Market Crash?

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Nomad
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Market Crash?

Post by Nomad » Thu Oct 11, 2018 12:47 pm

Looking at the markets today, almost everything is down very sharply.
UK down 2%, Japan down 3.9%, China down 3.5%
Also, the main precious metals are up and some Gold miners are up almost 10%
This is starting to look very ominous.

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theanimal
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Re: Market Crash?

Post by theanimal » Thu Oct 11, 2018 12:56 pm

Jumping the gun a bit, eh? There was a larger correction in February. We'll see what happens here with time.

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Re: Market Crash?

Post by jacob » Thu Oct 11, 2018 1:03 pm

This is merely starting to look normal again after almost 10 years of central bank goosing.
It's just that people aren't used to normal levels of volatility anymore.

The economy is still booming along now on its 9th year of steady improvements. This is a very very long good streak.

The following things are changing now:
Interest rates are increasing resulting cash and bonds becoming alternatives to equities.
The Fed is taking away the punch bowl so the market has to find another model than Fed-whispering.
Inflation might become a thing again.

The follow things are changing in the future:
Most corporations are much more leveraged in debt and "promises" of dividend payments than they used to be. This rolling debt will need to be refinanced at one point at higher interest rates.
Government deficit will exceed 1T very soon. Gov debt is financed mostly with short term debt which means much more money will go towards debt payments which means less government spending.

For now, I think it's just people changing gears trying to get used to the idea that the "free money" era is ending.

prognastat
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Re: Market Crash?

Post by prognastat » Thu Oct 11, 2018 1:40 pm

I'm not too concerned yet. We've had a long run in the market and this correction still puts us way up when looking at it in the longer term. We're currently back to where the market was about 3 months ago.

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cmonkey
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Re: Market Crash?

Post by cmonkey » Thu Oct 11, 2018 1:53 pm

Just don't hit that sell button :)

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Re: Market Crash?

Post by jacob » Thu Oct 11, 2018 3:05 pm

Incidentally, is anyone hanging out in microcaps with low P/Bs. Curious how those have been doing lately?

IlliniDave
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Re: Market Crash?

Post by IlliniDave » Thu Oct 11, 2018 4:36 pm

Dunno if RZV is a good proxy for microcaps with low P/Bs, but it's down about 4% over the last couple days, so pretty similar to the overall market.

chicago81
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Re: Market Crash?

Post by chicago81 » Thu Oct 11, 2018 5:07 pm

After seeing the dot-com crash while I was in college, and then experiencing the 08-09 crash with assets invested in the stock market... this week felt like... almost nothing for me. (And my back-of-the-envelope estimate is that my net-worth decreased by probably more than 100K in this past week or so...)

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Re: Market Crash?

Post by Dream of Freedom » Thu Oct 11, 2018 6:32 pm

Most pullbacks end between 1/3 and 2/3 of the prior move. Doing a Fibonacci retracement on the S&P 500 move starting 4/2/18 and ending 9/22/18 shows a pullback of roughly 55% of the prior move. We have broken through an important support at 2790. Our next decent support is at 2700. We haven't started making lower lows and lower highs. So I think it's still too early to get out yet, at least for me.

Lucky C
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Re: Market Crash?

Post by Lucky C » Thu Oct 11, 2018 6:41 pm

Currently mostly in cash, < 10% equities, and some bonds. I've been at roughly this allocation since January when my equity stop-losses triggered, about 5% from the January peak. S&P500 is still a couple percent higher than the point I sold in January, but I was holding mostly international which is now lower than the point that I sold. So I am happy with my flat returns this year and the Vanguard Money Market rates on my cash keep getting better.

Today I cashed in about $1k gains from a SPY put and selling some SH that I bought just last week. These are small bets intended to balance out the little equity exposure I have. If I was more daring (to a foolish degree) the gains could have been much larger - I bought the put in July and the gain was 22%. I still have some SH and believe the market will head further down in the coming months, but wanted to lock in gains today while the VIX was high and the greed-fear gauge was still at extreme fear. Depending on what the markets do in the short term, I may be tempted to buy more inverse index ETFs or index puts.

I'm posting this not because I think I have some brilliant strategy but just figured people would find it interesting, since it's probably different than what everyone else is doing. Again this is a very small % of my money, and my portfolio is really conservative right now for reasons specific to my situation. Nobody should copy me.

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Re: Market Crash?

Post by frommi » Fri Oct 12, 2018 11:04 am

jacob wrote:
Thu Oct 11, 2018 3:05 pm
Incidentally, is anyone hanging out in microcaps with low P/Bs. Curious how those have been doing lately?
The international NCAV portfolio (which is a variant of low P/B) that i track is down around 10% this year, but only because the only US NCAV stock in it is up 78%. Otherwise it would be down 14%. Similar to 2007. I was lucky to dodge this bullet as i moved out of the strategy in the first quarter.

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Re: Market Crash?

Post by jacob » Fri Oct 12, 2018 6:30 pm

A sober perspective: https://www.economist.com/leaders/2018/ ... -recession

This is not predicting any recession as much as informing us what will happen if a recession hits.

tl;dr - The central banking powder was spent during the great recession. Not having raised interest rates yet, EU and Japan have no new rounds to fire. The US have a few new rounds to fire but is dealing with a deficit of ~4% of GDP thanks to the recent tax cuts. This would be a problem but authors are hopeful that more inventive/desperate measures such as giving everybody free helicopter money might work instead.

Jason
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Re: Market Crash?

Post by Jason » Sat Oct 13, 2018 1:03 pm

Just because you get a headache, doesn't mean you have inoperable brain cancer. But then again, it could mean you do.

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Re: Market Crash?

Post by herp » Mon Oct 22, 2018 3:30 pm

frommi wrote:
Fri Oct 12, 2018 11:04 am
The international NCAV portfolio (which is a variant of low P/B) that i track is down around 10% this year, but only because the only US NCAV stock in it is up 78%. Otherwise it would be down 14%. Similar to 2007. I was lucky to dodge this bullet as i moved out of the strategy in the first quarter.
I also have a portfolio of international net nets, which YTD is down by just about the same amount. The only two minor sales I've done this year were to dump a stock whose NCAV eroded and rebalanced another since it had advanced a lot over the past couple of years. On the buy side, the portfolio has seen significant inflows relative to its size and will continue to do so.

What made you sell your net nets early this year? Don't you have confidence that buying cigar butts will work out well in the long run?

Nomad
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Re: Market Crash?

Post by Nomad » Tue Oct 23, 2018 4:10 pm

Another drop across the board today. I'm down about 5% over the last month.

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BlueNote
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Re: Market Crash?

Post by BlueNote » Tue Oct 23, 2018 9:02 pm

The news outlets have to report on the "business" category on a regular basis. This is the most boring category so they have to puff up the headlines every time a little correction comes along. "Markets Down Sharply After Fed Chief signals more rates increases" , "Stocks under pressure", "Hedge Fund manager predicts the worst is to come" etc. This could be a market crash or maybe not, nobody really knows.

I have exposure to assets that go up in value as interest rates are jacked up as well as the usual assets (common stock and bond indexes) that tend to move inversely to interest rates. My portfolio is set up like a very conventional 60/40 balanced portfolio with half the fixed income in preferred shares (heavily weighted on rate reset preferreds) which tend to follow interest rates up and down.

Bostrom
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Re: Market Crash?

Post by Bostrom » Wed Oct 24, 2018 4:06 pm

frommi wrote:
Fri Oct 12, 2018 11:04 am
The international NCAV portfolio (which is a variant of low P/B) that i track is down around 10% this year, but only because the only US NCAV stock in it is up 78%. Otherwise it would be down 14%. Similar to 2007. I was lucky to dodge this bullet as i moved out of the strategy in the first quarter.
Isn't low P/B supposed to reduce the risk? Why are the low P/B stocks down so much?

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BlueNote
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Re: Market Crash?

Post by BlueNote » Wed Oct 24, 2018 8:03 pm

Bostrom wrote:
Wed Oct 24, 2018 4:06 pm
Isn't low P/B supposed to reduce the risk? Why are the low P/B stocks down so much?
I think the value factor is classically set up as a P/B screen short on high P/B and long on low P/B for the entire stock universe and this has shown to work across geographies, markets and long periods of time so I guess it's less risky in the long run. In the short run however value stocks, in general, have been known to go down harder than the market average during downturns. This is probably part of the reason the value factor works so well, people treat value stocks like lepers during bear markets and the folks with strong hands end up making good returns when things turn around.

frommi
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Re: Market Crash?

Post by frommi » Thu Oct 25, 2018 12:59 am

herp wrote:
Mon Oct 22, 2018 3:30 pm
I also have a portfolio of international net nets, which YTD is down by just about the same amount. The only two minor sales I've done this year were to dump a stock whose NCAV eroded and rebalanced another since it had advanced a lot over the past couple of years. On the buy side, the portfolio has seen significant inflows relative to its size and will continue to do so.

What made you sell your net nets early this year? Don't you have confidence that buying cigar butts will work out well in the long run?
I expected a bear market to come around in the next two years and studied how these portfolios did during previous bear markets. And most of the time these portfolios do worse and than come roaring back when the market recovers. (but not always, 2000-2003 were an exception but at that time there were plenty of „good“ NCAV stocks available which is not the case today. I don‘t know why they do worse during such times and can only speculate that it is a matter of liquidity. When the going gets tough you want companies with preditable cashflows, low beta, high ROE and large dividends/fcf yields. (Utilities,Healthcare, Consumer defensives and REITs in similar sectors)

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