Mar

9

Perhaps it would not be remiss to express some thoughts I had over night.

1. Friday was perhaps the greatest loss in wealth ever.

2. Extraordinarily rare since the 90s for both stocks and bonds down 200. Actually only once since 1999. That in 2009.

3. Useful idiots attribute it to revision in expectations of fed increases.

4. But actually the rise had nothing to do with that but had to do with discounted value of returns on capital and lowering of inflation targets.

5. Amazing that good news can cause so much havoc.

6. But the market is the market. It will do what it wants.

7. But of course the stock market vigilantes, and now the bond market vigilantes will make it do the rite thing, especially before election.

8. Ephemeral things can cause great consternation.

9. The threat is worse than the execution.

10. They got me big yesterday. I actually make a nice little profit in SPU by getting out at 10 am.

11. However, I lost big in bonds, very big.

12. One will have to be more careful as the markets rise to new highs again. 

Jeff Rollert writes: 

It felt more like a systematic deleveraging. A balance sheet shrinkage, on both sides.

Anatoly Veltman writes: 

I think there is an important element missing from all these statistics. A drop such as Friday's is felt big by an SP futures long, because the SP futures long is very leveraged, while his currency exposure (hedge) is straight cash, unleveraged.

On the other hand, the real one day depreciation is miniscule for a holder of US stocks - as USD gained so much on the day. Compare a holder of US stocks Friday with an EU or UK person who held no stocks but their cash in the bank - and that person lost plenty, without being Long of US stocks.

Hernan Avella comments:

Anatoly, the reason why it was indeed very big is because you did not have the buffer of buying bonds, golds or oil. Furthermore, the 50-50 theoretical portfolio lost big on Friday on top of a bad streak of 5 down days out of the last 7, and now it's slightly down on the year.Now, when one accounts for stock market appreciation over the five year period as strictly "fundamental", "value of returns on capital", etc etc - one yet skips over a harder to quantify element of market truth: that Central Banks, with their long-standing zero interest policy, have left little alternatives for world wide investors but to pour cash into stocks the past five years. Some of that cash hasn't gone all in based on fundamental projections, it's just gone in. Like in "market will do what it wants". Enter one of the current day hot factors: EU is in dis-array. There is a lot of European capital that isn't investing based on long term returns on equity these days…They are paralyzed in fear of what next shoe will drop. So corrections such as Friday's are inevitable


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2 Comments so far

  1. daniel watkins on March 9, 2015 4:14 am

    Agree.

    Few realize that 3/6/15 was a crash. It was a totally unexpected double whack and it came as a bolt out of the blue. The news was not worthy of a dangerous pop-up thunderstorm that could be seen in the distance, one we sailors and boaters have learned to run from.

    Does it matter that it was a Full Moon Friday? My work had 3/6/15 circled as the end of two major corrective cycles in the SPX: One going back to 7/24/14 and the other starting on 9/19/14. For that reason, I believe it was a washout low, a major low, a day of significance, a blast before a huge new leg up.

    But I had no idea the finish would be so Wagnerian. I was caught very long in my all-stock portfolio and will stay that way, maybe adding in the first hour by way of leverage. When getting off the mat, best to do so quickly.

    The lesson?: Beware Full Moons with important reports; have every Full Moon marked on your calendar.

    May the Great Goddess Fortuna look over Sir Vic and us traders, one and all.

  2. kalyan on March 9, 2015 10:10 am

    I see and hear a lot of press/television content on “How the dollar rally in response to the fed hiking rates will crush the emerging markets”. Just wanted to find out what happened to markets when we last had a similar situation.

    My search was not difficult because similar thing happened in 2002 and what happened the next five years is a revelation.

    Fed fund rate rose from 1% to 5.25% from 2002 to 2007

    Dollar index which was 120 in 2002 dropped to 76 by the end of 2007.

    S&P rose from 880 in 2002 to 1546 in 2007

    All major EM indexes like Brazil, India, Hang seng and STI rose many fold during this time.

    Going by this data, the bull market has just begun!!

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