Is any of this rational anymore?

[jim555]

The market was in "melt up" mode when the pandemic was starting and nothing mattered.  Then all of a sudden the penny dropped and now it is almost approaching a panic.  Nothing in this market is rational.  The collapsing interest rates around the world were a sign of underlying weakness which was ignored.  "Multiple expansion" with no earnings growth.  The virus was a trigger for things already in place well before the virus happened.

[MustacheAndaHalf]

"gambling" typically means placing money on a bet with a risk of losing -100% of your money.

That's not a feature of the US stock market.  I'm certain the S&P 500 won't go to $0, because I'll buy it first.  If Google, Apple, GE, Exxon, ... etc are all selling for a total of $500, I'll buy 80% of the US stock market for that price.  The problem is that's way too low, and others will buy in before I do.  They'll recognize that stock ownership means company ownership, and the underlying assets aren't worthless.

Well, it is theoretically possible for the S&P 500 to go to $0, or even to a negative value, if consequent to a revolution or radical political and economic policy changes (extreme tax burdens and other liabilities), it becomes generally a net liability to own a business. The government could, for example, tax 110% of gross income of companies and also make company owners personally liable for company debts. It might then offer to take over the company in return for a mere fee of, say, 5% of the company's assets, to be paid to the government. A tax and economic policy, of course, aimed more or less directly at communism.

It isn't likely, but it is in theory possible, and it is reasonable for some persons or companies investing globally to consider the respective risk in each individual country.

I've never heard of 110% of gross income tax, even in communist countries.

In the U.S., a 110% gross income tax would lead to most in Congress losing their job - at best.  Businesses with complex overseas ownership would still be valuable, and almost every business would cheat on their taxes.  The IRS can't deal with 100% non-compliance.  Ultimately, that would be a temporary hit where things go back to normal as soon as the destructive law is repealed.  (States can also pass a Constitutional Amendment without Congress being able to do anything to stop them - so the max tax rate could become a new amendment).

The 110% gross income tax idea isn't reasonable to consider - it won't happen.

[Telecaster]

This was probably a lot easier in the days before mutual funds or index funds, when people had no choice but to pick stocks. People then would ask the question "well, how much will my company earn next year?" and regardless of how bad the newspaper headlines were, the analysis usually led them to hold the stock. Phillip Morris was still going to be selling cigarettes, Exxon was still going to sell oil, Boeing was still earning fat margins from the war, ABC was still broadcasting and selling ads...

The US stock market has always been rife with speculation.   A single trader very nearly single-handled caused the collapse the entire stock market and the US economy in 1907.  In the 60s and 70s there was group of blue chip stocks called the Nifty Fifty.   Everybody thought they were gold and bought them.  Their valuations just kept getting higher and higher, but everybody kept buying them because they were Nifty Fifty so the prices just went up and up.   Until they all went in the tank in the 1980s. 

True, buying and selling is vastly cheaper and easier with online brokers.   But as far as nutty stuff happening, it has always been like this.  I'm actually a little relieved.  Prices have been going up way faster than earnings.  A blow off was inevitable.  Better sooner than later.  And actually, this seems fairly rational.  We should expect economic impacts from the coronavirus, so future earnings will be lower.   I'm not selling, but it isn't entirely crazy.   

[John Galt incarnate!]

Or are we all simply kidding ourselves that the markets are anything other than gambling at this point?  Markets plummet on corona worries last week (forget that flu has killed 16,000 Americans this season so far, nobody cares about that).  Yesterday US deaths hit double digits and market rebounds.  Today rates get cut significantly and market drops again.  The President bullies the Fed into further juicing the already bubbly markets.  None of it seems to make any sense, everything seems to be either blind hubris or blind panic.  Is there any aspect of the market that instills confidence in you guys?  I'm not suggesting I have any reasonable alternatives, just trying to quantify what it is that I'm participating in as I bust my ass to save 50% of my income each year...

Some of the  sell-off is based upon an expectation of reduced earnings in certain industries such as  hospitality and airlines.

This aspect of the sell-off is rational.

Some of the sell-off is based upon fear, anxiety, misinformation, and ignorance.

From a dollars-and-cents standpoint, this aspect of the sell-off may be  irrational but not wholly: Since rational agents always seek to maximize their satisfaction, some investors act rationally when they sell stocks to alleviate their fear and anxiety.

Presently, I am not confident that the stock market will stabilize; there's still too much uncertainty about the virus' spread.

  If  DJIA declines another ~4000 points this week I won't be surprised.

The stock market has been up, up, up, for a long, long, long, time.

[vand]

Crude oil has gapped down 20%.. should be an interesting week.

[Buffaloski Boris]

Crude oil has gapped down 20%.. should be an interesting week.

Definitely will be interesting to watch. DJIA futures down over a thousand as I type this.

[maizefolk]

S&P 500 futures down about another 4%. If that's a correct prediction that's not even enough to crack the top 20% of losses from last two weeks of trading days.

But I've been mislead by the futures into guessing the market will open down substantially often enough that I'm not putting too much weight into it yet. Could be less than 4%. Could pull a head fake and open up tomorrow. Could be a bigger decline than 4% and we hit a circuit breaker (would only take an additional 3% decline from where the futures are right now).

[mjr]

It's a good prediction , I'd say.  The Australian market has opened over 4% down on our Monday mornig.

[ChpBstrd]

The US stock market has always been rife with speculation.   

True, but the Benjamin Graham style of analysis and stoic resistance to emotion was easier when we were focused on companies instead of "the economy". Holding might be less difficult for someone who expects good things to come out of a company than for someone who is wondering when the next recession will occur.

True, buying and selling is vastly cheaper and easier with online brokers.   

I forgot to mention this point. Holding through a correction was probably a lot easier when selling and then planning to get back in at a later time cost $1500 per trade and required a conversation with another person.

[mjones1234]

The market has lost all the gains since . . . about December. Oh. My. God!

Yep, still alot of room below!

[mjones1234]

Jesus fucking Christ.

If you can't handle a few weeks of volatility, then you need to rethink your baseline asset allocation. Better yet, maybe investing isn't for you, and you should just work until you die.

Like, were you not alive during 2008 when the market spent months dropping?

Easy partner. Stress kills. Calm...

[Buffaloski Boris]

S&P 500 futures down about another 4%. If that's a correct prediction that's not even enough to crack the top 20% of losses from last two weeks of trading days.

But I've been mislead by the futures into guessing the market will open down substantially often enough that I'm not putting too much weight into it yet. Could be less than 4%. Could pull a head fake and open up tomorrow. Could be a bigger decline than 4% and we hit a circuit breaker (would only take an additional 3% decline from where the futures are right now).

The CBOE has a 5% limit down on stock futures. The Mini SP hit the limit a little after 8 pm. It can trade above but not below that threshold for the rest of the night.

The first down limit for the NYSE is 7%.

[maizefolk]

S&P 500 futures down about another 4%. If that's a correct prediction that's not even enough to crack the top 20% of losses from last two weeks of trading days.

But I've been mislead by the futures into guessing the market will open down substantially often enough that I'm not putting too much weight into it yet. Could be less than 4%. Could pull a head fake and open up tomorrow. Could be a bigger decline than 4% and we hit a circuit breaker (would only take an additional 3% decline from where the futures are right now).

The CBOE has a 5% limit down on stock futures. The Mini SP hit the limit a little after 8 pm. It can trade above but not below that threshold for the rest of the night.

The first down limit for the NYSE is 7%.

Oh cool. Didn't know there was a stricter limit for futures than for trading during the day.

[vand]

Wow. Trading has been halted.

I have never seen that before.. and I've seen some serious sh1t over the years.

[vand]

The market has lost all the gains since . . . about December. Oh. My. God!

December 2017.. yep

[dividendman]

Jesus fucking Christ.

If you can't handle a few weeks of volatility, then you need to rethink your baseline asset allocation. Better yet, maybe investing isn't for you, and you should just work until you die.

Like, were you not alive during 2008 when the market spent months dropping?

Easy partner. Stress kills. Calm...

I get where dad jokes is coming from though.

Everyone is told from day one that you get better long term returns in the market but have a lot of short-term volatility.

But... when  the volatility happens, people freak out... how does that make sense?

If the market tanks 50% from here, I still won't be freaking out. I'll just think "well, I should probably reduce spending a bit".

[maizefolk]

Japan is now down 6%, Australia down 5.7%.

Yipes.

If I start getting freaked out I'll stop watching, but so far just interesting to see how far this thing can go in a single day.

[PDXTabs]

Japan is now down 6%,

Did they just close the market in Japan? I don't know the details of their circuit breakers and can't find any articles about it, but it would appear to be closed when it should be open.

I concur, I find this stuff super fascinating (I'm still 100% VT).

[ice_beard]

Shit's about to get real. 

[maizefolk]

I think the Japanese market always takes an hour break for lunch. At least looking at price history from last week, it looks like there is never data between 11:30 and 12:30 local time.

If I'm right, we should start getting new price data from Japan again in about 25 minutes.

[Telecaster]

I hate to sound alarmist, but it is abundantly clear our government has been lying about this and otherwise not taking it seriously.  From the decision not to use the WHO test kits, to the comically false statements made by the president and parroted by his top advisers, it is abundantly clear this issue has not been taken seriously, downplayed, and marginalized. 

So yeah, markets are panicked.  The absurd number of lies coming out of the White House should be enough to panic anyone.   

[PDXTabs]

I think the Japanese market always takes an hour break for lunch. At least looking at price history from last week, it looks like there is never data between 11:30 and 12:30 local time.

Ha!

Well, SP500 futures did just hit the circuit breaker.

[powskier]

Stable genius said virus was contained and since he only hires the best people, everything will be groovy.
Mike Pence has zero understanding of science so that's going to help a lot also.

My crystal ball says trading will get halted a few times tomorrow, I'm not really planning on "trying to catch the falling knife" until sometime this summer, the modeling shows an explosion of coronavirus cases coming over the next couple of months, then we'll get shrinking economic numbers. Big long term picture is everything's fine, business as usual, this isn't even a world war or anything big, just a little mess and an Emperor with no clothes.
None of this has ever been rational, just the best gig going.

[kenmoremmm]

I hate to sound alarmist, but it is abundantly clear our government has been lying about this and otherwise not taking it seriously.  From the decision not to use the WHO test kits, to the comically false statements made by the president and parroted by his top advisers, it is abundantly clear this issue has not been taken seriously, downplayed, and marginalized. 

So yeah, markets are panicked.  The absurd number of lies coming out of the White House should be enough to panic anyone.   

ding ding ding. winner!

[vand]

OK, european stocks look like they're going to be trading about -10% from where they closed. These are the sort of biggest volatility days we saw in 2008/2009. Hold onto your potatoes...

[Dicey]

Oh my this is fun. I am far enough removed from the worry at this point that even 6 figure losses don't bother me because I trust in the big picture and am no longer one of those with my eyes pressed to the microscope seeing the volatility up close.

It's all noise. Always has been. Hysterics makes it move and there is nothing that the newspeople and "experts" like better than instability so it will be trumpeted from the rooftops until the next big thing. The news stories may cause it to act like a roller coaster but just like a roller coaster - as long as you're not attempting to get out of the moving car while it's barreling along the track at 60 mph... enjoy the ride. ;)

It reminds me of when I was a kid and my dad and I were at a "spin the wheel, win a prize" booth at a county fair. He stayed back and watched for at least 10 minutes as the others placed bets and walked away winners or losers based on the spins. And he observed the wheel didn't spin true; it had a wobble, and that wobble caused it to land on the same few numbers consistently over time. He stepped up once he felt he'd watched long enough, place a bet, and won. Made another one, won again. Got two very nice toys for his kids for pennies, and also explained what he'd done so it didn't feel so much like gambling. It still was taking a risk he explained, but it was a calculated risk based on knowledge and assessing how things worked.

It is the same thing in investing. Don't rely on the noise or trust blindly that the pundits screaming at you to buy or sell aren't lure you in to play their games. Do your own research, get comfortable with your own knowledge and understand the basics. Playing the game is still the best way to win. Just make sure the game isn't playing you. ;)

@Frankies Girl, I love this story. You are a treasure and I'm glad you still hang out here, long after FIRE.

[Brother Esau]

OK, european stocks look like they're going to be trading about -10% from where they closed. These are the sort of biggest volatility days we saw in 2008/2009. Hold onto your potatoes...

In the future, everyone will be like..."do remember where you were on March 9, 2020?"

[davisgang90]

The market has always been a schizophrenic beast.  The only truism is that over time it goes up at a rate significantly better than inflation.

If the current gyrations are giving you pause, you need to relook at your asset allocation plan and stop watching the daily hysteria.

[maizefolk]

OK, european stocks look like they're going to be trading about -10% from where they closed. These are the sort of biggest volatility days we saw in 2008/2009. Hold onto your potatoes...

We're about halfway through the trading day in most of europe now and it's looking like "only" 6-7% down.

Japan made up a percentage point from when I went to sleep and closed at -5%, Australia just kept slumping and closed down -7.3%.*

[ol1970]

Well the first 7% circuit breakers kicked in right at the open.  Interesting times!  Markets now below where they were 24 months ago.

[HPstache]

Well the first 7% circuit breakers kicked in right at the open.  Interesting times!  Markets now below where they were 24 months ago.

Just saw that.  Interesting times indeed!

[maizefolk]

So I think the intent of the 7% circuit breaker is to help prevent flash crashes in the absence of news caused by algorithmic trading gone wrong. But in this scenario I wonder if it is doing more hard than good. Going into trading after the weekend we knew a 5-7% drop was probably in the cards from futures and international markets.

Now instead of ripping the bandaid off all at once and getting new our price discovery, people have an extra 15 minutes to stew and worry about how much further it is going to fall and queue up more sell orders for when the market reopens.

[rab-bit]

The halt in trading seems to have calmed things down a bit, at least for the moment.

[ChpBstrd]

I hate to sound alarmist, but it is abundantly clear our government has been lying about this and otherwise not taking it seriously.  From the decision not to use the WHO test kits, to the comically false statements made by the president and parroted by his top advisers, it is abundantly clear this issue has not been taken seriously, downplayed, and marginalized. 

So yeah, markets are panicked.  The absurd number of lies coming out of the White House should be enough to panic anyone.   

It’s all fun and games having an entertainer as leader when things are going fine. We can laugh at his tweets and make social media memes while our stocks go up and recruiters call us with promotion opportunities. Then one day a crisis strikes and everyone simultaneously realizes we have a clown in charge. He’s literally orange.

[DadJokes]

I hate to sound alarmist, but it is abundantly clear our government has been lying about this and otherwise not taking it seriously.  From the decision not to use the WHO test kits, to the comically false statements made by the president and parroted by his top advisers, it is abundantly clear this issue has not been taken seriously, downplayed, and marginalized. 

So yeah, markets are panicked.  The absurd number of lies coming out of the White House should be enough to panic anyone.   

It’s all fun and games having an entertainer as leader when things are going fine. We can laugh at his tweets and make social media memes while our stocks go up and recruiters call us with promotion opportunities. Then one day a crisis strikes and everyone simultaneously realizes we have a clown in charge. He’s literally orange.

So, if spread of the disease ends up being no different in the U.S. than it is in other countries, is Trump still to blame?

I have no data on the rate of spread - I'm just posing a hypothetical question.

[PDXTabs]

So, if spread of the disease ends up being no different in the U.S. than it is in other countries, is Trump still to blame?

It doesn't matter, because in other countries the response was much more forceful. Italy, South Korea, and China shut down industry and spun up testing much faster than the USA. South Korea is now testing 10K per day and you can get a test in a drive through. There are health care workers with symptoms who have treated Covid-19 patients who are still waiting for tests in the USA.

Which is a long way of saying that the spread will be worse in the USA.

[HPstache]

So, if spread of the disease ends up being no different in the U.S. than it is in other countries, is Trump still to blame?

It doesn't matter, because in other countries the response was much more forceful. Italy, South Korea, and China shut down industry and spun up testing much faster than the USA. South Korea is now testing 10K per day and you can get a test in a drive through. There are health care workers with symptoms who have treated Covid-19 patients who are still waiting for tests in the USA.

Which is a long way of saying that the spread will be worse in the USA.

Ok, but if it's not worse?

[PDXTabs]

Ok, but if it's not worse?

Ok, but what if my ex-wife buys me a Ferrari?

EDITed to add - then it could have been that much better with actual preparedness.

[maizefolk]

Out of curiosity, how would you define "no different than other countries"?

There are about 195 countries in the world, depending on which ones you recognize and which ones you don't. The USA is currently #8 in terms of total cases, #6 in terms of total deaths, and 43rd in total cases normalized for population, and we haven't even started testing in any sort of systematic way yet.

[Boofinator]

Which is a long way of saying that the spread will be worse in the USA.

I agree, to some extent. The only thing the U.S. has going for it right now is a smaller population density* than China or Italy, which might limit growth. Otherwise, we fell flat with initial testing, meaning the reported cases in the U.S. are severely underestimating the actual number of cases. And my hunch is that the commander-in-chief will be hesitant to implement any kind of large-scale quarantine measures, because presumably it would reflect more poorly on the business cycle than the spread of the disease would.

*Population density is being used as a proxy for average social density, which is really what drives the spread of disease, though I'm not familiar with any data showing typical values of the latter.

[PDXTabs]

I agree, to some extent. The only thing the U.S. has going for it right now is a smaller population density* than China or Italy, which might limit growth.

It is true that the US has a lower population density than Italy. It is also true that the Italian outbreak is centered in Lombardy which is where Milan is. Milan's density is almost identical to that of San Francisco, which by the way is less dense than New York City.

[DadJokes]

Out of curiosity, how would you define "no different than other countries"?

There are about 195 countries in the world, depending on which ones you recognize and which ones you don't. The USA is currently #8 in terms of total cases, #6 in terms of total deaths, and 43rd in total cases normalized for population, and we haven't even started testing in any sort of systematic way yet.

I would define it as % of total population not total number of cases. That would still feel like apples to oranges due to population density differences.

I'm sure he'll deserve some blame (less than others) by the end of this. I just prefer to wait until I have all the information.

If we really wanted to stop the spread, we should have shut down international travel two months ago, and airports should have been shut down entirely a few weeks ago if it still spread. Would any politician have done that?

More test kits should have been available at hospitals. This Washington Post article suggests that there were a series of bungles at the CDC with bad test kits, along with a federal policy that prevents hospitals from developing in-house test kits, causing the shortage.

People who test positive should be quarantined, and not self-quarantined, since apparently people are too stupid to do that. If we do go down the self-quarantine route, then there should be legal penalties for violating that.

I'm no epidemiologist, but those measures seem like common sense to me.

I know it's easy to hate Trump, but others are more to blame at the moment. I realize, however, that nothing will stop certain people from placing 100% of the blame on the president.

[PDXTabs]

I know it's easy to hate Trump, but others are more to blame at the moment. I realize, however, that nothing will stop certain people from placing 100% of the blame on the president.

He is the guy that fired the pandemic response team. He also could have instructed the CDC to just use the WHO tests at any point.

[kenmoremmm]

trump also slashed budget for the CDC, resulting in 80% slashing of the budget for this exact situation (monitoring for new viruses). details....

by the end of all this, the US will be the country most impacted by the virus because we will never have the resolve to shut everything down like other countries. a lot of old people will die.

side benefits:
social security will get a breather
democrats might be able to win some more states
global pollution will decrease for a bit
might finally be the impetus to get single payer healthcare

side drawbacks:
riots
conspiracy theories
continued erosion of trust in the US
10 year goes negative
global recession

[HPstache]

trump also slashed budget for the CDC, resulting in 80% slashing of the budget for this exact situation (monitoring for new viruses). details....

by the end of all this, the US will be the country most impacted by the virus because we will never have the resolve to shut everything down like other countries. a lot of old people will die.

side benefits:
social security will get a breather
democrats might be able to win some more states
global pollution will decrease for a bit
might finally be the impetus to get single payer healthcare

side drawbacks:
riots
conspiracy theories
continued erosion of trust in the US
10 year goes negative
global recession

Can we get a fact check on if Drump actually slashed the budget of the CDC?  Or did you miss a little word in there, like "tried".

[kenmoremmm]

trump also slashed budget for the CDC, resulting in 80% slashing of the budget for this exact situation (monitoring for new viruses). details....

by the end of all this, the US will be the country most impacted by the virus because we will never have the resolve to shut everything down like other countries. a lot of old people will die.

side benefits:
social security will get a breather
democrats might be able to win some more states
global pollution will decrease for a bit
might finally be the impetus to get single payer healthcare

side drawbacks:
riots
conspiracy theories
continued erosion of trust in the US
10 year goes negative
global recession

Can we get a fact check on if Drump actually slashed the budget of the CDC?  Or did you miss a little word in there, like "tried".

https://fortune.com/2020/02/26/coronavirus-covid-19-cdc-budget-cuts-us-trump/

[HPstache]

trump also slashed budget for the CDC, resulting in 80% slashing of the budget for this exact situation (monitoring for new viruses). details....

by the end of all this, the US will be the country most impacted by the virus because we will never have the resolve to shut everything down like other countries. a lot of old people will die.

side benefits:
social security will get a breather
democrats might be able to win some more states
global pollution will decrease for a bit
might finally be the impetus to get single payer healthcare

side drawbacks:
riots
conspiracy theories
continued erosion of trust in the US
10 year goes negative
global recession

Can we get a fact check on if Drump actually slashed the budget of the CDC?  Or did you miss a little word in there, like "tried".

https://fortune.com/2020/02/26/coronavirus-covid-19-cdc-budget-cuts-us-trump/

Here's my question, did the budget ever actually get slashed or was the reduction you're referring to in anticipation of slashes that never happened (as Drump has tried many times to do but has been stopped by congress).  Serious question because I have seen a lot of mixed fact checks on the the issue.  Such as this:

https://www.snopes.com/fact-check/trump-cut-cdc-budget/

[PDXTabs]

Their FY2019 budget was 10% less than FY2018. I'm not sure about prior years.

[BicycleB]

I don't know exactly what passed re the CDC budget overall. But the President's 2020 CDC budget proposal contains a line item for "Emerging Infectious Diseases" that held steady at roughly $185 million. You have to read the fine print within the overall "Emerging and Zoonotic Diseases" section, which was proposed to drop from $612 million in FY2019 to $509 million in FY2020, roughly a 16% to 17% cut.

https://www.cdc.gov/budget/documents/fy2020/fy-2020-detail-table.pdf

As best I can see, overall Emerging and Zoonotic Diseases section is down from the end of the Obama era, but higher than it was during the middle of it. The link below shows the section's budget as $390M in FY2014, $405M in FY2015, and $699M in FY2016.

https://www.hhs.gov/about/budget/budget-in-brief/cdc/index.html

I'm more concerned about the avoidance and hiding of unpleasant facts, and especially the resulting slow development of testing capacity.

***
Re rationality, at least the market is responding to a new development, not just a human fad. I would argue that for a long term investor, this is normal and should be already be accounted for in your plan.

The most rational adjustment you should make is to wash your hands carefully so that you're alive long enough to be a long term investor!

[maizefolk]

Out of curiosity, how would you define "no different than other countries"?

There are about 195 countries in the world, depending on which ones you recognize and which ones you don't. The USA is currently #8 in terms of total cases, #6 in terms of total deaths, and 43rd in total cases normalized for population, and we haven't even started testing in any sort of systematic way yet.

I would define it as % of total population not total number of cases. That would still feel like apples to oranges due to population density differences.

Okay, I think those are fair enough criteria (assuming we ever get to the point where potentially symptomatic people are being regularly tested).

With regards to population density, that's definitely a structural advantage in our favor both physically and socially. Americans are more spread out across the countries, even in our big biggest cities we don't live at the density of many european and asian cities, and anecdotally, we are physically much more reserved (more personal space, less physical contact between friends and family members, no cheek kissing as aa greeting).

So if we ended up with an outbreak that was proportionally as bad as South Korea or Italy, I would say that already means we did a much worse job of responding, since we started out with those structural advantages just from our geography and culture.