Dow Falls 2997 points worst drop since 1987 crash | Hacker News Reader

Dow Falls 2997 points worst drop since 1987 crash

mortgagerateguru.com

390 pointsblackhat2017468 comments

To put it into perspective, the last time the market behaved like (multiple drops of this magnitude) this was 90 years ago, in 1929, and it was at the start of the Great Depression. Today was the second largest percentage drop for US Markets in history.

Now is not a good time to sell your stock holdings (at least not anymore). This smells of a panic right now.

I think a severe recession is all but guaranteed at this point. Let's hope we get through this with no more than that.

The S&P500, the best general index, closed at 2386 today. It's risen over 300% since the last crash, the GFC in 2007. It's been an extraordinarily lengthy bull run, and well overdue fo a crash.

Before the GFC the index was 1550, and after it was ~760 (~50% drop)

At the peak of the dotcom boom it was generally under 1500. In 2002 after that crash it was 800. (45% drop)

The recent peak was ~3380. A 50% drop is ~1700, which is almost 30% below where we ended today.

The question to ask yourself is how does this collapse compare to the dotcom collapse and the GFC?

The dotcom collapse affected internet businesses and was contagious (sorry) from there.

The GFC start with banks and finance and was contagious from there.

This starts with pretty much every industry, and has immediate impacts on supply and demand. It's going to be very ugly.

The thing with dotcom and GFC is that they both revealed fundamental problems in the marketplace. Dotcom was over-hype around internet startups, GFC was the financial house of cards around subprime mortgages. There was no "going back to the way things were" in those cases.

In this case, on the other hand, the primary mechanism is "people can't work/aren't going out and buying things". That's absolutely going to "go back to the way things were", in some sense. It's just a question of how long it will take, and how much damage will be dealt in the meantime. But it feels very different from those other ones, which could be good or bad.

Put differently, the GFC was like organ failure: things couldn't just heal, they had to be reworked and replaced. The current crisis is like a knife wound: the basic problem will heal on its own, but in the meantime you have to keep from bleeding out and hopefully avoid necrosis.

Are you sure COVID-19 didn't partially prick a systemic issue that was hard to see on the rise (as many also missed the housing crisis before the fall)? For example, the amount the stock rise was attributed to stock buybacks in an unsustainable manner caused by late stage government policies (tax cuts, low rates). There has been some pretty extreme levels of corporate debt that correlates with this.

It probably did prick a bubble. But all the economic recovery measures for the pandemic may, ironically, push further out the point at which the systemic issues break the market and force resolution. Especially in the U.S., economic aid invariably ends up contributing far more to corporate balance sheets than it does citizens' wallets. I mean, what was the first response of the GOP to prospective economic issues? Cut taxes, including payroll taxes, which could have dealt a death blow to Social Security and Medicare considering how many Republicans are itching to get rid of those programs entirely.

Once COVID-19 passes I would expect more of the same. For reasons that aren't entirely understood, inflationary effects of monetary stimulus are highly attenuated, at least for the average consumer, although they clearly contribute to the ever increasing wealth of top earners, not to mention financial assets. Who knows how long we can keep going down this road.

In crashes all the vulnerabilities tend to collapse at once like a house of cards, and in a sense we have learned things one crash at a time. When gold was the primary form of money, there were many crashes because of lack of control over money supply. Likewise with fiat, all the crashes from indebted governments trying to print their way out and inducing hyperinflation.

In the 1929 crash there was a run on the banks because there was no confidence in their survival. The world going to a wartime economy and increasing public spending reinvigorated things but it eventually caused high inflation in the US by the 1960's - one of those factors in the country's "1970 turning" in many policies. Fear of the balance sheet getting out of control again created the strategy of huge bailouts in the latter part of the 20th century, but a downside of doing it just through lending is the "crowding out" of those actors who aren't given bailouts - which in prior recent crashes were generally individual workers, homeowners and retail investors who just took it on the chin and were told to lower their expectations.

This time is different. The attention is on individuals and their problems, and I'm seeing an uptick in discussion of UBI and benefits beyond the existing trend. There isn't faith in this crisis being solved through the existing toolset.

You don't get to bundle criticism of a basic income tax reduction with these other economic policies, just because there's a crisis.

Are you aware of the the corporate debt binge that's been going on for years now and stands at nearly $10 trillion dollars? People have been ringing the alarm about this for quite some time:

https://www.washingtonpost.com/business/economy/corporate-de...

Previous recessions were a lack of demand. What happens when it’s a lack of supply?

We can’t go back to the way things were if the global supply chain is damaged or completely stopped. And that’s not even considering local businesses that may never come back after this is over.

I think this one is more about demand than supply. White-collar workers are of course being productive from home, but even manual work - in an employer-controlled environment - could conceivably be made safe. Amazon just announced that they plan to hire 100k warehouse and delivery workers.

Public spaces on the other hand (retail, restaurants/bars, travel destinations), are just totally infeasible to make safe until things are fully over with. That's a serious cut to demand that just has to be waited-out.

How is there a lack of supply and not of demand right now? Most of China is already back to work, and we'll see lack of demand in the coming weeks/months when people isolate themselves and not going out buying things.

if we hadn't centralized on China, as the global sole manufacturer the supply issue with covid wouldn't have been too drastic. in nature everything has redundancy points e.g you've to 2 arms so if you lose one, you can keep functioning to a good extent. big companies ie monopolies n the likes of Github as central failure points should be taken out completely. we need multiple suppliers, operators to provide redundancy.

> In this case, on the other hand, the primary mechanism is "people can't work/aren't going out and buying things". That's absolutely going to "go back to the way things were", in some sense. It's just a question of how long it will take, and how much damage will be dealt in the meantime. But it feels very different from those other ones, which could be good or bad.

This to me is more akin to a natural disaster which wipes out large amounts of our economic infrastructure in the form of consumer spending. How do people and businesses bridge the gap? Businesses are already over-leveraged due to incredibly cheap debt. Some have good balance sheets and will survive, but many many will not. Most small businesses cannot survive 2 months without being in business, let alone 6. The solution can't be for them to take out loans which they'll never be able to pay off.

The thought that this is just an acute problem that will go away is wishful thinking. The effects will be further and wider than many of us can imagine right now.

>That's absolutely going to "go back to the way things were"

China printed money in the past 10 years on a scale we've never before seen in history (300% Debt-to-GDP). They remain in a trade war with the US, are being blamed for the virus and their economy has shut down. Things aren't "going back to normal".

I said that with a very specific meaning and you're taking it out of context.

One counterpoint: the crest of baby boomers is going through retirement. This severe market downturn and recession will absolutely destroy many pensions in the US that were already woefully underfunded. This will be extremely brutal.

Time for them to toughen up and pull themselves up by their bootstraps.

9/11 happened during the dotcom crash, which likely had a much greater effect on the economy as a whole.

> well overdue for a crash.

This is not how markets work.

Curated markets (QE) do. Sometimes it's called a "correction", which makes sense, but does not change the inevitability.

> well overdue fo a crash.

Not sure why a crash has to be expected or should be the norm.

For the last decade many of the largest corporations have been taking on massive debt loads in order to buy back stock and inflate their stock price. This is a result of extended low interest rate policies. The corporate "logic" is, "we are growing at 3%, we can borrow money 1% now and take that cash immediately, and since we are growing faster than the interest we'll have no problem paying it back". So they buy their own stock back, and their stock price rises. And when many corporations do this, all of their stocks rise and the market rises, and rises, and rises - like its been doing for the last 10 years. At the same time, debt grows, and grows as the FED scrambles to keep cutting rates so that companies can keep borrowing and allowing for cheap money so that this stock market rise can continue. Then, eventually, there is a period of time when they dont grow at 3% - worse yet they shrink (like during a pandemic). Then, all of a sudden, they are left with trillions in debt that they cannot service (debt that has been collateralized into bonds and sold off to other investors, which will also default). That results in a cascade of asset selling to raise cash, which tanks the market, which results in more selling and you have a crash.

https://www.investopedia.com/terms/b/boom-and-bust-cycle.asp

All you have to do is have an unlikely intersection of events (one being a bust) and you have a crash.

Maybe, but why don't you think the markets will bounce back once we're on the other side of this? Have underlying fundamentals changed longer term?

South Korea, China, Singapore are encouraging and seeing a return back to (almost) normal life. Granted, we're not dealing with this nearly as effectively and there may be a 2nd wave to come. But at this point they seem to make the case for optimism.

A crash of this magnitude was overdue without coronavirus. The market can't just go up and up forever, that's not how markets work. Super long 11-year irrational raging bull market with blowoff top had to unwind and still does after coronavirus is a memory. The underlying financial factors will still be the same and probably even worse because we (mostly the president) keep trying to prop up the stock market like the guys in Weekend at Bernie's. Best to just tell the truth that Bernie is a dead guy, so the adults can put the pieces back together to the economy.

Not OP but I don't think we'll bounce back as quickly due to the lack of urgency coming from the Federal government. I suspect we'll fall into a vicious cycle of business layoffs, corresponding dip in consumer spending, reduction in r&d/business investment as we are now and after cases taper off which now seems even further away than what it could've been had the CDC/FDA/WH been on top of this earlier. Some countries took the threat seriously and immediately took care of things.

A lot of ventures that were hanging on by threads will be ruined by this, so the pandemic is likely to clear out a lot of the weaker businesses as any good recession or crash is apt to. It will take a while for the marker to grow around that loss (though good in the long term, there is pain in the short). It could also trigger a housing correction, which has ripple effects on the construction industry, and those people are no longer eating at restaurants, and so on. Think of busts being inevitable anyways, and a crisis is merely the way into one.

I look at it this way. Your essentially buying a companies future earnings by buying their stock. For some time here, corporate earnings are going to take a hit. B2C probably the hardest, but B2B will also feel the effects, ripple effect if you will. The strain these quarantines are putting on Small business owners will also ripple into the larger corporate companies that the market is composed off because these SBO are the consumers too.

I don't have a full understanding of the Repo market, but I do get it at a moderate level. I understand that it acts as the "lube" to our financial system and It's obvious it's not functioning correctly. What effect will this happen on the growing corporate debt that's out there? What effect will the lower revenues have on the ability for business' to pay back the debt and interest?

These are questions I have, but don't necessarily have factual answers for. However I don't feel good about the answers to them and for that reason do think were in for a recession.

South Korea and China itself are the best models for countries that have (sort of) bounced back. And they leveraged a variety of mass mobilizations the US hasn't started with. So basically we're in for a LOT of pain in dealing this.

Exogenous shocks usually don't provoke recessions but is going to be like a planet-wide tidal wave. Things are going to be very different at the end. Huge, efficient enterprises may well end up even stronger but would the market for a given medium sized enterprise even make sense? We don't know.

There is going to be a wave of airline bankruptcies. There is going to be a wave of retail bankruptcies. Add in cruise lines, tourism, restaurants, etc. Now add the secondary effects and most indicators are flashing red.

A significant cause for the massive drop today is that indicators out of China are that the disruption is much, much larger than anyone accounted for.

A few days ago there was a guy talking about refinancing his house and putting 20% of the value into the market[1]. He asked whether it was a bad time. I said it was a bad time -- not that it was going up or down but that there is enormous uncertainty and a long way to drop -- and got moderated down to the gray. The non-gray comments were all that this is a great time. Buy 'em on sale is a claim that has been foolishly made again and again.

No, it isn't a great time. Anyone deluding themselves that there is a market "bottom" that it is bouncing off of has been proven wrong repeatedly. Over the past couple of days the federal government has done more to try to fix the markets than they did during the entire housing crash, but compressing it all into a weekend. They have essentially nothing left.

And here we are, staring into the abyss.

Things will improve, and at one point we'll laugh about this and consider it all an overreaction, etc. But there's a lot of downside between now and then. And if history is any example, once we bottom out we'll hang around for a while.

[1] Oh add that we have historic debt levels, bubbled house prices in some areas, and the simple idea of financing the current, elevated value of a house seems risky.

Singapore is an interesting one. Their outbreak looks really benign, but actually they are on an exponential trajectory as well. The rate is just much lower, something like 7% daily. It doesn't register compared to the countries with fast growth, but if it stays like that, they will reach high numbers too. It translates to 10x per month.

See https://studylib.net/coronavirus-growth

I wouldn't underestimate the effectiveness and ability to respond of highly developed (and small) states like Singapore, Hong Kong or Taiwan.

They have very good control of their borders and the (medical) resources to act in case of trouble. Not only that but I think they have learned a few lessons after the 2002-2004 SARS outbreak.

Anecdotal, but while in Hong Kong (2014) there were a few things that stood out:

- they had thermal screening for ALL passengers - while walking towards customs an agent asked me to take my hat off and pointed to the thermal cameras. In contrast, at Bucharest's airport they were set up 3 weeks ago. As of 2019, there were 1.2M Romanian citizens living in Italy, about 600k in the northern part.

- banners against spitting in the trash bin - coming with a big fine. More generally speaking, a general state of cleanliness which can't be found in many EU capitals.

- no toilets in the subway - might be sources of contamination. And when you finally found a public toilet, they were as clean as they can be.

I think there are better odds of finding a cure fast than for Europe to contain this. Note, the evening before the Milan area lockdown people were rushing to the train stations - Schenghen area is borderless.

> Maybe, but why don't you think the markets will bounce back once we're on the other side of this?

Of course. Do you think people will stop working, going out, watching movies, buying cars, etc forever?

Every market decline, people think the world is going to end. But the world just keeps chugging along.

During the 2008 financial crisis, people were predicting the end of the world, bank runs, financial collapse, etc. The most recent ebola scare, people were talking about pandemic, every hospital being at capacity, death rate, triage and the end of the world.

In a few years, we'll do this all over again. The markets will be reinflated, the markets will decline, we'll have another crisis, the news will feed panic for ad money and people will go out of their minds. Then things will return to normal.

Longer term, nothing of the underlying fundamentals has changed. This is why the collapse is inevitable.

Looking at Europe (but the US seems to be taking the same direction). All restaurants, shops, entertainment, tourist industry are closing, and will remain closed for several months. Large businesses will fire people (see airlines now), small businesses will go bust.

If these health policies undershoot their targets in term of number of people infected, then we may have to deal with this virus again next fall/winter, so add a few more months of similar pain.

I just don't see how this will not have lasting effects. Even in Dec 2008, at the very worst of the crisis, you had deep discounts in shops, but at least you could consume. But here all malls will be basically closed.

This is probably a wave of margin calls forcing a lot of funds to liquidate. This contraction will reduce the money supply and scare this generation of investors.

There is a very large amount of corp debt on shaky ground. A lot of people are _very_ concerned that this debt is going to blow up in a very similar way to MBS in 2008.

No one knows. You have the entire world working (mostly together) on ending this. I'm optimistic things will get much better in a month or so.

I expect far WORSE in a month or so which is the scary part here because it is questionable how many companies will survive this long period of salaries with zero demand even with emergency aid packages. By next month the infection rate is calculated to barely having plateaued yet, with exponential rate until then.

I worry this will go so far that it’ll take a very long time for worldwide business to heal due to layoffs and wrecked personal finances killing demand even when we’re past the corona spike, and by then weapons like Fed’s lowered rates will have already been used.

I wouldn’t be surprised if we’re leaving this year with a -50% stock market value and 5-10 years for everything to get back to speed and valuation like it were.

It’s not even uncommon advice to not be heavily into the stock market if you have less than a >7 year savings horizon for these reasons.

If one assumes that the market was a powder keg waiting for a spark to explode, it doesn’t matter when the virus part of the equation clears up

Could you define 'much better'? Because we actually do know what the incubation period of this disease is, and we know how the virus has spread. It's a practical certainty that the spread of Covid is goingto gte worse, not better over the next month and that the mitigation strategies are going to completely tank some companies over that time.

If there's anything I learned about this virus is that my pessimistic predictions were way too optimistic.

Maybe in a year or two. In a month or so, covid will still be ramping up in various parts of the world.

This is going to take much longer than that to play out.

A month seems a bit optimistic. Even Trump himself was saying July or August. Note, he didn't specify the year.

Your first two paragraphs are severe contradictions. If this is anything like 1929, the bottom will be around 340, after retesting highs from 1987. In that case, 2400 SPX is a bargain sell and still getting out near the top in the scheme of things.

Even if this is only a relatively mild recession like 2000 or 1973, we'll be seeing 1600 - 1700 SPX or at least 30% below today's close.

Goldman Sachs already said they expect a further drop of 20%. Of course, this is just the beginning.

One has to account for 1929 gold standard. Since the world has confidence in the US dollar, Uncle Sam can dole out dollars, unlike gold. Just as bull markets are irrational, so are crashes; both are manifestations of herd mentality, as money ebbs and flows.

Today, Vanguard and Fidelity wanted to sell 6M shares of $ROKU after hours through Morgan Stanley. That's how things will go.

It's not a contradiction if it was meant to point how how ridiculous the market is behaving for something so relatively tame compared to the over-leverage that led to the great depression.

> This smells of a panic right now.

It is a panic, but its justifiable to panic over the entire economy being shut down for an undetermined amount of time. No person on earth can say when this will end, given what we currently know about the virus, whether its possible to become reinfected, and how effective our strategies will be.

Everything happening right now are delay strategies to get a vaccine / antiviral treatment. Before we can control this the economy will be shut down. Nothing will be like before, the financial stress in the global economy is too extreme.

> Now is not a good time to sell your stock holdings (at least not anymore). This smells of a panic right now.

I'd love to make large buys of stocks at a time like this, but I have no idea whether my job/company/industry is safe. Last time I was laid off from work was particularly rough for me, and I'm only just now getting back on my feet.

The uncertainty of the situation is probably making many others think twice before buying/spending so that's going to make it harder for stock prices to recover in the short term.

Nobody can tell you what will happen for sure, but it might be a good idea to look for businesses with large market caps and capital stores to deploy that will make it much more likely they will survive this period.

One edge case to consider.

If you have stocks in a pre-tax retirement account like a traditional IRA in the US (or RRSP in Canada?), now could be a good time to sell them, move the money into a post-tax account like a ROTH IRA (or TFSA?), then buy the equivalent number of stocks there.

You will pay reduced taxes because the value of the stocks is relatively low, then pay no tax when you finally withdraw from the ROTH. (All else being equal and imho, the market is likely to recover over time)

That is, if you don't mind the risk that the market might massively rebound in the middle of the transaction.

There are a bunch of assumptions here. Do your own research and don't blindly believe a stranger on the Internet. Make sure you understand the taxes, fees, penalties, or whatever you will have to pay.

Like you rightly said, this is a gamble. You're playing against volatility we haven't seen in almost 40 years. Look at VIX. You would likely burn yourself, especially as an amateur. If you want to play this game, there is room for put options in your portfolio to counter some of the bleeding.

You’d have to be sitting on a cash savings equal to the value of the retirement account? Because you couldn’t use the proceeds from the retirement sale?

I have never thought about all-out selling during this. In fact I'm buying more with each dip. I feel that securities are a bargain right now. With select selling I'll also be taking advantage of tax loss harvesting for years to come.

Be weary of catching falling knives.

I've made that mistake before.

Can you explain like I'm five how you plan to perform this tax loss harvesting for years to come?

If you think recession is guaranteed, why not sell?

That is opposite of what you should do. You would just be locking in losses (or greatly reduced profits). As long as you are reasonably sure you can hold your stocks for a few years then just hold on to them. Or better yet, go on buying spree and get cheap stocks.

If this drop is related to a panic sell off, then it's deeper drop than it needs to be. If you sell now, you might be selling in a panic low and locking in your losses.

If. Make your own decisions.

I think its just pure fear selling off way too much. The stock market only appeared to be on a huge bull run, the amount of money in the system doubled since 2008: https://fred.stlouisfed.org/series/MABMM301USM189S

Since 2008 money means something different. The fed will keep releasing liquid funds for banks to buy up all the cheap stock. Or the US government might even give away money to keep consumer spending going. Either way it will expand the money supply enough until the SP500 goes back to 3000 even if 3000 equals 1500 in 2019 money.

So about 2008? Placing this crash is difficult and will only be clear in hindsight.

2008 was one sector of the economy dragging down everyone else. Shutting down everything for weeks to months is going to wreck everything. There's not a pause button. It's an emergency stop that's going to take a long time to recover from.

I don't plan on selling, but if things don't get better in a couple weeks, I'll be doing some tax loss harvesting by selling some VT and VTI and buying VOO or the equivalent.

Except a stock market crash and a recession are two different things. Beyond temporary contraction in demand, and supply line disruption in China, the US still has solid fundamentals and I see no reason why things wouldn't just pick up again in a few months. Do you have reason to believe otherwise?

Is not bad to sell, the problem with most people selling is they won’t get back in till things go way up, trying to time the bottom and missing the run waiting for it to come back angry that they missed the gains.

In 08/09 the market felt this bad, and ended up worse. S&P went from 1576 to 666 iirc. That's almost 60% down. We are only about 30% down now.

You're absolutely right and this is what most of the "buy the dip" idiots don't understand.

> Now is not a good time to sell your stock holdings.

But that's exactly what a good many fools are doing, which explains the downward price pressure.

> I think a severe recession is all but guaranteed at this point. Let's hope we get through this with no more than that.

I suspect it's going to be remembered as a redistribution of wealth from hotter heads to cooler heads.

but history never repeats perfectly

we can already observe this on the health side, there was quite a good amount of monitoring and collaboration (too late and too little) but nothing compared to 100 years ago pandemic for instance

we have a bit more tools to work with and a bit more knowledge. hopefully (hopefully) we can flatten the dip too :)

>I think a severe recession is all but guaranteed at this point

Recession yes, severe, maybe not. (thought I admit the possibility) I think if the current distancing measures curtail the spread, then by July (maybe sooner) things could begin to inch back upwards. Then it's a matter of how much the next flu season impacts things, but by that time we should also be within 6-8 months or so of a vaccine. Recession for the next 1.5 years is definitely in the cards, but this is a unique circumstance with a unique, specific cause. If that cause is removed, a return to normalcy shouldn't be so far behind that a recession is "severe".

You’re assuming things will return to “normal” after things start improving.

Businesses, big and small, are going to take a huge hit from this that will take a long time to recover from. Probably more than most (all?) of is have seen in our lifetime.

Seems like this is something we’ve never faced before, and it’s not that highly unlikely that we’ll see some pretty nasty and long-term impacts from this.

Two points.

1. Today's drop is sort of misleading because it followed an irrational (IMO) low volume rally on Friday. We're still roughly flat from last week.

2. A recession is pretty much what we're ASKING for in order to stop the virus. People need to stay away from one another. So if it's not online, the business should be closed.

3. (bonus point) Unlike systemic recessions (like 2008), this one is purely externally driven (like 2001) - which means it's temporary. Whether we deploy a vaccine, deploy anti-virals, flatten the curve, or just suffer, it'll still be over in a maximum of 18 months. Since stocks are valued by their 20 year forward earnings, the market is very much oversold. (the exception being for companies that is going to go bankrupt in the next year due to cash flow issues - and receive no bailout).

The problem is that the externally driven factor can cause systemic issues. Having 25% retail & restaurant sales for a year will wipe out savings for a significant portion of the world. Most people will be fearful of spending for a long, long while.

> the exception being for companies that is going to go bankrupt

This is not a small issue. If businesses are closed for two or three months, I believe half of the businesses in this country will be close to bankruptcy.

Why do you presume there won't be another external or systemic recession in the next 18 months?

You can't just assert it's temporary. You can say, "The causes of this downturn are temporary."

We have no idea what the market will do in the future. We have strong evidence it will recover, but that's not the same thing.

You are assuming that COVID will go away and not become a yearly thing. Also assuming that this type of shutdown won’t become the new normal in response to a virus. ( something that happens every 4 or 5 years )

I too am hopeful, but I think there is 10-15% chance of massive long term economic downside

I agree with both of your three points. (ha!) It was why I stated that it felt like a panic. The problem is panics are much like stampedes, they can take on a life of their own once they get started.

>...this one is purely externally driven (like 2001) - which means it's temporary.

This can't be stressed enough. It may take a while but everything is going to be alright and normal again.

A lot of the companies won't survive.

A lot of the companies that do survive, will take a huge beating by the government, forcing them to be more resilient (to supply chain problems, short-term lack of labour, ...), reducing expected profits.

I 100% expect made in USA (or made locally for other countries) to be the selling point of both Trump and the Democratic candidate the next election. Most certainly after a shock like this.

There are so many assumptions in here that are IMO wrong. We're not asking for a recession. And I have no idea what you mean by "externally" driven. Everything is connected in the economy.

I’m buying S&P index every day at this point, trying to drive my average down without trying to find the bottom.

...with that being said, I feel really worried about American economic stability long term now. Governors are closing restaurants and businesses leaving tons of folks out of work while providing minimal safety net coverage. Even liberal states like New York are ignoring the downstream economic effects these closures will cause. If most Americans truly cannot afford a $500 surprise bill, we’re in for a very, very rough ride.

Every time I see this, I fail to grasp the logic. So you had money sitting on the sidelines for safety during boom times, and you elect to put it in a riskier asset class during a panic?

I'm not saying this isn't likely the most profitable action, I just don't see how the principles are consistent with each other. The former is conservative; the latter is wildly speculative and risky.

Its not fundamentally crazy.

In one sense, standard investing advice is to periodically rebalance between investment classes when your holdings diverge too much from you desired profile. In this, for a "simple" investor, that would probably mean transfering from bonds to stocks; since the portion of your portfolio that is in stocks recently fell substantially below your desired portion.

Assuming an efficient market, it is almost a no brainer that you should rebalance. Since your risk profile didn't change from a month ago, and stocks are being correctly valued, your portfolio is now overly conservative.

If you dont believe the market is effiecient, the question becomes 'in what way is the market inefficient?'. If you believe it is now undervalues stocks, you should buy them since they are now on sale for a bargain price.

Personally, my view is that the market is irrational, but I don't know how; so I am planning on not reballancing until after the dust settles. This minimizes the downside risk caused by me not knowing what I am doing.

You may be missing one of the more fundamental reason to rebalance your portfolio at predetermined points in time to a predetermined balance. That it takes emotion out of the equation. By rebalancing, say, every time you put money into your IRA, you're always "selling high and buying low" without the risk that you'll let emotion overturn a generally good investing strategy.

While you may actually be in a position to time the market, my understanding is that empirical evidence suggests that the vast majority would be better off not trying to time the market. And that people who mechanically follow rebalancing procedures will tend to outperform those who rebalance based on some kind of intuition or market calculation.

yeah, the rebalancing is a very fair point and perhaps something my long-term (401k) needs. I don't think it's being done automatically today.

Prices is the answer. That's why you are failing to grasp the situation. If you can buy a house for 100 in boom times but 50 in panic times, it's often better to get it for 50.

Same asset, lower price = less risk. The only thing which is up for debate during a panic is "is it the same asset now? How similar?"

Market has been hot so far this year, so the wise thing to do has been to slowly trim holdings for cash - i.e. up to 30% of your portfolio - so that you can buy on the dip. The correction has been a long time coming but the pandemic is making it even worse.

Can't speak to OP but I always think about the "buy low, sell high" cliche. If you follow that idea then when you think the market is high you should not buy.

My personal feeling the last 2 years was that the market was higher than it should have been. So I avoided buying equities. Now that the market is going lower I'm considering buying again.

If you have enough money, you can do some of both.

A related idea that might interest you: https://www.investopedia.com/terms/d/dollarcostaveraging.asp

Would I have rather bought two weeks ago at 3000+ or today at 2400? Answer: today! The logic is that eventually the market will recover and you want to buy before that happens.

No the risk/reward is fucked up. Buy at the start of a bull market not the midst of a bear market. In the context of the last recession buying in 2010-13 would have been ideal. Trying to find the bottom is simply gambling, investing isn't an optimisation problem. The goal is to sleep at night, not to make the most money at any cost.

You're forgetting the fundamental rule of the stock market.

Buy low, Sell high.

Exactly.

The people that got in in 2008 made out like bandits. The people that wait until 2010 or later missed out on a lot of the gains.

> Buy low, Sell high.

Come up with a good definition of "low" and "high" when you don't know the short/medium term future, and you'll have figured out this whole "investing" thing better than anyone else!

This is similar to 9/11 where politicians would act without thinking just to appear like they were doing something. Security theater was the norm for many years.

They've relaxed the no-liquids rule now!

for hand sanitizer only.

Or at least, things claiming to be hand sanitizer. Which just makes the rule more absurd. If you've got a favorite shampoo, time to go looking for a nice large hand sanitizer bottle to transfer it to. (Though I wouldn't do that for contact lens saline, a thing I'd kinda like to bring on in large bottles, since the small ones are absurdly expensive and somewhat less available.)

They technically allow large bottles of contact solution in carry-on because it's a medical necessity (https://www.tsa.gov/travel/security-screening/whatcanibring/...). I just keep it in my toiletries bag and they pull it out to run a quick test most of the time.

That's good to know. Thank you.

I've had a bottle of hand sanitizer in my bag for years and they've never once said anything. Either their security is so bad they've never caught it, or they've always been lax about sanitizer.

whew. Good thing isopropyl alcohol isn't explosive in vapor form or someone might make a bomb!

I hope you're not saying that measures which actually achieve more social distancing is somehow theater.

If our response has been commensurate with the threat or an overreaction is definitely an open question. One we probably won't be able to answer definitively for a while.

I saw one really good comment - we'll know for sure if we under reacted, but we'll never know if we overreacted

Oh I think it's very possible we'll know.

"Remember in 2020 when everyone lost their jobs and their houses and their retirement because some octogenarians died from a bad cold?"

This is the attitude that has me worried. It's CYA with a sprinkle of panic.

Which is exactly why it isn’t an overreaction.

Thanks to the lack of testing we have no idea how bad this is. And due to the severity of the worst case scenarios and relatively high probability of them be happening, in the absence of more information, an overreaction is indeed prudent.

That’s what people don’t get. Uncertainty often increases the need for more action, it doesn’t reduce it.

Omitting the rest of my argument (so that this can be hopefully kept more specific), arguing about this with people on HN actually made me think it's also part theater, just like airport security et al.

Consider this merits aside, even if quarantine saves everyone and lack thereof kills everyone; we don't know that yet.

If you are a mayor of Podunk, Nebrahoma, you have two choices. You can join in the quarantining with everyone else, and whatever damage that causes is not your fault. If someone literally comes to a town hall 2 years later to tell you they lost their job for 2 months, were evicted, got addicted to drugs and their life is ruined now, it will still be blamed on the virus and global economy and whatnot.

Now, if you don't join, not only you won't achieve much due to the others' actions - if anything goes wrong you will be blamed for every dead grandma and your political career is over.

There's really no incentive to not max out the quarantine theater, regardless of the relative merits of the measures taken.

Absolutely. I'm 21 -- I have 30 to 40 years to weather this storm. For people of similar age, you could not ask for a shallower entry into the market, albeit a tumultuous one.

It's not so shallow, the stock market is still bubbly, these are the prices of mid 2017, when everyone said that the stock market is a bubble...

To add further perspective: The S&P is just below where it was in December of 2018. Do you still have the same optimism about the US (and even the world) economy now than you did then?

For me, the answer is a resounding No.

But companies have expanded since then. It doesn't take the same optimism to invest at the same price points as 2018 as it did in 2018 (even ignoring inflation).

Yeah exactly.. people are saying it's the low today? Yeah good luck timing that.

Maybe they are right.. but like you just said- these are prices just a couple years ago. The modern world has never seen what is going on, and the economic impacts are almost unfathomable.

Claiming we are near a bottom just because it's dropped a lot is naive.

That's what I'm seeing too. Even more, based on the mandated closings and limits on business, there'll be some future econ. damage to restore. How do we lately do that? Stimulus packages, bail-outs, QE. The very same thing that drove us to the [still] frothy highs and ticked up the external debt.

It is a global issue, but at the end each economy will be affected locally.

Let's just hope the human cost could be contained.

I have puts on a bunch of stocks that target the 52 week low or 10-15% below that in ~3 months. So far that strategy has been wildly profitable. There have been tons of stocks that doubled or tripled in value in 2019, no way that is a realistic price in the next 2-3 years.

29 here

Entered the workforce right after 2007, in my 16, after moving to Singapore from small town Russia as an exchange student. Financial fortunes of my patents went nowhere, and I had to keep myself afloat for pretty much 2.5 years.

Made not so bad money selling low end electronics to the third world on Alibaba, and such.

Then, my parents made me dump all my money on the best things since sliced bread: "Business Education" in Canada. So I will "never ever be in need, and be making money like those big men from America"

Wasted 3 years of my life on that, it was useless.

And in 2014, they made me buy an apartment in my hometown under an immense pressure, and "or else" threats for me "not having a chance getting a wife, without one"

A month later, the Russian roubles folds, property prices collapse. And I just parted with $78k USD, having just a few months of savings left, while my job in Canada was burning.

Somehow, I recovered. 5 months later I got $29k back to Canada. Life was good again, I got my first Canadian girlfriend.

Then at the end of 2015, when I just began making big plans for my life again, my troubles began to mount again... It was found out that my last employer in Canada was for some reason unable to secure LMIA after applying for it for 3 times in a row.

I tried every option to extend my stay in the country, but the government was hellbent on reducing the amount of work permit holders, closing every legal workaround for extension. I spent tons of moneys on immigration lawyers, without avail.

I decided to cut my loss short, and leave in 2016.

Having to leave Canada after 6 years, leaving a lot of money there, and almost getting a family, was a bitter, bitter loss. I was enraged for month.

After leaving 10 years abroad, I was completely unable to fit in Russian society of the day, and got robbed just weeks after arriving.

After doing few remote gigs, and throwing tons of money left and right to sweeten my grief, I got to think of going to China, a country whose manufacturing Industry I owe most of the money I earned in my career.

Been working in China since 2016

Ironically, the most normal part of my life began in the least normal country of them all.

My last relationship was a beautiful 29 years old self made entrepreneur, and an owner of a chemical factory. I dated her for a while, but had to leave for a series of extended assignments abroad. After returning just 10 month later, I found her already engaged to somebody more enterprising than me :(

Again, fortunes cut short just few centimetres away from the finish line. This bittersweet life.

Now, when China is descending into mass madness again, I am risking to loose everything again.

You're young, and it's an asset already. Figuratively speaking, your Monopoly chance card stack is still big, it may have a plenty of good things to come for you, especially with those hard ones already out. Good luck.

On the upside, you have the raw story material that great biographies are made of.

Having been roughly in your position back during the 2008 dump... https://news.ycombinator.com/item?id=318595

Don't forget, the market can drop 20% a day for awhile. Plenty of smart folks are sitting on the sidelines with cash, but time will tell if this is the trigger for a much larger longer-term 2020 deleveraging.

Markets aren't even where they were pre-Trump election yet, so this 30% haircut from the top isn't even a "correction" from some viewpoints.

I personally wish I was ballsier back in 2008/2009 (Ford for $1, BoA for similar prices, etc), but it'd also be premature to jump into this market if you truly think it's the tip of a recessionary iceberg. Recessions take 3-6 months minimum to spill over into WallSt. If you're not jaw-agape at the prices of some of your favorite companies, it's probably not the bottom just yet.

Further, if you take the pessimistic view (ala Japan Nikkei), you might get stuck holding stock that never recovers. Be patient.

FWIW, I was ballsier back in 2008 and bought WAMU on the way down. It's exciting to watch your investment go all the way down to 0 :/

I did as well. I was certain they were going to be rescued!

The problem is separating the great recessions from less dramatic recessions. Was 2008/2009 a once in a decade recession or once in a century recession? In a normal recession you'll never get Ford for $1, and most stocks will never feel that cheap.

Right now the bulk (>95%) of this short-term correction is tied directly to COVID-19 total infections + infection-rate data. The parasitic drag on second and third-order (and beyond) economic factors have barely kicked in (i.e. lost productivity from WFH, people without jobs, businesses unable to stay afloat because of credit / liquidity / debt servicing issues, etc). The fundamental value-producing capabilities of most companies are exactly the same as they were two weeks ago. Chick-fil-a can still make the same great sandwich, and AMD can still make the same great chips.

Theoretically if someone released a miracle cure today that could be distributed in 2 weeks, you'd witness the greatest bull rally in the history of the US over this remaining week.

All that to say you don't really need to guess on this one right now. So long as we don't see a flattening/slowing of the US infections curve, markets will continue trending downward as compounding negative impacts/expectations on those 2nd/3rd-order economic effects begin to pile up. For now, the right answer is to stay out of the market.

Over the next 4 weeks you'll have all the data you need to decide if this will return as a monster bull rally or a long-term 2020+ drag on the economy. Keep an eye on your COVID-19 dashboard. As soon as the data starts to flatten out, consider an entry point. (with the caveat it doesn't return in full force based on season - look into the 1918 flu). If infections continue to accelerate though (which they currently are), stay out.

> Even liberal states like New York are ignoring the downstream economic effects these closures will cause.

They also understand the effects of not closing right not in outlook of a deadly decease without available treatment.

Why catch a falling knife? I am actively shorting S&P to protect my other holdings. SPY is the largest ETF is now hard to borrow which is just crazy to think about.

While you're not outright advocating a trading strategy here, what you're suggesting is dangerous if you're not talking about the downsides to shorting.

Do not, I repeat, do not attempt a short without understanding all the risks.

When you buy a stock for $10, the most you can lose when that stock goes to zero is $10. In theory, when you short a stock at $10, your loss is infinite as the stock goes up higher and higher. In practice, your broker will most likely force you to cover that short long before that. Just know that the loss can be big and fast.

You should apply strategies you are most comfortable with and please do your research before attempting anything besides a long term buy and hold of index funds.

I am not advocating or suggesting anything, just stating what I am doing. My theoretical downside risk is that spy goes up 100x, my 401ks also go up 100x. I am trying minimize my risk at the expense I may give up some gains if there is bounce up.

Index funds aren’t necessarily safe. Nikkei index has never recovered from its 90s high. NASDAQ took 15 years to recover. Know the risks.

As somebody else has said, put options are available. You must be really confident to short at all

I also have puts. The cost to get into puts it extremely expensive, I am going to have to pay 125% of my gains into premiums to get any decent downside protection for my main assets. That can easily go to 0 and came close when we had that spike on Friday. Shorting index funds is far less risky. Has any index every set off the tripwire for an upward swing? If spy wasn’t hard to borrow, Id be exclusively shorting. Want to see crazy premiums look at puts on the JNK etf.

Puts are insanely expensive now with the current IV. If you're just protecting a portfolio without selling, shorting SPY is fine if you have offsets in your stocks.

I never short stock directly, but I do buy puts.

I bought SDS which is an ETF for shorting S&P500 2x. It's up 41% since I bought it. The trick though is knowing when to cash out.

Analyst sees 2000 SP possible with worst-case government policy responses:

https://www.marketwatch.com/story/coronavirus-stock-market-p...

That's exactly why it's not really that good of a time to buy just yet. There's a chance we have a long ways to go and you'll probably run out of cash if you keep buying down the slide. We bought some on the crash last week but now it's just a waiting game to see how low it's going to bottom out.

that's what I did. bought a little at -3%, a little more at -6%, a lot more at -9%, lott lot more at -12%, by the time it hit -20%, I'm almost entirly in equities. Keep in mind, this is ONLY in my retirement accounts and I do have a 30 year investment horizon. I figure, it's better to get into equities than loose everything (in bonds and cash) once the eventual inflation taxes wipe everything out.

Americans hate social welfare. A very reasonable recommendation of giving every adult household a fixed chunk of cash is being shot down because "But what about Bill gates!" -- There aren't that many rich people and also they pay plenty of taxes so... who cares if they get $1000 or whatever back from the government?

If you're going to keep putting money in, you might want to diversify rather than throwing it all at one index

I personally only have hope for incompetence at this point. If the virus can get totally out of control, perhaps it will become obvious that shutting down the economy and plunging the world into a recession/depression is misguided. I think it will do far more harm in life-years wasted as it is, but if it's also shown to be useless perhaps the current approach would be stopped.

> Even liberal states like New York are ignoring the downstream economic effects these closures will cause

What do you suggest they do? Keep restaurants open? Also - I think they're hoping that people will still order restaurant food - just at home and have it delivered.

...might be a boon for Chinese restaurants, ironically.

UBI, tax credits, emergency direct to consumer low interest loans with suspended interest in the crises or all of the above.

It’s very difficult for state governments to do these things although the state governments re trying.

Frankly they need the federal government to step in.

Cash transfer from wealthy individuals and families via the IRS.

I don't understand why people are catching a falling knife. It is as though they have never been in bear markets before. Understand the market psychology and don't waste your money. I have friends who DCA-ed and regret because it took them years just to breakeven.

In a standard fear cycle (Google it), we are only at the middle stage between denial and fear. There is an acceleration downwards that we have not experienced yet (Crypto 2018 and China 2015 are good examples if you want to look back at recent history). Wait for that to happen first. You also can feel the time to buy when people are very distraught and demoralized by the endless drops. Twitter activity will change a lot, trust me.

A good way to read when to buy is, aside from seeing that everyone is completely mentally exhausted and demoralized, is that the VIX is around 30% and dropping, and distribution is over with accumulation channels being formed, which is when multiple supports are being built. This is when bulls and bears are in equilibrium, with bears quite exhausted but still exuberant. If you want better certainty, at least wait for the stock you want to buy to cross the 200 SMA, because it is a good indicator that the stock is being rationally valued once again.

My point is that DCA is only good if the trend favours it. It is central limit theorem where you reduce the variance by multiple sampling. Good shorters DCA downwards as well, so you are fighting these people too if you are DCA-ing now.

Are all bear markets the same? If there's a clear signal when to start buying why isn't everyone doing it?

To me technical analysis of the stock market is the modern equivalent of a shaman predicting next year's harvest. It sounds very convincing but there's little scientific evidence that it can predict anything accurately.

It's as though you think everyone is rational. If they are they should be selling, but no, they are buying.

I'm not saying everyone is rational, I'm just saying there is no reliable way of predicting when the market has bottomed out.

DCA-ing on the way down means I will at least buy lower than a year ago. I have no way of knowing when we will bottom out, or if it will be -25%, -30% or -50% and beyond.

for someone to be able to sell, another one has to buy.

The very fact that there are still so many people willing to "buy the dip" shows that we're just in the beginning of the process. There will be a time (a few weeks from now), when almost everyone will be screaming sell. This is just how ALL bear markets work.

Do you have any research showing that waiting for VIX below 30 after it was high is a correct strategy? You can just test it in around 20 lines of Python or just in Excel. Or that buying in a situation like now is a bad idea? Did you run a historical backtest? Did you test the trend following and the 200-day SMA? Please share. Of course, to show that any of them are promising models, you need to do much more than just the backtests but they are first necessary steps.

If you haven't done this then you really shouldn't give authoritative-sounding advice here.

In any case I am just trying to help people limit their downside by giving some simple advice. It's always better to make less money and yet be able to sleep well, then always fearing your portfolio goes to naught with some naive strategy. Not worth shortening your life by a few years with all that underlying anxiety just to make a potential 10-20% more. But definitely I would say this strategy would at least increase your upside and minimize your downside than a pure DCA, because it factors in the psychology of a bear market. Just trying to help here, I stand no gains, just don't like to see people losing their minds and sleep over losses that could have been avoided.

I don't test. I just trade with real money. VIX going below 30 just signifies the start of bear exhaustion. You don't go in now, it just means to prepare to go in. 200 SMA is usually used by technical traders to gauge when to start changing their strategies to trading an upward trend instead, which after awhile becomes self-reinforcing. It just experience here. You can plot the 200 SMA on the 2008-2009 graphs on your favourite stocks and you can see that usually that's a good time to buy in.

You should really check your tone as well. This is good advice.

And you know this because?

> and distribution is over with accumulation channels being formed, which is when multiple supports are being built.

Noob here. I've worked out what the rest of your post meant. What does the quoted mean?

It means when the market is sideways and bouncing within a channel. It is when bulls and bears are still indecisive. Depending on fundamentals as well, this is when smart money starts to accumulate. Big funds usually accumulate in these channels because they need time to accumulate. They act as the bulls here. The bears will usually be those day-trading euphoric shorters trying to scalp every bounce, or just some random capitulation. This is the time when money fears to go in and those who have held already gave up on going out. The volume will be quite low.

> It is as though they have never been in bear markets before.

We haven’t. It’s been 12 years since the last bear market.

I was literally 20, in college, and with nothing to even think about investing.

How many are too young to even remember 2008?

There are industry-based bear markets and bear markets in other countries almost every year. They all work the same.

too late for me, i already bought the dip big time at -6%, -9%, geez.

PSA: The Dow Jones industrial average is a terrible measure of the stock market. It tracks just 30 stocks, some which have an outsized influence on the measure.

This is not to say the stock market is not in freefall, but there are much better indexes to track general market movement.

Today it correlated with the better indexes. DOW (-12.93%):

[1] S&P 500 (-11.98%) https://finance.yahoo.com/quote/%5EGSPC?p=^GSPC

[2] NASDAQ (-12.32%) https://finance.yahoo.com/quote/%5EIXIC?p=^IXIC

[3] Russel 2000 (-14.27%) https://finance.yahoo.com/quote/%5ERUT?p=^RUT

Also: NYSE Composite (-11.84%) https://finance.yahoo.com/quote/%5ENYA?p=^NYA&.tsrc=fin-srch

Actually right now the DJIA might be a _better_ measure of the large cap market than the S&P 500. The problem with price weighted indices is that at the top of bubbles they wildly overweight the recent winners. The performance of the S&P in recent times is mostly just the performance of the trillionaire companies. The same thing happened in 2000 when approx 40% of S&P returns was the returns of the Internet (as opposed to the larger tech) sector and in 2007 when financials had an outsized effect.

I wonder how much of the performance of GOOG/FB/AMZN is VCs funnelling cash to overvalued startups building a brandname who then funnel said cash to GOOG/FB/AMZN for advertising and overpriced AWS services? Not that I think the trillionaire companies are going anywhere but I suspect they may be hit harder than people think they will be.

I wouldn't say it's terrible but if you're looking for a quick way to assess the market there are better options such as the Wilshire 5000 index. That being said that's crashing too so it doesn't really matter. The market is crashing folks, thats the reality of the situation.

Most of the SP500 movements come from small number of companies too.

Dow Jones is bad index but the narrow number of companies is not the worst part. DJIA is price-weighted index which is completely arbitrary and there is no reason for that. They can't add Berkshire Hathaway into the index without completely changing the rules. BRK-A price is so high. Index would track only BRK-A after that.

"DJIA is price-weighted index which is completely arbitrary and there is no reason for that."

Well, I believe the reason is that it's much easier to calculate on hand-cranked mechanical adding machines. There is a reason, but it's obsolete.

I'm not sure why they don't add BRK-B though.

In my opinion, BRK shouldn't really be in the S&P 500 anyway. I don't get why a company that owns AAPL should be in an index that already owns AAPL.

Well, BERK-A is the canonical class. But Berkshire Hathaway is practically an index of its own, being a big, giant holding company. I don't think it belongs in any index.

The main benefit is that it has been around a long time, so it's somewhat useful for broader historic trends.

PSA: The Dow Jones is a very good proxy for the stock market as a whole. If it were not people would have stopped paying attention to it years ago.

PSA: No, wrong. It might not be the very best but it is absolutely not terrible. A cursory look at the correlation over time could have told you this.

I am not well versed in the economics of depressions, but almost all the ones I know of were preceded by some monetary imbalance or the explosion of a bubble based on falsely propped up ownings.

1929 was stock being leveraged off mortgaged homes and loans, that was clearly no sustainable.

2000 was the dot com burst.

2008 was mass defaults on home loans.

Is there any reason why apart from slow business for 2 months due to corona and the oil war (that resulted from corona causing a loss in demand), the economy can't juts go back to being business as usual once this all passes over ?

Is there a particular kind of asset, the collapse of which will seal this drop as a proper depression ?

Most businesses don't have the cash reserves to handle effectively shuttering for 1-3 months, which is probably what will be required to get a handle on the Coronavirus outbreak without overwhelming our medical systems. This means those businesses will be forced to lay off many (if not most) employees, possibly going bankrupt altogether, and those laid-off employees will themselves have trouble paying their own bills causing them to go bankrupt, lose their house and car (and health insurance in the US!), etc.

It's a huge vicious cycle that will almost certainly lead us into a deep recession in the short term, and will likely require huge fiscal interventions by the major governments of the world to prevent an outright depression (as all the remaining monetary options have already been used up to little effect). It's telling that Senator Mitt Romney was floating a temporary Yang-style UBI today... even a week ago that would have been unthinkable to hear from a Republican, even a moderate like him.

1. Most of those problems are being tackled: localities, states, and the fed have interest free loans and many have frozen rent and evictions (for both residential and commercial real estate). As far as that goes, 1-3 months with the above addendums makes me skeptical about mass bankruptcies. 2. This is such a silly point I keep hearing: "Everyone is a socialist in a crisis", "Oh suddenly people realize UBI and universal healthcare are good!" - DUH! Collective problems require collective solutions. Everyone agrees that the tax-payer foots the bill for the healthcare of veterans in WW2, everyone agrees with price-controls when fighting Nazi Germany. Everyone agrees with collective action to fight collective threats because it's necessary.

If you contract a pandemic disease, collective action must be taken for the good of everyone else. If you break your leg falling of your roof on a bender, you and only you should foot the bill. This isn't hard: supporting collective action against Coronavirus doesn't mean M4A is a good idea for more normal situations.

Many believe the economy has been propped up by the Fed (by lowering interest rates) because they've been afraid of a recession. The Fed also doesn't really have any more ammo left to prop things up.

So, the cause is that the Fed has been propping an economy that is ripe for a recession and a reset. The coronavirus is the trigger that will force the hand.

Many currencies have been propped up and artificially kept competitive via QE as the new tool to augment interest rates as having driven them so low, they had to use something else. The next tool in the box is negative interest rates.

Kinda all leads into a perfect storm, and now have whole generations having grown up with no saving mentality and a have today, pay tomorrow expectation that if things ever go back to normal, real interest rates that encourage responsible spending instead of artificially stimulating an economy. Well, it will be a huge education for many and as always, the people end up paying for it.

Many people think the world is rife with real estate bubbles, definitely in china if you don’t think there is a big one in the USA. The stock market rose very quickly with respect to earnings as well, and we’ve had over a decade of very low interest rates world wide, leading to lots of debt both private and public.

Consumer habits and psychology are going to be affected for years. We're going to see jobless rate skyrocket, small and large businesses defaulting left and right. Your tech job is definitely not safe either.

Bankruptcies can be pretty damaging. If we see a lot of loan defaults, we might see a banking crisis.

...but probably not. Banks are very well capitalized these days - much much better than 2008.

Banks can cover some things going wrong, sometimes, not everything going wrong at once.

Just takes one queue at a bank, few social media posts and next thing, all those branches have queues due to panic and end up with a self fulfilling prophecy so to speak.

Heck, if people can panic buy toilet roll, nothing is out of the reach of stupidity.

If I had to bet, it'd be a corporate debt bubble propped up by the Federal Reserve low interest rates and practice of quantitative easing. As the coronavirus creates a supply shock, businesses aren't going to be able to produce enough goods to sell and as a result, they will default on their debts. Similar to the 2008 burst, this is going to cause a ripple effect in the financial industry where banks are going to try to deleverage, inadvertently causing a credit crisis that slows down the global economy because no bank will want to lend out to something that's not a sure bet. How did the Federal Reserve start this? Because by having credit easy to attain, companies were willing to issue riskier bonds with higher yields.

> Is there a particular kind of asset, the collapse of which will seal this drop as a proper depression ?

That's a good question. Right now the market is reacting to on-the-ground realities. The follow-on question you are asking gets to: what will be the aftershocks?

The thing that I'm concerned about is the amount of risky business loans[1] that have been handed out in the past decade because rates were so low and mutual funds were looking for high returns. If a lot of businesses go bankrupt and that, in turn, puts the banking system at risk, then things would be ... bad.

[1] including businesses taking "no covenant" loans to—in some cases—pay their earlier investors dividends!

The only depression you named was 1929. 2000 was barely a recession. 2008 was more severe but...still not really. The US unemployment rate hit 10% which is high...but most countries Europe have had rates at this level for decades. For reference, the current rate in France has an 8 handle.

In terms of depression vs recession, to put it simply, the risk is that we move into a situation from which escape is difficult. For example, and this is a hypothetical, everyone in airlines loses their jobs, this causes demand to fall, more people lose their job, supply falls, etc. Depressions destroy resources. Recessions reallocate resources.

So I don't think this looks particularly serious...if policymakers act promptly. This means ensuring that credit is supplied to companies that are solvent and firms that insolvent are shut down. The only thing that looked bad going into this was everything going on in tech, and the level of corporate debt (and its distribution). There is still a huge amount of complacency here (a big part of this cycle has been ETFs...I talked to a quant the other week who is neck deep in corp bond indexes who confidently told me defaults wouldn't rise...the guy has never looked at a balance sheet in his life).

But one very bad sign is gold and govt bonds falling with equities. This is probably being caused by someone running a risk parity strategy trying to get out of their positions but it could also be a sign that liquidity is disappearing (and people are selling whatever they can sell). Equally, last week the momentum tech stocks weren't really selling off, and now they are really starting to tank (although this is probably a good sign long-term, short-term people are clearly panicking).

Also, as a point of history, there was no "mass defaults" in 2008. The default rate definitely rose substantially and there was a liquidity crisis but this ended up working itself out and the vast majority of these assets came good (we know because the govt bought them all).

>For reference, the current rate in France has an 8 handle.

I'm no expert here, but weren't the French literally rioting a few months ago..? And beyond the markets: you keep downplaying this and 2008 as not "being serious." I mean sure, maybe for your portfolio - but can we avoid trivializing the gravity these economic movements can and will have on the lives of millions of people?

If we are very lucky the epidemic will not even be peaking yet in the US two months from now. If it has, we are looking at catastrophic losses of life. More likely the noose will not be loosened for 9-12 months. It’s gone too far to be contained and can only be slowed until a vaccine is widely deployed. The economic damage is incalculable.

I'm a bit more optimistic about this crash - a significant portion is due to the (important) constraints on society - closing schools and restaurants. Meaning we can look forward to some pent up demand on the other side when those constraints are loosened.

On the other hand, if the US goes into lockdown for a month or more, there's a significant chance that we could be returning to a world very unlike today. The market does not like this kind of uncertainty, and an house of prevention would have been worth $10 trillion dollars of cure.

Sorry to single you out, but the fact that people still don't understand that a 1 month+ long lockdown is a certainty means we are nowhere near the bottom. By April the US is going to look a lot like where Italy is at now.

Sorry to single you out, but the stock market usually trades in anticipation of recessions. It's not a proxy for the current GDP, it's an expectations market. The stock market could start a slow rise tomorrow and go until the end of the year and the entire year could be in a recession.

I think it's realistic that we could see some sort of easing within a month - like maybe restaurants and bars can reopen if they meet some stringent requirements. But would agree that it will be a long time before things return to "normal".

I think there will be some pent up demand, but some parts of the economy don’t benefit from that —e.g. I’m not going to buy more lattes when things return to normal, I will just go back to my daily fix.

That's not all - some will forego, lose the habit then not re-uptake.

Also schools - how will additional schooling later on make up for the lost service & revenue (schools need students to get tax revenues)

...but you might buy a coffee machine at home to satisfy that fix over the next 3 months.

I think it's showing all the cracks in the US system. A large part of the country scrapes by, have no savings, have no access to healthcare, etc.

For sure. But I don't think that's fundamentally different than any other crash in the US. But it may show that there is an economic benefit to having a stronger welfare net.

Just my 2 cents - Take your assets out of the market.

Until we (in the US) see a few senators, a justice or two and / or the VP/president/etc succumb to the disease we haven’t hit peak panic.

~50% of the workforce is about to be out of a job for a few weeks. A large portion of Restaurants are about to go bankrupt, daycares are about to go bankrupt. Houses are about to drop in price (no money, and elderly dying).

The reality is, this could be worse than the Great Depression. At least if we keep this up for any length of time. What we are doing right now is seizing the economy and if we close down everything, it’s going to be hard to start back up.

Governments are going to crumble because of this.

Long term (a year out) things should be improving. But IMO we have a long way to fall. I wouldn’t be surprised if banks start folding.

Looking through Wikipedia, only one congress person was known to die of Spanish flu (https://en.wikipedia.org/wiki/Jacob_Edwin_Meeker), so I don’t think the numbers will get up enough in this pandemic to effect someone high profile in government.

I'm pretty sure banks aren't going to start folding. The Fed is ahead of the curve this time (or at least not nearly as far behind it as in 2008). They seem to be pretty serious about doing whatever is needed to keep things from falling apart.

But if you sit on cash, you will miss the day where it has a huge gain due to some news like a vaccine announced.

> Our Advise: It is time to carefully pick up some stocks based on crushed valuations, but the market is not likely bottoming. It’s hard to say are we two weeks away or months away from market bottoming.

You'll know it's time to buy when the advice you get from permabulls like the mortgage industry is to sell.

What will happen in between? Failed rally after failed rally. Bear market rallies are extremely effective destroyers of capital. The suck the gullible in and spit out the bones.

By the time it's really time to "pick up some stocks based on crushed valuations," nobody will care about stocks. And nobody will care about or believe the rally.

The current S&P P/E ratio is still higher than it was at any other time except the 1920s bubble, the .com boom, and the top of the 1960s bull market.

https://www.multpl.com/shiller-pe

There are problems comparing the P/E over time periods this long, but it is a cautionary datapoint.

Yeah, when everything is a bubble it’s bound to pop sometime.

Probably just too much free cash for banks.

By percentage, this isn't just the worst drop since the 1987 crash--the 1987 drop is the only worse drop. This is worse than any day in the Great Depression.

If there were no circuit breakers, we would have witnessed drops worse than the 1987 drop. The 1987 crash brought forth circuit breakers, limit up/down in the futures markets.

The S&P 500 is down 30% since Coronavirus started [1], back to April 2017 levels [2], about three years worth of gains erased.

But this comes after a decade-long record bull run that's been begging for a 15% correction. Treasury yields were inverted a few months ago, last week bond prices got disjointed from their underlying assets, QE has been incessant since 2008, rates are at literal zero - the bull market was fake, propped-up and political; there is nasty sausage festering in the belly of our financial system and it's set to explode. Get ready for at least another 30% drop.

Or:

The internet is truly the greatest invention of all time. There is nothing more valuable than the exchange of ideas. We have only begun reaping its rewards. It will be responsible for another 100 year bull run of greater magnitude than the industrial revolution. Not only is innovation at record levels, but the pace of increase of innovation is at record levels. The bull run was not fake, P/E levels of the S&P are in line with historical averages [3]. We are taking Coronavirus very seriously and China has shown that you can "flatten the curve" when you do [4]. This will blow over in a few months and the economy will be right back to where it was. But the stock market is forward-looking and can recover in an instant, the buying opportunities are now.

[1] https://imgur.com/a/aq2yw70 (chart)

[2] https://imgur.com/a/EOWR4Kf (chart)

[3] https://imgur.com/R0zpJiP (chart)

[4] https://imgur.com/VTMOeh9 (chart)

This is only the first round.

The second round will be over-leveraged investments being uncovered, as any leverage they had in stocks evaporates.

Given that the over-leveraged loan situation was out of control during the 2008 GFC, and nothing structural was done to change behavior, it's extremely likely we're going to see some secondary changes.

Correct. Let's wait and see where the path of least resistance takes us. It goes somewhere from the commercial paper market to anyone levered, all the usual TBTF suspects.

Worst drop ever for the Nasdaq Index today: -12%. These aren't 1, 2 or 3 standard-deviation events... these are more like 6 or 7 standard-deviations from the mean...

Vix is currently at 82%, rather than a more typical 15%. You should expect daily fluctuations of 5 to 6x what is ordinary for the next month. In fact today's drop is only about 1 standard deviation.

VIX was suppressed so long through shorting VIX futures via ETNs like $XIV, $SVXY up until Feb 5, 2018. Then the latter ETNs blew up. Lots of people made money just buying these ETNs. This was one way VIX was suppressed.

That's not so impossible for the stock market whose distribution has a big, long negative tail. (If you plot the daily delta of the logarithm of the S&P you will see that it looks like a normal distribution, except with a fat long tail of very bad days.) It goes up little by little except on the days it goes down by a lot.

If you're experiencing 6 sigma events daily, your modelling is wrong.

Something to consider for people thinking of jumping into the market via an index fund; in 2008, corporations were in OK shape to weather a downturn. In 2020, a lot of corps are very highly levreged. I think it's likely we'll see a lot of shareholder wipeouts. This will have an interesting effect if you buy an ETF. If 50% of your stocks get wiped out... that big bounce you might expect won't be in your portfolio. Yes, the index will recover it's value... but the composition of pre-post shareholders will be different.

I don't think the country is in the mood for shareholders to get bailed out unless individuals get bailed out first... and I don't see that happening.

So I know it's almost impossible to predict the stock market, but... a lot of this crash seems to be based on panic and human psychology concerning the virus (I know there is some effect due to the oil price war though).

My question is: if we assume 20-40% of people in the U.S. are drastically underestimating how bad the virus is going to be, then they are more likely to hold their stock until there is finally "proof" that the virus is as bad as everyone with some amount of scientific understanding knows it is going to be, at which point we would expect some portion of these people to panic sell. Wouldn't that indicate that in an event like this, we're not betting on essentially random fluctuations of an emergent economic system, but rather on many people not understanding the trajectory of the virus?

In other words, it's almost like a prediction market at this point — you're betting against other people about how damaging the virus is going to end up being. Am I off base here?

I would argue that to some extent that’s how the stock market works all the time. You’re betting about how other people will react to information.

This is the moment that management cuts staff and pushes survivors to work harder than ever with no more than the threat of the axe. Realizing productivity gains from job insecurity is unethical, so it only gets used under the illusion that it is the only way for the employer to survive. The reality is that the employer could have operated like this all along but couldn't drop the axe without looking like a butcher until now.

Getting laid off is sometimes better than surviving the shit show that is now to come. Quitting for new work, even better.

Seize the moment, people. Do not be a victim. You can rebuild your careers. Do not stay with a butcher.

Seriously?! "Quitting for new work" when in a week or so no companies will even be doing in-person interviews?

This sounds just insane to me. "Quitting before you find a job" is bad advice even in very good economy.

Certainly most will be better off being laid off (and eligible to collect unemployment in the US) vs quitting.

Housing needs to follow. For people looking to get into the market like me, these prices are a barrier.

Housing is unlikely to follow unless more old people die of covid than expected. Rates are so low and big money will be looking to diversify into alternate asset classes.

Are you really sure this is a good time to get into the market? I mean, property is usually a good long-term bet and rates are low, but you'd have to be pretty liquid to want to move now. Then again, if you think inflation is going to come in a big way, todays prices are reasonable.

This probably isn't the bottom. Wait a little while longer and when things start picking back up, dump in as much as you can afford.

Good advice! Just time the market.

Worst advice ever. Do not try to buy the dip in this market. Most likely it will lead to loosing money.

I don’t think it’s possible to tell the difference between volatility and things picking back up. Somebody trying to follow this advice might have bought on Friday when the market went up.

I wouldn't care to risk retirement funds until the scope of the virus is better defined.

Timing the market is possible if you know more than the market otherwise it’s just gambling.

But what do you do if you got lucky selling now?

I sold three weeks ago figuring it would be bumpy ahead, but I don’t want to miss the bottom entirely. Now I’m thinking the low risk strategy is to buy very slowly over a long period.

It probably isn't the bottom. That doesn't mean expectation is optimized by waiting.

I'm going to trickle cash in to total market index funds each week going forward. I'll just keep adding on the way down.

That's pretty bad advice.

Dumb question. Why can't they just turn off all stock markets for a month?

If you think people are worried when stock prices are falling, imagine what happens when they all go to zero. That's what happens when you close the markets: stocks can't be sold and thus have an effective value of zero.

Much of the fall so far is bringing prices back to reasonable levels after a record-setting bull market. Not that that's especially fun news; between that and a genuine recession coming up, a lot of people will lose a lot of money. But it means that, as scary as this is, it may also be necessary, and even beneficial. (In the "long run", that is, and in the "big picture". Still sucks for a whooooole lot of people for a very long time.)

Announcing that will cause a panic the size of which you cannot imagine!

That is sort of like turning off a heart rate monitor during a heart attack.

I think that's a fair question. We have actually done this before when World War 1 started.

https://en.wikipedia.org/wiki/New_York_Stock_Exchange#20th_c...

I think doing so now would be a massive disaster as it would cause extreme panic.

But what if I need money for food and rent but my emergency fund runs out? If I own stock but cannot sell it that would be a bad thing, right?

Only if you want to re-enact 1929 for real.

That would cause severe pressure on other financial institutions and invoke immense panic.

There are many institutional investors such as pension funds and insurance companies (whatever they call their holdings) that rely on returns from things like stocks.

Since they wouldn't be able to sell stocks, they would start selling everything else they've invested in.

Same would go for anyone else requiring cash.

Then everyone holding the other stuff that is liquid, will sell it because why hold onto a plummeting asset when the only reason to own it is the value?

The same reason why not testing for the virus doesn't stop its spread. Markets can spread psychological panic very quickly, but a lot of the short term behavior here is based on very short term bets about what other people are going to do on average. Give the market a month to integrate some information that is relevant over slightly longer timescales and we'll see where it thinks we are.

They may end up doing that to prevent a collapse. They also ban short selling sometimes even if the stock market is kept open.

All of the return-seeking money that pushed up asset prices in the first place is still out there, because stock market crashes don't destroy money (they just redistribute it). I wonder who has it now, and I also wonder when it will end up back in the market.

I was under the impression that the money supply can contract since most of it is in the form of debts and asset valuations and not in cash. If my house is worth $1 million but then because of a recession, less people are interested in buying houses and its price goes down to $500k, where did that money go?

...stock market crashes don't destroy money (they just redistribute it).

Source needed.

Stock market crashes absolutely destroy money by any reasonable definition of the money supply.

Great point, all the "big boy" traders who have been raking in profits on put options, VIX volatility, and leveraged inverse etf's eventually will switch their trades to bull.

However, keep in mind, a market down 30% requires a 43% gain to break back even.

To those that think the market response is likely to become predictable anytime soon — a thought experiment ... how do you think the markets will respond if Warren buffet dies of corona virus? Personally I think this kind of event could trigger a large change in the market (who knows why) and am curious what others think.

I manage a fund for a living and have been doing this stuff for a while. I'm generally an optimist...and I've never been more terrified in my life than now. This makes 2008 look like a keg party. We have a health crisis and the prescription from government has been to induce an economic crisis, one that's possibly (and increasingly more likely) orders of magnitude worse than anything we've ever seen, including the great depression. We are committing suicide. This is a battlefield triage situation, you save the soldiers you can and read the others their last rights. It makes me utterly sick to say that, but that's the grim reality. We need to immediately change our approach and adopt what the UK is doing. AMA

So Weird, reading your comment reminded me of how this is similar to how the immune system of an infected host can react with such ferocity that it kills the host. Like a Cytokine storm or a persistently high fever.

Imagine if our reaction to this disease, to prevent human death and suffering... will cause so much poverty, hardship, and social instability that the outcome is more human death and suffering, than if we had just let the virus run its course and had just gone about our daily lives accepting the losses.

I sure hope we are doing the right thing. Makes you wonder.

people dying everywhere (which, with a hopeful 2% letality is still very likely) will also heavily disturb the peace as well as the economy. As long as we are not sure about basic things like that, I'm quite for a lockdown, because a 7% letality is still not off the table (with happy things like reinfection) - and this is basically about double the loss of life of WW2 (which at least had a clear winner, being able to play out its game).

So: how are you sure that the parameters of the pandemic are something, the system can handle? Is there any precedent for that? What reason is there, that our society (that's the people, making up this system) can't overcome this crisis with something different?

> last rights

rites

I think as soon as there is some clarity around fiscal policy, we will see markets stabilize. Fiscal policy is coming, we just don't know the extent. So 2 or 3 months from now the virus will have burned out and we will have massive amounts of fiscal stimulus in the economy and the boom ensues. This is the way our Economy and stock market function. As soon as the stock market begins to see this, it will explode to the upside. That maybe in a week or a month or 2.

Well, as someone who has traded alot, i did always wonder when the 2013 gap would be filled.. but at ~ 150 spy that is still far away.

I have a "balanced" index fund with my retirement savings. I'm 33. I'm simply not touching a thing. I hope this is the correct move.

It's amazing. I think I'm a pretty smart guy and I'm finding it very difficult not to second guess these choices. And the worst time to make choices like this is during financial crisis.

I’m in the exact same boat. I’ve never done so much reading and research to do nothing before.

I've got some saving and am considering looking into trading if the market gets any worse than this. Do any of you have advice? I was doing some research into ETFs and was considering putting some money in that direction since it seems safer than buying individual stocks.

Also the worst % drop since 1987[0]

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

Maybe people won't like this question. Is there a point at which does "social distancing" do more economic damage than it does health good?

(Not saying we're there yet, just asking if such a point exists, and when.)

Trump threatened Powell's job in order to force him to reduce interest rate and start printing money [1]. Our economy is being micromanaged by Trump who is not an expert in monetory policy and only has disdain for experts of all kinds (virus/economy/climate). Trump says he is qualified to do that because his uncle went to MIT [2].

[1] https://www.nytimes.com/2020/03/14/business/economy/trump-po...

[2] https://www.washingtonpost.com/outlook/2020/03/12/truth-abou...

SPY puts printed today. Up 110%, sold before Trump had his press conference.

I think there's going to be a little bit of a bounce tomorrow and then resume drilling.

Agreed. I had puts on TQQQ and also UVXY calls (yes, I play volatility like a madman). My last couple TQQQ puts sold today for....5100%

Is there a risk of a compounding factor with the current level of corporate debt?

Yes, companies issued bonds to finance their buy backs. Best example is Boeing, which spent $58B in buy backs to parabolically pump its stock to $420.

Today, Boeing lost its credit ratings, and is begging Washington for bailouts. Zero interest rates don't help much.

Is there any estimate of how many years the recession is going to last?

I'll just sit here on my municipal bonds, thanks...

Super beginner question - as somebody holding some Swiss cash on top of some basic reserve, I understand now it would be too risky to enter any stock/other market. I am a pessimist in expectations what will happen - rather gloomy state of affairs for next year or so, no fancy vaccine/quick tests etc.

Here is the question - what investment vehicle, if any, would you consider for looking into when wanting to presumably enter this situation in say 4-5 months? Ideally say some medium term returns, not benefit after 30 years.

Sorry for possibly annoying question to the experts, just looking into some guidance

I'd say keep a close eye on the Coronavirus situation. If a vaccine is found and is effective, likely the market will calm down and hit the bottom. After that its about keeping the companies afloat until they can get their revenue back up again. Most likely the quantitative easing programs from the Fed will help in this regard.

> If a vaccine is found and is effective, likely the market will calm down and hit the bottom.

Realistic timeline for this seems months.

I moved $100K to cash on Friday. I should've been more aggressive.

so ..... any thoughts on cryptocoins ??

so ..... any thoughts on cryptos ??

All you gotta do is buy puts and you'll be able to ride a yacht in a few years when this is all over.

Banks are our friends, the government is like our dad, the media is like our mom, let's hug them and meet the brave new world!!!

probably the folks here don't understand sarcasm or you really guys love to pay taxes and scroll through your facebook news feed...

I'm quite surprised by this because it was my understanding that companies were doing us a favor by employing most people. That they were forestalling replacing us with robots by paying us near subsistence wages.

I'm very confused. On the one hand I have all the things I've been reading in the papers about workers being superfluous.

But yet on the other hand when I just look at the evidence, it seems like companies really, really need workers.

I wonder what will happen when this is over...

Consumer spending is kind of the foundation of the economy, and as of today in the US it's about to go into freefall. Especially services.

This fall is pricing in the inevitable waves of bankruptcies in the service industry.

Jobs that were economically beneficial to replace with machines or outsource were replaced with machines or outsourced. People with jobs now have them because they are needed now, even if not in ten years. How is that hard to understand?

Companies need consumers more than they need workers.

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