CNBC is blaming the decline today on the Obama news. Who knows if that is exactly right but anything that impedes liquidity, incentive to trade and the like requires adjusting to.Who can say what kind of teeth this thing will have but like other similar things in the past (and the future) the market takes a certain amount of time and percentage points to figure things out and then it moves on.
This is not the first time in your life something new has scared the market--if that is even what is really happening.
13 comments:
Yep, humans just have to have an explanation and talking heads must talk and sometimes it even makes sense, but daily market moves really require no explanation other than the rather fundamental observation that this is a complex system in which measurement (price signals) is actually far more granular or coarse than the decimal points after a dollar sign: If, as a scientist, I had to deduce where the most significant digit was in stock market prices I'd guess somewhere around the $10's or $100's place rather than in the dimes and pennies place ...give or take a bit [g]
IAC it's a very noisy process as prices rotate, seeking a level where the majority of buyers and sellers agree. If they attain some degree of stability we say (largely in hindsight) that they reverted to a mean but let uncertainty increase and things become more noisy again as the process repeats. Sometimes this reaches the point of chaos (bifurcation) and an entirely new agreement will need to be established.
For those lacking the power to extort economic rents, as the big banks and others of that ilk do, I am not aware of any way to anticipate or deal with this other than to watch as closely as possible, develop some rules that work for you, then dive in and out where it is feasible, dampen occillations where possible and, in some cases, just get the hell away from it for awhile.
From my POV this is not a major correction (yet): I'm already hedged but see no reason to buy either since this could be more than a 'dip' which basically means I'm going to have go out to the garage where some cedar fencing awaits and take another item off my honey-do list. Don't mind though; I've been spending too much time looking at this screen lately.
Taleb and I'm sure others have talked about people needing there to be an explanation for something even though often there is not a reason.
Well. let's see what's in the news. Icarus Obama and the Democrats fly too close to the face of a red hot angry voter and get their wings melted.
Glass Steagal II is getting serious mention. Prop desks of Goldman and the other commercial banks are at risk of extinction.
Paul Volcker, who has always spoken clear plain English, is now being heard loud and clear.
China is making a serious effort to cool their not insignificant part of the world economy.
I got my first Social Security payment January 20th. That might just be the straw...
On a different note, since I'm about to turn 50.
I know for certain:
a) markets will go up and down
b) I will die
c) no matter how cushy my dogs have it, they will still roll in something disgusting.
Things I'm pretty sure of (from movies/TV):
a) Everyone but me has a really high level of martial arts skills-
Good guys, bad guys, hookers, and vampires.
b) Everyone but me has the ability to shoot a handgun as follows:
w/killshot at 150 yards and can do it while furiously rolling on the ground.
From books and magazines:
-Everyone but me has a weed free garden.
From financial blogs/sites:
-Everyone but me was fully in cash up until mid March when they loaded up the boat. Not late Feb or early April but mid-March.
Things I suspect:
Our own Jeff from Milan is really that Italian Prince married to hottie american actress Olivia Wilde.
On a serious note: Roger, is keeping SDS a full cycle part of your approach?
Since you have a fair amount of overseas investments do you plan to use or plan to use EFU to hedge that as you do w/SDS domestically?
Thanks!
Bluesman
RW,
I am filing your comment for keeps. It is fantastic.
best,
jeff from milan, italy
I thought it was all about lending in China???
A global risk asset vomit job over all investors best sums it up
I like this blog a lot because its civil, informative, and fun. Thanks everyone.
This seems to be a classic case of the market (and media) making way too much of a story that probably won't be meaningful.
Obama's political status is not what it used to be. The honeymoon's over - it's time for the hangover.
While I voted for Obama, partially because I wanted somebody fresh in the WH, he's making a mistake with this plan. He doesn't have the juice to make it happen.
Regardless of his intentions, he's coming across as pandering to populist rage on Goldman's earnings day.
Time for a new plan.
@RW,
"We have been in a Pushmi-pullyu economic world - inflationary forces pulling one way, deflationary the other - for some time now with no clear path out. Some folks appear to believe they see the path clearly and are making rather substantial bets on one outcome or the other but, like Hussman and many others I'm sure
Somewhat delayed response here...but wanted to follow up. First, liked the story about the fog. You really have a way of making a point in an entertaining way.
IIRC, your response was previous to Hussman's weekly post "Inflation Myth and Reality". I'm assuming you read that note. Sounds to me like he believes long-term high inflation is fully baked into the cake at this point but it might take a few years to get there.
Then check this out:
http://www.econbrowser.com/archives/2010/01/inflation_fears.html
What are your thoughts? Can we get high inflation with high unemployment? Who is right here? Hussman or Hamilton.
Then you throw Shilling's piece into the mix and a dash of Hoisington, and who knows what to believe. Is it just me or do the "experts" in economics really have no clue what actually causes inflation?
Makes it tough from a portfolio perspective. If the inflation view is correct, cash is a dirty word and long bonds are lepers, and load up on the stocks, gold, commodities. But if the deflationists are right, then sit in your cash and long bonds. Of course, maybe the optimal thing is hedge both ways until (if?) things get clearer.
I can't help thinking that current government fiscal and central bank policy has us in some sort of Frankenstein econommy with no way to predict how it will behave.
Shout out to Jeff. BTW, my girlfriend is Italian. Still thinking 1166. If that 1150 turns out be the top, that would be pretty darn close. My thought is maybe we get our correction here, and this cyclical bull marches higher before the ultimate top.
According to Bespoke the S&P is still above the 50 day, and I'm guessing above the 100, 150, 200 etc.
Nothing to see here. Move along.
"For those lacking the power to extort economic rents" RW the marxist? LOL. Is that the same as 'providing products and services that are so valuable that consumers are willing and eager to buy them of their own free will'?
Bluesman that is a great riff... I really do have a nearly weed free garden though ;-) The trick is to grow a raised garden in a bedding mix not dirt. Reference: "Square foot gardening"...
@MikeC,
If we are truly "becoming Japan" then inflation is not likely to make it past the dough rising stage much less get baked into the figurative cake. If OTOH there is credible financial reform including an appropriately modernized Glass-Steagall then, along with immigration and an expanding demographic, the US should avoid the Japanese plague. Inflation could indeed become an issue then but that also implies some portion of the debt will be monetized and, with the remainder at very low interest rates, I am not persuaded the country would find it unmanageable.
My view remains cautious but positive on the whole although pessimism does tend to increase when I see the same kind of political and economic idiocy that got us where we are now over the past decade trying for a comeback.
That aside most economists are far more specialized then folks realize and I don't think there is any framework or model that captures the entire picture or even necessarily accounts for all the surprises an inflationary scenario can deliver. Better to remain heterdox I think -- Minsky is useful as is Krugman and Friedman (in the original, not as some interpret him) as are several of the behavioral economists (George Ainslie for e.g.) -- but in the end, no matter how well a model has worked in the past, portfolio construction has to build in the possibility of the unexpected: As a strategic matter I don't know of any way around that.
@Matthew: Gibe appreciated but I was referring to rent seeking (e.g., http://tinyurl.com/njhet ) so, in a word, no. [s]
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