had a 401(k) and transferred the balance to my preferred brokerage, the source account was frozen for about that long during the approval and transfer process.

Yes, and I assume they cut a check to your IRA?

Yes, but the longest part of the process was waiting for the 401(k) administrator to actually do that, and once I initiated the process I couldn’t make any changes. This was a while ago so I don’t remember the specific time frames, but it was somewhere between 10–15 business days for the 401(k) to show a zero balance, then 3–5 business days after that for the money to show up in my IRA. I had no control over when something would happen during this process.

No, $300k. She was locked out for 2 weeks as it was liquidated and a check cut to her IRA. Fortunately there was no volatility then.

My employer changed the 401k match (in company stock) to a single purchase in January. Of course you can sell immediately, but it has the effect of boosting the shares when you do it for over 100k employees.

Unfortunately the process to move money from a 401k to an IRA (and moving money in general in he US) isn't great. In many instances the check is sent to the individual who then needs to send it to the receiving institution.

I've also read that upon receiving the money, brokerages don't always show it to the end user right away, using it on their end for a few days (and at scale, that matters).

Fair point regarding the 401k match - but are they issuing new stock to complete the match? I haven't looked at how a match with company stock is funded before, but intuitively I'd think they'd issue new stock, diluting existing stock a tiny bit, but keeping the same overall company valuation.

As originally presented I saw the issue with your wife's 401k and padding the stock price as part of the same issue.

The problem is that nothing says markets will go up forever. Take japan's nikkei index. Dropped in the early 90s and is still down 50% 30 years later.

Choose the "all" to see the entire chart.

https://tradingeconomics.com/japan/stock-market

It isn't a law of nature that the S&P or Dow has to regain its losses in X number of years. S&P can drop and stay down for decades which can absolutely affect retirees.

This is a key point. Especially if we actually start doing something about CO2 emissions, which will mean reducing energy consumption for the next couple of decades. Stock market growth has historically been tightly linked with energy consumption growth.

While the point of probability of staying low holds, I don't think there is a tight coupling with the energy consumption. Surely, nature (business ecosystem) will find a way for growth driver even without energy density increase.

I think nature's growth will be like 1% or less, certainly not the stock market growth people are used to. To me, it is obvious there is a tight coupling: energy does work instead of humans/animals, thus allowing more productivity. When you look at a construction site it's just human directed diesel-energy (with some chemical energy in the concrete).

Much of the developed world is transitioning to a service economy that relies less on the fossil fuels, but it still relies on the inputs that do (agriculture, electronics, offshore manufacturing). And we've set up the economy around fuel consumption: long commutes from suburbia, inefficient houses, processed and packaged foods, etc. And what about the travel industry: burning fossil fuels for no productivity (just realized it acts as a mop for the excess capital).

If we're lucky, we can use the fossil energy to bootstrap the renewable energy, then we can eat farmed foods, drive electric cars, and work on computers remotely. But there just won't be the energy to drive the economy the way cheap energy does.

I took a graduate level measure-theoretic probability theory class. The professor had this rant about how "buy low, sell high" was a bad idea, it's all about how long you stay in the market. He had a mathematical proof that, if I recall correctly, only held if the random process is monotonically increasing in expectation, which of course is not guaranteed.

trading, frictional costs, and the asymmetric psychology of selling winners and riding losers are a better explanation for why buy low, sell high is a bad heuristic to aspire to.

+1. it took about 3.5 decades to return to the levels of the pre-'29 crash. bear markets can indeed drag for decades. stockbroker happy-talk tends to gloss over these facts.

If you had reinvested your dividends, you'd have gotten your money back by the end of the war (and you'd only have lost 1 or 2% approximately six years later).

35 years later you would have an annual return (inflation adjusted) of 6% (6.5 times as much as you put in).

And this is somebody who invested in the absolute peak of the market in 1929, and then saw the worst crash in history, followed by the worst war in history.

Past performance is not a guarantee of future results.

Markets can grind lower and lower for decades, each new low triggering bargain hunters to buy, only to drop more.

Sure, but that can happen if:

1) Shares were massively overvalued compared to their yields. E.g. if P/E ratios were 50:1 then I wouldn't buy the market

2) There's a fundamental issue in the economy. Plague, war, asteroid, climate change. Whatever the issue, you probably have bigger things to worry about than your retirement fund, and you have no better bets to place

The stock market is just made up of businesses. Businesses make money. Owning part of a business gives you a return. There's no magic to it, no massive extrapolation based solely on past performance. If you think there's a decent chance businesses aren't making money, then you ought to become a prepper.

Did you exclude or include dividends in that assessment?

If you reinvested your dividends you'd be up 25% without taking into account inflation, or down a total of 1.5% if you took into account inflation. Not ideal, but not much different than when you started.

I personally buy an all-world tracker, the Nikkei is an outlier. There could be issues that affect the global economy long term, but if that were the case, I'd have other things to worry about in addition to my investments.

Actually it does, and in a big way.

Let me give a simple example using some round numbers just to show the concept. Plug and play any numbers you want to see how the outcome changes...

Let’s say you have a million dollars in March of 2000, you just retired, and you need to pull out $100,000 to live on. So, in April, you take out $100,000 and now you have $900,000. So you ended up taking out 10% of your principal.

However, the market is falling, and will drop 10% over the next year. So you now have $810,000, and you take out this year’s $100,000 which leaves you with $710,000. Effectively, you took out over 12% of your principal.

2002 is no better, and the market falls a further 13%, and is now down to $618,000. You take out $100,000 for this year’s expenses, leaving you with $518,000.

The next year is even worse in the market, and your nest egg falls 23%, which means you now only have $399,000 left. You still take out your $100,000 and are left with only $299,000.

Thankfully, the next year the market rises 26%. Hallelujah, your nest egg grew to $376,000. However, you still need to take out your $100,000, leaving you with only $276,000. You think your luck has turned around...

The next year the market rises, but only 9%, so your nest egg grows, but only to $301,000. You take out your $100,000, leaving you with only $201,000. Hmmmmm...

The next year the market rises again, but barely - only 3%, so your nest egg is now $207,000. You take out your $100,000 again, and only have $107,000 left. Uhhhh...

Thankfully, the market moves up 14%, and your $107,000 grows to $122,000. You take out your $100,000, leaving you with only $22,000 left.

Finally, in the last year, the market rises 4%, so your nest egg grows to $23,000. You withdraw all of it, and are now broke.

This effect is based on real numbers (rounded) from [0], and represent the S&P 500 market returns starting in the year 2000 (aka, the dot com bust). What happened to this poor retiree is called “sequence of returns”, and it is something that any good financial planner uses to test the durability of his or her projections.

[0] - https://www.macrotrends.net/2526/sp-500-historical-annual-re...

10% is not really a safe withdrawal rate though.

Agreed - it was simple math because I typed it on my phone.

In this scenario:

- This person likely could have drawn social security income, given that it's 2000 and SSI is not bankrupt.

- Ideally you have the funds you need to retire in the principal alone, and are only relying on very modest growth rate to fight inflation once you're actually withdrawing from it.

- You shouldn't be withdrawing retirement funds from an S&P 500 index fund investment. The funds should have been in a retirement income-focused fund or low-risk bonds, which would have helped maintain principal even in down years.

- Ideally your house is paid off, so you're not paying down a mortgage, and have significant equity in your home to draw from as a last resort.

I think a more realistic scenario is someone in their mid-50s who thought the numbers were working out in their favor to retire early, only for the market to crash, and now that is no longer looking like an option.

I'm not addressing strategy, just the math to show sequence of returns does impact withdrawals.

Also, while I agree with you position, most people unfortunately are not in that kind of situation (of course, they typically don't have the $1M I used in my example either).

What you really proved is that $1M is not enough to retire.

If you can’t live off the dividends, you don’t have enough to retire.

The dividends (assuming it's in an S&P index fund) are only about $27,000 per year.

You'd actually want a better mix of income generating assets than straight stocks to make sure you have income and are keeping up with inflation.

And a million is more than enough to retire. (Perhaps not enough for you or me, but that's a lifestyle choice.)

> Note that nobody has any idea where equity prices will be in one day, never mind one year or ten years' time.

> So relax... keep buying

lol

The error, actually, is in the first part rather than the second. We don't know where it will be in a day or a year, but there's good reason to think we know where it will be in ten years: about twice where it is now. It might be only 1.5x or it might be 3x, but it's not very likely to fall very far outside of that range.

Given that, if you have ten years to wait before you need your money, it's as good a place as any to put your surplus earnings today. Not to sell your car or borrow money, but as a reasonably safe long-term thing to do with money that you will use for your retirement.

And then forget about it. Buy a broad index and don't worry what it does on a daily basis, even days like today. Perhaps especially days like today.

The counterexamples that have been brought up elsewhere on this post are Gold (still below 40 year high) and the Nikkei (still below 30 year high).

Also, the fact that the Nikkei's behavior is typically attributed, at least in part, to a demographic trend that's likely to hit the US within our lifetimes.

The Nikkei high was wildly artificial; its price-to-earnings ratio indicated that there was an enormous bubble. The US stock market is (probably) currently inflated, but by a factor closer to 2 (or less) than 10.

(I've looked less into the price of gold, which has a weird place in people's minds and would require a lot more research than I've put into it.)

It's entirely possible, of course, that the US is entering a long-term economic disaster of a kind it has been courting for decades: government borrowing, student loans, Baby Boomer retirement, etc. But US companies have been earning money, and in general that does justify the belief that they merit a stock price that's roughly where it is now; somewhat lower, but not radically different.

Could it be that the E part of the P/E Ratio is currently also significantly inflated? For the tech sector I could definitely see that happening due to the influx of VC money, causing unsustainable b2b spend on cloud&ads, which currently show up as earnings for FAANG but may quickly subside when VCs pull out?

It's entirely possible. Earnings are historically high, and the Fed has been pumping money into the economy for over a decade. But it hasn't translated into higher consumer inflation, which has actually been below the Fed target. So the companies are earning money without raising prices, at least on the consumer basket of goods.

FAANG, as you say, are B2B and don't show up as inflation. It's entirely believable that that's all fake money that will disappear from the market when the going gets tough. Whether it will come back... well, you probably don't want my complete unfocused brain dump which all comes down to "I dunno".

Gold is a single concentrated bet, not really comparable to a stock-market index, and the Nikkei shows why it's important to diversify outside of your home country. For almost everyone, "buy the global market portfolio and forget about it" is the right advice.

While I agree that this advice is better than picking stocks, something always rubs me the wrong way when it is repeated like it is an absolute fact. Like they say in the commercials, Past Performance Is No Guarantee of Future Results.

I can't say what form it will take, but I can definitely see a future where the pendulum swings back from ever more indexification.

I agree with you. I believe the biggest problem with indexification is that it encourages a generic flow of money into the market, regardless of whether the market can handle it or not. Although the market isn't just gambling, and there is real underlying value, it's not an infinite source of value to give returns to anybody buying into it. Eventually there can be too much money chasing too little corporate earnings, and the market gets overpriced.

I don't think it's unreasonable for a person with spare cash to expect to get a reliable 5% or so long term just from the inevitable progress of technology. That may not continue forever, but if it ends, the problems will be bigger than just what index fund to purchase. The world will be a very different place.

(Or the market could be, if people stop seeking to raise capital there, but that's also a very different future and hard to predict.)

Every time you buy a stock, someone sold it to you, so flow of money into the market isn't something that's easy to define in a meaningful way. And even if a lot of the invested capital is passive (maybe half of the US stock market), almost none of the trading is, and that's what determines prices.

Money flows into the market when people earn it and use it to buy stocks. Every stock purchase is matched by a stock sale, but most stock sales turn around and become new stock purchases. That's a net long term inflow of money into the stock market, from people purchasing stocks with their earnings (often, via retirement funds).

Most of the actual trading is traders trading to each other, and that shouldn't raise the market cap long term (though it does create volatility). But there is also real inflow of money into the market.

As industrialized countries age, there will be relative more people in retirement compared to people in their working years. As a result, the money being pulled out of the stock market will grow relative to the money being put into the market. That is one of the reasons that we shouldn't expect to see the same stock market returns as in the past.

I agree with your first part, but not the second. Even if there's a future where the total market has zero (or negative) return on average in the long term, it doesn't mean that it's any easier to find the temporary exceptions. And lower volatility is still good even if everything has zero expected return, so diversification still helps.

One thing to keep in mind is that the Nikkei 225 (like most indices except the German DAX) is a price index, and, (like the Dow) a mediocre one at that.

A better index is the Topix, and that’s available in a total return (and net return) variant (that is, including dividends before (or net of) taxes)).

A fairly low dividend yield would suffice to make the total return index exceed the 1990’s high by now. (It’s not trivial to find the data to confirm this for free.)

I guess my parent comment was too cheeky and internet-y but I'm making a serious point here. There's an unbelievable quantity of people here on HN who recite adages about the unknowability of the future (which is good advice!), and then proceed to give very specific recommendations on how to behave in the future, and those recommendations are packed with assumptions about what the future entails. I'm sorry to pick on ttul here but the cognitive dissonance is just astounding.

> As a retail investor (i.e. not extremely rich), you can't gain any advantage over the market that overcomes your transaction costs.

Sure you can. You develop a system, learn how to find information, and make good predictions of future human behavior. You should learn the ins and outs of the product you're trading.

The efficient market hypothesis would like a word with you.

The efficient market hypothesis is that markets are efficient to present public information.

If markets were efficient to the present value of the future price at all times, then there would be no such thing as insider trading and hedge funds would all lose money.

You can make money by making inferences about present facts, or taking views on future occurrences.

I'm not clear why you mention insider trading here? Insiders have access to information that is not present public information, and so is not priced into the current value of the stock.

The the strong form of the EMH includes inside info, all info in existence.

Yes, but no one claims that the market is strong form efficient. The question is rather whether the U.S. stock and bond markets are weak form (prices include all past trading data) or semi-strong form efficient (prices include all publicly available information).

Exploiting inefficiencies for gains is the mechanism by which EMH is supposed to work, so you're right that some people must be making money by trading intelligently.

But professionals have advantages that are difficult to match for small-time investors like: single-digit millisecond latency with exchanges, specialized hardware, sophisticated back-testing systems, proprietary data sources (market data, weather, retail data, etc. any data source you can thing of, some hedge fund is buying it), 60+ hours a week to work on their strats, qualified peers to bounce ideas, volume-discounted broker fees, etc.

Even then, professionals beat the market pretty inconsistently. Many people, including professionals, mistake luck for skill. So I think skepticism is justified when people online claim to have strategies that beat the market.

If you are one of the few who can actually consistently come up with strategies that beat the market, unless you are already rich, it might be worthwhile to work at a hedge fund and take a cut of the profits from trading large sums of other people's money instead of trading your own.

You can't say there are inefficiencies for institutions to exploit, but no inefficiencies for anyone else. Choose a consistent framework for how you view markets.

There are fast alphas, and there are slow alphas.

If you're an institution making markets on index ETFs, you can make money by having more accurate spot prices for the basket. Fast alpha.

If you're a vol trader, you are more worried about convexity of gap moves and the shape of the vol surface. For me, this means following the story of the name and thinking about where the vol surface doesn't properly reflect tail risk. Slow alpha.

Well, there are (small) inefficiencies for everyone to exploit. For example, a stock is mispriced and you expect it to return an additional 1% when the mispricing disappears. The difference between an institutional investor and a retail investor is that the institutional investor can invest $100 million in the stock and make $1 million of profit, while a retail investor with $100,000 will make only $1,000. As a result, institutional investors can afford to spend a lot more money on research, hardware, data, etc. It's very hard to compete with that as a retail investor.

Good thing I didn't say that, then!

I just assign very low prior probability that "this hobbyist investor I've just met on the internet can beat the market" is true. Not zero, but low. And I think it's a pretty well justified prior.

As a corollary to that, I don't think it's good advice to tell the average retail investor to try their hand at trading because most of the time it will not work out.

If you have managed to do it, more power to you.

The advantages I mentioned was what I saw at a not particularly large hedge fund with short to medium term trading strategies. They didn't do just market making, hedge funds do vol trading too.

I just googled that to inform myself.

> The efficient market hypothesis in financial economics that states that asset prices reflect all available information

https://en.wikipedia.org/wiki/Efficient-market_hypothesis

The efficient market hypothesis seems easily disproven with a number of modern examples. Climate change for example - there is significant information available, but markets act as though the information is fake. Leading investors and corporations have for decades denied the risks associated with economic growth backed on non-renewable, polluting and greenhouse-effect-causing energy sources.

The hypothesis does not account for common irrational behavior among people; that real news is considered fake, or real crises considered non-crises.

There is also a matter of weighting. Some facts are known but viewed as uncorrelated or unimportant to the stock price. Facts may be obvious, but wrongly discarded as irrelevant.

I think of markets as a real-time implementation of information theory. There are certain facts that exist, and they are not all known although they may be discoverable. As they become known, or are considered more heavily, those facts bleed into market prices.

In this view, the market is a collective model of the world and thus it is not reflective of all true information.

The model overvalues the confidence and beliefs of people who have money. Sometimes, these people trade stock of companies that deal more with lower-income individuals. Their knowledge of those companies is limited, but over time they may converge toward a better understanding.

Also, sometimes there are errors in interpretation of easily discoverable facts. After 9/11, interest rates went down, but the market didn't price that into auto sales despite 0% interest auto loans being offered to the market.

The market is a model that perpetually converges to a set of facts that are constantly shifting. There is always a gradient (like osmotic pressure) between the model and the reality it represents, so there is always some motion in the market.

And there is always a set of expectations about the future that must be reflected in the model. These expectations have a wide variety of distributions, some are gaussian, others are bimodal, etc. That adds another layer of complexity in getting the model to converge to an appropriate expected value.

Not only that, but several different assets are interlinked. For example, if you buy a large block of call options on a high-volatility name, the market-maker will probably buy stock as a hedge. But in the absence of an upcoming event, he will buy patiently over the course of several trading days in order to minimize the price change resulting from his purchase ("delta impact"). So the market knows that the market-maker traded options, but he has an incentive to hide his hedging activity from other market participants so that they don't front-run him. As a result, it takes time for the purchase of the delta via options to be reflected in the underlying stock -- even though the options trade was printed on the exchange immediately and publicly.

Even if markets were efficient to known information, their price moves do not arrive at equilibrium instantaneously. There is an information gradient -- a kind of osmotic pressure between what is truly happening and what is reflected in the price -- that takes time to normalize itself.

That’s a fascinating explanation. Did you come up with it by yourself?

You are thinking about what is logically efficient, but the market is also concerned about what is emotionally efficient.

A certain proportion of people believe climate change is a hoax, a certain proportion stand to make a lot of money shaping policy as if it were a hoax. With the coronavirus, merited or not the panic is real and the markets are reflecting that panic.

In a world economy driven by consumer spending, how people feel is more real than what is actually real for the market. Therefore, the market is always at its most efficient.

Out of the all the casualties of the virus, the efficient market hypothesis has got to be one of them...

Where were efficient markets when all news from China pointed to a pandemic?

They were down slightly, marking the public's general consensus that while the news was worrying, that there was still a good possibility of containment. If you feel like you have a better understanding of risk than the markets do, it's pretty dang cost effective to buy puts, and you can make a LOT of money with very well understood downsides.

In November 2002, when SARS was first identified S&P was at ~909, it dropped to 846 in March 2003, and was back up as the virus was shown to be under control. Obviously lots of factors in play, but we're very susceptible to hindsight bias as a species.

I did buy bear ETFs

The human lifespan is too short to distinguish between luck and skill for most low frequency traders. You'd have to see dozens of potential pandemics as severe as this one to know if you were "right". But it's empirically true that the average active trader underperforms the market. I build short-term trading strategies at my day job, but at home I just buy and hold some boring vanilla index funds. One nice thing about higher-frequency trading is that you have enough statistical power to quickly see lots of "obvious" ideas fail miserably. It teaches humility.

That's the price at a instantaneous moment in time. Trading requires that price to move, which it does as new information constantly arrives.

You can interpret that data differently, find your own data, and make your own predictions on future data.

The efficient market hypothesis says you will never find money on the ground, because someone will always find it before you.

That is a misunderstanding akin to saying price differences by location cannot exist. It factors in all /available/ knowledge and the abilities aren't perfect either. Even if everyone was omniscient there is time to converge to the inevitable end state and perfect knowledge doesn't exist.

Expecting walking or driving around to provide free money wouldn't be workable. The closest precedent are the venerable professional of the poor - urban scavenging for discarded valuables like recycling. And this goes to well before the industrial revolution. To say a tradesman it wouldn't be worth taking their bones from a meal to sell to a gluemaker and just discarded it in the street. To the desperately poor it was input they could turn to money and was sort of a proto street cleaner to a society lacking modern waste disposal infastructure and institutions.

Walking around with the same strategy and constraints as everyone else won't work.

Lots of the money in the market is being traded by people who are managing over a billion dollars. They have to find investments that can absorb hundreds of millions of dollars. Your example of people collecting bottles is a perfect analogy of how anyone not moving millions of dollars can find good investments.

Also, it assumes that information is basically the same as 'news'. It's unlikely you will happen to be set up to respond to news as fast as whoever is fastest. However, to use information requires knowledge and comprehension, which is not considered at all. Most money on the market is being moved around by robots using fairly basic statistical models.

Very few active fund managers can consistently beat their indexes. Why do you believe you would be better over a long period of time?

Vanguard Study of Actively Managed Funds vs Index Performance: https://personal.vanguard.com/pdf/ISGIDX.pdf

Note that report is Vanguard marketing material and most managed funds have specific mandates (like maintaining a certain volatility or investing in certain securities) other than maximizing gains.

This is why hedge funds underperform indexes in bull markets but beat them in turbulent times.

> This is why hedge funds underperform indexes in bull markets but beat them in turbulent times.

Agreed on the first part; I’d want to see hard statistics (after fees) on the second part (and, no, citing the 3 or so famous exceptions that are closed to outside investors and might have used illegally obtained insider information doesn’t invalidate the larger point).

Hedge funds trade gains for consistency. They don't publicly report numbers though and aren't meant to be public funds (that's what ETFs are for) so it's hard to get full stats, but it's common knowledge in finance.

This is why hedge funds underperform indexes in bull markets but beat them in turbulent times.

Hedge funds have only outperformed the market twice since 2008.

Once was during the financial crisis of 2008 (-19% vs -37%) and once was 2018 (-4.07 vs -4.38).

It's unclear what benefits you are getting here.

The market after 2008 has been on a historically low volatility and a record bull run isn't it?

That aligns with what I said, although there are plenty of private hedge funds that don't report their returns. The benefit varies for each client.

An example would be a real-estate company that has holdings in a fund. Preservation and low volatility is far more important than raw gains and can be used as collateral to offset losses in physical property valuations.

Beating indices in a correlated bull market isn't the same thing as making money consistently.

The contrapositive of your argument is that anyone who is holding cash outperformed the S&P today. Though true, it sounds silly to say that someone who goes about his day with a $100 in his wallet is outperforming the market, no?

In a disperse market, single stocks chosen correctly will outperform the index. In a correlated bull market, the index will outperform.

We are not exactly in a bull market right now.

You are assuming fund managers want to maximize returns for investors. That is not the game they are playing at all.

Fund managers have pathological incentives. People won't hand them money if they say 'I'm going to just hold this money as cash for the next 1-5 years until the market goes completely irrational in a way that I can make you 5x returns, but in the meantime I'm going to charge you 2% per year on the balance'.

They have to put that money in to something or they won't be given money in the first place.

Secondly, funds play games with the money, because investors are not sophisticated and there is a ton of dumb money in retirement accounts. People look at the past returns and choose funds that have a high past rate of return. Fund managers know this, so they set up 15 funds with different strategies. One of them has a high rate of return, by luck, while 14 do much worse. Then they expand that fund 10x by quoting that high rate of return.

Fund managers can make more money by not optimizing how much money they make for you, if you measure them by how much money they get paid to manage other people's money you'll see they are playing that game very well.

>Very few active fund managers can consistently beat their indexes.

Funds profit from managing more money. The more money you manage, the harder it is to find plays that use a significant amount of it. So it makes perfect sense that funds would increase in size until they perform at a rate similar to indexes.

>Why do you believe you would be better over a long period of time?

The fully loaded cost of even a junior analyst would be in the hundreds of thousands a year. Independent day traders can focus on strategies that leverage such a tiny amount of capital and result in such a tiny return that it's not profitable for a fund to be looking at. Keeping in mind that "too small for a fund to worry about" can still be "shitloads of money" for 99% of people.

"There's nothing to do here."

Maybe. I imagine it's a trigger for some people to review their investment mix. Not saying panic sell at this particularly bad moment, but downturns are an obvious heads up for people that assumed everything would constantly rise. Changing your mix for future deposits might not be a bad idea if your current mix is higher risk than it should be for your age.

Probably want to change the mix in a few months, not right now.

Assuming you're over-concentrated in equities, yeah. But if you're under-invested in equities, this would be a decent time to start getting more. No telling when the market will bottom out though, so as always be careful.

If you can predict that the market will go down, yes. But you cannot--that's the whole point.

You could transition more slowly to get the "dollar cost averaging" effect, but that has its own risks.

If your mix is wrong, it's best to fix it pretty quickly.

Ideally you set yourself up with an Investment Policy Statement which includes your ideal asset allocation (based in risk tolerance and goal-setting), as well as rules for rebalancing, such as 5% drift outside that asset allocation you want.

So if equities are down 20% but bonds are stable (or better!) you end up selling bonds high and buying equities while they are cheaper.

If you didn't plan ahead, you shouldn't be making plans now. If you have cash or other assets with less growth potential, it may be a good idea to sell some to buy equities. But before you do that, zoom out and look at 5 years of index fund prices. This 20% correction reaches back to about December 2018. But has not appreciably negated the growth between 2009 and then!

Than why do I keep getting richer on my puts? Maybe it's because there are actually ways to make money during a crisis...

If you're trading options, you are not an average retail investor. Discussing puts isn't relevant for GP's situation.

So? If you want to buy options, it's relatively easy to transform yourself into such an investor, so that should be fair game for evaluating HNers' potential search space.

It's not appropriate unless you're a multi-millionaire, and it's not that easy to transform yourself into one.

You don't need to be a multi-millionare to make money on options, I just recently cited someone who put a small amount (relative to a multi-millionare) to disproportionately profit from the market declines that weren't priced in.

https://news.ycombinator.com/item?id=22526246

I put 1000 in, but I could have put on 200$ in.

Options are even MORE appropriate for the non super rich, because if you put a small amount of money in, you either win big or you lose it all. I'm fine with losing 200$ occasionally.

Buying lottery tickets totally works, someone can claim every week.

https://xkcd.com/1827/

It's a lottery ticket except when an event happens that you know more about than most investors.

In this case, investors are dealing with something they know nothing about - Epidemology.

When black swans happen, you can EASILY beat the market. We've known that Coronavirus was going to get this bad for months. We know the R0 rate. We know the CFR. Markets completely failed to "price coronavirus in"

Sometimes, you really can outperform the market but its only possible in situations where financial policy and monetary policy are unable to help. I see that supply chains are grinding to a halt and I know that this means the whole economy is going to be in pain.

But it's okay, keep on thinking that it's all like the lottery and see where you are in 6 months. You'll wish you were shorting the market.

I have no idea why you are getting downvoted.

Rollback to mid Feb. The stock market keeps hitting new highs. Tesla stock is trading for around 5x what it was trading for just weeks before. Meanwhile China is basically shut down and dealing with a deadly illness. The country where everything is made these days is in deadlock, and there's no reason to think it won't spread everywhere. Cases are popping up all over the world. The stock market keeps going up. I start telling people to get out of the market, and everyone acts like I'm a crazy person.

Stop and think about it, is Tesla worth 4x what it was 3 months earlier, when there was no covid as far as anyone knew? A company that loses money every year and can barely make as many cars in a year as VW makes every 2 weeks worth 5x more than VW? A company which makes less than 1% margin on it's best selling car? A company that could go bankrupt in less than a year in an economic downturn? A company that the market thought was worth 1/5 as much 4 months ago? People were saying it was going to $7000 a share. To be worth that it would have to sell every car made in the entire world every year, and people would have to buy 100x as many cars as they do now, by the year 2021. It's a story told by absolute lunatics.

I'm not saying I thought the market was going to crash today, there's no way to predict that. However, anyone who thought the market was not a bubble waiting to pop should not be investing. There are the people who knew it was overvalued and were trying to ride the bubble, the people who were waiting to short it, and people who are acting confused now and saying 'nobody could see it coming'.

Fastforward to now and my put options are up 300%+, and I'm going to hold them until they are over 1,000% up or they expire in the money. I guess it's just like the lottery, except where they tell you the numbers every day all day for weeks in advance.

It's now the evening of 9-March. I'm watching the US market index futures, which are up by almost 3%, and I'm just shaking my head. People think the market will start going up again? Italy just announced it is restricting every person in the country to their houses and only allowing essential travel. The US does not have a better medical system or a less elderly population than Italy, and we have not put in place any precautions or restrictions, other than strongly encouraging people to not get on cruise ships, which they just announced last night, weeks after the 2nd plague ship was sailing around with no port willing to accept them. In 3 weeks the US will be where Italy is today, and the stock futures are going up? The S&P 500 is the same value it was last October, and given all that we know about how disruptive this virus will be, people with lots of money are still betting the economy is better now than it was 5 months ago when everything was going great, and will be worth more tomorrow.

There are a lot of people with a lot of money, and a lot of them are complete idiots. You can beat the market, at least from time to time.

Feb 4th: https://www.cnn.com/2020/02/04/business/tesla-stock-soars/in...

Also Feb 4th: https://www.cnn.com/asia/live-news/coronavirus-outbreak-02-0...

The market can remain irrational longer than you can remain solvent. (Attribution controversial)

What you write can be true, and yet you can still go bankrupt trying to trade it.

I can't go bankrupt by buying option contracts.

BTW, for the record, my options are now worth over 1500% more. I've sold 4x my original investment. Probably not going bankrupt, but I'm going to go car shopping with 2% of what I just made. Maybe I'm acting irrationally, but then again https://en.wikipedia.org/wiki/Correspondence_theory_of_truth

Not quite.

A lottery is ergodic, while a pandemic is not. No one can know the course of a pandemic early on, so the precautionary principle dominates. Also, income/employment is coupled to the market. If the market tanks out, people can lose their jobs, given the downturn a double whammy for "buy and hold"ers.

Personally, I jumped into cash/Treasuries and made some puts/bets on SPY. In the worst case, nothing happens and I'm out a little money. But my job pays me more money every week, so being out a little money isn't such a big deal.

Unless you use robinhood which has no transactions fees.

Not just Robinhood. Charles Schwab and some others have moved this direction too.

Virtually everybody went to zero commissions, more or less.

> robinhood

It's easy to have no fees if your customers can't make transactions.

To be less snarky, I'd avoid them if you're trying to time the markets.

For those not in the loop: it's been impossible to make transactions on a number of platforms including Robinhood due to the overwhelmingly high load causing those platforms to fail. A lot of people were basically locked out from trading.

Or you know... Feb 29th, every four years.

They completely failed three different times in the past couple of weeks. The Feb 29th thing was a red herring.

I got a warning when I logged into Interactive Investor (UK) this morning and its still there now.

"Please be aware that due to exceptional market volatility, there may be situations in which it is difficult to obtain a price for your trade."

Will be interesting to see what effect the Budget statement on Wednesday

I think the government are damned whatever they do. A massive fiscal stimulus admits there's a massive problem (and the government has been trying to project a quiet confidence that this is something under control), so markets will tank. A small response could be seen as inadequate.

There are still costs to your transactions, not least of which is the information gulf between you and an institutional investor with a Bloomberg terminal.

Not really. The only cost to your transaction is the bid-ask spread, which is extremely tight in liquid US equities.

Their fees come in the form of unexpected downtime at high volume.

A free system gets you only so far

One does not simply "use" Robinhood on a day like today. Or the last 3 large down days since Coronavirus. System-wide failures abound.

Expect your orders to not execute as intended and money to be lost.

I used to subscribe to these investment talking points and believed in the US equity market. I adopted these attitudes from reading Warren Buffett, index fund, financial advice. These are sound principles. I occasionally revisit value investing, dollar-cost averaging.

But times are changing. The US equity market will unlikely to deliver exceptional returns. Buffett may have a strong bias since he started his investing career post WW2. Buffett may experience only the correlation between the US equity market growth and global growth. Investment return is likely non-ergodic. We're entering new terrority where exceptional returns may come from other assets.

What led you to the conclusion that the market will not behave as it has historically over the long-term?

I think the dynamic of the US equity market has changed. In the old days, you can balance your portfolio between stock and bond. This is portfolio advice from Benjamin Graham's The Intelligent Investor. We can no longer do this because interest rates are heading to 0. Bond investors don't make money from interest rates. Bond traders benefit from rate drop. Bond was an investment. It's now destroyed. We end up with cash and equity.

There's a lot of money pumping into the market by central banks. Markets are no longer free. Central banks manipulate their markets. With these kinds of manipulations, we get diminishing returns. Let's say the economy gets back on its feet. Where does it get the leverage to invest? We're overloaded with debt. The interest rate is probably 0 or negative at that point.

The counter-argument to this is that even with the money being pumped into the market by the central banks, we are not seeing significant inflation in consumer goods.

This implies that the money is being put to work efficiently and resulting in productivity and QoL improvements for society as a whole.

We have not seen inflation. But we're seeing slow growth and negative interest rate. These are signs of diminishing returns. The market has lost its check-and-balance. Bond and lending were supposed to carry risk and skin in the game. Right now, overall growth is delivered through the Fed pumping money. There is no check-and-balance.

With this crisis, governments will likely pump more money. That'll distort the market further.

What we've seen throughout history is that economies are typically ruined by two things:

1) Governments or central banks printing or issuing (often not physically) too much money, resulting in inflation that spirals out of control.

2) Governments, central banks, individuals, businesses hoarding money due to fear or other reasons, resulting in deflation that spirals out of control.

Those two are a form of check & balance. The thesis that most central banks now use is that if we can keep inflation steady, then we will have relative economic stability. The interest/lending rates are simply tools through which inflation can be moderated.

Over the long term. Let's go back 150 years and invest in a random stock market wherever you happened to live.

If you lived in the USA or England, this was a great idea and worked out brilliantly.

If you lived in countries like Italy, Germany and Russia, you lost everything when those stock markets were closed down in the first half of the 20th century.

You can't say "historically over the long term" then project forward for the next 50 years based only by the results of the last 50 years in the market where things have worked out best.

Over our lifetime, equities are indeed the best bet. But not a guaranteed safe one.

This is very interesting. I never heard about these other stock markets. Going to have to look into this.

If you lived in countries like Italy, Germany and Russia, you lost everything when those stock markets were closed down in the first half of the 20th century.

This may be true, but then we're talking about such large changes that investment advice sort of becomes pointless. I mean no doubt that life would have sucked in those situations, but there's no investment choice that would have saved you either.

Like, if we were sitting today contemplating WW3 breaking out in 1960, annihilating the civilized world, the market going down would have been the least of your problems.

I mean no doubt that life would have sucked in those situations, but there's no investment choice that would have saved you either.

Guaranteed saving, no. But keeping an emergency supply of highly portable wealth in the form of gold worked surprisingly well for most of those historical examples. (The ironic exception being the USA where we confiscated people's gold under Roosevelt.)

It didn't work particularly well in Russia, either.

The same thing that lead me to the conclusion that the sun will rise tomorrow.

I don't really know for sure, but it seems to fit the pattern and that's the best i can hope for in absence of other data.

Lots of bold, unsubstantiated claims. I think every time there is a big peak, or a big valley, some percentage of people are always peddling "but this is different"

> I think every time there is a big peak, or a big valley, some percentage of people are always peddling "but this is different"

When stocks crashed in 1929, it was different. In the US we got the New Deal, which still exists in some form. In Germany we got fascism and then a divided Germany for decades. The 1929 crash had effects felt to this day. The DJIA did not recover its 1929 level (not inflation adjusted) until 1954.

The kings and queens of Europe could point to how things never changed over the past millennia, and moved forward as they always had, until Charles I had his head lopped off in 1649. Then things began changing.

It's useful to read the history of the stock market prior to WW2. It was a casino back then. Our experience post WW2 probably creates a bias. We're used to the stock market stability. But it has some serious structural problem now (e.g. low/0 interest rate). I would not be surprised if it is heading back into casino mode.

Sure game-changing big changes exist. But when someone says "this is different", it's almost certainly not different. Both of those statements are true and I see no reason to think we're not in the latter case right now.

Realistically stocks can only go up long-term. It's easy to forget during times of chaos, but in the long run there's no way but up.

The question is whether they'll go up as much as they used to - with global population growth slowing down, there is a case to be made that the 7% long term growth that many people treat as a fact of nature is not in fact a long-term thing.

> The US equity market will unlikely to deliver exceptional returns.

With each passing day in this crisis, I think you can make the opposite case. Long-term risk in equities is going down, not up, as the market falls and stocks move toward relatively underpriced from relatively overpriced. Or am I missing something?

The expected long-term return from investing $1 in the stock market now vs beginning of Feb is higher, is it not?

The stock market was moving irrationally higher since November, and were not even at 52 week lows right now. So not necessarily.

The expected long-term return may still be lower than the historic average. However stocks are now significantly cheaper than now than they were in the beginning of Feb so it follows that yes, the expected long-term return from investing $1 is higher than it was in Feb.

What do you say to someone starting to save now when the climate crises is now happening? Humanities ultimate cosmic event is happening. How can you reasonably save for something like that?

To help adopt a sober approach, it's worth watching this interview with Warren Buffett who shares his thinking re: market and Coronavirus.

https://www.youtube.com/watch?v=JvEas_zZ4fM&t=21s

One of the points he makes is that you should think about stocks as businesses. Instead of "I bought a stock" think "I bought a business". That puts you in a better frame of mind and perspective for the long term. i.e., You don't buy or sell a farm based on today's headlines.

The real question is whether things have changed on a 5, 10 or 20 year time frame for the businesses you hold.

This makes sense if you have huge quantity of cash where leverage is not an issue. With limited cash, you have to think very different from Warren.

I don't disagree. If you are in it for the long term, there's really nothing to worry about. The market eventually will bounce back. It always does.

Well, so far...

And if it doesn't hopefully you stocked up on toilet paper and purell to trade in the new hellscape economy...

Banking on bottlecaps

And ammo and soap.

Toilet paper!

The market not bouncing back doesn't necessarily imply Armageddon. Just look at the Nikkei.

That may make sense if you're thinking about short term cash, but for longer term investments it still holds up.

Two things make Warren different: (1) he is a professional money manager, which means that he is investing other peoples money. (2) because of (1), he never needed the money he is investing. It is much easier to have long time frames when you're investing money that is not yours.

Actually the thinking still holds: it’s better to have some cash besides your business if you would really need it that soon, or be prepared to take out money from your business when it’s cash strapped (I’m doing the 2nd actually, but I’m OK with it, and am prepared for it emotionally).

Warren Buffet still owns 6% of Berkshire Hathaway. Maybe a more correct statement would be "If you have money you don't immediately need to spend, it is much easier to have a long time frame for investing". Hopefully the money in people's retirement accounts is this type of money.

Most money managers have extremely short time frame investment horizons and are just looking to get their 2 and 20.

Even if that were true, he's still completely right, and this advice is still good! What really makes him different is that he consistently follows the common sense advice the rest of us nod along with and then ignore.

From a retail investor's point of view, both approaches are wrong. The retail investor can neither "play" the game of stocks, nor understand what it means to buy a business. Not because there is anything magical about either, but because the retail investor has a life too, and would rather focus on their own work for their actual income.

The correct way to look at stock investment is to say "I bought a stake in the future of the world's industry". And that makes you realize what a mind-bogglingly large gamble this is with your savings. People simply have faith that human life will keep improving over the long term, and hence the value of the world's industry will also keep going up irrespective of short term rises and falls.

> that makes you realize what a mind-bogglingly large gamble this is with your savings.

Is it a gamble, really? I can't fathom what I could do with my money, should the world economy go to the gutter, big time. Holding cash surely won't help - cash can become worthless, did so many times in the past. Hard assets might help, but it's very tough to know which ones (cans of food maybe, but really? How much can you "invest" in it? And it's really just investing in the apocalypse... you're making a very shitty scenario slightly less shitty for yourself, _maybe_).

The thing is, all we can really do is hope that the future of the world's economy is good; if it isn't, there's really no rock-solid way to isolate yourself from the bad outcomes. Regardless how much you own now.

I'd argue that investing in skills and training is the best preparation for apocalypse scenarios.

I have a younger sister in medical school, and as I say to her about the debt she's taken on for the degree, "Even if there's a nuclear war and the economy and technology evaporate, people will want to keep you alive for your knowledge. They might break your ankles and chain you up to keep access to your knowledge and skills, but you'll be fed even when almost no one else is."

Not that preparing for an apocalypse is necessarily a great use of time - just saying that skills are a better asset for it than physical goods and resources.

>you can’t gain any advantage over the market that overcome your transaction costs

I know this is the predominant efficient market adage but is there a case to be made for low volatility portfolios outperforming the market over long periods? [1]

I’m curious especially now that most online brokers have significantly reduced trade costs on ETFs

[1] https://archivefda.dlib.nyu.edu/jspui/bitstream/2451/29593/2...

> If you need to retire in the next five years, you should already have started moving out of equities.

Exactly. People are selling off and further worsen the crash.

Even if you are a value investor and in it for the long haul, you may have some opinion about what's a good price versus a bad price. You don't know tomorrow's price but on rare occasions it may be that a solid company's stock looks particularly cheap for a reason you know. Should you ignore bargains entirely?

Also, for many retail investors, transaction costs are now zero. Maybe the conventional advice needs an update?

As Matt Levine wrote

> It’s a little weird for a mutual-fund or hedge-fund manager to have a lot of uninvested assets (why are you charging fees on a big cash position?), while it’s perfectly normal for private-equity managers to invest a bit of their fund at a time and call capital later as it is needed.

So how much of a bias is there in behavior is there in practice and rhetoric against cutting your losses, pulling out, and waiting for things to be less volatile/risky-seeming?

>Note that nobody has any idea where equity prices will be in one day, never mind one year or ten years' time

This is more or less true.

> As a retail investor (i.e. not extremely rich), you can't gain any advantage over the market that overcomes your transaction costs.

This is patently absurd. It's an easily falsifiable statement which is a rare feat in economics. On average, the the average retail investor will not beat the market. That does not mean they can't. All you need to have is literally any correct thesis and the ability to execute on it and you will have an advantage over "the market". I'm not trivializing this, it's not an easy feat, but markets are absolutely full of inefficiencies, and it's obviously not impossible to do better than the average case. This is a complete misunderstanding of the efficient markets hypothesis.

BTW, I'm not recommending that anyone try to time markets.

What does it mean for a market to have inefficiencies?

Seriousness of wuhan virus was known since end of January, but stock market ignored it completely, raging into all-time highs till February 20th.

Regular person could absolutely see it and be prepared. Even today market still doesn’t price in Italy-style or China-style lockdowns.

This is called hindsight bias

Claiming this after the fact could represent hindsight bias.

It does not change the fact that the market had an inefficiency in pricing this information into many assets two weeks ago.

If someone bought or sold assets based on a strategy based on this belief (and certainly at least some people did), then they exploited that perceived inefficiency correctly without hindsight.

Wuhan virus mostly affects the elderly who are largely out of the workforce. It's not the virus that's disrupting markets it's the response, which no, regular people could not see coming. Even experts are commenting on how well China did to respond in such a drastic fashion. Plenty of countries still haven't done anything large scale to address it.

In this usage it's more like saying that information was "inefficiently" or not fully priced or not fully accurately priced. I'm not arguing that the market mechanism is inefficient, but that the market convenes on prices which in the short term fail to account for some underlying reality.

In an ideal world, markets should be perfectly efficient (near immediate) at exposing things which are misvalued because people can make money if they understand some fact that the market doesn't and then that fact will be accounted for.

In reality they just converge on the average of beliefs weighted by how confident a given actor is for a given belief and how much money they have to put behind the belief, and people are extremely imperfect, especially when it comes to predicting the outcomes of complex systems. Given this, there exist all sorts off "inefficiencies", or times when the current state of the market fails to accurately account for some underlying reality which leaves an exploitable opportunity to buy or sell a mispriced asset.

There are actions that stop people behaving in a way they would in a perfect market. Laws prohibiting certain sales, taxes affecting companies and investors, imperfect information disclosure, are a few of the big ones.

Half of people do better than average...

Average as in mean? I think you might have meant median.

But not consistently.

I’d like to offer a source to back up my statement about transaction costs: A Random Walk Down Wall Street.

It’s true that even a retail investor can research and implement a strategy that beats the market average. However, their transaction cost - which includes the cost of their time doing research - will, over a large number of tries, eat up this advantage.

Said another way: could _anyone_ reliably beat the market by enough to pay off the costs they expended coming up with their unique winning strategy? Not just you - I am sure you are very smart - but any typical retail investor.

I could randomly select any task and then randomly select a typical retail investor and they'd be unlikely to accomplish it. That doesn't mean nobody should attempt it.

Not that I'm advocating trying to time the market, but I don't buy the "the average person can't do it so you shouldn't try" argument.

Buying a low cost index will already cause you to beat most retail and most professional money managers. Knowing that fact will gain you an advantage over almost everyone that moves stock for a living.

Also, not too late. Getting out now is like getting out too early in Jan 2018.

> If you need to retire in the next five years, you should already have started moving out of equities. It's too late to change that now.

This is still a great time to reallocate your money. The SPDR fund that I invest in is still about where it was 1 year ago.

I don't agree. There are three things that normal investors should be doing right now:

1 - Assess how you feel. Are you upset by the loss of value? Then you make be more risk averse than you thought. It might be wise to reconsider your asset allocation after this emergency is over. However, it's not wise to redo your allocation while the VIX is above 20ish.

2 - Check in with a financial adviser. This is a good reminder that your financial portfolio matters, and it is smart to use this as a prompt to check in on your financial health.

3 - This is the most important one, but you can't do it if you're not good on #1 and #2. REBALANCE YOUR PORTFOLIO. If you are allocated to risky and riskless assets then it is time to make sure that your allocation is still where you want it to be. It probably isn't. If your allocation to riskless assets is higher than you normally would like then you should sell riskless and buy risky.

Why is #3 so important? Because it allows you to collect a liquidity provider premium. Purchasing risky assets in volatile markets a) stabilizes the markets b) takes the advantaged side of the transaction. A lot of research stands behind this idea. Rebalancing in volatile environments is an easy and reliable way to outperform your peers over the long run.

Slightly unrelated, but why does the stock market close each night? If trading was open 24/7, we wouldn't have large spikes like this every morning. We'd only have them when certain news is announced.

The market was not always driven by computers like it is now, and people running it needed to sleep.

People running hospitals need to sleep too but they dont close for the night

People need medical care for emergencies in the middle of the night. People don't have the same need to trade 24/7.

Matt Levine and others argue that shorter trading hours would actually increase market liquidity. Synthesize market information outside of market hours, then trade during a shorter window: https://www.bloomberg.com/opinion/articles/2020-03-09/stuff-...

The market is still very much driven by humans; the computers just help out, to varying degrees. The idea that computers are trading unattended is a myth that I hope would die.

Sure, while humans are critical to maintaining the infrastructure of the various markets, but we are beyond the days where markets were tracked on a chalk board. The NASDAQ is very much running on servers from an undisclosed data center off route 95 in New Jersey.

Not undisclosed, primary is Equinix NY11:

https://www.nasdaqtrader.com/Trader.aspx?id=POPs

A lot of trading is indeed done by minimally supervised computers, i.e. a human only looks at the computer if alarm bells ring. Source: was one of those humans

How often are the models that drive algorithmic trading updated?

The pipeline for a given piece of research to get into production tends to be several months. Therefore, a small firm with only a few researchers might update between once and a few times a month, and a larger company it might be several times a week. It's rare to update the model more than once a day, since it'll normally be updated outside trading hours.

Compressing hours is good for liquidity and risk managers need to sleep, among other things.

This is a pretty good answer: https://www.quora.com/Why-is-the-stock-market-not-open-24-7

TL;DR: Letting markets take regular breathers probably helps curb swings in the market. It also lets people who manage money get some sleep (though of course there are other markets open 24/7).

Because it was always done that way.

There is after hour market, but may not accessible to many

So we can use garbage-collected languages in trading systems without turning on the garbage collector - just collect it all at the end of the trading day. I'm joking but this is a real technique.

It is, there was this HFT firm I interned at once that rebooted all their servers at the end of the trading day to make sure they would start clean and fast the next day.

That makes a lot of logical sense. Every single ms counts in those cases.

It reeks of code base problems or general misunderstanding of systems administration. Easier to just make sure you're not leaking memory (profilers exist) and actually monitoring the servers than having to reboot your servers just in case.

Things like heap fragmentation still happen.

It also ensures you can come back up after an unexpected shutdown.

This is the best reason. Knowing your business systems will simply come back with the power, and having that tested on a daily basis will quickly put everyone at ease.

Is this what is called chaos engineering?

Did they also warm up caches before open?

Now I understand why Jane Street uses OCaml. It has less of the GC problems.

Yeah this is dumb but it’s actually par for the course for firms I’ve worked at. Build up all the garbage during trading hours (and on days like this hope you don’t hit resource limits) then start collecting it and rebooting at the end of the day.

Most services are shut down after trading/brought up again before trading.

After trading you would have accounting and other processes that would take hours. These are not done in real time and rely on daily downtime.

I honestly can’t imagine these firms figuring out 24/7 trading hours.

If it's dumb but it works, it isn't dumb.

I've never used this before, but I suspect this is exactly what you would want to use if you were on .NET and building latency-sensitive systems that see daily reboots:

http://tooslowexception.com/zero-garbage-collector-for-net-c...

If I was building something that was on a short fuse like this, I'd also be using structs and stack allocation as much as humanly possible before leaning onto the "having tons of physical memory" crutch. I feel like virtual memory could cover your ass for a small period of time before the whole thing started to grind to a halt.

In addition to it always being done that way, there's also probably some benefit to having there be no such thing as a "night shift" in charge of market operations and security, given how destructive exploitation of vulnerabilities in the system can be.

Doesn't matter really, most liquidity seems to be in the closing 30-minutes anyway. [0]

[0]: https://www.ft.com/content/9e1f05b4-43e7-11e8-803a-295c97e6f...

Futures markets are open 24hrs, but do close Friday - Sunday evening

Lots of good answers below. Additionally most of the trading happens in the opening and closing minutes. So you could trade almost the same volume even when the exchange only opened for 15 minutes per day (let's say once in the morning and evening).

Traders can trade 24/7 in markets around the world, as well as in crypto assets. If all trading was 24/7, what would happen probably is centralization of all trading to 1 or 2 huge exchanges.

Aside from people needing to sleep (back when computers didn't do our trading for us), there's also the matter of information flow: the reason quarterly earnings announcements happen after market close is to avoid giving slightly-faster people an edge.

If you could read and digest an earnings announcement faster than all your peers, you could make trades based on the new information before the price has moved.

While yes, some types of trading does rely on exploiting (usually small) information asymmetries, and "incorrect" pricing, it's much fairer if people have time to digest big required disclosures and all be able to get their orders in at (essentially) the same time: the opening bell the next day.

But this idea is completely invalidated by the fact that many foreign companies (European and Chinese) are listed in U.S. exchanges, which means that the investors can only make informed decisions about the their investment if they are awake 24 hours/day

Maybe solution would be freezing certain asset for a week/day/hour after earnings announcement?

Or screw earnings and just have live earnings be something you look up on a website whenever you want for a publicly traded company.

Markets move more or less instantly on big news nowadays. I mean on the order of seconds. Algos can parse data releases in real time and react in milliseconds.

Good GDP numbers at 2:00:00? It's gaping up at 2:00:01 and near the top of the trend by 2:00:05. I've seen it first hand many times.

Then again, why not shorter hours? Matt Levine writes about this occasionally:

> We talk occasionally about proposals to shorten the stock trading day from its current 6.5 hours (in the U.S.) to, say, half an hour. The idea is partly that traders would have more time to spend with their families and dogs and hobbies, but one shouldn’t overestimate that. Really what it means is that you have 23.5 hours a day to ponder information and synthesize it into stock-price views, and then half an hour to trade stocks based on those views. The big advantage is that anyone who might want to buy stocks can pay attention to the stock market for that half an hour, so the liquidity during that half-hour should be pretty good. When the trading day is 6.5 hours, sometimes no one’s around when things happen, and you have to shut the market down for a bit to call everyone back in. But I don’t think that’s quite what happened this morning.

https://www.bloomberg.com/opinion/articles/2020-03-09/stuff-...

Just to clarify the title:

Trading was halted for 15 minutes.

Correct. 7% decline is a pause.

If it drops 13% it will pause for another 15 minutes. If it drops 20% it will end trading for the day.

I'm going to say it. It can't possibly collapse 20% in one day... can it?

Based on the rules it cannot drop _more_ than 20% in a day :-)

There are examples of it happening in other countries though. Zimbabwe and Argentina come to mind for some crazy inflation and stock numbers.

> Based on the rules it cannot drop _more_ than 20% in a day

Asset pricing is not continuous. A single trade can take pricing from -18% to -X%, with X having any value between infinity and -100.

The breaker triggers at -20%. If the market crosses at -18% and then trades -25%, that trade will cross and then trip the breaker.

Looks like it's only happened once, 22.61% on Oct 19, 1987.

Even the 1929 crash wasn't that much, though it did drop about 24.5% over two days, Oct 28 and 29, 1929.

https://en.wikipedia.org/wiki/List_of_largest_daily_changes_...

The crash in 1987 is why they put these halting rules in place.

I don’t believe this is correct.

My understanding is that these automatic limit down rules were added in response to the flash crash in 2010, during which the Dow Jones lost 1000 points over the course of minutes.

This is incorrect, it was somewhere during/after the 2008 recession that these circuit breakers went into effect (because I remember they didn't exist at that time)

not exactly - circuit breaker was put in place after the 1987 crash, but the 3-tier system (7-13-20) went into effect only in 2013: https://www.wikiwand.com/en/Trading_curb

That's about how much it collapsed on Black Monday in 1987, so, yes, it can.

It's up what, 30 % over the last few months? The real economy didn't grow nearly that much.

In terms of real value, the only way for the economy to take that degree of a hit in a day would be a natural disaster. But these numbers are mostly speculation, so yeah they can go up and down very fast minus techinal restrictions like these halts.

S&P500 has wiped out all growth from 2019 at the moment and is headed lower.

Yes, correct. I should have clarified, before things started crashing, we were up 30% in a few months.

Wouldn't that incentivize people to sell before the pause/end of the trading day, creating a snowball effect?

It would indeed, but if it's an irrational panic or an algorithmic mess-up it also allows people to stop and think for a bit. It's a tradeoff, and the main goal is to reduce the extreme failures.

It was not that long ago that the "experts" were saying the Boom-Bust Cycle had ended. https://www.bloomberg.com/news/articles/2020-01-22/bridgewat...

Buffett, Dalio and others have been preparing for this time for a while.

This is when money is made or lost. If you have the ability and the stomach for it. I'm not suggesting you buy today, I personally don't believe the worst is behind us. But an opportunity is coming.

The “we have beaten the business cycle” is a pretty bold claim I agree, but I don’t see anything here that contradicts it yet. We have a market psychology panic, but unless low earnings and unemployment follow its not really an economic bust.

As recovery approaches full employment ... soothsayers will proclaim that the business cycle has been banished [and] debts can be taken on ... But in truth neither the boom, nor the debt deflation ... and certainly not a recovery can go on forever.

Hyman Minsky

(From the wikipedia article posted last week "Minsky Moment: https://en.wikipedia.org/wiki/Minsky_moment"

So, children of summer (there are many here who have only known the longest bull market in the last century), let me give you some free advice.

If you're looking at this and wondering when to get in, to bargain hunt essentially, and you're asking yourself questions like "today? next week?", you need to step back and think again. Some points to consider:

- If your time horizon is 10+ years out probably none of this matters

- If your time horizon is less than 5 years out, you should really question if you should be in the stock market at all

- Be familiar with the term "dead cat bounce". This is a temporary period of recovery followed by a steeper drop. You're going to see this kind of thing.

- Large market drops often lead to or are because of a likely recession. This can go on for months or years.

- After the GFC the markets went down and then sideways for over a year. You essentially missed nothing by waiting two years. This could easily happen again.

- Learn what "reversion to mean" means. It means that at times the markets generally follow a long term upward trend. At times the market will go above or below that. This can be a useful indicator of whether equities are cheap or expensive. In a given cycle you have boom (above the mean when equities are overbought) to bust (an overcorrection to below the mean when equities are oversold).

Bear markets are paved with the blood of optimists.

as usual, the financial advice is "who knows what to do good luck"

Maybe don't buy things yet because it could go down more! Dead cat bounce! Bulls take the stairs but bears take the elevator! Etc etc

I think he’s saying, invest for the long term without concern for the present market movements, and if in the meantime you want to gamble, good luck.

There's no good active trading solution here because no one knows what's going on. People occasionally make the right calls, but they also occasionally make the right calls on coin flips, too.

There's a reason for that: the only good solution is a passive one. Ignore the panic, hold, stay the course, and put more money into the stock market when it's down. The large majority of active traders do worse than the market average because of panic selling in situations just like this one.

Plus if you follow a textbook approach with some % stocks / bonds you'll end up buying when the market dips and selling when it goes up (since if stocks go up you'll have to sell a little to bring the percent back down and vice versa). So if the market swings up and down a lot you get a little extra.

YOLO options. This is the way.

Back to wsb with you! There are no tendies to be had here.

Tendies are everywhere friend.

The Nikkei is still ~50% below its 1989 high. Hasn't even approached that level since. Downturns can go on for decades.

Doesn't that have to do with Japan's specific long term problems though?

Thankfully the U.S. doesn't have specific long term problems.

(Edit to make this less flippant: like bubbles in education, housing and stocks.)

> like bubbles in education, housing and stocks

Those aren't long term problems if you compare them to Japan's. It has been 30 years+ since 1989, and I'd believe that is long enough time for the bubbles in US to correct themselves.

That's fair.

Lifetimes.

I didn't think this could still be true but apparently you are correct [1]. Wow.

That being said, there are factors to contribute to this:

- Essentially zero population growth [2]

- A government and a system that propped up an insolvent banking system that likely extended the downturn significantly [3]

- A massive asset bubble that we really haven't seen the likes of, not even in the subprime era. [1]: https://www.macrotrends.net/2593/nikkei-225-index-historical...

[2]: https://en.wikipedia.org/wiki/Demographics_of_Japan#Current_...

[3]: https://qz.com/198458/zombies-once-destroyed-japans-economy-...

Yep, over half of GDP growth is tied to population growth. If 2% of humanity is about to die...

2% (maybe more actually) is the mortality rate of those infected. But so far infection rate was 0.001% ; it would need to be 3 full orders of magnitude worse to even approach an infection rate of 2%....

How long did it take Italy to go up three orders of magnitude in infection rate?

A bit less than 10x, an order of magnitude, every week.

It's been really is very easy to see the future up until now. There's 9000 cases in Italy now; by the 16th of March, factoring in the containment measures, they could be 60-80k.

About 10% need intensive care; there's probably 3000 IC beds available now. Very simple.

Yeah, I'm not sure why I was downvoted. It was a leading question to point out that "3 orders of magnitude" isn't far away at all.

From the statistics I’ve seen, unless there’s effective quarantine and countermeasures in effect, you can expect an order of magnitude (while most of the population is not yet infected, obviously) about every 2 to 3 weeks. Yay for exponential growth.

So how many weeks for 10 orders of magnitude? Because it feels like you extrapolate linearly...

good news (sort of), Italian government did the math and shut down all of Italy.

According to Wikipedia[0], which in turn sources material from January (mostly China), each infected person infected 2.2-3.9 others on average. So in three generations you go from 1 to 27. Three generations more, from 27 to 729 (if my math is correct).

[0] https://en.wikipedia.org/wiki/Basic_reproduction_number

For reference, there have been 3,000 deaths out of 11,000,000 people in Wuhan. That's 0.03% of the population dead and the number of new deaths per day is declining. If the rest of the world comes even close to being as good at quarantine as Wuhan, we'll be way under 2%.

Source: https://en.wikipedia.org/wiki/2019%E2%80%9320_coronavirus_ou...

Meanwhile in the US, the CDC appears to be resisting testing people, and as far as I can tell, quarantines are barely even being considered. Washington state is in the top 3 of cases in the country, but 30k people attended a soccer game on Saturday. I hate to contribute to the panic and tinfoil-hat conspiracies, but I'm really concerned about the US response so far.

Meanwhile in the US, the CDC appears to be resisting testing people...

They know something that you don't. Which is that the test has both a high false negative and a high false positive rate. Which means that its effectiveness as a decision making tool is limited.

That said, the longer you wait to start quarantine, the longer you have to keep quarantine measures in place. But on the flip side, if extreme responses are too good, then you increase the risk that on the next serious threat, people will yawn and fail to comply.

Public health has a wicked problem here. The more effective it is, the less that people feel it is needed.

Based on the US and Iranian responses, it seems a substantial portion of the world will not come remotely close to being as effective at quarantining as Wuhan. Wuhan appears to be the maximum effectiveness, not the average.

Yeah, there is no way Police will drag people off the street or weld people into their homes in the US or here in Australia.

I think a lot of people would rather just let the virus spread.

2% is the Case Fatality Rate (CFR), not mortality rate. Case Fatality Rate is deaths/confirmed, and confirmed is not the same as number of infected. See https://en.wikipedia.org/wiki/Case_fatality_rate

In most outbreaks, "confirmed" usually means those sick enough to seek medical attention and get a diagnosis. If asymptomatic testing goes up then CFR declines, but then CFR ceases to be a useful metric for comparing and contrasting outbreaks. Arguably it already has diminished utility in this particular outbreak because of inconsistent testing criteria around the world.

I think what most people want to know (and what they believe CFR means) is the percentage of deaths among the infected. But AFAICT this sort of number isn't very common in the literature as ascertaining the total number of infected for most outbreaks[1] is very difficult, and presumably something that can only be deduced post hoc with modeling.

[1] Ebola being one possible exception, given the extremely high lethality and distinctive symptoms.

Are those 2% that are about to die the consumers which drive consumption? Maybe in healthcare, but suspect 70 and 80 year olds aren’t buying a lot of new cars.

If anything that'll prop up stock prices further. We were about to hit a demographic time bomb in the mid-2020s as the baby boomers started to retire and need to sell their 401(k)s to live on and afford medical treatment. If they all die suddenly, then their assets get passed on to their prime-working-age children, who have no need to cash them out. More savings finding their way into a dwindling supply of available stock = higher stock prices.

That's a few years off, though. During the crisis itself, when nobody knows whether they'll live or die or what sort of interventions they need stay alive, I expect to see massive panic selling.

> If they all die suddenly, then their assets get passed on to their prime-working-age children, who have no need to cash them out.

It feels morbid talking about this, but:

It depends on how the assets are passed. If most of them are in IRAs, then they'll get passed to heirs as inherited IRAs, and the new SECURE Act in the US will require the heirs to distribute the contents of those IRAs over the next 10 years, which is likely similar to how the retirees might have timed their withdrawals.

Unless consumer spending goes up significantly (also possible, and also good for the economy), the actual funds will likely get rolled into other investments after paying taxes, though. That's what I did after inheriting my dad's IRA: I didn't need the money, so it came out as an RMD and then went straight back into a different investment account.

I guess it could also go toward the down payment of a house, inflating the housing market even more. If lots of old people die the stock of houses on the market should go way up though, somewhat blunting the impact of this.

I wouldn't get into the Cruise Ship Business today.

2% of humanity is absolutely, in no way, shape or form about to die. The Korean numbers are approaching 0.5% case fatality rate, and those numbers continue to fall. It's about the same as the flu, and no, the flu isn't killing 2% of humanity either. Y'all need to settle down and get back to work.

I fully expect South Korea to be an outlier in this respect.

The WHO is reporting 0.6% in China excluding Wuhan so probably not.

the number of cases seems to have an impact on the CFR. If the health care system is overwhelmed, it'll shoot way up. That's why shutting down travel and events is important.

It's the difference between .5% CFR and 3.5% CFR.

Looking at Korea's numbers, they are reporting 7478 cases, with 53 deaths. But they are also reporting only 133 recoveries so far. So looking at Korea's death rate so far is in no way, shape, or form accurate, as more than 97% of their cases have not yet resolved by dying or recovering. It takes time to die.

Why use S.Korea's numbers? Haven't they lead the best response in terms of testing and don't they have universal healthcare? It seems to me fatality rates would likely be higher in countries that: 1) aren't testing so aggressively and 2) don't have universal access to care.

Maybe I am wrong though and there is good reason to believe S.Korea is the best example right now to use as a statistics model to apply across the entire world.

Part of the reason their numbers are so low is because they're testing, which is revealing the stacks upon stacks of asymptomatic cases or cases which lead to the sniffles. That's why we know the actual mortality rates are so much lower than the media is screaming breathlessly about.

Think about it: not a single story about the myriad people who've recovered completely, right? There've been 114,000 documented cases so far and 66,000 have recovered. The number of active/unresolved cases remains well below its peak.

You're wrong, but primarily because you insist on treating human life so trivially. Get to work eh? A best case scenario, one where the actual CFR is half what the evidence shows now is 0.25%. 30% of the population gets the flu in a regular year, so, for America that ends up being a flu season that kills 10 times more people than in an average year.

But you're focus on people hacking and wheezing their way to death. You're ignoring upwards of 5-15% of those people who will have to be on a ventilator OR WORSE. This is NOTHING like the flu.

You would do yourself a favor also to examine what it is that Italy, Wuhan and South Korea are going through to try and stop it. They certainly aren't "GOING BACK TO WORK."

> You're wrong, but primarily because you insist on treating human life so trivially.

No, it's because I'm not overweighting risks that are trivial for the vast, vast majority of people. Of course if you're over 80 and have 3 pre-existing comorbid conditions (as is in Italy) you should be careful. If you're under 10, nobody's died. In fact nCoV-19 doesn't really even spread between children. If you're under 40 the mortality rate is 0.2%, and that's a worse-case number including folks with co-morbid conditions.

Risk exists, and we should be comfortable with it. I recommend reading Schneier's essay on our decreasing tolerance for risk [1] and how it can often lead to us doing ourselves more harm than good.

You have a 1% lifetime risk of dying in a car accident. You've got a 2% lifetime risk of dying of an opioid overdose.

> But you're focus on people hacking and wheezing their way to death. You're ignoring upwards of 5-15% of those people who will have to be on a ventilator OR WORSE. This is NOTHING like the flu.

Yes, it is like the flu. H1N1 Influenza A has a ~10% mortality rate in the elderly, similar to nCoV-19.

> You would do yourself a favor also to examine what it is that Italy, Wuhan and South Korea are going through to try and stop it. They certainly aren't "GOING BACK TO WORK."

Really the economic and individual harm and impact there has a lot to do with what they're doing to try and stop the spread. The cure is worse than the disease here.

They probably should go back to work, though, and in China, they already are. They should wash their hands and stay home if they're sick, and get back to work.

[1] https://www.schneier.com/essays/archives/2013/08/our_decreas...

How many deaths will warrant taking preventive actions I wonder? (preventative actions like quarantine, which, was the only way it was stopped from spreading before China "went back to work")

I'm not saying that the reaction wasn't warranted initially when we had no idea how bad the disease was. What I'm saying is the level of panic, especially now, is totally unjustified. The hoarding canned goods and battening down the hatches. Insane relative to risk.

And I'm asking you, with the number of infection doubling daily in countries that don't batten down the hatches, or quarantine because everyone should just get back to work as you said -- what is the acceptable number of deaths before quarantine is acceptable?

Something that poses the same order of magnitude risk as the flu should be responded to/reacted to in the same order of magnitude as the flu.

So far 80,000 people have died this flu season alone. If you're not hoarding canned goods for influenza, you shouldn't hoard canned goods for nCoV-19.

Not the question I asked, and it's convenient that you didn't provide a citation for that stat, because you well know that was the worst flu season in 40 years, AND it wasn't "this year".

I provided the data in a peer comment.

~20-50K deaths in the US according to the CDC in the last few months alone [1] and 95K worldwide [2] targeting up to 650K/yr from the CDC and WHO. And I did answer the question you asked: there's no hard and fast rule but it's fair to say that we should respond to threats based on the threat they pose, and use similar threats as a baseline.

[1] https://www.cdc.gov/flu/about/burden/preliminary-in-season-e...

[2] https://www.cdc.gov/media/releases/2017/p1213-flu-death-esti...

[3] https://www.who.int/mediacentre/news/statements/2017/flu/en/

FWIW, case numbers don’t double every day, they grow by 10 to 20% every day, thus doubling every week or half week, thus growing by an order magnitude every two to three weeks.

That's if you ignore all the people who recover completely and are released from hospital. We're still down ~20% from peak number of active open cases (47K open vs 58K peak).

> Yes, it is like the flu. H1N1 Influenza A has a ~10% mortality rate in the elderly, similar to nCoV-19.

Just as a reminder, the 2009 H1N1 pandemic killed maybe half a million people (150,000–575,000) with a CFR of 0.01-0.08%.

Here, current CFR estimates are 5 to 100 times higher.

https://en.wikipedia.org/wiki/2009_flu_pandemic

>Part of the reason their numbers are so low is because they're testing, which is revealing the stacks upon stacks of asymptomatic cases or cases which lead to the sniffles.

I don't disagree, but my point is S.Korea is not just testing they are treating...if they were not treating presumably the mortality rates would increase. In other words whereas you suggest testing is proving the mortality rate is low, who many of those who tested positive received treatment? and further, got better because of treatment?

Testing is the key to treatment and minimizing mortality rates, other countries are failing on the testing, so it can be presumed they are also failing to treat (how can you treat when people aren't being tested).

> I don't disagree, but my point is S.Korea is not just testing they are treating...

There aren't really any treatments broadly available. They're holing people up in hospital beds and providing supportive care if needed. There's a few antiviral treatments in the pipeline.

>They're holing people up in hospital beds and providing supportive care if needed.

That is pretty important for people at risk. Consider lack of supportive care is what leads to most preventable deaths from regular flu progressing to other issues that will result in death, not the flu itself. For example dehydration and lung infections can be monitored and treated.

I'm just saying it's not "treatment" in the classical sense and I didn't want to imply there was a treatment.

There is no way to state with certainty what you’ve said or the opposite. It is prudent of everyone to exercise caution and avoid panic that increases the potential for harm. Being dismissive is just a destructive as being overprotective.

Sure there is: the data.

It's a moving target, though. Viruses mutate.

If it moves, we can re-visit, but I don't see any reason this one's more likely to mutate than influenza A.

The case fatality ratio is dependent on slowing the spread of the disease such that the healthcare system isn’t overwhelmed and so that we have time to develop treatments (possibly a vaccine).

The US is not only doing effectively nothing to slow the spread, but isn’t even testing at the level necessary to assess relative regional threats and take necessary mitigation/containment actions.

Arriving at a result anything like South Korea entirely depends on us responding like South Korea, something for which the window of opportunity may have already closed on in the US. We’ll certainly find out in the coming weeks and months.

0.5% is still well over 5x as bad as typical flu. SK is closer to 0.7%.

SK also has a far lower recovery percentage (SK total cases: 7478, total recoveries: 118; 1.5% of cases have recovered, 0.5% of cases have died).

Compare to the worldwide CFR and recovery rate, which has a much higher CFR (3.5%). total cases 113,432, total recovered 62,494, 55% of world-wide cases have recovered.

That means SK is catching their cases through testing much earlier (which is great! This leads to both better containment and better clinical outcomes!), but it means currently they have a much higher percentage of "unresolved" cases than many other countries. We need to wait until we start seeing more recoveries in SK before we start celebrating too much.

I'm optimistic that there's a good example of a strong outcome when there's a robust response in South Korea.

(Data pulled from the John Hopkins global case tracker here: https://www.arcgis.com/apps/opsdashboard/index.html#/bda7594...

The reason their numbers are lower than elsewhere is the widespread testing is catching the low-grade infections, the asymptomatic and the so on. Those cases are not reflected in, for instance, US numbers as there hasn't been any wide-scale testing. In a huge quantity of people you wind up with sniffles, a cough or mild flu-like symptoms. They don't go in, they don't get tested, so they're left out of the denominator.

That is one factor in the low CFR, but it's far too early to say it is the only factor. It totally fails to be responsive to the low percentage of resolved cases in the South Korean numbers.

If the only explanation was that they were catching far more low-grade symptoms, then we should see a lower CFR with the resolved cases rising rapidly.

I hope that what you state is the case, and their CFR remains where it is while the number of recovered grows. But it's still an unknown, and we won't actually know until more data comes in.

They could just be conservative about reporting resolution.

The reality seems to be that if you're not seriously ill after 7-10 days, it's unlikely you're going to end up on the critical list - never mind dead.

But cases aren't being marked resolved for 2-3 weeks, just in case.

Absolutely, but I haven't heard anything about them being significantly more conservative than other countries in that regard.

I'm not saying the CFR will go up in South Korea. I'm saying it's still early days to make the claim that it will definitely stay at 0.7%. When we get from 97% of cases being unresolved to something like 85% of cases being unresolved, and the CFR is holding steading, I'll be much more ready to spike the football and celebrate the intervention.

None of which is to say we shouldn't be copying the South Korean playbook closely. They've done a damn-near miraculous job of keeping the number of cases from exploding, and the preliminary CFR does look good. Even if it goes up, it still seems likely that they will have a lower CFR that many other places with a sizable outbreak.

Their response is the bright-spot so far, and we should absolutely be copying their playbook. I'm just saying, it's a little early to tell whether their playbooks is excellent or just really good.

I haven’t read anything that said sniffles or runny nose was a symptom. I have a runny nose and was told by the ER on the phone in British Columbia not to worry unless I get a fever.

It is a possible symptom, but listed as "rare".

Fever and a cough (usually dry) are the most common symptoms.

You’ll be happy to know my runny nose has gone away!

That does make me happy!

I realise this sounds cruel, but the age group that's most likely to die is not the most economically productive part of the population. So even if a substantial percentage would die, that does not necessarily mean the economy would be affected by a similar percentage.

They have a lot of assets that would be disposed, inheritance tax, capital gains. More selling.

South Korea's fatality rate will be somewhere between "deaths / confirmed cases" (currently around 0.7%) and "deaths / (deaths + recoveries)" (currently around 28.5%) - those numbers will eventually converge.

What really matters though is to keep the raw number of confirmed cases low enough so that hospitals don't get overwhelmed. If hospitals get overwhelmed, fatality rates go up. So containment is key.

How about "deaths / actual cases"?

This number would be smaller than both of the ones you mentioned, unless you think that somehow all actual cases are detected.

Yes, that's true - although I would expect that countries with widespread easy testing would have their "confirmed cases" number get pretty close to the "actual cases" number.

And "actual cases" would be the people that have the actual disease, not the people that just carry the virus. For people who are carriers but are not infected, they apparently don't want to mix those people into the numbers because that's not how other illnesses are counted either.

> What really matters though is to keep the raw number of confirmed cases low

Sure, as long as you mean "actually slow the spread of infections through responsible personal and social choices" and not "sandbag the numbers because it looks bad for you politically."

Of course, because the latter doesn't protect the hospitals from getting overwhelmed.

China shut down it's economy for two months. Mecca is closed. 8% of Iranian parliament was infected as of last week and two were dead. Democratic nations are putting millions of people on lockdown overnight (see Lombardy, Italy and the 2AM press conference).

This isn't the god damn flu and its irresponsible to say so at this point.

It is the flu, what's different is not the threat but our response to it. So far there have been 95,000 flu deaths since October and just shy of 4,000 nCoV-19 but nobody's shutting down China, Mecca or Italy over influenza A.

It is the flu, what's different is not the threat but our response to it.

At current mortality rates, if this infects a good chunk of the world then we are talking about as many people dying worldwide as died during WW II.

Making future projections based on past deaths without considering the appropriate epidemiological model is like being in a car hurtling at a brick wall and saying, "We will be fine, none of us are hurt yet!" It is literally the same category of mistake.

No, it's not, because the data shows us that the mortality rates are low. The sensationalist numbers reported by the media are downright negligent. Yes, in Italy, we're seeing 4% mortality rates because the folks there have on average 3X as many co-morbid conditions.

Yeah, that's why Italy just locked down the entire country.

This is the first time in recent history that the media has not been sensationalizing anything, and actually has been underreporting the danger, after ignoring the outbreak in China for a month.

>because the folks there have on average 3X as many co-morbid conditions

Except they're also reporting a non negligible number of young people without comorbidies requiring hospitalization. The death rate is about to skyrocket because the hospitals are reaching capacity. Even in Lombardy, which has one of some of better healthcare infrastructure, things are grave.

No nation on Earth has nearly enough surge capacity to a handle 5-15% hospitalization rate which includes people in their late 20s (though rare).

You think this is the one time the media isn't sensationalizing anything? Are you sure that's not just because it aligns with your preconceived notions?

Again, things are bad in Italy, yes, because the north is full of old folks with comorbid conditions.

There's no world in which 15% of Italy is going to be in hospital with nCoV-19. Even in Wuhan, there were a total of some 80,000 cases (an overestimate) out of a population of 11 MILLION in the city alone, and 19 MILLION in the metro area. That's (using the lower bound) 0.7% of which only a 5000 were severe or critical, or 0.045%.

A far cry for 15%. You appear to be off by 3-4 orders of magnitude.

>Even in Wuhan, there were a total of some 80,000 cases (an overestimate) out of a population of 11 MILLION in the city alone, and 19 MILLION

You are grossly misinformed if you think that number is anywhere near correct. For a multitude of reasons - people weren't being tested, test kits ran out, hospitals turned people away, cause of death listed as pneumonia, bodies burned without being tested.

The Chinese numbers are CCP PR bullshit. Once again they would not shut down the entire GDP for two months over something so benign. They would not close down Mecca - the holiest site in the world for 1-2 billion people - over something so benign.

We'll all find out soon enough. The US is quickly approaching the high derivative portion of the exponential curve.

So you're refuting my WHO data with ... speculation that the CCP was lying and other anecdotes? The WHO was overwhelmingly positive in their report about the CCP's willingness to participate and make the tough decisions necessary to contain the virus. China had 81K cases, and they're down to 17K. That's good progress.

Please.

The reality of the reported numbers are sufficient reason for the various actions that have been taken. There is no need to assume conspiracy and coverup. There is doubly no need to tell people who are using the most widely reported numbers that they are grossly uninformed.

You are continuing to not understand causes.

The cause of the spread stopping in Wuhan was because China put 46 million people on a fairly draconian lockdown. For a month now. Streets are empty, people don't go to work, etc, etc, etc.

Unless and until a large fraction of the world does the same, the rest of the world should expect exponential growth. Not the exponential decline that Wuhan is experiencing. Furthermore if the rest of the world does not, eventually China will be faced with having to choose between the nightmare of permanent economic disruption due to quarantining the rest of the world or the nightmare of mass casualties from letting the disease run wild.

And I guarantee that if your life was implemented by similar public health measures, you'd be screaming bloody murder.

> You are continuing to not understand causes.

I'm making two separate arguments. (1) the disease is fairly well contained at the moment due to the actions of the CCP in China -- cases dropped from 80K to 17K there (and global cases are down to 42K from a peak of 58K) and that's good numbers; (2) even if the world got it, it wouldn't be nearly as big a deal as the preppers, doom-sayers and the breathless media are making it out to be. Through a combination of actually pretty low mortality rates and the fact coronaviruses are well enough known (SARS, MERS and of course 15% of the common cold) that a vaccine and potential treatment has a big head start.

61 million folks got swine flu in America and 12,000 people died here alone. So far, 500 people have nCoV-19 and 27 people have died.

Wash your hands, don't lick things outside you shouldn't be licking, stay home if you're sick, and we'll be past this in a few weeks.

On #1, the fact that it is under control in China does not mean that it is under control globally. Nor does there seem to be an appetite for the measures that would fix that.

#2 on current data, I said that the number of potential casualties is on the same order as WW 2. Another poster gave numbers showing that this is true even with the optimistic end of current numbers. You have supplied no data to counter those numbers. Nor have acknowledged that tens of millions dead is worthy of concern.

About the rest, my sister and niece are immunocompromised. I have always had weak lungs. My father-in-law is 89. “We” might be past the epidemic but the odds are high that someone close to me will be dead. I doubt that I am alone.

You are not exactly coming across as being full of sympathy for entirely predictable tragedy.

If you run the math with some of the most optimistic mortality rates (0.7%) and total rates of infection (30%), you still end up 23M deaths, roughly the total number of military deaths from WW2.

We don't have a mortality rate because we don't have an understanding about the amount of cases that go unreported.

Best study I’ve seen so far (Univ Bern, Switzerland) estimates a CFR (adjusted) for Hubei province of 1.6% (or 3.3% if symptomatic). Worse above 60 yrs, better below 40 yrs.

Presumably you think Korean health care is better? Now what a about other countries?

https://www.medrxiv.org/content/10.1101/2020.03.04.20031104v...

I'm wondering if what 2% dies matters. This disease is mostly going to kill people past their prime working years. There are going to be tons of sociological changes. Just speculating here:

- Social security could have it's date of insolvency extended. It's currently predicted to be insolvent by 2037. Most pension programs in the world will be relieved of pressure if many of those over 60 years of age die. Many states with pension crises may delay those crises many years.

- we may see the largest wealth transfer in history in a short period of time as many older folks die and leave their heirs with whatever wealth they have that they were unable to consume in retirement.

- The economy will "lose" the spending power of this older generation, but that spending power will be transferred to a younger generation. Except for what the government steals via a death tax, this should be net zero in terms of money spent in the economy. What will change is what the money is being spent on.

- Many homes may go on the market as these older folks that own much of the housing stock pass away. Those inheriting the homes will sell or rent. In the case of multiple children sharing the inheritance, homes will be put on the market as those children want their liquid share now.

- Those in their prime productive years should carry on, so hopefully productivity as measured by GDP remains more stable than if this disease killed more people in their prime working years.

- What's most worrying is the people this disease kill between 40 and 65 years of age, since their is a lot of accumulated wisdom, knowledge and expertise in that cohort that is still being actively contributed to society through work and other forms of productive engagement.

If this really does take out 2% and that 2% is largely isolated to those over 60 years of age, we're going to be living in very very interesting times.

My biggest concern is losing a lot of that voting block as older voters often serve as a check against naive ideas that younger voters have such as wanting to try socialist policies wholesale at scale at the federal level instead of experimenting with those ideas in the safe confines of state or local municipalities to determine if they are actually workable ideas.

Yes, the people who think that universal healthcare might be necessary to beat back this pandemic, as compared to the patchwork cruelty and parasitism of the current American system, are the ones who are naive.

The problem with rugged Capitalism in healthcare is eventually you run out of other people’s immune systems.

This exactly. Another important point, those who are most likely to succumb to an infection are also those who put the largest strain on public healthcare systems. Please note, I want our older relatives to remain alive and healthy for as long as their quality of life is good. We all benefit, and we all get to enjoy each other. But at the same time, the rhetoric from alarmists is getting non-sensical given the reality.

I think it's likely that there'll be second-order consequences that are worrisome, too. For example, war and revolution is extremely likely as the demographic order is remade. Already North Korea is saber-wrattling toward South Korea, the U.S. blames this on China, China (and Iran) blame it on the U.S, and a large portion of the Iranian government may be dead or incapacitated.

If we get war after the plague that'll carry the death rate down into young men, and perhaps spark further plagues.

> losing a lot of that voting block as older voters often serve as a check against naive ideas that younger voters have such as wanting to try socialist policies

That swings both ways; older voters also tend to stand in the way of necessary reforms, like ending the Drug War, or similar "law-and-order" policies that end up being counter-productive.

While I won't pretend there isn't a naive, full-blown socialist contingent amongst some young backers of Warren and Sanders, it's a little frustrating when the signature policy (single-payer healthcare) isn't some kooky "experiment", but a functioning norm in the rest of the industrialized world (usually with statistically better outcomes). Obviously that's not trivial to replicate, America is larger and less homogenous, there are good arguments against single-payer, yada yada yada. But it's a far cry from an "experiment", let alone from "seizing the means of production".

At any rate, I do favor implementing policies at state and local levels, whether socialized medicine, or actual experiments like UBI. But let's a keep a little perspective, and not succumb to naive categorization based on a locally-scoped Overton window.

"Social security could have it's date of insolvency extended. It's currently predicted to be insolvent by 2037."

The US Federal government has both a literal and a figurative money printing press. Congressional appropriations create money. Revenue is an obsolete concept for currency issuers. As a Federal program, it is literally impossible for the program to be "insolvent". Social Security benefits can be paid at full rates for as long as Congress decides to do so.

>Social Security benefits can be paid at full rates for as long as Congress decides to do so.

Not at "real" rates, because a bunch of stuff Americans consume is produced overseas, and if the government starts printing large sums of money then exporters in other countries are going to demand more of it in payment for goods, so the purchasing power of the amount paid to retirees will decrease.

> […] that spending power will be transferred to a younger generation. Except for what the government steals via a death tax

FWIW, it’s most definitely not stealing.

> Except for what the government steals via a death tax

Good comment overall but this is just unnecessary. I'm guessing you prefer the heirs stealing via birthchance tax? Either way, zero net change in spending (the governments also spend).

> heirs stealing via birthchance tax

what does this even mean? You can't steal what is given to you.

> Social security could have it's date of insolvency extended

As others have pointed out, "insolvency" for SS is nothing more than a policy position.

> Many homes may go on the market as these older folks that own much of the housing stock pass away

At worst this would speed up the inevitable (at least as some see it). This coming change has been talked about for years and is known as the "Silver Tsunami" [1].

> My biggest concern is losing a lot of that voting block as older voters often serve as a check against naive ideas that younger voter

Here's where you go off the deep end. The irony in all this is that the demographic hit hardest may well be Fox News and Trump's core constituency. I certainly don't wish anyone ill here but if it's going to happen anyway, it's hard not to see the silver lining.

Older voters are increasingly a huge problem, politically speaking (IMHO). They have no concept of long term consequences. They're just trying to avoid anything upsetting the apple cart in the short time they have left here. They fight change of any sort. They're easy pickings for fear-mongering and, as a group, incredibly easy to manipulate.

Your concern about "socialist" policies at the Federal level I'm afraid puts you in a huge voting bloc in the US of those who see no way to solve certain problems that literally no one else has (eg gun violence).

Reasonable people can disagree about how best to provide health care to people but the current system of being tied to employment is an unmitigated disaster that simply has to change. Doing things at the "state" level isn't necessarily better either as all you end up doing is creating 50 regional monopolies that all need to duplicate the same effort.

[1]: https://www.marketwatch.com/story/these-housing-markets-will...

Even if the fatality rate were as high as 2% (which is exceedingly unlikely), "2% of humanity is about to die" assumes that 100% of all humans will get the disease, which is unlikely.

> - A government and a system that propped up an insolvent banking system that likely extended the downturn significantly

Very true. "Extend and pretend" was the rule of thumb on debt. By failing to let firms go bankrupt, you ended up with tremendous capital (and labor) resources in enterprises which do not create value.

US fertility rate is approx. 1.8, well below population sustainability. If it weren't for immigration (a political policy question), the US would have negative population growth too.

Not too be too glib but this reminds me of one of my pet truisms:

"If things were different, then things would be different."

Japan is way more insular than the US [1]. You can theorize about what might happen if we didn't have net immigration but it's largely irrelevant because we do.

[1]: https://www.nytimes.com/2003/07/24/world/insular-japan-needs...

It isn't irrelevant because it's a constant battle and has been significantly curtailed under the current administration.

It's crazy to me that so many generally pro-business folks have suddenly turned against immigration in the US. It's pretty much the US's best bet at continued above-OECD-average economic growth (until the rest of the world becomes middle class). And the US is, culturally (well, mythologically) pretty pro-immigration and generally good at integration. sigh

Without population growth, the economy won't grow as quickly, sure. It may even shrink. But does that matter per capita? I'm curious how population dynamics has effected Japan on an individual financial level.

America has all three of those except immigration is allowing for population growth; immigration that the Trump admin is busy reducing to zero it seems. And when you look at replacement births you have to think about all the economic conditions that cause people to decide not to have children.

Aren't all of these factors true for China today?

China's credit bubble is worse than Japan's was. And now they are hit with a supply/demand shock. Worst crisis in history

Sounds just like the situation in the west after 2008.

As I highlighted above, the Nikkei ignores dividends, and as such does not reflect actual investment results.

https://news.ycombinator.com/item?id=22530040

Another good example of long-term decline is gold. In real dollars gold has never returned to its 1980 price. It went up 10x in the decade to 1980 and some people thought it would just go up forever. If you bought the dip after gold peaked, you're _still_ underwater.

The reason is that gold is itself a useless piece of metal (electronics and jewellery notwithstanding). Its only use is as a hedge against the gov't issued currency. Therefore, to bet that gold increases in value means you're betting against the country you're in doing well.

But in that case, you're better off buying a bunker and bullets and long life stored goods. because gold is useless if the country you're in fails!

The only other use for gold as far as i see is to dodge a country's foreign exchange restrictions, to launder money discretely, and to dodge inheritance taxes (if that's even possible with gold jewellery...).

> The reason is that gold is itself a useless piece of metal (electronics and jewellery notwithstanding)

Gold being an excellent conductor while being mostly inert, solid at room temperature and highly malleable seems to be a pretty useful set of properties.

> because gold is useless if the country you're in fails!

Not entirely true. You have to look at why gold became one of the earliest mediums for exchange in the first place. I'd list six primary properties:

1. High density

2. Relative scarcity

3. Distinct appearance

4. Solid

5. Inert

6. Malleable

It turns out density is a really important one. Why? Imagine your country stamps gold coins. If you can take a coin of unknown origin and weigh it against a known good coin, you can pretty easily detect a forgery by it having lower weight. Gold isn't the densest element but it pretty much was until modern times. The only one other that was reasonably accessible was platinum, which was pretty valuable in its own right.

Even the apocalypse will have trade and need a medium for exchange.

> The only other use for gold as far as i see

You're not looking far enough. Gold has been used in places where the local currency has become questionable due to, say, inflation, (effective or actual) government confiscation and so on. Even refugees as recent as the Vietnam War would try and escape with gold.

In recent years India tried to invalidate bank notes in circulation with very little notice that set off a bit of a panic. That's not a problem gold has.

> Imagine your country stamps gold coins. If you can take a coin of unknown origin and weigh it against a known good coin, you can pretty easily detect a forgery by it having lower weight.

That hasn't been required since the middle ages. So if modern society reverts back to using gold for trade (because there isn't a currency left, that's what the dollar collapse means), I'd rather have stocked up bullets and kill those who has the stuff i want, rather than trade for it. After all, there's no guarentee that they won't just shoot me in the back after the trade anyway.

What i'm saying is that anyone in a western country that invests in gold is implicitly investing in a hedge against collapse of the dollar (or currency in general). And in the event of a collapse, the gold is going to be useless, if you don't have the bullets to back it up and defend yourself.

Or, speculate on the price - sell when it's high, buy when it's low. But that's literal gambling, not investing.

EDIT: This is wrong.

There's no reason to ignore dividends. If you look at total return then it's above the high.

According to https://dqydj.com/nikkei-return-calculator-dividend-reinvest...

Nikkei is down 36% since January 1990 if you reinvest dividends. Do you have a source for your claim?

You're right. I read a chart wrong.

How frequently do the 225 companies in the Nikkei get updated?

Maybe more a reflection of how the index is managed.

>Downturns can go on for decades.

Exactly. It feels like we've swung way too far to the side of "put your money into the market and forget about it". We have no way of knowing what the future looks like. The average bear market wipes ~35% or ~4.5 years worth of gains from your portfolio. Avoiding even a bit of that can have a substantial effect on your savings in the long run.

Of course, timing the market isn't easy, and I'm not giving any advice on buying or selling. But the idea that these peaks and valleys don't matter simply isn't true. They matter, a lot.

Yes, and having winning lottery tickets matters, a lot. You might as well advise people to just avoid all of the days where the market goes down since that will make a massive difference to their returns.

Timing the market is just throwing the dice. Go down that path and you’ll be entering the world of gambling with all of the bad psychology that ensues.

You should really adjust for dividends, in which case it is still down, but only -7.5%. [1]

[1] https://dqydj.com/nikkei-return-calculator-dividend-reinvest... (I did Dec 1989 - Jan 2020. They don't have data latter than that)

https://vimeo.com/110710752

The Japanese stock market is so completely different from the West - you can draw no applicable conclusions.

The Japanese economy and especially its financial markets were completely insane in the '80s. As in, large scale structural problems; some investors were "too important" to lose money so the brokers would reimburse them. See also the "Lost Decade(s)". (https://en.wikipedia.org/wiki/Lost_Decade_(Japan).) The Nikkei's decline cannot be described as a normal "downturn".

But, useful inferences for the current market are left to the reader.

With zero or negative growth looming both in China and Germany in the coming quarter, it is a safe assumption that this market has much lower to go to reflect those new realities.

You: 1) think know better than the rest of the market, and 2) are sure of yourself (‘it is a safe assumption...’)

Please don’t go trading!

Yes, agreed -- will not trade. I'll go with Warren Buffet's refrain that trading is for losers.

>Bear markets are paved with the blood of optimists.

I'm going to shamelessly borrow this.

Make sure to return it in mint condition :)

I wonder if the inverse rings true as well. Bull markets are paved with the blood of pessimists.

So do the meager realists get to avoid bloodshed? Or, better yet, capitalize on the blood of pessimists and optimists?

Realists miss out on volatility

Rarely! They're mainly collateral damage that gets hurt during the downturn AND the upswing.

The real money is in collecting some % of the money invested as fees.

Hodl, fren. Hodl.

The relevant xkcd: https://xkcd.com/2270/

Short squeezes, sure. But they're not pessimists. More like cynics. In fact, today's most famous short seller, Jim Chanos, runs a firm called "Kynikos" (Greek for "cynic").

Apart from short squeezes, markets generally grind higher and crash lower. The left tail of the distribution is usually the thicker, meatier, juicier one. But the mode is usually slightly positive. So it's not usually the blood of cynics, but rather the patience of optimists and the persistence of hard workers, that brings markets higher.

count me into that bucket. I know of many other too. :-(

Maybe I'm misunderstanding, but there's no blood from the pessimists since they don't really lose what they have. They just miss out.

There used to be a saying, something like if you missed the best 20 days of the market in the last century, you would just about break even.

Missing out is very, very expensive.

If you miss the best 10 days in the last 20 years of the US market, you lose 2/3 of the gains. If you miss the best 20 days, you are slightly underwater. https://www.fool.com/investing/2019/04/11/what-happens-when-...

People do short or buy put options.

Maybe "tears" works better..

Honestly, spring just happens to be the season when I contribute to my Roth IRA, so hey, I guess this year I get my index funds at a low per-share price. Thanks log-normal random walk!

Before you get too excited about Spring essentially solving this problem, I present to you the history of the Spanish Flu [1].

> Reported cases of Spanish flu dropped off over the summer of 1918, and there was hope at the beginning of August that the virus had run its course. In retrospect, it was only the calm before the storm. Somewhere in Europe, a mutated strain of the Spanish flu virus had emerged that had the power to kill a perfectly healthy young man or woman within 24 hours of showing the first signs of infection.

[1]: https://www.history.com/news/spanish-flu-second-wave-resurge...

And the decade following the spanish flu epidemic -- which killed a massive # of people -- was great (financially).

True, before it all fell apart. This sort of thing isn't unprecedented either [1]:

> In this downturn, however, the ground for the next economic explosion after 1500 was being laid. Wages rose and huge swathes of society had more money to spend on consumer goods, from beer to clothing to furniture. With fewer people to feed, the largely agricultural economy could focus more on livestock or specialty cash crops like hops or sugarcane instead of grain. Diets improved and, plague aside, so did health. More and more people were drawn into the market economy and trade networks grew wider and deeper.

[1]: https://theconcourse.deadspin.com/after-the-black-death-euro...

I wasn't expecting Spring to "solve the problem". I was expecting an ongoing economic disaster to make this year's retirement account contribution a "buy low", which I may someday benefit from if we all come through this.

On the other hand, it's also possible that the CV will recede in the summer, and that will very likely make the markets bounce back. To quote Carl Sagan, prophecy is a lost art.

The doubling rate is 3 days. Either we will be in a 3 month long quarantine, or in three months the infection rate will be slowing because there's no one left to infect.

That’s only true under current conditions. If we move to social distancing themselves the doubling rate may slow down significantly, which would actually increase the time to burnout.

It seems unlikely that will happen in the US due to the executive branch messaging very much being "Everything is fine folks - oh please don't stop going to work!"

It is comically right out of the plot of every pandemic-type movie where no one in charge takes it seriously enough at the beginning and it therefore spreads wildly out of control.

That's the "3 month quarantine" case in his comment.

The market already was showing signs of problems, the CV was just what broke the camel's back.

When China put 10% of the worlds population on travel restrictions, a put on SPY with a strike of 300 expiring this Friday was 29 cents.

The optimism is frankly unbelievable.

A few weeks ago, I spent $730 to buy 73 SPY put option contracts expiring this Friday with a strike of $270, so about 10 cents per share. Unbelievable. I've been selling them over the last week and just finished getting out today with a realized gain of about $30k.

Wish I had put $50k in instead of $1k, but I suppose that's always the lament when an ultra-risky trade goes your way :)

Teach me your ways. Literature ?

If the news says "China puts 760 million people on travel restrictions", you should look at the price of puts.

This.

It was really just insurance. I fully expected the $1k I bought to expire worthless, and the first $230 did, but these ones I was able to exit for a nice profit.

I highly suspect the expected value of options trading is negative, but it's useful as a hedge. Really wish I could spend like 10% of my salary on put options for my employer in case I get laid off, but it's forbidden apparently.

Insurance by definition is negative expected value (otherwise insurance companies wouldn't be in business). Great job hedging!

reddit wallstreetbets obviously

Actually no...I hadn't ever visited before a few days ago :)

That’s not optimism. That’s options pricing driven by implied volatility and the current price.

Markets are not wiggly lines.

One of us is thinking about implied volatility wrong. My understanding is that it's not a measure of actual volatility, of either the underlying security or the option itself. Rather, it's a measure of how much the price reflects expected volatility in the underlying security. So in a security with ultra-low expected volatility (IV), options that are far out of the money will have much lower premiums than those where high volatility is expected in the underlying security.

In this way, the poster you're replying to is right. The reason premiums were so low was that IV was so low, but that was because no one expected the S&P 500 to drop from 3350 to 2750 in a few weeks. The IV is pretty high now, but it's still bouncing around much more than the actual volatility of the SPY index itself. I've seen everything from 30-150% over the past few weeks.

It’s still not optimism because it doesn’t imply direction. A low implied volatility just means lower expectation of big moves in either direction.

A stock that has gone up like a rocket ship will have a high implied volatility despite no crashes or expectations of declines.

It’s not optimism that stocks will only go up, but it’s optimism that they won’t suddenly go up or down by too much, which is generally to be avoided unless you’re a trader.

Right, but “not go up too much” isn’t really the normal definition of optimism when it comes to the market. If it was, an even lower implied volatility on a flat market would be irrational exuberance!

It's unfortunate to ignore the sentimental nature of markets. In the history of market there has always been either a discount or a premium over fair value. As if by coincidence, I'm reading the intelligent investor and a lot of what Graham said remains true to this date. There's almost always a premium/discount to the fair value of the stock market as a whole. The last few years have been extraordinarily good. Everyone knew a correction was coming. That's happening now. It's impossible to time the market but it's possible to differentiate between a correction to a fair value and a huge discount on price. In any case, the investor should be willing to wait for a while before the market realizes the value that they think the stock is worth.

Similar to how the last few years felt like everything was getting more and more expensive, the current downturn also seems like an over-correction (time will tell if I'm wrong). But what I'm sure is this - if the markets are down for a prolonged period - over 5 years - we have way bigger problems than the rate of return.

Here are the tips that I stick to: - DO NOT try to time the market. Exception: when you strongly feel the market went into an over-correction or you feel the market is highly over-valued. (Graham uses a range between 25% - 75% for stocks vs bonds.) - DO NOT invest money that you need in the short term in the market. Corollary: keep a buffer in cash/high-interest savings account + Treasury bonds for short term needs. - DO NOT PANIC - it's really hard to resist the urge to buy when the markets are going up (FOMO) and the urge to sell when it's crashing. Of all the strategies, this one (buy high, sell low) is guaranteed to return a loss. - For most passive investors, index funds + dollar cost averaging is the best way to go. These days robot managers do a good job of also expanding this into stocks + bonds + international coverage covering more scenarios - for example, a hedge against the US market or one's home market not doing well (enough) in the long run. - Hold individual stocks only if you think you'll hold it even if there's no ticker for it with up-to-date price info.

I split my portfolio into 1) Cash/short term funds 2) Long term retirement fund and 3) Speculative investment. All the money on (3) is money I'm willing to lose (not that I want to lose). That's the only account where I buy riskier bets which are pretty much most individual shares. I keep completely separate accounts to make this assumption explicit and clear.

> keep a buffer in cash/high-interest savings account

Where do you find such an account?

Discover's offering 1.6%.

More generally, bankrate.com offers comparison shopping for banks, and includes online-only high yield savings. It has a bunch listed at 1.9%, and a few dozen at 1.6% or better:

https://www.bankrate.com/banking/savings/rates/

Highly recommend discover. I heard capital one has good options too.

IMO this is a sort of gamblers ruin that happens in the markets. If you can wait long enough you usually will see a positive return (across well indexed purchases) . However, often times you need the money sooner. This could be because that money was actually for a major purchase (like a home) or because a recession means you lose your job and are on the brink of financial disaster (meaning you have to sell out at lower than cost).

Buying a house is not like losing your job, you're not supposed to put all your money in risky investments if you know you're going to need it in less than 5 years (for retirement, to go on extended unpaid leave, to buy a house, etc.).

But even for longer time horizons, I think the common wisdom that stocks are low risk over a long planning horizon is overblown: https://web.archive.org/web/20170911171611/http://www.norsta...

As an investor, if you believe the market is going to drop, there are various ways to profit from this. One of the easiest is buying ETFs that move inversely to certain market indexes (shorts them).

For example, SH [0] is an ETF that moves inversely proportional to the S&P 500 index. So if the S&P 500 is down 2%, SH goes up 2%.

More exciting are the leveraged ETFs that track double or triple the underlying index. SDS [1] moves 2X the inverse of the S&P 500.

ETFs can be bought like stocks. Unlike mutual funds, their prices change throughout the day. These funds can be used to hedge against losses in your retirement or option portfolios. Trade with care!

[0] https://finance.yahoo.com/quote/SH/

[1] https://finance.yahoo.com/quote/SDS/

Inverse or leveraged ETFs are terrible for anyone except for day traders. You can't buy and hold them, because they degrade over time, especially the leveraged ETFs. If you really want to short, then short the stock directly with proper stop losses or buy puts, but options are very complicated with various types of premium, most importantly time premium which also causes prices to degrade.

Correct in principle — from what I recall, leverage ETFs' beta decay over time is caused by the overhead of the leverage. You can see this with SH, for example; while it seems to perfectly mirror SPX, there's a slow rate of value loss over time.

However, if you look at ETFs like TMF over time, short-term gains easily overcome the decay. If you'd invested in TMF on Jan 1, you'd be up 92% now.

And it's not like options and shorts don't come with premiums. There's no free lunch, but there's the possibility of returns wildly beyond your initial investment.

Inverse and short ETFs are terrible for medium to long term holdings. Because it resets each day. Here is an example of what this means:

Consider a hypothetical index having a volatile week (like these days). The index was at 100 on day 1, dropped to 90 on day 2, recovered back to 100 on day 3, rose to 110 on day 4, and finished the week flat at 100.

If you were invested in an ETF that tracks the index, you would neither lose nor profit. But if you were invested in an inverse ETF, you actually lost money overall: the percentage day change of the index is -10%, +11.1%, +10%, -9.1%. So the percentage day change of the inverse ETF is +10%, -11.1%, -10%, +9.1%. Add one and multiply these, and you would have lost 4% overall. This is not even accounting for the increased expense ratios of these ETFs.

But wait, here's more: if you were invested in a 2x leverage ETF, you would have lost 4% as well! The percentage day change would be -20%, +22.2%, +20%, -18.2%. Add one and multiply these and you arrive at the same number.

This is simple math. And I think, this should convince everyone that inverse and leveraged ETFs are terrible in typical volatile market scenarios. Link to spreadsheet: https://docs.google.com/spreadsheets/d/1XEyE4DxXOilXz4PnGBSX...

If you really really want leverage, consider having a long /ES future with suitable level of leverage, and roll quarterly. For the typical Hacker News audience who are not finance professionals, don't even think about shorting the market.

You could also just buy some long put options or a long put spread. That doesn't seem to require being a pro and is a limited loss type of play.

Hardly. Options involve a lot more strategy and tactics. Instead of trying to time the market once, you now time the market at least twice: the date you enter the trade and the chosen expiration date. When the expiration date is too close, your option could very well expire worthless before it can do anything; too far, your option has too much wasted time value, not to mention what if the market has recovered.

You also need to learn a lot about options, the Greeks, the IV, and all. With VIX in the fifties, it's very well possible for a trader to lose more money through the small stream of premiums paid for options than the market itself: the market will rebound, after all, but the premium once paid is lost forever.

I do not think options are appropriate for non-professionals.

Well, you only have to time it 1.5 times because you can always sell before expiration, although there is that upper bound. If it doesn't look like it panning out, and you called wrong, you can get out and recoup some money.

You'd have to approach it more like swing trading than buy-and-hold type strategy, unless you're aiming for something like next year.

Presumably you are in fact bearish going into the trade. If not, you probably shouldn't have traded the strategy in the first place.

Then why not write the options and capture those premiums?

You can, if you have the stomach to face occasional big losses.

Your statement is true if you just blindly invest in an index, times like this you need to invest in a trend but is more difficult.

Don't forget the part where the Fed swoops in, making a murky situation even murkier with market manipulation.

Expect a massive rally when the Fed announces QE4. Buy the rally at your own risk.

The largest DJIA rally in history (15.34%) occurred in the middle of the Great Depression in 1933. Second place was yet another Depression-era rally of double digits.

https://en.wikipedia.org/wiki/List_of_largest_daily_changes_...

Bear markets suck people in and spit them out. Every rally seems like the end of the misery, but it's just more of the same.

Only consider buying stocks when nobody but nobody thinks it's a good idea. When "buy the dip" has utterly left the popular vocabulary. When dividends + valuations are at bargain-basement levels.

Expect a massive rally when the Fed announces QE4.

Let's hope, good chance to scoop up some cheap(er) put options.

> Only consider buying stocks when nobody but nobody thinks it's a good idea. When "buy the dip" has utterly left the popular vocabulary. When dividends + valuations are at bargain-basement levels.

I would say the above is definitely true for certain sectors of the market now. Energy (oil & gas) comes to mind. Perhaps banks and emerging markets too.

The broad market, on the other hand, isn't even down 20% yet.

I'm not sure why anyone would buy oil and gas given the way the world is changing but that's just me.

There you go...

The only people who lose money are selling in a panic (or buying during a rut). CV has been with us (in the western world) for months now, and people haven't been dropping dead. So unless you believe 2% of the world will die then sure, buy your bunker and your guns and ammo and wait it out. If you are a bit more level headed, you can't go wrong with buying and holding now (and when times were/are/will be) good again.

^For entertainment purposes only, this is not financial advice.

Exactly right. After all humans co-exist with much more serious illnesses in many parts of the world. Somehow people adapt to circumstances and life goes on.

If your time horizon is 10+ years out, make like your 401k and invest on schedule regardless of whatever the market is doing. (Though you might want to rebalance if no one is doing that for you - i.e. if you handpicked your stocks)

And I would reword the 5+ year rule as: don't put any money in the stock market that you think you might need within the next 5 years.

> If you're looking at this and wondering when to get in, to bargain hunt essentially, and you're asking yourself questions like "today? next week?", you need to step back and think again.

> Bear markets are paved with the blood of optimists.

I agree with exercising caution in the sense that trying to time the market is difficult and probably inadvisable in general, but I don't agree that people should be careful specifically because of the recent drop.

IMO the time for caution was weeks ago when the market was much nearer all time highs and it was clear the Coronavirus' growth rate was not under control (and that the measures necessary to contain it might reduce economic growth). Now is a considerably worse time to exercise caution.

People investing for the long term should probably have equities as a substantial portion of their portfolio. If someone doesn't already, I think it would be a mistake to hold back just because the market has dropped. The market may go up or down from here, but the alternative investments of cash and bonds aren't obviously better choices (and it's expected that stocks will be pricier than they were in the past if bonds return less than nothing after inflation). I think a lot of how things play out will depend on future political decisions around monetary and fiscal policy that are not realistically predictable.

Cash may be a perfectly fine choice over the next year. You don't have to invest in something if the conditions are not right.

Cash may be a perfectly fine choice, it could also be a very sub-optimal choice. Same goes for stocks, bonds, gold, etc. Of course you don't have to do it if the conditions are not right but knowing if the conditions are right is the tricky part.

In order for some people to beat the investment average by timing the market someone else must underperform the average. Active investment management is in general a zero-sum game in which you compete with a bunch of math PhDs at hedge funds that do it as a day job (and even they have a tough time). Of course you can win if your own analysis of when the conditions are right is better, but trying to do so is usually not recommended for individual investors.

Holding cash sounds simple but if it goes up from here how do you know when to buy? If it goes down from here how do you know when to buy? And if you never buy, over a couple decades you will almost certainly do worse (Japan is a different case because at the bubble peak their stocks were measurably more overpriced compared to almost anything else in history including where the US market is now). In the end I think the only simple thing is the advice most economics professors would give which is to give up trying to time the market and just buy a low-fee mixed stock/bond index portfolio (with the ratio based on your risk tolerance).

The problem with timing the market is that people get lucky once and then think they can replicate their success again and again.

If someone is cash-heavy right now and is wondering if they should buy in, I would probably suggest dollar-cost averaging, perhaps with monthly buy-ins while the current craziness is going on (assuming someone is buying into things where there are no transaction fees).

So if someone has $100k to invest, maybe they buy $10k every month of their favorite index fund over the course of the next 10 months. If prices continue to drop, some of that money will buy at lower prices, but if they rebound over the next month or two, at least some of the money will buy at the (current) low price.

Then there's also the possibility of a dead-cat bounce somewhere in all this later on. Even if it looks like prices are going back up, they could drop again, and -- again -- there's still more cash to put in at various prices.

Yep, anyone that started investing in 2012 or later is about to learn the true meaning of "Past performance is no guarantee of future results."

But does it just mean that the best current strategy to buy is do either time-based or price-based spread out buying?

I.e. invest a bit every month or invest a bit when market drops another 15%.

For reference, someone might want to post a chart of the gains the markets have made in the past 5 years. I would hardly call this a crash.

Hah not a crash? Well it kinda is, and if it keeps going further down it will definitely cause a recession. The oil price drop was a huge punch in the gut, and I wonder what happens to US oil production if it stays this low for longer. Or well any oil production that can't compete with these prices.

A crash over the coming days wouldn't cause a recession so much as reflect the start of one.

> I wonder what happens to US oil production if it stays this low for longer

Probably go under?

Almost nobody is drilling new oil wells, they stopped last year sometime. Almost nobody because there are still investors keeping one skeleton crew running just so they have expertise for when the oil price recovers.

Once a well is drilled the cost to drill the well is a sunk cost. You keep pumping oil if the cost to run the pumps is less than the price you get. Most people with oil are large enough to shut down some wells to keep the price up a bit - they harm their own profit in the short term though and still need to sell enough oil to break even.

OPEC has failed to reduce output to prop prices up, and they've crashed as a result.

Nobody being willing to make large cuts is different from nobody making cuts. The US is not a member of OPEC, nor are several other oil producing countries: they don't follow OPEC but may still reduce output.

There is rumor OPEC isn't cutting production because they believe they can undercut their competitors and put them out of business - I don't think that is their motivation, but it is something that can't be ignored.

Indeed. S&P 500 is still not even below of what it was in the end of 2018 after the last major instability. Partly thanks to this, 2019 was a marvelous year with stocks gaining almost 40% during a single calendar year.

My reading is we're in a normal correction that has been exacerbated by COVID and last night's massive fall (-30%) in oil price.

Just because it's "normal" doesn't mean that it's not a crash.

Yeah, it's just getting started.

The largest daily point loss in the Dow is -1,190. Today we briefly hit -2030.

The 19th largest daily percentage loss in the Dow is -7.32%. Today we briefly hit -7.9%.

The 19th largest daily percentage loss in the S&P 500 is -7.18. Today we briefly hit -7.2%.

If you don't classify that as a "crash," then please state your criteria for us to examine. It may not be a major crash, but it's definitely notable.

https://en.wikipedia.org/wiki/List_of_largest_daily_changes_...

Point losses don't make sense because it's percentages that matter. The other metrics you mentioned do suggest this is of course a noteworthy market crash, but whether that becomes a recession or is anything to seriously worry about long run is a different question.

They like to cite points in the news because the numbers are bigger and it generates more clicks.

The DJIA is asinine [0], please try not to perpetuate it. Look at any other index instead.

[0]: https://www.investopedia.com/articles/investing/010917/opini...

Like how I looked at the S&P 500 in my comment?

And it's gotten worse, here's an update from CNN:

"The S&P 500 fell by 7.7%, blowing through the first circuit-breaker level that it tripped minutes after trading opened for the day. The S&P 500 is on pace for its worst day since December 1, 2008, when stocks fell by just over 9%.

The Nasdaq was down "only" 6.7%."

> The DJIA is asinine

It is superficially "asinine" because it is so narrow. However, the DJIA, S&P, Russell, etc all track/correlate each other.

> Look at any other index instead.

Or better yet, inlay the graphs of DJIA, S&P, Russell, Nasdaq, etc on the same chart for comparison. You'll see that the graphs all look similar. Meaning they all go up and down at around the same times.

It would seem that the broader indexes would better reflect the market as a whole. But in the real world, DJIA does good enough a job as the S&P, Russel, etc for a bird's eye view of the market.

Genuine question: They can just do that ? Issue a trading halt because they don't like the direction it's going ?

> “There’s a reason why they have those circuit breakers -- it’s to give people time to come back from panicked feelings,”

Seems strange that the market is kinda able to be manipulated like that. I'm not saying this is a bad move, just surprised that someone can do it.

Yes

I believe it's true for the other direction as well, it's just pretty rare to see a 7% upward move in a single day. I mean, it's rare to see it on the downside too, but not as rare.

Limit up/down rules are not discretionary. They're circuit breakers that fire deterministicly.

It's important to note that limit up/limit down (LULD) is not the same thing as the circuit breakers. They have a very specific meaning and operate independently (with much more complicated rules as well). You probably know this, but others reading your comment will probably not!

There is also no automatic upside circuit breaker.

"They" don't do anything - this is called a circuit breaker, and is automatically triggered. There are three breakers:

L1 - 7% down before 3:25pm - 15 minute halt

L2 - 13% down before 3:25pm - 15 minute halt

L3 - 20% down - halted for the remainder of the day

Only a single L1 and a single L2 breaker can occur in a single day, e.g. the market falling below 7%, rising, then falling again will not trigger a second L1 breaker, but falling to 7%, up to 5%, then down to 13% would trigger an L2.

FYI this is the kind of thing you have to know to become registered as a securities representative.

Okay thats fine, but who implements/decides these circuit breakers ? And what purpose to they serve only to limit a mass sell off ?

Nice point about only 2 daily. But still seems crazy.

AFAIK people can still trade in private, just not on the NYSE.

So don't worry, it's only us regular guys that get screwed. Big firms can still contact each other to make deals.

How exactly are you getting personally screwed by a 15-minute stop in trading?

> So don't worry, it's only us regular guys that get screwed. Big firms can still contact each other to make deals.

And when everyone is selling, who do you think is buying? No one is moving much of anything for those 15 minutes

How do you sell stock if no one is buying? If people are selling, others are buying.

Market makers are buying - their job is to always buy or sell stock from everybody. They (generally computers, but humans traditionally) will always buy your stocks, or sell you stocks. Their algorithm is simple: buy for $.10 (or some other tiny number) less than you sell - if the amount of stock owned is too low raise the price, if the amount is too much lower the price. They pretty much always make money in the long run.

For agreeing to do this (and having the capital to do it) the Market Maker for a stock typically secures certain benefits from the market in respect of that stock.

For a very popular stock on a typical day the market maker isn't really necessary. Your trades would absolutely execute immediately based on positions other people wanted.

When your stock is more thinly traded, or when things are a bit frantic the market maker is your saviour. When everybody and their dog is selling, the market maker will buy anyway.

Under some circumstances market makers can signal they intended to cease to make a market for specific stocks. When the market makers exit, all hobbyists should make sure they are gone too. Once there is no market maker for the stock you're holding, you will need somebody else to actually take the other side of your trades. "Prices" without a market maker are just a guess, there may be nobody actually promising to take your stock at any price, even if the last trade was for $1.40 your stock might be not sell even at 14¢. This makes for an exciting space in which to gamble with money you can afford to lose if you really know what you're doing, otherwise it's just a way to throw money away.

Having worked for one of the (smaller) big firms, and had a chance to watch from the sidelines and seen how days like this work: No, these circuit breakers don't screw the regular guys. They discourage the regular guys from screwing themselves.

There are a lot of firms whose core business strategy is to keep a level head and take advantage of people who panic and (over)react on days like this. They get damn rich doing it, too.

> They discourage the regular guys from screwing themselves.

If you're a little guy who believes that, say, 2019ncov is about to tear the world a new asshole, that's probably a decision you'd like to make for yourself.

I don't doubt what you're saying, but it's a matter of perspective. Sometimes the "panic" is the correct reaction. We're sitting on top of a perfect storm which is shaping up to be a massive potential black swan. And with the current circuit breakers, trading is only interrupted for something similar in concept to "the 99%".

Across all indicators, too! Oil price, US markets, international markets, t-notes, gold price, and a bunch I'm probably not aware of because I'm not a professional investor. China just shut it's economy down for two weeks. Long term outlook is rightfully poor.

> Sometimes the "panic" is the correct reaction.

Panic is almost never the correct reaction. Deciding that there's going to be a downturn and you should prepare yourself for it financially is one thing, but under what circumstances would it be optimal for you as an individual to panic-sell?

In my mind, panic is the thing you do when you realize that you haven't prepared. That you don't have enough resources for an extended downturn, that you're financially over-leveraged, and that you are in danger of losing your home and being unable to feed yourself and your family. There are TONS of people who are experiencing this right now in China and Italy, and many others of us who will be experiencing it the next few weeks in the rest of the world.

But panic also implies that you don't have time to fix that, and there's nothing you can do as an individual to change it. If that's the case, you probably don't have a lot of investments in the stock market anyway. Or if you do, and you're over-leveraged in the markets because you were gambling with your money instead of investing with it, then yes, you're panic-selling right now.

Panic sell is the correct thing when your doctor gives you a short time to live. Since your money will be worthless no matter what happens you may as well get it all now and spend it on whatever can buy a moment happiness.

There is an exception if your religion lets you take your stock with you. I don't believe in one, but I guess if you want to.

You can take that position after we all wait 15 min and take a breath.

If you’re a little guy that truly believed that, you wouldn’t have waited until the panic to happen to sell then.

But that exactly is one of those fallacies. If 2019ncov "tears the world a new ..." then your shares are going to be worth about the same as bills in your hand: nothing. Nobody will seriously risk their health for money.

And what's the rational thing to do in such a case? Let's say you're at a poker game. And you have a deal: you lose, you get shot, you win, you get your winnings. What is the rational thing to do?

You should go all-in. It is one of the very few cases it is actually rational to do that.

Nope, trading stops everywhere. Even Canada stops trading when the US has a market-wide halt.

The idea that the little guys largely have a chance actively trading in a fast moving market like today’s where they are gonna be crushed by algos is ridiculous to begin with.

If anything this is helps the little guy, by not completely crushing their stock value, and hurts the big guys who can outlast huge swings (something little guys cannot).

https://www.nasdaq.com/articles/market-wide-circuit-breakers...

Really it's just saying "the market is now closed". But you can still sell those securities on other markets or direct to someone who wants to buy or sell.

Mass sell offs tend to create unorderly markets, which is not beneficial for anyone.

The concept was introduced in US equities after the ‘87 crash, but was only consistently implemented for NYSE-listed stocks. In ‘13 these were made consistent and market wide (thus MWCB), set against a widely published value of the S&P (so that the control was predictable; thus how it executed today).

FYI, there are also bidirectional halts that exist intraday (Limit-Up/Limit-Down) that serve a similar purpose and control rapid, uncontrolled movements in individual stocks. These are also defined in exchange regulation and are well defined so that they are predictable.

> Mass sell offs tend to create unorderly markets, which is not beneficial for anyone.

It's beneficial for people who want to buy stocks cheaply or if we truly believe that markets are about price discovery.

> markets are about price discovery

Exactly, and when you have an unorderly market, price discovery becomes problematic.

It’s the same reason the single stock LULD bands exist (which put the brakes on both rapid downward and rapid upward movement). Stopping for 15 minutes (or 5 in the case of a LULD pause) is not detrimental to the process of establishing orderly price discovery.

In the event a stock is going to keep rising or falling due to legitimate changes in valuation it will continue to do so (look at NASDAQ’s halts page today to see stocks that have hit their bands multiple times).

> if we truly believe that markets are about price discovery

I think you can discover the price tomorrow.

> we truly believe that markets are about price discovery.

this is not incompatible with the believe that prices over a single day (or hour) can be dangerously noisy.

> Mass sell offs tend to create unorderly markets

So are we saying the market will be perpetual because it's not allowed to fail ?

At what point does the https://en.wikipedia.org/wiki/Pareto_efficient not apply ?

If it's manipulated, the efficient seems moot.

Pareto efficiency does not apply, because it is a theoretical construct that assumes perfectly rational actors. It's useful for thinking about the market, but not an actual law.

(For a more humorous statement: https://www.youtube.com/watch?v=oap6_U8-HvI)

The exchange does. Exchanges are companies too.

> Only a single L1 or L2 breaker can occur in a single day.

Then why does L2 exist? It seems redundant, L1 would get triggered before L2, and only one can occur in a single day, so why have L2 at all? What am I missing here?

Edit: Also, anyone who downvoted me for posting the same question as someone at the same minute, you know what to do.

See my other response to a similar comment - I will edit the original.

Makes sense, thanks.

No matter how much you didn't deserve downmodding, complaining about them only invites more. You have a better chance of recovery by not bringing them up, and the News Guidelines ask that you don't.

Please don't comment about the voting on comments. It never does any good, and it makes boring reading.

https://news.ycombinator.com/newsguidelines.html

Your paragraph was a lot more annoying than his sentence.

It's true that such comments are annoying, but they're necessary as a feedback mechanism to regulate the site. Otherwise the site guidelines would have negligible effect.

They're more tedious to write than to read, if that helps at all.

https://hn.algolia.com/?dateRange=all&page=0&prefix=true&que...

> Only a single L1 or L2 breaker can occur in a single day.

I don't follow. You'd hit 7% before 13%, so how would L2 ever execute?

Sorry - I meant that neither L1 nor L2 can trigger twice in a day, E.g. down 8%, up 2%, down 9% does not trigger a second L1 breaker.

> neither L1 nor L2 can trigger twice in a day

This phrasing makes sense. Thanks!

Especially relevant today since after hovering around -5% for most of the session after the first halt, right now we're at -6.9% and threatening to push below 7% again.

This means each execute once, not mutually exclusive.

I'm pretty sure these need to be hit consecutively.

As I understand GP: L1 and L2 can each fire only once per day. So if you hit L1, and after a brief rebound the market still goes down, you'll hit L2. If after that it still keeps falling, it'll get stuck at L3.

We hit 7% earlier today. If we hit 7% again today, nothing will happen. If we hit 13% we hit L2.

L1 hit today and there was a 15 minute halt this morning. If the S&P continues to plunge and hit -13% during today, there will be another 15 minute halt.

It's only a 15 minute halt. So if you hit 7% and trigger L1, trading is halted for 15 minutes, but then it resumes. If it drops down to 13% another 15 minute trigger happens.

But each of the L1 or L2 can only occur in a single day, not one or the other. You can hit L1, and then later hit L2, but you can't hit L1 twice.

Does that help clear things up?

Do they have circuit breakers in the other direction?

No. This is just one of several places where the laws systematically favor the bulls.

Believe this is not a "law" but a "policy" Regardless, your sentiment is spot-on.

Its an enforcement policy directed by the SEC. Its effectively a law, you can’t opt out for instance.

Well, you can choose not to follow laws (but you'll face the consequences if caught!).

You are wrong about that. See T5, T6, and H10 halts.

T5: Single Stock Trading Pause in Effect Trading has been paused by NASDAQ due to a 10% or more price move in the security in a five-minute period.

T6: Halt - Extraordinary Market Activity Trading is halted when extraordinary market activity in the security is occurring; NASDAQ determines that such extraordinary market activity is likely to have a material effect on the market for that security; and 1) NASDAQ believes that such extraordinary market activity is caused by the misuse or malfunction of an electronic quotation, communication, reporting or execution system operated by or linked to NASDAQ; or 2) after consultation with either a national securities exchange trading the security on an unlisted trading privileges basis or a non-NASDAQ FINRA facility trading the security, NASDAQ believes such extraordinary market activity is caused by the misuse or malfunction of an electronic quotation, communication, reporting or execution system operated by or linked to such national securities exchange or non- NASDAQ FINRA facility.

H10: Halt - SEC Trading Suspension The Securities and Exchange Commission has suspended trading in this stock.

Those seem to me be to be directed more at price manipulation of individual stocks (eg pump and dump schemes) than restraining enthusiasm across the whole market. I'm open to correction on this (and will not demand a halt).

The T5/T6 are not really directional circuit breakers though. They are momentum breakers that don’t bias towards downward momentum.

Because my google-fu is so bad ... has a major exchange ever actually stopped trading because it gained too much?

I don't know if that's a good way to look at it. It's not just "bears" selling when you have a big drop. It's people who need the money for something and are worried about liquidity.

Trading halts may or may not fix that, but that's their purpose.

> It's people who need the money for something and are worried about liquidity.

Then they're doing it wrong. You shouldn't have money that you need immediately in the stock market. Yes, people will do that anyway, but I'm not sure we should cater to those people when the health of the markets as a whole are at stake (assuming circuit breakers are effective; up for debate).

Because bulls and bears aren’t equal. The laws should be favored towards not destroying the economy needlessly.

Because extremely bull markets are a strong indicator of a bubble the laws should be equal to prevent bubble bubble bubbling.

Are they? The market reaches all time highs almost every year, so would you say that we spend most of our time in bubbles?

It is actually expected that the market will typically go up, not down. Otherwise there would be no difference between investing and gambling.

It's a question of velocity - markets go up and down all the time... but speed breaks to prevent the market from going down to fast also need to prevent the reverse case - some sudden inexplicable and extreme price spiking.

Basically - we should protect against any really dramatic sudden changes as chances are that something is wrong.

In the last year the S&P grew ~22% prior to this recent drop, that's fine... and on a day swings in the low single digits might be fine. But if we woke up tomorrow and the S&P had recovered the pre-drop value and then grown 20% over that price - something weird is clearly going on and we should be worried.

This isn’t the economy

You can easily sell a market to zero, however it is much harder to buy a market to infinity.

* It's very difficult to sell a market to zero, but impossible to buy it to infinity.

Has any stock or financial instrument ever been valued at infinity? I don't know enough about finance to rule that out and it seems unlikely but at least possible.

For instance here is a toy example of unbounded value: Consider a market for a stock in which the only market participants are two bots with the behavior that they trade the stock back and forth at an asymptotically increasing price. The buys are backed by loans from a zero interest government bank. Since the bank is efficiently hedged to losses. Both sides of the trade owe the bank, the seller can also pay the bank the money the bank needs to back the buyers loan. Thus, the bank could allow both these loans to go to infinity causing the value of the asset to approach infinity.

Similar things have happened with flash loans in the cryptocurrency space.

At what point does a finite increase of the price turn it from a finite number into infinity?

No. Money is a scarce resource and modern algorithmic trading has limits to prevent another LTCM.

What is the price of a share that isn't listed for sale?

Emptying out all the asks is a thing that happens.

Why would you need them?

I thought these circuit breakers actually existed to stop algo's from going haywire?

They have existed since the crash of 1929. There were no algorithms in place then. The goal was just to force human traders caught up in the moment to take a break and stop panicking.

I assume they have been tweaked since 1929, but they started with the crash back then.

Edit: someone else is claiming 1987 as the start. My memory says 1929. If this matters do your own research.

https://www.investopedia.com/terms/c/circuitbreaker.asp

Well something was put into place after 1929...

> Regulators put the first circuit breakers in place following the market crash of October 19th 1987, when the Dow Jones Industrial Average (DJIA) shed 508 points (22.6%) in a single day. The crash, which began in Hong Kong and soon affected markets worldwide, came to be known as Black Monday.

> In 1933, the U.S. Congress passed the Glass–Steagall Act mandating a separation between commercial banks, which take deposits and extend loans, and investment banks, which underwrite, issue, and distribute stocks, bonds, and other securities.

https://en.wikipedia.org/wiki/1933_Banking_Act

It was repealed in 1999.

https://en.wikipedia.org/wiki/Aftermath_of_the_repeal_of_the...

Seems like that kind of thing would be implemented on the algorithm side, not the market.

You'd hope so, but why not have protection on the other end as well?

It probably doesn't make sense for an individual actor to stop trading when all the assets it holds are tanking. Everyone's selling to cut their short-term losses. Crashes aren't always feedback loops.

No one would self-impose the limit on themselves, because you could profit if you trade while everyone else isn't trading.

You do not want to trust your market's health to some random trading firm's coding skills and goodwill, just like you wouldn't open up a public webservice without some basic rate-limiting.

They exist to stop any participant, human or electronic, from going haywire.

"Let's all take a deep breath, y'all."

To address OPs point, someone did do this. Someone (or more accurately, a lot of people) stepped in and introduced an artificial construct that constrains trading under certain conditions.

It's not intrinsically a "bad" thing per se and it was something already established long before the current set of conditions arose. But none the less, it's an artificial constraint introduced on trade systems that is likely beneficial.

To those who believe that all markets are rational and efficient, that interventions cause more harm than good, y, an enforced halt seems to be anti-capitalist.

But we are not rational actors. We can get into panics. Panics can stir more panic. Forced breaks allow for the market to reassess data for a few minutes without fear of loss for not acting immediately.

You would think, by the same arguments, that the stock market could always just trade at 15-minute intervals. Why not? But people go crazy when researchers (e.g. Eric Budish at U. Chicago) suggest lowering the frequency to milliseconds, let alone seconds or minutes.

There are different, additional, objections to that. For example, it would make life rather difficult for market makers, which would mean a lot of the liquidity would dry up, which means the spread would widen out, which means trading would be more expensive.

I think there is scope for designing market mechanisms which have the volatility-reduction effects of periodic auctions, but which still allow market makers to hedge. I hope people are working on those.

And then there are questions like: Should trading be convenient? Inexpensive?

> which means trading would be more expensive

And how is that a bad thing in and of itself? It would presumably knock out some of the ultra-low-margin HFT but so what? If it would have the effect of turning the stock market into less of a roulette table, with fewer gamblers compared to bona fide investors - isn’t that a good thing?

The circuit breakers also have an important function in relation to the role algorithmic traders play - it allows a bit more time for humans to step in and either switch off or tweak the algorithms if appropriate.

Consider the alternative.

Would they also circuit break on 7% increase, in order to give people time to come back from positive feelings?

Now thats a really good question.

No, because if the market is up 50% because we humanity has discovered an immortality serum, nobody is panicking.

There's no downside in great news (other than the possibility of a quick reversal thereafer...)

Piling in on the buy side because of a fear of missing out counts as panicking.

That's hardly symmetrical to the fear of losing the money that you have already invested – investors feel they have no choice but to sell before it gets worse, whereas in the rally you can always choose not to buy.

> That's hardly symmetrical to the fear of losing the money that you have already invested...

It's pretty symmetrical. Choosing not to buy is not as easy as it looks, when you are under pressure to do so. Madoff took advantage of this. The crash of 1929 was preceded by unhinged buying.

Actually, i think it is symmetrical. The fear of missing out on making a ton of money is just as scary for a trader.

Short squeezes are akin to declines in terms of the psychology involved.

The average investor isn't subject to short squeezes...

Even better: the percentage split between long and short holders isn't 50%/50%

Looks like it's also on increases, yes:

https://www.sec.gov/oiea/investor-alerts-bulletins/investor-...

Single-stock volatility halts happen in either direction, but market-wide circuit breakers only happen on down moves.

Limit-up/Limit-down applies to individual equities that are moving strongly in either direction.

The market-wide circuit breakers, which triggered this morning, only apply to declines.

The limits for individual stocks are up/down limits, but the market-wide halts are only for declines.

Without going into too much detail, short answer is yes. Most people don't seem to know how far away current setup is from 'free market' touted in school.

It is weird given that this information is not hidden. It is just not widely spread.

These rules are completely in keeping with the free market.

Would you care to elaborate? I would argue that guard rails and controlled falls are in opposition to actual free market. The qualifier 'completely' seems misplaced.

These rules are chosen by the participants. By the owners of the property. They are not government imposed.

Consider an analogy. Suppose you were a stamp collector and you wanted to run a weekly stamp exchange. You and your fellow collectors may establish rules about how the trading should happen and the agreed upon behaviors. By-laws if you will. You could of course have no rules. Or you could choose some that promote the overall longevity of the venue and that encourage robust participation. The choice is up to the owners. Both are free. But one will be more successful than the other.

Sure, but I think it makes sense to say that one market is more free than another, even when neither is controlled by a government. In many cases the reasons why it's good for governments to allow free markets are also reasons why its good for private entities to allow free markets.

Free markets are about voluntary interaction. This is a group of people deciding the rules that they'll trade with voluntarily. There's no reason the hours are what they are - the market could be open 1 hour or 24 -- deciding the opening times doesn't not mean it's not a free market.

Hmm, the problem with analogies is that they are analogies. I don't think NYSE or ICE has the same kind of impact on the market as a stamp collectoe. Hell, NYSE is almost literally the market. Thus any rules enforced by it are, for all practical purposes, market rules. They may agree with themselves that saving the market is the right thing to do, but guiding it does not make it free. It makes it not free.

The stock market is a privately owned entity that does not represent the broader market referred to in the phrase “the free market.”

You would argue that rules set up by private institutions are in opposition to the free market?

Even anarcho-capitalism doesn't go that far.

I think you are misrepresting my argument and attempt to dismiss it in an odd way.

I am arguing that rules set up by the market do not automagically enforce free market. I am arguing that rules explicitly do the opposite by introducing guard rails, which DO restrict movement in that free market.

Do you honestly believe that rules derive its effects from who sets them up?

To be perfectly honest I’m not sure I find your argument coherent at all.

Can you define what you mean by free market? Is two parties freely coming to a mutually beneficial agreement that they are then constrained by (i.e. a contract) consistent with that definition?

It is possible I have not made it very clear. For the sake of the argument, I am ok with the definition presented by you.

That said, I am not sure what you disagree with. Please elaborate.

Two private parties, an exchange and individual trading firms, have freely agreed to a set of rules in order to transact on that exchange. What about that is not consistent with the free market?

Well, first I would like to point out that in your example there are three parties with the exchange being the intermediary and trading firms transacting.

Assuming you agree with my characterization, on the surface nothing about the transaction facilitated by the intermediary makes it not consistent. You have my full support here.

Now, your argument appears to revolve around knee jerk reaction to me saying that in real free market, the rules would not artificially prop the market. My argument is that in a true free market, the rules would not restrict it arbitrarily.

Ergo, we do not have a truly free market, but just a reasonable approximation agreed for by various parties.

Would you accept that?

> Well, first I would like to point out that in your example there are three parties with the exchange being the intermediary and trading firms transacting.

The agreement to restrictions is still between two parties, but you can read it as "two classes of parties" if it makes you feel better.

> Now, your argument appears to revolve around knee jerk reaction to me saying that in real free market, the rules would not artificially prop the market. My argument is that in a true free market, the rules would not restrict it arbitrarily.

It seems like you're confused about a couple of concepts here and I think it may stem from overloading the words "free market" and the concept of "the free market" generally.

The stock exchange, like any real world marketplace, has many restrictions on trading. These make it a market that is not free in the sense that you cannot trade however or whenever you like. However, the free market is a distinct concept from any individual exchange. It means that parties involved in the open market (i.e. everyone) are able to freely exchange goods and services as they choose. This may involve entering into agreements (like contracts) that restrict future actions, but as long as those agreements are freely agreed to, this is still consistent with the concept of a free market generally. Thus, the fact the stock market has restrictions is still consistent with the concept of a free market so long as the participants freely agreed to those restrictions.

Does that clear anything up?

I think I am willing to concede to on the free market being an overloaded term the way I used it.

I will sleep on it a little, but thank you for trying to clear it up for me.

The stock exchange is privately owned, the owners/management of the NYSE and other exchanges chose to implement circuit breakers like this. The exchanges still have to operate within the bounds of regulations, but nothing is stopping Joe Blow (other than capital, expertise, navigating regulations, etc.) from setting up his own stock exchange that doesn't have any circuit breakers put in place to prevent flash crashes.

> from setting up his own stock exchange that doesn't have any circuit breakers put in place to prevent flash crashes.

If you are facilitating the trading of regulated instruments this is wrong and there are indeed SEC regulated circuit breakers you will have to implement.

The SEC would indeed stop Joe Blow from setting up his exchange in a way that skirts regulations.

The reasons for that, both in private institutions like stock exchanges, and in terms of regulation, have mostly to do with how hideously volatile 'freer' markets tend to be, and the frequent, devastating effects banking crises, panics, etc used to have.

I'm a fan of free markets and I'll be the first to admit that it's nonsense to have a black and white perception of the world. It's not either 100% free markets or state-driven economy. There's a huge world in-between both extremes. Being a fan of free markets simply means you err towards one side more than the other.

Having common sense regulations and tools like circuitbreakers are fine with me. I wouldn't say it's meaningfully less of a free market just because we have these tools in place to protect us against the automation we use.

Agreed. This is by far the most reasonable post I read today.

"Free market" doesn't mean "no government regulation". It means that the market responds purely to supply and demand. Government regulation can distort the response of supply and demand, but so do monopolies and lack of information parity between buyers and sellers. From what I've been reading here, the trade halts help prevent a situation where prices are effectively unknown because there are not enough buyers. Such a system is not a "free market" because information is not communicating between buyers and sellers. It sounds like the timeout helps people who want to buy stop panicking and discover what price they are willing to buy. Effectively it gives time for price information to get transmitted across the system. This actually helps restore free market. (Other government regulation, like trust-busting can also have this effect.)

These are well documented rules. They have been built up over years of experience. Not to say its perfect. But they are established and understood by the participants. Further refinements may happen based on today's experience.

Also because of algorithmic trading. You don't want to get into an accelerated get-out-now spiral.

This sounds like something we should teach the algorithms.

Heh, yeah but it's an adversarial problem. Do you assume the other bots are going to "do the right thing" and not intensify the panic? Maybe not. Maybe you just act on immediate information and try to optimize your position for the next few milliseconds.

"We" (the group of people represented by the government) do not control the algorithms, so we can't easily and without many other side effects force that to happen. We do (indirectly) control the stock exchange rules, so we can put systems like this in place that limit the damage done to us when it does happen.

In large part these are designed to break the feedback loops that can happen in automated high frequency trading and give humans a chance to look at things. These policies were implemented by all the stock exchanges after flash crashes triggered by ML algorithms encountering something "weird" and going into hard sell mode.

https://en.wikipedia.org/wiki/Flash_crash

The breakers were originally implemented as a response to Black Monday in 87, which was before algorithms were so dominant, but it happens that humans are really good at panicking and acting irrationally too.

Somebody said above that it was due to the 29 crash, which one is right?

1987.

From the 1988 "Report of the Presidential Task Force on Market Mechanisms : submitted to The President of the United States, The Secretary of the Treasury, and The Chairman of the Federal Reserve Board":

---

Our understanding of these events leads directly to our recommendations. To help prevent a repetition of the events of mid-October and to provide an effective and coordinated response in the face of market disorder, we recommend that:

• One agency should coordinate the few, but critical, regulatory issues which have an impact across the related market segments and throughout the financial system.

• Clearing systems should be unified to reduce financial risk.

• Margins should be made consistent to control speculation and financial leverage.

• Circuit breaker mechanisms (such as price limits and coordinated trading halts) should be formulated and implemented to protect the market system.

• Information systems should be established to monitor transactions and conditions in related markets.

https://archive.org/details/reportofpresiden01unit/mode/2up

87 had a significant algorithmic element to it too though according to many accounts via "Portfolio insurance" products which were algorithmically traded, as well as traders arbitraging between the index futures markets and the cash market.

Why would they not be allowed to manage their platform in this way? I'd be surprised if they were unable to.

One view of the circuit breakers that Matt Levine just discussed this morning is that they help to avoid price drop due to liquidity issues. That is, algorithmic trading aside, many trades are still done by human beings who may not be paying rapt attention when a crash happens. The 15-minute pause gives them time to find out that something is up, at which point they may choose to start buying at the depressed prices, which will stabilize things. This also makes sense with the fact that the L1 and L2 breakers only trigger once each, once an L2 breaker has triggered everyone will probably be paying close attention to what's going on traders simply not being at their desks will become less of an issue.

IIRC this was instituted after the crash of 1987, when they realised that automated trading could set off a crazy plunge. At any rate, it's public knowledge, not some sort of ad-hoc manipulation.

When you think about it, the whole market sort of follows these arbitrary-seeming rules. The actual prices of stocks are constantly changing 24/7/365, but the market is only open from 9:30am-4:00pm on weekdays excluding holidays.

The exchange is open from 9:30am to 4:00pm, but you and I are free to trade amongst ourselves at midnight on a Friday if we'd like

Aren't we also free to trade amongst ourselves during a market circuit breaker event?

Yes, but it's much, much slower to trade directly than through a market-maker in the exchange

how does one actually technically go about that? I have no plans to do it, just been curious about it over the past few months.

In my part of the world, tell your broker that you’ve done a deal with someone, tell that someone to tell their broker that they done a deal with you. The brokers should be able to report it to the exchange for publishing. Then they should see through the clearing and settlement. Of course your brokers might feel that your little deal is just not worth the hassle, and ask you to take your business elsewhere.

You ask your broker for the physical copy of the stock certificate. The buyer asks their bank for some physical cash. They hand you the cash, you hand them the stock certificates. Same as buying or selling anything else, basically.

Of course, for a transaction of a certain value, you wouldn't want to hold the cash or certificate, so instead you write out a contract and sign it at the moment of exchange. Which is the same as buying or selling something else (e.g. car, house) beyond a certain value.

> The actual prices of stocks are constantly changing 24/7/365

They are not. For any meaningful interpretation of "actual", the only price is the market price during trade hours. Speculative overnight agreements between private parties at agreed-upon values are contract agreements. The stock price doesn't change between market close and open.

What is the "market price"?

Is it the bid? Is it the offer? Is it the last trade? The VWAP?

The stock market only tells you where shares have traded and where the order book would trade them. There is no observable "actual price."

A useful way to think about the price is to imagine a theoretical fair value that is always changing, and a theoretical bid/offer that is always floating around the fair value.

This theoretical fair value is not posted anywhere. Some people give the name "price discovery" to the process of identifying where the theoretical fair value lies. With liquid stocks like AAPL on calm days, price discovery is a simple affair. With other assets, price discovery can be more opaque.

When the stock is trading steadily at high volume, then sure. The last trade is a great representation of the theoretical fair price. But in choppy trading, when there are dislocations between related assets and spreads are wide? The last trade is not representative of the whole picture.

Consider assets whose transactions must be reported to TRACE. If you are long, you have an incentive not to sell aggressively because a downtick will mark down the value of your position. So what's the fair price? Is it the last trade? Not necessarily, because that trade may not represent the current state of the market.

Also, there is generally some illiquid trading taking place pre-/post-market. And US futures trade overnight in other markets. And companies may be exposed to assets that trade outside of US trading hours (eg, refiners that have storage tanks full of crude, or companies that have currency exposure).

Perhaps I should've said "actual value" rather than "actual price", but my point otherwise still stands.

I too think it's inane. Some of us want to get into the market but not at these prices. Yet the whole system is built around trying to push markets into higher and higher prices at all times.

Here's a brilliant idea, introduce a rule that says you can only sell a security for more than what you paid. Voila, endlessly rising prices forever!

Feels like a con.

Would you want to get into the market if it wasn't a system built around increasing market value?

It's not meant to manipulate the market, it's meant to stop a flash crash from automated trading. It gives people time to recalibrate their algorithms if something is faulty. If the fundamentals are such that it should continue to go down, then it will continue to go down.

The markets are not a public utility, they have owners (I own a teensy, weensy piece of NASDAQ (NDAQ), for instance). The owners can do what they want, within regulations. Use whatever metaphor works for you, but after 1987, it was thought to be a good idea to have an automated breather so that we can get our collective heads back in the game instead of panic-selling.

There is, however, no "liking" or "disliking" market direction. It's automated, with clearly-outlined rules. There's no manipulation; if A, then B.

> Genuine question: They can just do that ? Issue a trading halt because they don't like the direction it's going ?

This is a dangerous game, in that it is indeed revealing the artificial, make-belief, nature of financial markets.

Were people under the belief that financial markets grew on trees or were formed by lithification?

That's funny. But I was only pointing out that this is akin to markets saying: this game only works as long as we can change the rules. This kind of statement is not conducive to trust. Unfortunately, the whole financial field needs trust to thrive.

I'd agree if the rules had been changed on the fly, as a response to the current events, but they weren't. The rules were known and they were activated as expected.

> The rules were known and they were activated as expected.

True, if surprising to me. It's a rule from the onset. I didn't know that.

It turns out nobody really trusts the "free market" :)

I trust electricity to be generally a safe and efficient way to improve my life, but I also sure as hell want circuit breakers in place to keep my house from burning down.

Those circuit breakers are not to allow people to come back from "panicked feelings". It's to stop algorithms from deterministically destroying hundreds of billions of dollars.

Yes, they've been put in after previous panics. I've always thought it rather odd that there aren't any corresponding restrictions on sharp upward movement, since euphoria can be just as dangerous as panic.

investors are herd animals and nobody has any idea what's going on. if everybody else is selling then i better sell too!

The trading halt is a result of previously established exchange rules. It's not a manipulation, it's a guardrail that is visible to every market participant.

If the price is going to go lower for an organic reason, it will go lower regardless of a brief delay.

There's a great book on behavior like this, "Extraordinary Popular Delusions and The Madness of Crowds" by Charles MacKay. It was first published in 1841 but feels like it could have been written today. McKay was editor of The Illustrated London News in 1850's.

https://www.amazon.com/gp/product/B081ZD9CL1/ref=dbs_a_def_r...

It’s really more a protection against recursive trading loops by HFT systems.

In the flash crash (2010), it was later determined that the largest part of the drop was driven by competing systems racing to the bottom solely because competing systems were selling off too.

Reminder that markets are human creations and not some natural phenomenon.

The decision isn't made real-time by actual people like I think you're suggesting.

The rules are well-known and set in advance by the SEC and exchanges. In this case it's SEC Rule 80B and NYSE Rule 7.12.

You can read more about trading curbs here [0] and this one in particular here [1].

[0]: https://www.investopedia.com/terms/t/tradingcurb.asp

[1]: https://www.nyse.com/markets/nyse/trading-info

There is no market separate from society that has any “interests” such as not being manipulated. We get to design such systems in whatever way best serves us.

It’s funny how this “ideology of the pure market” has become popular. This idea here is essentially the same as the outrage when obviously wrong transactions are rolled back. The number of people willing to, or entirely oblivious of the possibility not to, let (others) be harmed by fraud or mistakes, in pursuit of some romanticized purity is astonishing.

> Seems strange that the market is kinda able to be manipulated like that.

You might consider it manipulation, but these circuit breakers have been in place for a long time now, IIUC ever since the major market crashes of the 80s when there was no way to slow down the drop. The idea is to potentially lessen panic selling by allowing more time for more information to come to light which might mitigate some of the volatility.

Of course, there is no guarantee that better news will surface in the meantime, but even if the eventual slide will be much larger, its better that it takes place over several days to allow counter-measures to be put into place.

Trade safe. Historic times. Wouldn't be surprised if all the volatility shorts blow up and the S&P goes down 20% in a session.

The volumes on Vix futures are a fraction of what they were two years ago. Vix is shooting up but I assume it is following the stock market rather than the other way round.

Buy S&P puts as a hedge to save your account in times of extreme volatility.

I had 270 strike puts for April I bought on Friday for $6 that jumped to $15 today and got my account to break even even though the value of my stocks went down.

What fraction of your account value would you have lost if those puts expired (i.e. if the market had not declined)?

Well they wouldn't have expired until 4/17, so even if the market didn't go down today or went up it wouldn't have dropped anywhere close to $0.

I hadn't checked VIX for a few weeks. As I write this, it's trading at 54.79. That's insane. It's usually in the high teens to low twenties.

Or just buy index decade after decade... this of course does not work if you attempt to beat the index or have timespan that is short.

The index has become a bubble in of itself. It's also not as diversified as you would think when Microsoft makes up 5-6% of the S&P and over 10% of Nasdaq.

Other indexes, like the German DAX [1] have a hard cap at 10% per company.

[1] https://de.wikipedia.org/wiki/DAX

So then purchase and overweight small and mid-caps and international indexes if you think that SPY is top heavy. You don't need to deviate from index investing just because a part of the index is outperforming the rest. Choose an allocation, stick to it, rebalance when you hit some threshold.

I don’t want to buy the index?

You don't have to stick to the S&P index. There are others that follow tech, or commodities, or the Canadian stock market, green energy or what have you. You can diversify yourself.

500 of the top American companies is good enough for me. (S&P500)

What is the end game with this strategy? If you sell the puts today to capture the profits, do you also sell your equities? If you don't sell your equities isn't there a chance the slide further? If you hold the puts to maturity why buy them at all?

The end game is to save the value of my account without having to sell holdings I want to keep long term for tax reasons.

I'm up 8% for the year instead of down 15%.

Maybe you really are more clever than the rest've us, and have beat the market. Or maybe you got lucky. Or maybe we're only hearing about the winning trades, and you've got some losers we're not hearing about... I suspect it's option 2 or 3. Regardless, this is bad advice.

No he just dampens his returns by protecting against extreme downside black swan events

It isn't bad advice to hedge your position with options, although doing it short term as suggested here is an active trading strategy and inherently more risky.

Contrary to popular belief that options = gambling, this is the #1 real utility of them. If 90% of your investments are tied up in S&P 500, it makes sense to hedge that with put options which provide a clearly defined max-loss over the contract duration of the option.

So in a period like this when those put options become valuable due to price drop and general IV, you can do as suggested and sell them to re-coup losses and maintain capital. It doesn't change the lifetime performance of your money placed in the corresponding security, but it most certainly improves the performance of your portfolio as a whole and limits the damage that can be done in any given downturn.

If you only hold securities, index or otherwise, your only recourse is time. I certainly wouldn't recommend trying to time the market, just like I wouldn't buy an insurance policy the day before a loss. That doesn't mean you avoid insurance altogether because you can't predict when you'll need it.

Your puts are going to expire at some point, what after that? you sell all your holding after expiration? or you buy more puts? puts are expensive, I started 2 weeks ago and paid 7% of my portfolio in premium just as insurance.

You sell them before they expire for profit.

If the market drops less than your put strike price, you can sell the puts and keep the shares. If it drops more, you exercise the put, which results in selling the shares at the strike price.

Just have to be aware of vega in these market conditions though, with the VIX as high as it currently is options premiums are through the roof and if there is some breakthrough in a vaccine/resolution to the oil price war the IV crush can bite hard (learned that the hard way).

Purchasing options is usually terrible advice for anyone who hasn't been doing this for a long time. Options are very difficult to do right. Even if your intentions are sound relative to what is occurring in the market (e.g. volatility plays today), you can still get some aspect wrong and lose a bunch of money.

My strategy is to operate with a margin account and use high/low water marks as the trigger points for adjusting leverage. For example:

I prefer to maintain my margin utilization under 40% of my overall portfolio balance. I also prefer to maintain a value/growth allocation such that my margin is usually self-funded via dividends, but I don't mind eating a little bit of fee for the long-term opportunity.

If my margin utilization falls below 40%, I will use the leverage until its right back at 40% (mandatory minimum).

If my margin utilization is at or higher than 45%, I will stop use of additional leverage (mandatory maximum).

The sweet spot for me is 40-45%. This is effectively my "options" range for market downturn. Within this range, I have granted myself authority to purchase equities based on daily market conditions. The window is narrow, but this morning I purchased a bunch of equities on margin right up until the 45% mark was hit. I obviously went for the ones in scope that were hit the hardest today.

Tomorrow, I will re-run that ruleset and act accordingly. The advantages of using margin to acquire shares is that you have the actual shares and can hold them long term. Contracts mean you get to pay taxes right away and have nothing to show for it after everything clears.

The one takeaway I learned from 2007 is to buy puts when I feel like there is going to be a recession. It may just give me enough money to last a year or two if I lose my job.

Starting last week, I bought a put (just 1) in Chipotle (No particular reason, I just picked a random one) for 2000.

Its the one bet I hope I lose money on, but so far my position (2k investment) have grown to over 6k. (300% increase).

Its sad money because when the market goes down, my RSUs are dropping significantly more. The put are there to make sure if I lose my job and my RSUs, my put position will generate enough profits to last me 2 years without work. I only need 24k to get by / year.

Just wanted to put this out there in case someone else out there has alot of RSUs that are stuck and wanted to buy some positions to make some money in case of a recession.

For those unaware, this is common practice -- it a control that is working as intended. The trading was halted for 15 minutes

When was the last time this happened?

election night 2016

Actually not true. This is the first time ever these circuit breakers were triggered during regular trading hours. Even still, on election night, stock futures were only under the 'limit-down rule'. You could have still been buying futures while that restriction was in place, so this is very much different and unprecedented

Apparently in 1997, so it has been quite a while

https://en.m.wikipedia.org/wiki/Trading_curb#Instances_of_us...

Way before high frequency trading, to put some things in perspective.

This is not at all a common practice.

username checks out

This is official policy, but not "common practice." According to CNBC: "These circuit breakers have never been triggered in their current form during regular trading hours."

https://www.cnbc.com/2020/03/09/sp-500-futures-are-frozen-af...

The current circuit breaker rules went into effect in early 2013. There were different rules in-place prior to that date.

And under all rules, the last time it happened was 1997, so it's still signficant

I feel like "this is an automated control" would be more accurate that common practice.

This is _extremely_ rare.

Isn't this bad for price discovery? I mean, if stocks go down X% that's good for people who want to buy stocks cheaply and/or discover the true price.

How valid is it to look to the past when there is so much cash floating around? With so much more demand for roi, I would think that in itself would bias the markets up. Almost like an invisible Keynesian injection eager to happen

I wonder how different things would be if instead of those stepped halts, a super high granular delay is injected into the system. Like instead of halting, making it go on but in "slow-motion". And depending on the strength of the drop, the slow-motion factor to inject in the system.

I say this because halting tries to "cool down" emotion but it still "feels like" panic while making it all go slow would "feel kind of crappy yet normal" hence "buying" time to cool things down while still working.

Wouldn't that reward going up and penalize/protect going down?

> I say this because halting tries to "cool down" emotion but it still "feels like" panic while making it all go slow would "feel kind of crappy yet normal" hence "buying" time to cool things down while still working.

I don't think so. Halting would allow the traders to get a cup of coffee and switch to another mental gear. A slowdown would probably just keep them in gear and result in a lot of anxious refreshes and attempts to wrestle the system.

Immediately yes, it will keep them in gear, but it will have no consequence because the output would come forcibly delayed, so the result will come not so immediately. Hence being anxious has no payout and being cool does.

Wouldn't be that with time, the next generation of traders for example, they will relax more when things feel bearish and put the "normal gear" when it feels bullish?

> so the result will come not so immediately. Hence being anxious has no payout and being cool does.

That's assuming people are way more rational and less emotional than they really are.

Actually no because the output (reward or penalty) is not selective on your rationale. You can be bullish or bearish. The the input and the output are both allowed, just working at asymmetrical speeds (slower for bearish).

Wouldn't overall cause a "sustentation effect" similar to the asymmetrical speed in the airflow in the wings of a plane?

I'm not convinced myself of this, but the idea made me curious and maybe worth of experimenting with in a limited context?

(I'm not a trader) if I wanted to watch the market with a near-real-time dashboard, does that exist?

Koyfin:

https://www.koyfin.com/home

Maybe not:

HEADS UP, YOU ARE USING A WEB BROWSER THAT IS NOT SUPPORTED BY KOYFIN This means that some functionality may not work as intended. We recommend using Google Chrome with our site.

I use Firefox and have no issues, though I only use it as a dashboard for the markets. There may be functionality that breaks that I'm unaware of.

"I don't know how to read most of this, but I do see that everything's red."

Yeah I'm feeling pretty much the same.

If this was the status of our builds at work, I'd be very worried.

It's interesting to see how it spikes up and down though, never really paid attention to it until now:

https://www.koyfin.com/charts/gip/INDU_EC?t=SPX&t=NDX&frame=...

Tradingview

Quick link to the live view for DJI for anyone who doesn't want to search for it: https://www.tradingview.com/chart/?symbol=DJI

S&P Futures are probably the better pick for a 24/7 picture. https://www.tradingview.com/chart/?symbol=SPX500USD

polygon.io

I wonder if there are any FOSS projects I can self-host. would be nice to have such data in a terminal

https://www.teletrader.com/ for an old-school terminal-like feeling.

IB software is good, though a little complex.

Trading View and Investing dot com

The fact that these controls on the stock market have been triggered reinforces my doubts that our current "profits and growth over sustainability" view of how public companies should operate is in any way good.

Short of a huge change in COVID-19's mortality rate, few if any of these businesses will go under in the next year naturally. The fire sale of stocks due to short-term impacts to revenue, however, just might do what COVID-19 can't.

This will be blamed on COVID-19, but the problems go much deeper. Last year the Fed lost control of the repo market. the event was widely discounted at the time as an end-of-tax-year fluke. It wasn't. Six month ago, the yield curve inverted. People who should have known better said "this time is different."

Speculators have been trained over the course of 10+ years to buy the dip. The Fed has your back.

What we're seeing is the beginning of the end of that resolve.

The last time this happened was during the GFC. It's not normal, and it's probably not a one-time event, either.

So what are you shorting?

Why do you have to short anything? The idea was to get more defensive months ago. Long term treasuries are up almost 50% y-o-y.

If you think it's easy to short things in a volatile market like this, then you've probably never tried to...

I started getting defensive right after the election of 2016.

Modern history does not have an example of you know which party going on a tax cutting, over-spending, self-dealing, deregulation binge that did not end in a catastrophe. Add to that complete lack of competency when it comes to dealing with a not self-made crisis (a matter of time), and only a chump would think the good times would keep on rolling.

The market so far has absorbed the dumb trade war by pure optimism, and we only narrowly avoided a war with Iran. It all has been blind luck so far, and it just ran out.

Your everyday investor probably shouldn't be shorting in ultra high volatility periods like this. Markets spike for one day in the course of leading to a recession leads to a margin call and you can't post collateral, then you're done. Doesn't matter if it goes to zero a week after.

Buying puts on SPY. Realized gains (so far) are $30k from an initial "investment" of $1k about three weeks ago. Currently have about $10k riding with expirations in April and May. If the market shoots up because the Fed announces stimulus, I'll buy more. It's pretty clear that the virus is going to decimate the world economy for many months, maybe years. And watching the complete mismanagement by the US only increases my confidence.

I also moved $600k to cash, about 80% of it a month ago. Never done that in 20 years of investing, and probably wouldn't advise it to anyone now either. But when China locked down the whole country, I knew it was time to stand on the sidelines. Worst case, I'd lose out on a few percentage points of growth and jump back in once the threat had passed. I also still have significant indirect exposure through unvested employer stock.

To be clear, this is all fairly risky and ill-advised.

I'll add certain "tech companies" making no money doubling and tripling in a matter of months. The blow-off top was obvious, Covid19 was a mere catalyst.

>Six month ago, the yield curve inverted. People who should have known better said "this time is different."

How does your story jive with the fact that the yield curves went back to normal? Either they are an indicator or they aren't.

>Either they are an indicator or they aren't.

Because after the inversion the market (and Fed) reacted? No indicator is infallible or static.

I've been skeptical of the whole yield curve as metric thing because it's not directly tied to the actual state of the economy directly just to the sentiment about the market X years in the future. Given how much we know the whole market is prone to group think, self delusion, and outright manipulation I've grown very skeptical of any indicator about the market that comes directly from the market.

But the actual economy _is_ still about sentiment, no?

From consumers and suppliers (to some degree), not so much from buyers of treasury notes.

In most places yeah which is why the kind of highly instrumented self reflection of the sentiment like the yield curve inversion can be dangerous. It's not a sign that says there's going to be a recession it's just a sign the people in that market think there will be one.

I always wonder how much of a self-fulfilling prophecy it is, especially now the yield-curve-inversions-precede-recessions thing is so well known, i.e. people see the yield curve inverts and therefore believe the market will drop, therefore it does. Markets are just a reflection of aggregate human beliefs after all.

According to Planet Money/The Indicator the normalization of the curve is part of the pattern that happens prior to recessions if I remember correctly

The indicator is that it stays inverted for a quarter. It going back is not part of the indicator.

>Either they are an indicator or they aren't.

Third option is that it is an indicator as long as people aren't treating it as one, but once people react to it then it ceases having the power to indicate what is happening.

For the curious, this is known as Goodhart's Law.

also applies to psychohistory in asimov's foundation

I kind of think that the Fed will not let this go too far in the middle of an election year, particularly given Trump. But yeah, the market was clearly overextended, and stock price growth was accelerating.

The multi-trillion dollar question, though, is whether the Fed actually has much ability to help much with the current situation. Flooding the economy with cash probably isn't going to make people want to book a cruise anytime soon.

It's really not up to the Fed; they had an emergency rate cut last week and it was just a minor blip on the overall downward slide. This is a demand-driven crisis, not a liquidity crisis or credit crunch like 2008. Monetary policy isn't going to get you very far this time.

No the Fed can push asset prices through QE

Correction is way overdue. Problem is, Fed has no ammo left with interest rates at near zero. We're in for rough days, people.

Only if restricted to the relatively arms length levers like interest rates. There's still plenty of room for more drastic measures like buying stock directly in companies like Japan has done or huge prop ups like a new WPA.

The Fed has as much ammo as there is wealth held in dollars. Which is to say, a lot.

First, there is negative rates. Punishing people for holding cash. The ECB and Bank of Japan have done a lot of pioneering work there, the Fed will have already extensively studied what they did, what worked, what didn't work.

Second, they have QE, monetizing debt & debasing dollar wealth, which is exactly what they'll unleash for the next recession. Inflation isn't much of a concern right now, so they'll feel free to 'print' rather wildly.

Annual budget deficits will blowout, probably up to $2 trillion or more, with the next recession, so the Fed will have to print dramatically to fund that regardless.

I can practically just smell the inflation.

> I can practically just smell the inflation.

Then the Fed isn't out of ammunition.

The purpose of Fed easing would be precisely to generate/maintain target levels of inflation. The idea that the "Fed is out of ammunition" is that its conventional policy tool (rate changes) is seen as near a limit, such that the Fed can't generate further inflation if it wants to.

But here, you "smell the inflation," so by definition the contemplated actions are in fact ammunition.

==First, there is negative rates. Punishing people for holding cash. The ECB and Bank of Japan have done a lot of pioneering work there, the Fed will have already extensively studied what they did, what worked, what didn't work.

I'm not sure I see where either of these options has worked. Can you share the successes of either of these measures?

In option 1, you have a stagnant Japan with a lost generation.

Option 2, is what we have been doing for 12 years and has led us to this point. The inflation seems to be hiding in asset prices (housing, stocks) not household items.

Since 2007, there has been one year with GDP growth [1] above the annual deficit as % of GDP [2]. That was 2015, with 2.4% deficit and 2.9% GDP growth. 2018 saw the US spending 3.8% of GDP in deficits to generate 2.9% GDP growth. Does that sound like a "strong" economy?

[1] https://www.macrotrends.net/countries/USA/united-states/gdp-...

[2] https://fred.stlouisfed.org/series/FYFSGDA188S

Housing is not a household item?

No, it's not. You can't buy houses at WalMart or Costco because they sell household goods, not housing. [1]

[1] https://en.wikipedia.org/wiki/Household_goods

I love how everyone uses Japan as an example of central bank success.

Their economy crashed in the 1980s and still hasn't recovered.

If that "success", I'll stick with failure.

The yield on the 10 year... Now is the perfect time to finance a bunch of govt spending (not that I expect this admin to embrace fiscal policy)

This administration has a single minded project that has been a struggle to get financed. It would be a huge coup for them to use this downturn to get it financed without borrowing from Peter to pay Paul. Then again, this is all probably just fake news.

Right. Borrow $5 trillion for infrastructure and pay <$50 billion / year. That's a positive ROI for sure. Only issue is you would flood the markets and raise those rates, so you wouldn't get all of it, but still a lot. I have always though that the government should act strategically and take advantage of low rates like other market participants.

Trump runs huge deficits during boom times. He'll probably run even huger deficits during bust times.

It is possible for interest rates to be negative. Not that I'm recommending that to happen!

Something that actually happened in Sweden! Although it seems like it's not like that anymore:

https://www.thelocal.se/20191219/sweden-abandons-negative-in...

It's still negative but less than others: https://en.wikipedia.org/wiki/List_of_countries_by_central_b...

Interest rates have been negative on deposits at the European Central Bank since 2014 ... The rate currently sits at -0.50%

Real rates are (and have been) negative. :/

It is not a problem with correction or even recession. Without one you cannot eliminate those weak and continue the rich as rich. You need some cycle. Desperately need it.

> This will be blamed on COVID-19

Good. Because I don't buy for a moment that without COVID-19 the situation would be what it is now. Hindsight is 2020 and predictions of doom and stock market collapse is a dime a dozen.

In 2013 I wouldn't be predicting a recession.

In 2017 after Trump announced tariffs and it was ~10 years since the last recession. I was concerned.

Maybe stock prices were fine, but multiple companies I've worked for became unprofitable and got rid of tens of thousands of contractors.

Recession? Definitions are toxic to the real problem.

> Recession? Definitions are toxic to the real problem.

Okay, then lets not use them. Is what we are seeing now primarily a consequence of of COVID-19 or not?

> Is what we are seeing now primarily a consequence of of COVID-19 or not?

"is the 2008 crisis primarily a consequence of mortgages or not?"

In the grand scheme of things, no, it's a consequence of a bubbled economy that has been goosed with tax cuts, extremely low interest rates, and deregulation for too long and is overdue for a correction. The proximate cause is Covid but it just was the spark that lit the fire, there was lots of fuel building up.

https://en.wikipedia.org/wiki/Necessity_and_sufficiency

This is why you don't cut tax rates and keep interest rates super low when the economy is already roaring. Now we're out of options for dealing with a real financial crisis.

Trump of course understands none of this since he's a narcissistic con man who just understands "tax cuts = economy more better!". Insofar as he can be said to understand anything - he's not a man that can be described as intellectually curious.

>Insofar as he can be said to understand anything

Well, while he doesn't seem to have much understanding of economics or how to run a government properly, let's give credit where credit is due: he certainly seemed to understand how to get people to vote for him a lot better than his political competitors did.

That's why he got less votes than his opponent.

Are you seriously bringing that up again? He won the election. The number of votes is irrelevant. Maybe that's why he won: he actually understands this simple fact about how the Constitution works, and people like you either don't, or simply refuse to.

> he certainly seemed to understand how to get people to vote for him a lot better than his political competitors did

This is false. The fact that he won the election is completely irrelevant to this point. The election isn't won by the candidate who understands how to get people to vote for him. If it was, he'd have lost.

Obviously, you are completely unwilling to accept the fact that Trump won the election, and somehow you're creating utterly insane logic to continue the fantasy in your head.

So you're saying that getting less votes in an election makes one better at getting the most votes? Fascinating the logic, or rather lack thereof, of Trump supporters. Then instead of admitting you are wrong, you double down on your illogical premise and accuse those who point it out of being illogical. I can see why you like the man so much. Illogical, nonsensical ideas must attract each other especially when coupled with fear of criticism and anger towards those that disagree with said ideas.

>So you're saying that getting less votes in an election makes one better at getting the most votes? Fascinating the logic, or rather lack thereof, of Trump supporters.

Wow, this is an incredibly stupid post. I'm not a Trump supporter; that should have been obvious from my posts. And you think that getting more votes equals winning an election, in a place where the electoral system makes this not the case? And then you fire back at me with this idiotic post? You're beyond help. It's no wonder Trump won with people like you on the other side.

I never once mentioned the electoral college. That's not even part of this discussion.

That right there is your problem. Go learn about how US elections work. Try reading the Constitution.

Agreed, let's not discount COVID-19. You're going to get a steady drip of ugly news for months. There is reality to the COVID-19 news too. I'm expecting heavy hits to airlines, cruises, theme parks, sporting events, etc... Profits will decline.

If you're not needing the money soon, you'll probably be fine with riding it out like you may have with the great recession. I'm pained by the stories of boomers and others who sold low during the great recession and didn't catch any of the gains when things started turning back around. This too shall pass.

I mean personally I think the whole opec thing has a little bit more weight behind it then corona.

Maybe, but it seems to me that increased production and lower oil prices are likely to create as many winners as losers.

Well... that might not be true. Were in a weird spot right now where banks handed out billions in loans to oil companies. And now it looks like a lot of these companies are going to be insolvent well before they can even start drilling. So were talking about big banks being hit hard with billions in loans not being paid.

They usually hedge out 18 months. It would take a sustained assault by SA and I really doubt they will have that much resolve.

The "OPEC thing" is a response to dwindling chinese demand, because of SARS-CoV-2.

markets knew about covid for a month before it started tanking

They didn't (and still don't) know the true financial impact of the virus (even epidemiologists don't know what it's going to take to get it under control), so the true effect of the virus wasn't priced into the market, plus now many investors are trading on fear.

I also knew about it a month ago, I was more optimistic then. If no new information ever comes into play or if views and outlooks never changes then markets would be static. People knew about viruses for decades now also ... does not mean all possible consequences of viruses are already priced in.

markets started to know the scale of U.S. government's incompetence in handling Covid 19 now.

The markets may have "priced in" the impact of COVID-19 based on a couple of scenarios. But they may also have priced in other factors, such as the plateauing impact of US corp tax cuts, share buybacks and cheap capital.

It's likely however that those scenarios didn't attach a high weight to the probability like 20 million Italians living in a state of quarantine, or that 8,000 plus patients in China would die and industrial production levels would plummet.

There were lay investors that reported betting on a covid related drop and profiting significantly by buying options (eg Wei Dai on LessWrong, will find direct link when I get to desktop).

[Usual caveat about reading too much into plays like this.]

Edit: Here's the thread, and sincere apologies for the flaketastic LW interface now, they don't even have a parent button and it took several seconds for the thread to render after the page loaded:

https://www.lesswrong.com/posts/jAixPHwn5bmSLXiMZ/open-and-w...

no no,,, COVID-19 is not the trigger its just one of the steps leading to the trigger...you had to have the fed manipulation of money to account for the 2008 losses on mortgages combined with the firm's stock performance via profits etc.

This is widely being blamed on oil prices (edit: the virus would have been priced in last week to some extent, but the decision by Saudi Arabia to increase oil production happened over the weekend and hadn't been).

Oil prices going down is a good thing for the economy.

I think people are confusing cause with an effect/correlation. Oil going down usually indicates a recession. Bad economy -> Lower demand for Oil -> Lower oil prices. In that case it's a signal/trailing indicator.

In this case it's: Increased oil supply -> Lower oil prices -> Everything gets cheaper to make -> Increased economic activity

Good for short/medium term economy, terrible for the environment though unfortunately. So probably bad for the long term economy when carbon/environmental risks take effect.

Since when has Wall Street become focused primarily on the long term while ignoring the next few quarters?

That makes a lot of sense to me, but it doesn’t seem to be the case and I don’t understand why.

Is it oil prices down -> large oil based economies at risk due to vastly lower margins -> global instability from inability to make payments?

Maybe it's because the US is now a massive oil producer, but there are a lot of oil companies in a lot of debt, so depressed oil prices will force them to go into bankruptcy. Next step will be US government propping up the industry somehow, IMO, either with a bailout or by buying oil at above market prices and increasing strategic reserves.

Say that to the nearly 5 million employed in O&G.

Most of those who work in drilling will be laid off in the next six months. Been there done that. But it doesn't change the fact that it will be over all beneficial to the economy.

I do believe you are correct that the money the average consumer will have in their pocket will be good. But can’t help but think there are other economic implications in this huge oil drop. The drop was not initially put in place by breakdowns in opec talks. But COVID-19. So what I am getting at is a drop in manufacturing, consumer spending, and travel. I’m just scratching the surface but I hope you understand what I’m getting at.

> Oil prices going down is a good thing for the economy.

That is no longer strictly correct. The ideal oil price for the US economy is a balance between high and low, which provides a high degree of employment for the US oil industry, oil production and export expansion remain high, and provides a reasonable price for US consumers when it comes to gasoline.

Oil in a range of perhaps $45 to $75, is ideal.

At $25-$35 you're going to eventually hammer the US oil industry and its jobs, as the hedges fall away. That will hit the US economy negatively at least as much as the low oil prices benefit consumers.

Russia is playing a bad game of chicken with Saudi Arabia and US oil, claiming they can endure ~$30 oil for a decade. It's false of course. Their personal incomes have been falling for six or seven years in a row. $30 oil will contract the Russian economy at worst, and stagnate it at best, so it would be ten more years of declining living standards in Russia (the last thing Putin wants to see, so it's a false bravado on his part, as typical).

Saudi Arabia and Iraq will be crushed fiscally by low oil prices. Saudi needs $83 oil to balance their budget. Canada will take a modest hit as well.

China is the prime beneficiary as a massive importer with modest production, they're in the position the US was in previously.

I think you're the only person in this thread presenting arguments based on facts. I would just like to say that I really appreciate that, especially when everyone else is running around like chickens with their heads cut off like the sky is falling.

You are not fully correct with "Oil prices going down is a good thing for the economy." This is true only as long as oil prices are high enough for producers to keep producing. Heard of shale-oil margins?

There's also decreased demand - look at airlines, jet fuel uses 1.7 million barrels per day normally, and COVID-19 is causing fewer people to want to get on planes.

The fraction of the price drop that can be attributed to large producers flexing market power versus the decreased demand is a tricky thing to determine.

"Increased oil supply -> Lower oil prices -> Everything gets cheaper to make -> Increased economic activity"

There would be increased economic activity if businesses don't close left and right because of a combination of decreased demand and supply as both consumers and workers self-isolate and live in quarantine, and the knock-on effects of China's reduced manufacturing capability (soon to be followed by reduced manufacturing capability of much of the rest of the world).

This stock market crash is just the tip of the iceberg.

The tops of political, administrative, business, and military hierarchies tend to be overwhelmingly old, and most susceptible to succumbing to this outbreak. As many of them die, as the bodies they govern are plunged in to chaos and societies around the world go in to crisis mode, the markets will respond even more adversely than they have already, as the markets don't like uncertainty, and there's no end in sight to such uncertainty for the foreseeable future.

There is little economic upside from this pandemic. Few ways of profiting from it except by shorting nearly everything and buying gold. The bond markets and treasuries are also likely to suffer as governments default.

Its easy to play connect-the-dots. Rarely is that the whole story. There are many other dot-to-dot paths that result in very different effects. The sum total of all the chains is what makes the economy so hard to predict.

The Saudis are trying to break the back of US fracking by piling on. This won't free up room in the US economy like it used to.

If you lean bearish, you’re thinking 80s oil bust, S&L Crisis, and the Spanish flu.

You are correct. Equities have been propped up by free money for too long. I thought we would have to wait until the election to trigger this correction but better sooner than later. However, the Fed needs to raise rates and we need fiscal policy to fix this, not monetary. There is still too much money out there with nowhere to go. A ton of that money is going to come right back in and run it back up some. At least they are buying the dip even if earnings will crater.

The Market is like a supercooled liquid. It's been poised to freeze for months, just waiting for a crystallization seed. COVID-19 and the Saudis gave it two.

Another way to put it is that Coronavirus is forcing people to realize that we’ve been papering-over weaknesses with easy money for quite some time. That said, “economists have predicted 5 out of the last 3 recessions” — people have been warning against one for years now.

But the problem is that coronavirus is threatening the real “brick and mortar” economy — travel, restaurants, retail, etc. Its hard to address that without fiscal stimulus, and we haven’t seen much talk in terms of that yet.

Add to the list sub-prime auto loans, a huge amount of student loan debt...

It would be interesting to see what percentage of student loans are serviced by brick and mortar retail, bar tending, barista, etc. types of gigs.

https://www.nbcnews.com/news/us-news/student-loan-statistics...

Check out the graphs presented, particularly the last one. Default is very likely for those most likely to have student loan debt (younger workers in lower quality service jobs), but there isn't a systemic risk as the federal government is the insurer of last resort. These are loans in name only; they are, in actuality, taxes you can't default on (or so was traditionally thought; we're making headway in having the ability to default on these obligations and get out from underneath them [1]).

[1] https://www.natlawreview.com/article/student-loan-discharged...

Do you have a reference for the claims about the repo market? I see so much FUD posted, and so few references to primary sources. Reader beware of grand proclamations and doomsday predictions, especially from new accounts, especially when they don't provide reputable sources.

Like... whether it happened? https://www.bloomberg.com/news/articles/2020-01-06/why-the-u...

Is turning Global Financial Crisis into an acronym necessary? It certainly isn’t standard. Turning things into acronyms that are used a single time in a written statement without reference or explanation is one of the most obnoxious things in this industry. Paraphrasing grandmas everywhere, if you can’t write things properly, don’t write anything at all.

I get your objection but I don't agree with it in this case. As someone who is neither you nor OP, I see GFC as a pretty well-known acronym, especially in this context (recessions, financial troubles).

Would it have happened without COVID-19?

> This will be blamed on COVID-19, but the problems go much deeper

This is a strong claim. Can you prove it?

The quantitative easing that was going on is a start...

https://www.marketwatch.com/story/the-federal-reserve-is-stu...

Despite all the blood, I see a bull case for Tech and the USA. In the last 5 years:

1- The Nasdaq has gained 99.77% until it's peak. It has corrected by 17.41% since the peak. Total gains till today: 64.9%.

2- The Dow Jones has gained 65% till the peak. Corrected by 21.71% since then. Total gains till today: 35.85%.

3- CAC 40 has gained 20% in the last 5 years till the peak. Corrected by 22.12% in this sell-off. Total returns are -6%.

My thoughts:

- Tech used to go up more and down more. Now it went up more and down less. This is likely to encourage and push traditional investors to invest more in tech. They were afraid from tech because of the bloody downturns. Now tech holds better in a downturn, so that argument is no longer there.

- Europe is likely to be hit harder from this crisis since they rely a lot on Tourism. That means a harder recession. Europe tech sector is weak and unlikely to match its American counterpart growth in a EU slowdown.

- China might be the biggest loser in this. The world might realize we are depending too much on China. The US government might force company to build locally or outsource to friendlier countries they want to boost. China is not going to the dark ages but might face a slow down; though a social revolution is definitely not out of the question.

- The oil crisis, if prolonged, is going to change some countries. Look at Venezuela. Russia, Middle East, Algeria, Canada, etc... These countries might face budget challenges they have never been through before if oil goes below $20 for an extended time.

- The US tech sector being the only good-yield field and becoming a safe haven for investment in a world of worry and chaos will boom into a bubble of untold proportions.

Disclaimer: Not a professional advice. Might lose part of your money or all of your capital. Might be a total hopium from someone is the tech sector seeing lots of red today.

The practice of referring to increases in the price of an instrument as "gains" but any decline as a "correction" is bizarre.

We really could refer to all of them as "corrections".

It's not. It's trading lingo. If the pricing was on a downturn "losses", then an upward move is a correction.

Except that in practice nobody says that. I've worked with both large financial institutions and tiny hedge funds going back nearly 30 years, traders are cognitive bias on legs. There's a reason Wall Street has a statue of a giant bull but not of a bear.

> The practice of referring to increases in the price of an instrument as "gains" but any decline as a "correction" is bizarre.

Its not any decline - it needs to be 10% or more:

https://www.investopedia.com/terms/c/correction.asp

Tech doesn’t look too rosy if there is a problem with the entire hardware supply pipeline in China.

The entire pipeline isn't in China. Taiwan seems to hold some of it and they're doing just fine. They've apparently managed to contain the virus quite well.

This is creating one of the best buy opportunity ever. It's just sad that only the rich will benefit. The poor will just get poorer.

You sound a tiny bit like 2006-edition real estate agent.

https://www.millersamuel.com/wp-content/uploads/oldimages/NA...

It's still less than a year of growth. Were you urgently buying a year ago?

People with low EQ will get poorer because they'll panic. Most people of my generation who are in stocks at all are looking forward to a buying opportunity, a lot of us have only ever traded in up markets.

Why do you think that stocks will go up faster after this crash than if it had never happened?

> The cash equities market is subject to circuit breakers established by the New York Stock Exchange in the wake of the 1987 Black Monday crash. Trading will halt for 15 minutes if the S&P 500 falls 7% to 2,764.3 at any time before 3:25 p.m. in New York. ...

That's less than a 1% drop from here.

Right now, all eyes are on the Fed and the size of the bazooka they'll be deploying.

Anything short of outright stock purchases is not going to be received well. Despite the desperation that move smells like, the Fed would be merely following ground already trodden by the Bank of Japan, which now owns around 80% of the Japanese ETF market.

Edit: only 5 points to go.

The circuit breaker was already triggered when the market opened this morning at 9:30 AM EST.

You're right.

I don't know if it was a good bet but I moved all my 401k into money market accounts for the time being last Thursday. I feel like those who say I should ride the wave down are probably not telling me the truth. All indicators seem to suggest a 25% correction or more before the end of the year.

I've been buying stocks heavily on the latest dips and so far that is all down around 20%. I diversified investments in cruises, airlines, real estate, banks, tech and more. It feels like 2008 is happening all over again.

I think you misinterpret what they are saying. What really happens is that even though it was a good move this time, the next time you have the same feeling and make the same move, what you move it into may go down and what you move it out of goes up. Then when you buy back into stocks you are buying at a higher price than when you pulled out.

And this second scenario happens more often to people than the first one (according to common wisdom).

Good move, Dec I moved 33% to Bond, 2 weeks ago I moved another 33% to Bond. I'm kicking myself for not moving the rest, but I can stand to be in the market for a very long time. Most knowledge that say rid the wave is rubbish. Get out if you know that things will be down so you can live to fight another day. If you have $100 and market goes down 50%, you have to wait for it to come back 100% to break even. Most folks don't understand that movement isn't equal in either direction. Market goes down 10%, comes back up 10% most folks think it has balanced, but it hasn't.

aren't you timing the market though? if it's down 10% today, you moved to bonds, then it's up 20% due to recovery and you missed the upswing, then you are in a worse spot compared to if you haven't done anything?

"but I can stand to be in the market for a very long time" -> isn't this the reason to not do anything? So you can recover and buy more while everything is on discount?

You're not being told to ride the wave down per se, you're being told that you can't time the market so there is no point in trying.

You got lucky this time, but next time you might pull out just as it's about to swing up again.

Or when you eventually buy back in, it might not be the bottom. Or more likely, it will be after the bottom on the upswing and then you've lost out even more.

Why would you diversify in cruises and airlines in this environment? Unless you're shorting them.

first time since the 2016 U.S. presidential election after they fell more than the daily limit of 5%

The daily limit is 20%, I believe?

7% = automatic 15 minute stop

13% = another 15 minute stop

20% = stop for rest of day

Those were futures the night of the election...

Futures have a hault at 5%

Normal trading hours have the 7% stop

And from what I read, the futures did halt at 5% yesterday. So it was already sort of expected that the 7% stop would be hit today.

I would recommend anyone looking for long term guidance about what comes next read this article from Bloomberg's excellent John Authers.

https://www.bloomberg.com/opinion/articles/2020-03-09/oil-cr...

Considering most wealth is in old peoples hands, they are most affected by this virus. They are most susceptible to fear-mongering too.

Like others have said, this was just a 15 minute halt when the Dow/S&P 500 dipped to -7%. This can happen again at -13% and trading will flat out stop at -20% [1]

[1] https://www.investopedia.com/terms/c/circuitbreaker.asp

US stock trade (artificial) limits might have existed before but I don’t remember them. You see these in other countries and commodity markets. Limit down. IMO they cause a faster drop in a down market because you don’t know when you’ll be able to exit. The market can open limit down within seconds. This can continue for weeks.

IIRC there were limits in 2008.

The market was up over 30% last year, but GDP growth was certainly not 30%.

GDP is not a perfect indicator.

That much is clear.

The point, though: Neither is the stock market.

No but earning growth should be and I don't think it supported the rally.

There are no perfect indicators.

In fact there's no perfect anything. Just good enough for purposes.

The stock market must break records week after week. This is a direct order from the president to the Fed.

This can be explained by market consolidation. GDP and market returns are not supposed to be perfectly correlated.

I think it's better explained by interest rates dropping over 2019. There are now more savers with fewer opportunities to make a return on their capital. So even with constant corporate earnings, there are more savers trying to buy a share of those earnings.

Basically, the opposite of this explanation: https://www.thebalance.com/why-do-asset-prices-fall-when-int...

What's your point? Those two numbers do not directly correlate.

> Those two numbers do not directly correlate

I think that's the point. Sometimes it's useful to point out the obvious.

It's called the "Buffett Indicator" – the US market cap divided by the US GDP. It peaked before the dot-com bubble burst, and before the 08 recession, and has been at its all-time high recently.

https://finance.yahoo.com/news/buffett-indicator-signals-war...

This is a similar indicator but potentially a better one than just GDP: https://fred.stlouisfed.org/series/CPROFIT

If you overlap it with the stock market, the only other time in US history where stock continued to go up for multiple years where corporate profit stagnated is 1999. Normally the stock market and corp profits line up somewhat strongly.

Here's a simple thought exercise.

If your company produced the same product, but for less money. Would the company be worth more?

If your ownership increased via buy back, would your holdings increase in value?

If your debts were financed at a lower average rate would the value of your company go up ? (sort of a sub case of expenses)

These are some of the myriad of ways that a portfolio can move in disconnect from GDP.

Well, according to some Thomas Piketty r > g.

https://www.wsj.com/articles/lessons-from-the-dot-com-bust-1...

A lot of comments are saying that a recession is probable.

Can anyone shed a light on why that is/could be the case?

A recession isn't probable, it's inevitable. It's just a matter of how much sludge builds up in the economy before the over-leveraged have to unwind. That's the business cycle.

Covid19 and the ensuing fall in global demand is simply another blob on the pile.

Recessions happen every 4 to 7 years. We haven't had one for 11 years.

Serious question, is anyone watching this carefully and trying to determine when things will bottom out (perhaps in a week or two), to buy stocks, ETFs, and such at the bottom of the dip?

Hindsight is 20:20 of course, but there's a number of equities that one could have purchased shortly after the 2008 financial crisis that proceeded to make significant gains between 2009 and 2019.

No one will be able to time this. We don't even know if this is the start of a [global?] recession or depression.

If you haven't already, put your retirement into bonds and hold on. Honestly it might be a good idea to grab some cash from the bank to keep at home - bank runs are not outside the realm of possibility, although we have credit cards and other internet based payment methods now so it's probably less of a concern now.

Edit: let me just preface my advice by saying if you have extremely high risk tolerance, now is a good time to buy, but be prepared to lose. If you are near retirement, now is probably the time to pull all of your funds out of the markets and into something safer. Based on the 100 year history of the DJIA, and the fact that the virus is just starting to spread in the U.S., the floor could be much lower.

> If you haven't already, put your retirement into bonds and hold on.

Are you advising to sell equities right after they've taken a beating? Sounds awfully close to "buy high, sell low".

Depends on your retirement horizon, but if it's inside of 5 years the investor should have already tamped down the risk profile.

If you look at the 100 year history of the DJIA, there's still a LOONG way for it to potentially drop.

It's about minimizing risk. Those with high risk tolerance I would advise to buy now, but be prepared to lose everything. If you're close to retirement you lose nothing by pulling out now.

> Those with high risk tolerance I would advise to buy now, but be prepared to lose everything. If you're close to retirement you lose nothing by pulling out now.

If your risk tolerance can't handle what's happening, your asset allocation was already wrong. Trying to "fix" that now, as a response to this downturn, would very likely be a mistake.

Well, "nick checks out", at least. :)

Please don't shuffle your retirement investments based on market volatility. Best thing is just do nothing and ride it out.

I'd tweak this advice _slightly_. After this pretty significant swing, it's probably a good time to re-visit your asset allocation. If you're, for example, holding 10% bonds, your allocation is now going to be overweight bonds. So it's a good time to sell some bonds, buy equities, and get back to your 90%/10% allocation.

This isn't market volatility. The is a global geopolitical event exposing the weakness of the US and global markets that people have been warning about for something like 3 years.

Some treasury notes have dropped by more than 30%. We're years overdue for a cyclical recession. The fed has little room to lower rates. I could go on but the point is this is the closest we've been to a Black swan in decades.

If it's really your retirement money then presumably you are 20-40 years out from needing it. Cyclical recessions typically last 1-2 years, and even the biggest Black Swan events like the Great Depression last maybe 10 years. By the time you retire you will have largely forgotten about this.

(If your retirement is less than 5-10 years away, you should have diversified away from stocks years ago, and it's a little late now. Most target-date funds and financial advisors do this anyway.)

This advice is both common and crazy. Each individual does not live the average life. Being able to recognize once-in-a-lifetime events, and act on them, is a rational strategy, even if it seems like it is not the optimal strategy for the perfectly spherical portfolio belonging to a person with infinite lifetime.

I agree with this. I'd never touched my 401k until now, well, a few weeks ago. Anyone who couldn't see that this virus was a world-changing event wasn't paying attention. I did 'time' my way out of the market, but not so much back in. Even if I miss some gains, I just want things to stabilize some before going back in long.

I'm not sure it is possible to rationally recognize once-in-a-lifetime events, since by definition you've never seen them before and don't know how they'll play out.

Well said.

"No one will be able to time this"

"put your retirement into bonds and hold on"

facepalm

What? That's how you minimize risk because there's a good chance the markets will continue to slide. It's literally why the markets are down - because investors are pulling out and parking their cash in safer havens.

If you are approaching retirement, you should already have a good % of your portfolio in bonds and other lower risk investments. If you have indeed done that, there is little reason to rush off and potentially buy high and sell low right before retirement.

For everyone else not near retirement, most are going to be better served by ignoring the volatility and continuing to invest as usual. Time in the market vs timing the market and all of that jazz.

I think you're missing the point "Nobody can time this" and "If you haven't already, put your retirement into bonds and hold on" are completely at odds. Pulling out of equities to buy bonds is timing this.

People should have an asset allocation, and stick to it. Right now, people should be re-balancing by selling off their now overweight bond allocation to buy equities. What you're suggesting is counter-productive.

Look, until two weeks ago my 401k was tracking 14% gains. By gradually moving it over the last week and last night, I've locked in 10% gains. The alternative would have been 0% gains as of today (market is back about where it was when Trump was elected) and losses in the likely case that the market continues to slide this week.

At this point we have likely entered recession or depression territory. The rebound is unlikely to be instantaneous (unless a convenient cure is found) and when things calm down I can put my money back into the market starting from a 10% locked in gain.

"there's a good chance the markets will continue to slide" By saying that, you are trying to time it (claiming that the bottom is in the future).

> What? That's how you minimize risk because there's a good chance the markets will continue to slide.

You don't minimize risk by reacting to daily market fluctuations. You minimize risk by choosing an asset allocation that allows you to ignore those fluctuations.

The market has been dropping for a week. Indicators across the board are long term negative. We are well past the realm of daily market fluctuations.

I don't disagree with your read, but you are certainly trying to time here.

If you're not yet close to retirement, what happens today in the markets will have almost no effect on what your portfolio looks like in 10, 20, 30 years. Making any big changes would be stupid. Maintain a diverse portfolio and basically forget it exists outside of maxing it out every year. This is especially true if you're lazy and have it all in something like a retirement target fund like Vanguard.

Vanguard retirement funds do exactly this for you, what are you talking about?

Yes I mentioned Vanguard, and in fact have a good amount invested in their retirement funds. OP is saying to pivot based on recent news. Those retirement funds adjust on a scale of 40-50 years whereas OP is looking at a month of activity, possibly even just today's 7% drop.

All of this advice is a bit too late.

If you're near retirement, you should have already had a large percentage of your allotment in bonds and cash. If you are not near retirement (> 5-10 years) then ride it out.

I am 30+ years from retirement and I don't think this is world ending, so my high-volatility mutual funds will stay right where they are.

Dear Lord please DO NOT put your entire retirement into bonds right now.

Bond yields are at an all time low. That means prices are at an all time high.

This is not the time to massively rotate into an asset class at an all-time high price due to fear/risk aversion.

Serious question, perhaps I'm misunderstanding something:

So long as bond yields are positive, they cannot depreciate in value, can they? As in if I pull out X dollars from the market and into bonds, assuming yields stay positive, I'm guaranteed X dollars out?

Or have I totally misunderstood how bonds work?

You have totally misunderstood how bonds work on a "present value" or "mark to market" basis.

(All of the below assumes the bonds actually pay as agreed. Actual default risk is something totally different, and still present here.)

When you buy a bond and hold it to maturity, you're sort of right. If you put in $10,000 into buying a coupon bond, you will get the coupons plus the $10,000 back at the end. And if you buy a zero-coupon bond for whatever amount, which will be worth $10,000 at maturity, you'll get the $10,000 back at the end.

In fact, you don't even need to "assum[e] yields stay positive." When you buy individual issues and hold to maturity, you don't really care what everyone else's yields do; you get what you contracted for.

The problem comes if you want to actually sell out of your position, OR to know the true value of your position (essentially equivalent operations) along the way.

If you put in $10,000 into a bond yielding 5% coupon, and the next day yields spike to 10%, nobody will want to buy your bond for $10,000 any more. You most certainly have lost value. "Aha," the naif says, "but I could always hold to maturity and get my principal back!" Sorry. Do the thought experiment where instead of buying the 5% issue on day 1, you instead buy the 10% issue on day 2. Compare the cumulative sum you receive under each scenario. Investing on day 1 (at 5%) is strictly worse than investing on day 2 (at 10%).

Likewise, if yields instead crash from 5% to 1% on day 2, your position will be worth much more. Your $10,000 notional bond yielding 5% will net a buyer so much more than $10,000 spent on a 1% yielding issue that she will pay more than $10,000 for it. You have had a real gain, even if not realized.

The same thing applies to bond funds or indices but with much more smoothing across a portfolio. With bond funds, however, there is not even the illusory "X dollars out" guarantee; since they are marked to market every day you might well never enjoy a breakeven price.

>If you haven't already, put your retirement into bonds and hold on.

Good lord is this terrible advice. Please nobody do this.

I'm sure huge numbers of people are watching for exactly that opportunity, but if it was easy to reliably spot the tops and bottoms of markets, there'd be a lot more rich day-traders out there :)

It's specifically because there are huge numbers of people watching this carefully and trying to do that that it is irrational on the margin to try to do so.

This, it's not 1940 anymore, the average Joe can setup an investment account in 5 min on his phone and heard his buddies talking about "buying the dips is a foolproof way to become a millionaire".

As an example I saw a lot of discussion about buying the drop of Boeing stock, about 1 month after the 737-max were grounded, expecting things to be back to normal and a quick rebound. People who bought it at 370 now have stock with about 230/share... And still dropping.

All you need to correctly pick the bottom and peak of a year is 365 people. 366 in leap years.

You need 365 * 365 to get both the bottom and peak right

For a person to get both bottom and peak right. But hey, I'm less picky

There's a colorful term for this: "catching falling knives".

i'll add one of my favorites slightly modified: "a great way to make a small fortune timing the markets is to start with a large fortune".

I think you're better off trying to predict when the Coronavirus epidemic will be over. In a way it's more predictable, because we have a fairly good understanding of how it spreads and under what conditions.

The most important rules to follow when investing in stocks:

The market can stay irrational for longer than you can stay solvent

and

Don't bet any more on the market than you're willing to lose

That's almost a tautology since the market never stops being irrational.

In my experience it's always good to buy when sentiment is bad. If this is just a minor dip that will bounce back up, then you got a nice little discount on your equities. If it is the start of a major downturn then you have taken the first step towards buying at a greater and greater discount and can continue buying all the way down.

I don't consider this to be timing the market. You should always be investing but when sentiment is bad you just buy more than you would normally.

Unless you have a source of cash that can only be accessed when markets are declining, that's still timing the market.

I do something similar, which is that I reduce my 401k contribution when I think the market is overpriced, and increase it when stocks are down.

Your logic is vacuous because you can use the exact same rationale to justify the opposite conclusion.

"It's always good to buy when sentiment is good. If the bullish trend continuous, then you got in early and got a nice discount on your equities. If it is the start of a major downturn then you have taken the first step towards buying at a greater and greater discount and can continue buying all the way down"

I was delaying investing in the stock market waiting for the next recession. My intention though isn't to try to time the bottom (which nobody can predict), but just to start buying when I think prices are "good enough".

Are they good enough now?

I've heard things will bottom out as soon as we have good news about the virus. That's not happening next week.

Disclaimer: this does not constitute investment advice in any way, shape or form. Do whatever you want.

"Serious question, is anyone watching this carefully and trying to determine when things will bottom out (perhaps in a week or two), to buy stocks, ETFs, and such at the bottom of the dip?"

I am watching very carefully to see if the VIX goes to an outlandish number, such as 90 or 100. To give some context, the all-time high of the VIX was ~80 during the 2008 financial crisis, etc.

It is a fools errand to try to predict, and make bets upon, the VIX.

However, while we can't say anything for certain about how long markets can stay calm or how long markets can stay euphoric, we can say with some certainty that you can't panic sell forever. Your hair can only be on fire for a little while. You can only throw yourself off the top of a building once.

So if you believe you see a VIX-crisis-top it is a very good bet that the movement from there will be in only one direction and very precipitous.

IANA*.

I think the VIX did hit 90 mid-session in late 2008.

VIX converges long-term towards 0, so you will be successful investing in this instrument only for very short periods of times with close to perfect market timing...

You start buying when nobody wants to have anything to do with stocks.

As long as you hear (even here, today) that this is a good opportunity, good time for buying at a discount - it is not a time for buying stocks.

Yes, it's Wall Street's job to watch this carefully and determine when things will bottom out. Financial services account for 20% the US GDP.[0]

I don't think it's well understood by the general public how many people work in finance or the scale of their endeavors.

[0] https://www.washingtonpost.com/news/monkey-cage/wp/2016/03/2...

I'm not, but I have a system that will do something similar: I target 70%stocks, 30% cash. If it gets to 60-40 or 80-20, I buy or sell enough to get back to 70-30.

Since I started investing in 2012, I've only ever triggered a rebalance through putting in more cash, but I'm making a list of stocks I plan to buy if my portfolio goes outside that bound.

I expect more crazy volatility for the rest of the month, followed by another drop after Q1 numbers come out (and a second, smaller, drop after Q2).

People telling you to hold off buying are idiots (the majority as always on here).

This is what every mug retail investor thinks. They always get hosed down. They are usually the people who were in cash until 2018...because they were waiting for the bottom.

If you are investing regularly, continue to do so. If you have cash, deploy it. This doesn't matter if you are young. You are getting a better price. It is good news.

If you aren't a mug, look at individual stocks. Do your analysis, and you will find out whether they are cheap or not. No-one who invested at the bottom in 2008 knew it was the bottom. They saw individual stocks were cheap, they bought.

But really do not try this last one unless you know what you are doing. Parts of the market are looking cheap right now, a minority of this is stuff that has sold off recently. If you can't work out where this value is, just buy an index fund and spend your time worrying about stuff you can control (I used to work in research at a financial adviser, I didn't work directly with clients but the biggest issue for most investors are their emotions...99.9% of people don't have the emotional equipment for this stuff...the harder you try, the worse you will do).

You cannot time it, just ask yourself last weekend who could have guessed Russia would back out of the opec deal of limiting supplies?

> is anyone watching this carefully and trying to determine when things will bottom out (perhaps in a week or two), to buy stocks, ETFs, and such at the bottom of the dip

Yes, hedge funds do this. They hire a lot of smart people to dig full-time into all the same hunches you or I might have (plus some more things we haven't thought about), and make bets about what's going to rebound. What happens is that to the extent that the future is unpredictable, the hedge funds lose those bets (along with everyone else on average), and to the extent that their predictions are right, they make a profit.

Yes, but I think a week or two is laughably naive. I think we could easily drop another 20-30%, maybe more. The market dropped ~50% for the great recession and I'm unconvinced that this isn't going to be worse.

But I got out almost at the all time high, so as long as I get back in before that, I'm good with sitting on the sidelines. I don't need to call the exact bottom. I'll likely buy back in once I can see that there's some kind of realistic path forward with COVID-19 that doesn't destroy the economies in its wake.

Inbalances accumulated over the course of a decade of free money likely won't resolve within 2 weeks. There is a lot of junk and baseless speculation that still has to wash out. Many people will hold for a time in hope it's just a blip and goes right back up. When these give up and flush out, then things are nearing support and the market has a solid base from which to rise again.

My (non professional, this is not financial advice) opinion is it will take awhile (at least 3-6 months or so) for everything to shake out and reevaluation to occur.

To be honest , the market was in dire need for correction, BUT wonder where we will be when companies starts reporting their quarterly results and impact of that.

So far this looked more like a correction than a precursor to the recession. To make things worse, OPEC dropped bombs which spread the wildfire further..

Oil dropping because an opec monopoly explodes is good news for most of the economy (outside of oil industries obviously). But a drop in crude because of demand is bad for everybody.

It's not good for our emissions budgets either, but I guess we can worry about it after the coronavirus mess is behind us.

no - oil dependent companies bought oil futures to hedge their price risk, so you shouldn't expect much benefit there. additionally, the high yield bond sector has a ton of energy company exposure, and those are falling through the floor. an extended price war could really obliterate those bonds, and their lenders.

see eg https://twitter.com/TheStalwart/status/1237022304510660608

>good news for most of the economy (outside of oil industries

Not quite, it's bad news for renewables as well to see fossil prices fall.

Why was or is the market in need of a correction? What is your evidence for that statement?

Valuations were continuing to rise parabolically despite slowing earnings and growing debt.

At this point every time something positive happens in the market:

"It needs a correction"

Everytime something negative happens:

"It's just a cycle"

Maybe we don't have the best economic system where instability is built into its core & foundation?

I'm having trouble seeing how those two positions/statements contradict each other. If markets need a correction, and then they get it, that is part of the business cycle.

Also, "at this point" is at the point of one of the most runaway bull markets of all time. IMO, the correction has been needed for a couple years now. I didn't have nor did I see that sentiment on HN 5+ years back.

I am not the original poster but I think they are expressing that we were ready for some reversion to the mean after many years of gains including a spectacular 2019.

The market has just been unhinged lately, because there are a lot of huge positions that would love to sell but just can't unwind. Consequently there has not been an effective downward pressure on asset prices, and a lot of garbage is overpriced.

I still don't expect a major correction here because there's so much underused capital flying around out there and it will pour into anything that looks even remotely like a bargain. We have entered a regime where the world's economies have more capital than they are willing to use, which is novel and weird. Expect markets to act in novel and weird ways.

One thing I can easily predict is American governments large and small will take the wrong actions. They will cut taxes and slash spending when the bond markets are begging them to spend more. States and cities should be out there right now selling as many bonds as they can.

Huh, this was a ton of speculation in 3 paragraphs. Could you expand on what are the huge positions that are looking to sell? Are there any examples of overpriced equities?

I think your second paragraph makes sense given some large cap companies holding so much cash on hand due to inability to find anything useful to invest in (and stock buybacks)./

It's widely known state of things because of the current situation (low interest rates for very long time, etc.). Infact, many financial institutions and experts have been of the idea that a major stock crisis was around the corner for a while.

You could argue that most would have disagreed, but at the end 2018 many stock crisis indicators, models and statistics started to turn red and indicate that a crash was close.

2019 had a couple of close calls like the Turkish lira crisis, but there was never widespread panic to feed a worldwide crash. Now there is.

Take this with a train of salt because I’m not an economist, but one of the most often touted general points of the need for a correction is the cyclically adjusted price to earnings ratio being elevated [1].

In other words, stocks are more “expensive” and thus ripe for a correction

https://www.multpl.com/shiller-pe

Definitely, especially in light of a probable recession.

One possible enhancement to the PE ratio I've read about that seems really helpful is to make it after tax, since the tax rate on companies can vary depending on locality and time.

> train of salt

Nice Freudian slip.

Oops, my phone is not optimized for my cro magnon fingers...

Don't apologize. It was a beautiful typo. In fact, I may steal it for deliberate use...

Note that that's the Shiller P/E ratio, which (even after today) is still at 26, which is quite high. The regular P/E is still only around 20, which is at the upper limit of reasonable.

The whole point of the Shiller ratio is that it's supposed to do a better job predicting overheated markets, and it may well be doing that here. The regular ratio is based on recent earnings, which will be uncharacteristically high during a bull economy.

That's not to say it's incorrect. I was just noting that your link indicated a higher value than I was expecting, and that's why. (It implies that the market could easily fall another 25% before reaching reasonable territory.)

Correct. I deliberately chose the longer CAPE terminology because I thought it was more descriptive than the term Shiller PE. But thank you for adding a better explanation

High P/E ratio, bearish fixed income market, companies unable to deploy capital and buying back stocks to sustain bull market, QE being drained out, etc. Lots of warning signs that we are at the top of the cycle.

I don't know about "need" and I'm no kind of expert, but it seems to me that there's a hard drop roughly every ten years or so and the last one was 12 years ago. I've only been in the market myself for about 15 years, so I don't know that I have the instincts to call it, but historically this seems to be true.

Plot a basic best fit line for the DJIA or S&P 500 over the last 30 years and see where it says we should be in a rational market (about another 10% below today). If you need more evidence, plot a second line showing GDP growth for comparison. The markets have been in an unprecedented situation for the last decade since the Fed cut rates to the bone and then left them there. Effectively, money has been so "easy" that all kinds of weird things have been happening to boost the markets without much actual underlying structural support (actual capital investment, median wage growth, GDP output, etc.).

Market was all screwed up because the interest rate was so low. If bonds pay nothing, where else do you put your money?

Gold?

Gold goes down during a recession.

> Gold goes down during a recession.

Everything goes down during a recession. The goal is to find things going down less.

Bonds have both an income return and price return component. If interest rates go down, Treasuries go up in price. TLT (20+ Year Treasury ETF) has been up nearly 20% since this bout of panic set in.

In a world with zero-to-negative interest rates, unlimited margin available for the big players and a generation of boomers sold on the idea that stock appreciation (not dividends) is going to fund their retirement, what's the value of any company? Who knows?

Until dividends are tax advantaged vs. capital gains, the insanity will continue. Leverage, huge risks and various shades of fraud, rather than responsible business stewardship will continue to dominate the financial system.

Exactly my thoughts.

What is the best way I can contribute to making dividends tax-advantaged vs. capital gains?

Well, my plan would be to treat dividends as tax deductible to the company and then flow through to the owner, as with LLCs. Capital gains would be taxed at a windfall rate (e.g. the highest marginal income tax + payroll tax rate + 10%).

The nice thing about this is that the progressive income tax system then makes equity ownership very attractive to lower-income households, and less attractive to rich people, thereby distributing ownership over a larger and more economically diverse group.

I have no idea how to get people to buy in to this idea. I have had no success convincing even my own family that this change needs to happen, and my parent post is being downvoted. ¯\_(ツ)_/¯

Are there any disadvantages you can think of?

Yes: it punishes reallocation of capital and makes moon-shot style companies less viable. You would have a less dynamic economy with organic growth being the norm. I would allow for in-kind exchanges within a given trading year to make it easier to get out of bad positions (as well as tax free exchange with gold at any time, so gold becomes the medium for non-productive savings.)

Now, let me tell you about my banking system proposal...

My family loves me at the dinner table, why do you ask?

If you actually have a banking system proposal, I'm still curious.

lol fine:

Banking shouldn't have a reserve ratio. Rather, banks should have to show that they have a claim to each dollar they have loaned out for the period they have loaned it. This means they have to lend short and borrow long.

The insight here is that the problem with banking since time immemorial is rooted in a lie: multiple people have claims of ownership on the same dollar at the same point in time. Rather than using a reserve ratio to paper over this lie, we should simply ban lying. Banks offer CD like products that lock up money for a certain amount of time, and that money can be loaned out for a period less than or equal to that amount of time.

Practically this would imply a balance curve for a bank at time T, B(T) and their loan curve L(T) would need <= B(T) for all T. You would be able to see if a bank was in trouble way out in advance.

Again, this would mean that banks would not need a reserve ratio. A dollar could theoretically be lended out an infinite number of times, so long as the dollar was put back into the bank at a term longer than the next demanded loan.

Finally, I would make banks a special entity partnership, where partners were held liable for losses up to a certain % of revenues.

Yes, I am this much fun at parties.

It seems to me that falling 7% is qualitatively different from opening down 7%. Oil fell 30% over the weekend because of OPEC issues, and it seems like this could just be a response to that. "Plunge" implies a sort of velocity (as opposed to falling 7% over several days) which wasn't really the case here.

Is there any evidence that a temporary trading halt will help to stabilize the market?

Currently only 6% down, perhaps (anecdotal) evidence that halts work?

Days with a large pre-market drops often follow this pattern. As the end of the day approaches the selling often becomes panicked again.

Interesting. Is that based on your experience or is there somewhere I can read more on that trend?

Either that or frantic buying at the end. Impossible to predict.

Yep, that is due to order flow from retail investors. They always put their orders in at the open (that is why Mondays can be risky) or at the close.

You can see this by looking at the difference between the return on stocks in the first/last hour against the return over the rest of the day. I have no idea if this effect still exists today but you used to be able to print money from this (and I am sure it still works in places like China with lots of retail investors).

how is this "circuit breaker" meant to help? surely it will just fuel emotions and make things worse if people can't get rid of stock they don't want?

I thought it was more about kicking automated trading bots to the curb for a while. Stop an algorithm-driven flash-crash.

And if the media would stop writing alarmist articles, there would be far less panic. We're in the golden age of yellow journalism. I've learned, in general, panicking creates more problems than there were to begin with.

My first thought was the dead cat bounce from last week.

Hang onto your butts...

Looks like stock's back on menu boys!

Bloomberg has view limits now? https://outline.com/7grdK6

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Already blow past 7% on downside.

vix is approaching GFC levels - good time to sell some delta neutral condors

It seems Mr. Market doesn't get to visit as freely or stay as long as he likes sometimes.

It did the trick. Everyone is talking about it and my friends are buying.

I dont think its time to buy yet. If we have a multiple month disaster that requires quarantining most of the population the market will fall further.

Agreed. The temptation is there though. I almost jumped in today to capture some of that, but then I saw that the things I would consider are still very much overpriced ( nnn, berkshire, apple ).

I may end up being wrong, but it seems like we are not near bottom.

Don't buy after the first big city is quarantined. Maybe after the second or third... But know you are taking an incredible risk unless you are using funds you can hold in that position for years.

> But know you are taking an incredible risk unless you are using funds you can hold in that position for years.

Isn't that the case whenever one buys equities? Why is now special? It's definitely less risky to buy now than it was in January.

Yes, but I don't want to be the source of somebody doing something stupid.

could be a bull trap

When all of your non-trader friends are buying, it's not the time to buy.

"You know it's time to sell when shoeshine boys give you stock tips. This bull market is over." ~ Joe Kennedy

A bunch of people at my office got in last week when the cat bounced. Some sad looking faces today. Timing the market is a fools game most of the time, definitely right now.

When your friends lose a ton of money, introduce them to the concept of "catching the falling knife" [0]

[0]: https://theirrelevantinvestor.com/2020/03/06/dont-catch-a-fa...

TLT,GLD buy buy buy

TLT is screwed long-term by the fed causing massive inflation. I have a ton of money in puts on this right now.

TLT has gone up +11% in three trading days. It does really well when the Fed cuts rates and the S&P goes down. Inflation is a problem that GLD fixes.

Edit: It sucks you have a bunch of puts. You are most likely going to lose them.

Asia sneezes and America gets a cold...

#hodl

Let's call it what it is, the start of the Trump recession. Move your money to FDIC insured if you value it.

Free market - until it is not

But buy buy. All long term investors should be buying here imo. I’m not a big player but I’m picking up some shares at these lows.

Well, according to a Harvard epidemiologist, 40-70% of humans will contract this virus, which implies 120-168 million people will die. That's going to impact economic activity and so will a Saudi / Russian oil price war. It's going to lead to the dreaded "R"-word and usually sinks whomever happens to be the current POTUS and their chances for re-election.

Hmm. It might also boost Sanders with respect to Biden...

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