This is the Dow Jones tonight:
Is that a crash? No, I don't think so.
Is that the start of a long overdue correction? It could be.
And if so these things rarely turn out well. This was noted in the FT today:
Gavyn Davies, chairman of Fulcrum Asset Management, says his company's nowcasts, which combine all available data into an estimate of current economic performance, suggest the world economy is growing at a 4.5 per cent annual pace with advanced economies expanding far above their sustainable rates.
I suspect he many soon find that those rates really were unsustainable after all.
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Certainly not a crash. Only correcting about 4 or 5%.
Opportunity for the market makers to sweep up some winnings I expect. The fall will have torn through most people’s stop losses and the dip will provide an opportunity to buy.
This is the celebrated efficiency of the market at work. Impressive isn’t it ?
Good job it’s only a bit of fun and noboby has their pension riding on it.
” Only correcting about 4 or 5%. Opportunity for the market makers to sweep up some winnings I expect.”
Quite probably, but how confident can they be? It could also fall again, and again…
Marco Fante says:
“… but how confident can they be? It could also fall again, and again… ”
Everbody knows it will fall again, and again ….it always does. Nobody knows when and how far and that’s what keeps them playing.
If they’re still wearing shirts they’re still confident. 🙂
A little hint of “flash crash” there maybe? Exacerbated by ETFs, High Frequency Trade (HFT) computers and trading robots (EAs)?
I think it quite likely but impossible to prove without the counterfactual (knowing what would have happened otherwise if all those things didn’t exist).
I suppose that these will be out of date before anyone else reads them but, anyhow:
https://www.cnbc.com/2018/02/05/the-dow-just-touched-correction-territory-here-are-the-stocks-that-led-the-drop.html
https://www.vox.com/policy-and-politics/2018/2/5/16975786/dow-crash-today-trump-market-correction
Marco Fante says: “flash crash” ? and “trading robots ”
I was watching Bloomberg last night from 7:30 with Trumps speech in Ohio and the Dow about -2.5%. Shortly after it dropped very quickly to -6% presumable next to no one was buying. This -6% was close to the 100 day rolling average for the index so it looks like the “trading robots” buying positions kicked in and brought the market back to -3% almost as quickly. So they may well have stopped a bigger loss. The index drifted lower again later.
The interesting thing will be to see how many people have a position set to buy at that threshold today – should it fall to there again today.
The folks at Bloomberg seemed a bit surprised when the Dow dropped like a stone through the 50 day rolling average and a lot of their commentators were sounding a bit in denial.
The volatility was (comparatively) massive – the interaction between the different managed funds and tracker funds is fascinating – are there enough fund managers investing on value?
The really interesting thing is the amount of people who dismiss the chances of a proper crash, whilst still holding the belief that the market is over valued.
Ken
The robots lost from that buying splurge
They’re programmed for normal trading
We may not see that for a few days
Richard
“The robots lost from that buying splurge”
If that’s right, Richard, then the new game is going to be ‘rob a robot’.
I gather the stock exchanges have put a mechanism in place that stops all trading if there is a fall more than a preset percentage move in a given time span.
That will give the nerds and geeks time to reprogramme before the exchanges open again.
Do you know, I think this time it really will be different. But I expect we’ll end up in the same place.
Yep
“The robots lost from that buying splurge”
Agreed they are losing at this point. That’s why, “The interesting thing will be to see how many people have a position set to buy at that threshold today — should it fall to there again today.”
As Andy Crow said (in a slightly different context) “That will give the nerds and geeks time to reprogramme before the exchanges open again.”
Are the fund advisors advising automatic trades to their clients (or on their own portfolios) at the same level today? Probably not the same level – so the parameterisation of the programming will have changed. The dynamic has changed but by how much – which direction?
Andy Crow also said “Do you know, I think this time it really will be different. But I expect we’ll end up in the same place.”
I fundamentally agree with this. I’m not convinced any human or AI can work out how the market mechanics which have changed since the last crash would work in the next crash (so history might not be a good guide) so we might not know a crash is happening even when we are a few days into it!
(I was wondering this last night hence I watched Bloomberg for the first time in ages but I’m none the wiser!)
Richard said “normal trading… we may not see that for a few days” . True that!
Just saw this headline in The Guardian:
“Panic on markets as global economy surges … Huh? ”
https://www.theguardian.com/world/2018/feb/06/tuesday-briefing-panic-on-markets-as-global-economy-surges-huh
That kind of sums it up nicely although “surges” is a gross exaggeration. As previously noted, the markets currently require a stagnant economy with higher unemployment and low wages. Failing that a tiny little interest rate rise, or the mere fear of a rate rise, might burst their bubble.
It seems that any correlation between financial market booms and prosperity in the real economy has ceased to to exist. Perhaps the period 2009-2018 will become known as the Great Decoupling.
Your second para is spot on
I meant to say it this morning
And then I had to leave in a hurry
Given that we have seen a lot of credit creation (a lot of which has been used speculatively) I think that we are in for some sort of high impact event.
What might make it different this time is that if I remember correctly there were advanced warnings about this happening some time ago to the Banks and they may be better prepared for it this time.
However, as is alluded to here, even though what might happen may be better contained this time in the finance sector, the real economy may still suffer as a result. Because…well…unfortunately that is how things seem to work at the moment.
It still goes to show that as long as we continue to tolerate a speculative economy alongside a real one then there is a potential for human suffering. The idea that the speculative economic should be conjoined with the real economy has to be eradicated.
The only answer is more intervention and regulation of banking speculation in order to ensure that effects of the risks being taken are met fully by those pushing this crap and not by the rest of the population.
We also need to price the use of this money more effectively and differently – higher risk speculative activity should attract higher different interest rates than the rest of the economy and only money used in the real economy needs to be low interest say at the moment to stimulate demand for real products, services and projects (I think this is what the late economist Richard Douthwaite advocated).
When the speculators win – they keep it all. When they lose…..they get QE and the financial sector even creates a market out of crashes by insuring products they know are worthless pay out.
Yet we are told markets ‘reward performance’.
No – financial markets reward bullshit and ‘irrational exuberance’ (which is neo-lib speak for ‘greed’); they reward liars who know that the Joe public and sleeper agent finance folk who masquerade as MPs are walking behind them cleaning up their merde every time this happens with money that could improve everyone’s lives.
As someone else has said on this blog today, we need to put the finance sector and its cronies in Parliament on notice that we’ve had enough and it is game over. Understand? Game Over.
Pilgrim Slight Return says:
“…. the Banks [..] may be better prepared for it this time.” Yeah right !
“However, as is alluded to here, even though what might happen may be better contained this time in the finance sector, the real economy may still suffer as a result.”
I can think of no reason to believe that any sort of financial sector disruption will not be highly contagious. I don’t think it will matter very much where it starts – which sector , which country. The ‘real economy’ is up to its ocksters in hock to finance. Two drunks holding each other up. Does it matter which topples first ?
‘There are a bunch of concerns fueling the selling.
One is the worry that the U.S. Federal Reserve will raise interest rates faster than previously expected. That was triggered by U.S. jobs data on Friday that showed wage growth is picking up — which could mean faster inflation.
When interest rates rise sharply, stocks often fall. Higher rates can eat into corporate profits. Rising rates and inflation can also cause ructions in bond markets.’ (http://money.cnn.com/2018/02/06/investing/stock-market-turmoil-global/index.html)
The strange this is that some heterodox economists point out that rising interest rates = inflation ( despite central bank orthodoxy being the opposite. The inflation could come from bond yields ( interest channels operate like a fiscal stimulus) combined with the interest rates acting as a price setter. The response to this will be more interest rate hikes which will have the opposite effect to the one intended ( or supposedly ‘intended’ -nudge, wink).
As usual the effect will be to hammer poor countries whose debt is denominated in dollars.
The last point is particularly serious
Simon Cohen says:
‘There are a bunch of concerns fueling the selling.
“One is the worry that the U.S. Federal Reserve will raise interest rates faster than previously expected.” Is there a Jerome Powell factor in this. An unknown hand on the tiller ? Is that making traders nervous ?
“When interest rates rise sharply, stocks often fall. Higher rates can eat into corporate profits.” There’s a lot of money betting it will be worse than just sqeezing profits, there are expectations of major corporations collapsing under the strain of increased interest rates. (I’m not saying they’re right, but they are obscenely wealthy and I’m not so I guess they know stuff I don’t)
As for forecasts-look what they said about housing (UK):
‘UK house price growth to slow dramatically in 2018, say experts’ (Grauniad Dec 26 2017)
Then:
‘Surprise rise in UK house prices as lack of homes for sale fuels lift’ ( Feb: 1st Grauniad).
Mystic Meg anyone? or just lack of ability to see what is before our eyes?