"Two Days Before The Day After Tomorrow"

The above title (think about that one) refers to a South Park episode about global warming.

There is obviously a fair bit of heat on global markets right now.

The video I posted yesterday morning was obviously made Monday afternoon before things started to happen and so all was still right with the world.

The reason to bring it up again is to reiterate my belief (and by extension how I act on my belief) that this sort of thing happens, there is nothing unusual about it and so there is no need to assign emotion to this if you are properly diversified and are in touch with how your portfolio is likely to react to extreme moves in either direction.

I noted that Asia was likely to get smacked hard (although China was up 3.94%) which is what happened and Europe continued to decline too.

Obviously the US market is indicated higher but I don’t have any feel or hunch for whether this reverses today or not.

I will say that it did not feel like a lot of people (based on what I read, watched or the many comments left on this blog) were feeling real pain or angst. If this assessment turns out to be correct then the decline may not end up being very constructive or cathartic.

Any outcome is of course possible but the 8% correction last spring turned out to be fuel for a very nice lift and the anguish then was palpable. If the market turns around and goes higher starting today then I don’t think the correction will have turned out to be meaningful.

This notion is not so much an attempt to predict what will happen but to try to set up visibility for the next few weeks. If the bottom came yesterday or comes today and we go back to 1450 or maybe 1475 I might look to take action to reduce exposure a tad.

If the panic continues as a panic and we approach last springs’ 8% or the elusive 10% decline I would probably look add some exposure.

Historically, panics are better to buy and gradual declines are better to sell. For now there is no outcome yet.

11 Comments

  1. A real economy downturn is happening, regardless of China’s regulators trying to cool off their domestic stock market. I’m hoping there will be some sort of selloff in foreign markets like Brazil and India to provide buying opportunities. Housing in US and subprime lending, even regional banking, are very problematic based on sharply declining housing market, which isn’t over yet.

    Funny panic reaction with Gold yesterday, but that’s probably because of panic selling and margin covering. Gold’s coming back strong already, which as a safe-haven bet is to be expected.

    Whatever was paying a nice dividend on Monday will be a little better by Friday afternoon, is my guess.

    Reply
  2. “Historically, panics are better to buy and gradual declines are better to sell. For now there is no outcome yet. “

    Great advice.

    Reply
  3. It’s easy to get caught up in the conspiracy mind set when I hear talking heads make it sound like the pullback was the result of mechanical breakdowns…whatever….the listener would be confused,vulnerable and open to buying back in or to just holding on. It was a rare comment that said, we just don’t understand yet and that this is serious stuff. CNBC only encourages me to support the other yack that central bankers and hedge funds exploited a crack in the dam. When in doubt and uncertainty runs this high cash is not bad. If we don’t get a more constructive pull back, re-entry is going to be harder and filled with more risk. On the other hand, TA says the trend is broken and my ear says the uncertainty quotient is too high. Ummm, what’s that guy Hussman doing.

    Reply
  4. ROGER,

    ANY THOUGHTS NOW?? IS SELL-OFF OVER??

    Reply
  5. Anon 8:23, this one might be. Assuming it is then there will be others and one of them won’t stop so, apropos Roy’s comment, y’all ready for that one?

    Interesting speculation on this particular downdraft that aligns with one of my ongoing concerns. In the initial falloff there was a delay in tabulation of the DOW index and there is some speculation that it was this that kicked off the big downdraft because a lot of computers are looking at that index and will automatically trigger large-scale sales at specified break points. The sell-off was compounded later in the day by brokerages liquidating overdrawn margin accounts particularly in cases where they could not reach the account owner.

    In short I think it possible that it was glitches in the system that caused the drop and not China, etc, etc, etc. IOW the system has reached a level of complexity where spontaneous faults and event cascades are increasingly probable and there are currently far more such faults and events than we realize.

    PS: Very minor quibble with one of Roger’s points: Selling into a gradual decline is okay but selling into strength is better.

    Reply
  6. Anon 8:23,

    I know you did not solicit my opinion, when you asked “ROGER,
    ANY THOUGHTS NOW?? IS SELL-OFF OVER??” But here goes, “Yes, the sell off is over. Beg, borrow or steal as much as you can and back up that truck. Buy! Buy! Buy! This market will rage higher. Just look at today’s action – higher by 1% across the board. If you didn’t buy on the close yesterday, do not worry. You missed out on just 1%. This market will zoom 223% by the end of this year.

    Reply
  7. I was hoping, just for laughs, that someone would go on CNBC yesterday and say:

    “Now is clearly the time to panic.”

    Reply
  8. rw: your comments, as I often find them, are compelling but perhaps the sell off has more substance prior to 3pm, not afterwards, ergo, the mkt is now finding that equilibrium.

    Reply
  9. You’re right Anon 9:36, the DOW glitch wasn’t corrected until about 3:00 and then showed as a 200 point gap down (bet that lit up computer screens from here to Moscow), so clearly a lot of selling was going on before that. My point was really centered on the glitch itself, the likely response of program trading algorhthms afterward (say between 3:00 and 3:01 PM), and the probable response of brokerages to the resulting over-margined accounts.

    I guess what I was saying is that events such as this make equilibrium difficult to maintain or even clearly define and can lead to chaotic bifurcation: The system may spring back further than it should or it can crash or it can do one and then the other in less time than it takes to hit the sell button (not that it would do any good because the brokerages are all trading their own accounts ahead of everyone but their biggest clients and SOES has completely jammed up).

    In a nutshell I agree the more likely outcome is the system will find a new level but I also believe the probability of system faults or mal-events is higher — ‘fatter tails’ if you will — then generally recognized. Doesn’t stop anyone from doing business but might dictate how much is on the table at any one time. JMO

    Reply

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“Two Days Before The Day After Tomorrow”

The above title (think about that one) refers to a South Park episode about global warming.

There is obviously a fair bit of heat on global markets right now.

The video I posted yesterday morning was obviously made Monday afternoon before things started to happen and so all was still right with the world.

The reason to bring it up again is to reiterate my belief (and by extension how I act on my belief) that this sort of thing happens, there is nothing unusual about it and so there is no need to assign emotion to this if you are properly diversified and are in touch with how your portfolio is likely to react to extreme moves in either direction.

I noted that Asia was likely to get smacked hard (although China was up 3.94%) which is what happened and Europe continued to decline too.

Obviously the US market is indicated higher but I don’t have any feel or hunch for whether this reverses today or not.

I will say that it did not feel like a lot of people (based on what I read, watched or the many comments left on this blog) were feeling real pain or angst. If this assessment turns out to be correct then the decline may not end up being very constructive or cathartic.

Any outcome is of course possible but the 8% correction last spring turned out to be fuel for a very nice lift and the anguish then was palpable. If the market turns around and goes higher starting today then I don’t think the correction will have turned out to be meaningful.

This notion is not so much an attempt to predict what will happen but to try to set up visibility for the next few weeks. If the bottom came yesterday or comes today and we go back to 1450 or maybe 1475 I might look to take action to reduce exposure a tad.

If the panic continues as a panic and we approach last springs’ 8% or the elusive 10% decline I would probably look add some exposure.

Historically, panics are better to buy and gradual declines are better to sell. For now there is no outcome yet.

Submit a Comment

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