The Fed is actually considering buying equities

[zico]

I'm still mystified by what is happening in the markets. It was surely pretty obvious that if you close down economies and make virtually everyone stay at home, you can stop the spread of a virus. But the market seems to be treating this as an unexpected happy event.
However, the converse also applies. If you re-open economies, then the virus continues to spread.
What most countries are in the process of achieving is tanking their economies and putting everything into the hands of the government, in exchange for "only" about 20,000 deaths.

Let's assume we keep lifting and re-imposing lockdowns as seems to be the generally accepted strategy. So, re-open economies for 2 weeks, then shut them down for 12 weeks and get another 20,000 deaths. Repeat for 3-4 cycles before mass immunisation is possible, but even then people will be wary of interacting with others until the immunisation is complete. But then what? Are companies simply going to open up shop, and everyone carries on as before, only consumers can overspend wildly with all the money they saved? Won't consumers have been feeling the pinch, cautious in their spending, and wary of the next pandemic?

After the 2008 financial crash, bankers lost a year's worth of bonus, had to pay 5% extra tax for 2 years, but otherwise, they've been able to make out like bandits. Will societies around the world simply accept the billionaires have been cushioned through this crisis at the expense of ordinary people and ordinary lives. Will people be happy to go back to full-time work to add more billions for Jeff Besoz and co? It seems unlikely to me.

[ursaminortaur]

I'm still mystified by what is happening in the markets. It was surely pretty obvious that if you close down economies and make virtually everyone stay at home, you can stop the spread of a virus. But the market seems to be treating this as an unexpected happy event.

Which markets are seeing this as an "unexpected happy event" ? I seem to see large falls having happened with some occasional rallies as slightly better news appears on the lockdown being put in place and appearing to slow the increases in case numbers and deaths. I see companies suspending and cutting dividends (and also staff bonuses). I see unemployment rising as companies lay off workers even with promised government measures. True in the longer term there will be those who will probably make a good profit by buying at these lower prices but I don't see that as "the market ... treating this as an unexpected happy event".

[odysseus2000]

dealtn
So do you think the market will stay low for you once all those "unknowns" become "knowns"?

I have no idea.

I can easily argue things both ways and that is not a position I am comfortable with.

I also don't know if "low" is where we were in later March, or a lot lower.

As things are many investors are aggressively buying, there was a simultaneous break yesterday with the crowd taking the ask and that is pulling the market up. Is this rational, or the Padlovian response that when markets are on sale, its a time to buy, a good rally within a bear market which is often seen, to be followed by another leg down.

I am not happy to be only partially involved in this good rally, but I would be a lot less happy if I was to join this buying and then get caught by another leg down.

The recoveries from 2000 and 2008 took years and there were tons of opportunities to make out like bandits in the move back.

What makes me most nervous is what the politicians will do and what munitions will be developed and then how market participants will view the developments.

The situation as I see it is unprecedented for the economy with all the conditions for a severe recession, but the market currently wants to believe that there will be solutions and if it is the Fed buying equities this won't affect individual investors and so now is the time to load up.

Jesse Livermore, portrayed in Reminisence of a Stock Operator, noted on several occasions when the market completely ignored bad events, rallying strongly and then suddenly took note of them and reversed.

So I don't view the market participants behaviour as new or wrong.

The market is what it is and does what it wants and it doesn't care what I think or do. By contrast I care about my money and I do what I think is safest for it, always considering the potential downside before considering potential upside. That is just me, influenced by my experience. Everyone else will be different and I may be completely wrong, but to think one think and do the other is the stuff that can really screw with my mind, so better for me to do what I think is right and accept that I might be wrong.

Regards,

[dealtn]

After the 2008 financial crash, bankers lost a year's worth of bonus, had to pay 5% extra tax for 2 years, but otherwise, they've been able to make out like bandits.

Except the ones that lost their jobs, their wives and families, their mental health, or took their lives.

Sorry to rain on your blame the bankers tirade, but in many cases, some of whom known to me personally, it really wasn't that much fun. It is very easy to make sweeping generalisations, but it really wasn't the case that the majority of bankers caused much of the financial crisis, and they generally suffered a lot throughout that period, even the ones that remained in employment. The vast majority were what might be referred to as "normal human beings".

This "make out like bandits", as well as being untrue, adds very little to a thread on the Macro Board. Take it elsewhere if you want to.

[zico]

I'm still mystified by what is happening in the markets. It was surely pretty obvious that if you close down economies and make virtually everyone stay at home, you can stop the spread of a virus. But the market seems to be treating this as an unexpected happy event.

Which markets are seeing this as an "unexpected happy event" ? I seem to see large falls having happened with some occasional rallies as slightly better news appears on the lockdown being put in place and appearing to slow the increases in case numbers and deaths. I see companies suspending and cutting dividends (and also staff bonuses). I see unemployment rising as companies lay off workers even with promised government measures. True in the longer term there will be those who will probably make a good profit by buying at these lower prices but I don't see that as "the market ... treating this as an unexpected happy event".

I'm referring to the period since the FTSE 5,000 low on 23rd March. It seems most of the market rebound is because the market didn't expect economy closures to stop the exponential trends, and is now pleasantly surprised that this worked.

[zico]

After the 2008 financial crash, bankers lost a year's worth of bonus, had to pay 5% extra tax for 2 years, but otherwise, they've been able to make out like bandits.

Except the ones that lost their jobs, their wives and families, their mental health, or took their lives.

Sorry to rain on your blame the bankers tirade, but in many cases, some of whom known to me personally, it really wasn't that much fun. It is very easy to make sweeping generalisations, but it really wasn't the case that the majority of bankers caused much of the financial crisis, and they generally suffered a lot throughout that period, even the ones that remained in employment. The vast majority were what might be referred to as "normal human beings".

This "make out like bandits", as well as being untrue, adds very little to a thread on the Macro Board. Take it elsewhere if you want to.

Don't want to hijack this thread, but my understanding of economic statistics is that since the 2008 financial crash, people working in the UK banking sector have seen higher pay growth and much bigger increases in net worth than the average UK worker. If that's incorrect, then I'm more than happy to apologise for my comments. I know that most people in banking didn't cause the financial crisis, which is why I didn't suggest that.

[TheMotorcycleBoy]

For investors to invest there has to be a good chance of a good return. If we are entering a recession or worse it doesn't seem to me that the odds on a good return on any investment are high.

Regards,

Some of the best times to invest have been in recessions, what makes you think the odds aren't good?

Unknown time frames, unknown numbers of people losing jobs, unknown level of government support for folk forced out of job, collapsing of service industries supporting all the bigger business that have no turnover, banks under pressure from none performing loans, housing price crash etc...

We are currently in an unknown situation. Hopefully it resolves positively but for now it is hard for me to see any reason to risk cash when there could be much more serious trouble to come unless governments were to say they would guarantee a return and as far as I can tell this hasn't happened.

Regards,

IMO, Tik sums it up pretty well over here viewtopic.php?p=298592#p298592, with "The Market isn't the economy".

Clearly with the Fed and other actors throwing QE left and right, asset values may not seem that sane right now.

[tikunetih]

I'm somewhat surprised that people are so surprised! Please indulge me a little...

Has no one ever invested through a crisis before? I know I'm being a bit provocative, but still, if you've been around the block a bit (and I know not everyone has), then market behaviour here shouldn't be too big of a surprise.

Don't tell me "this one's different" - sure it's "unprecedented" but they're always "different", and the volatility that occurs during crises has the same underlying drivers: investors wrestling with the consequences and implications of a rapidly changing investment environment in which the information is very far from perfect, making forecasts much harder than usual if not impossible. The faster things changes, the harder the task becomes.

Being human, all of these investors - me, you, everyone - are subject to their emotions to some extent or other, which can rapidly swing from optimism to pessimism and back again, influenced by both their own thoughts and by the opinions and behaviour of others - the crowd - which can subsume individuals and have them thinking and doing things they would not normally do if acting solely as an individual and with time to think.

So, we get plunging sell-offs as people despair and extrapolate the bad news, then rapid rallies as the mood flips and the notion that maybe it's not so bad after all has its moment. Iterations, back and forth. A dangerous emotional rollercoaster for investors lacking self control.

During both plunges and rallies there'll be plenty of people thinking that the current direction of the market (ie. of price) is ridiculous and bears no resemblance to what ought to be happening. They'll feel discomfited when the market behaves contrary to what they believe should be happening, then reassured again when price flips over and starts travelling in what they perceive as the "correct" direction.

This volatility will continue until eventually net aggregate opinion, as expressed through price, begins to resolve more sustainably in a single direction. Just as occurred during the preceding volatile plunges & rallies, many investors will be utterly perplexed by the market's direction of travel, reaching for explanations that make any sense, and anticipating that as before, surely it must quickly reverse when investors see sense. Only this time it doesn't reverse like it did previously - because aggregate opinion has subtly and sustainably shifted, leading to a much larger market move. NB these larger moves can be down as well as up - this stuff works both ways - but unless it's the end or the world, it will eventually resolve very strongly upwards and not look back.

Cue even more perplexed investors, head shaking and talk of rigged markets!

If you were around during past crises, you should have seen this type of behaviour before, so maybe cast your mind back and try to remember what it actually felt like in the midst of it, absent the hindsight now enjoyed. In real-time, price action can appear totally baffling, and if you're continually attempting to explain it away by reference to this or that event in the news, you can drive yourself crazy. Price very often leads news.

In my view, these are the times when you earn your stripes as an investor (or trader); not by doing anything clever, just by staying relatively calm and rational and sticking to what you'd planned to do. Certainly, any "reactive" behaviour, such as portfolio changes, should be measured, in line with a plan, not emotionally driven.

Unless: "If you can keep your head when all around you have lost theirs, then you probably haven't understood the seriousness of the situation" happens to apply!

[Itsallaguess]

If you were around during past crises, you should have seen this type of behaviour before, so maybe cast your mind back and try to remember what it actually felt like in the midst of it, absent the hindsight now enjoyed. In real-time, price action can appear totally baffling, and if you're continually attempting to explain it away by reference to this or that event in the news, you can drive yourself crazy. Price very often leads news.

In my view, these are the times when you earn your stripes as an investor (or trader); not by doing anything clever, just by staying relatively calm and rational and sticking to what you'd planned to do. Certainly, any "reactive" behaviour, such as portfolio changes, should be measured, in line with a plan, not emotionally driven.

Possibly the most sensible investment-related paragraphs that we'll see written during this current market period....

Cheers,

Itsallaguess

[ursaminortaur]

I'm somewhat surprised that people are so surprised! Please indulge me a little...

Has no one ever invested through a crisis before? I know I'm being a bit provocative, but still, if you've been around the block a bit (and I know not everyone has), then market behaviour here shouldn't be too big of a surprise.

Don't tell me "this one's different" - sure it's "unprecedented" but they're always "different", and the volatility that occurs during crises has the same underlying drivers: investors wrestling with the consequences and implications of a rapidly changing investment environment in which the information is very far from perfect, making forecasts much harder than usual if not impossible. The faster things changes, the harder the task becomes.

Being human, all of these investors - me, you, everyone - are subject to their emotions to some extent or other, which can rapidly swing from optimism to pessimism and back again, influenced by both their own thoughts and by the opinions and behaviour of others - the crowd - which can subsume individuals and have them thinking and doing things they would not normally do if acting solely as an individual and with time to think.

So, we get plunging sell-offs as people despair and extrapolate the bad news, then rapid rallies as the mood flips and the notion that maybe it's not so bad after all has its moment. Iterations, back and forth. A dangerous emotional rollercoaster for investors lacking self control.

During both plunges and rallies there'll be plenty of people thinking that the current direction of the market (ie. of price) is ridiculous and bears no resemblance to what ought to be happening. They'll feel discomfited when the market behaves contrary to what they believe should be happening, then reassured again when price flips over and starts travelling in what they perceive as the "correct" direction.

This volatility will continue until eventually net aggregate opinion, as expressed through price, begins to resolve more sustainably in a single direction. Just as occurred during the preceding volatile plunges & rallies, many investors will be utterly perplexed by the market's direction of travel, reaching for explanations that make any sense, and anticipating that as before, surely it must quickly reverse when investors see sense. Only this time it doesn't reverse like it did previously - because aggregate opinion has subtly and sustainably shifted, leading to a much larger market move. NB these larger moves can be down as well as up - this stuff works both ways - but unless it's the end or the world, it will eventually resolve very strongly upwards and not look back.

Cue even more perplexed investors, head shaking and talk of rigged markets!

If you were around during past crises, you should have seen this type of behaviour before, so maybe cast your mind back and try to remember what it actually felt like in the midst of it, absent the hindsight now enjoyed. In real-time, price action can appear totally baffling, and if you're continually attempting to explain it away by reference to this or that event in the news, you can drive yourself crazy. Price very often leads news.

In my view, these are the times when you earn your stripes as an investor (or trader); not by doing anything clever, just by staying relatively calm and rational and sticking to what you'd planned to do. Certainly, any "reactive" behaviour, such as portfolio changes, should be measured, in line with a plan, not emotionally driven.

Unless: "If you can keep your head when all around you have lost theirs, then you probably haven't understood the seriousness of the situation" happens to apply!

Or you have managed to convince the mob that you are one of them and not a wealthy aristo

[TheMotorcycleBoy]

I have to be honest, as long as ppl still have a job I really don't know what the fuss is all about.

Surely everyone knows investments can go up and down, understands that any money they put down they've got to be prepared to lose!

[tjh290633]

I'm somewhat surprised that people are so surprised! Please indulge me a little...

Has no one ever invested through a crisis before? I know I'm being a bit provocative, but still, if you've been around the block a bit (and I know not everyone has), then market behaviour here shouldn't be too big of a surprise.
...
If you were around during past crises, you should have seen this type of behaviour before, so maybe cast your mind back and try to remember what it actually felt like in the midst of it, absent the hindsight now enjoyed. In real-time, price action can appear totally baffling, and if you're continually attempting to explain it away by reference to this or that event in the news, you can drive yourself crazy. Price very often leads news.

In my view, these are the times when you earn your stripes as an investor (or trader); not by doing anything clever, just by staying relatively calm and rational and sticking to what you'd planned to do. Certainly, any "reactive" behaviour, such as portfolio changes, should be measured, in line with a plan, not emotionally driven.

Unless: "If you can keep your head when all around you have lost theirs, then you probably haven't understood the seriousness of the situation" happens to apply!

Would 1974, 1987, 2000, 2008 and 2020 be enough?

I stayed fully invested through all of them, and only 2008 caused me to have a clear out from my portfolio of dead wood. 1974 was arguably the biggest crisis of all.

Admittedly I was largely in funds at that time, which no doubt lessened the effect, but staying fully invested, adding to one's holdings as appropriate, meant that one came out the other end relatively unscathed. Not going in for dot-com shares in the 2000 period helped, but having GEC which morphed into Marconi did not help. Fortunately taking some profit at the peak helped.

TJH

[tikunetih]

Would 1974, 1987, 2000, 2008 and 2020 be enough?

Hmmm, yes I think that just about qualifies.

[odysseus2000]

For anyone interested in what the Fed is doing, this article has some interesting graphs. Some of the commentary by the author seems a bit wild to me, but others may see it differently:

https://seekingalpha.com/article/433613 ... ent=link-0

Regards,

[TheMotorcycleBoy]

For anyone interested in what the Fed is doing, this article has some interesting graphs. Some of the commentary by the author seems a bit wild to me, but others may see it differently:

https://seekingalpha.com/article/433613 ... ent=link-0

Regards,

I think I get it. See if you agree with me. I think that when the author describes " dollar denominated debt" held by non-US actors you have imagine a poor country with an unstable currency. For example in Afghanistan a city might for example wish to build a water purification plant. Perhaps they need a big loan for the project. They find a very rich local warlord/tycoon who lends the city the money. He charges them 10% interest but won't accept local currency instead wants his repayments in USD since he cant predict want will happen to the local money over the next 20 years. So we now have $ denominated foreign debt, and debtors will reduce the global $ supply (hence pricing it up) each time they to settle their payments.

Matt

[odysseus2000]

I think I get it. See if you agree with me. I think that when the author describes " dollar denominated debt" held by non-US actors you have imagine a poor country with an unstable currency. For example in Afghanistan a city might for example wish to build a water purification plant. Perhaps they need a big loan for the project. They find a very rich local warlord/tycoon who lends the city the money. He charges them 10% interest but won't accept local currency instead wants his repayments in USD since he cant predict want will happen to the local money over the next 20 years. So we now have $ denominated foreign debt, and debtors will reduce the global $ supply (hence pricing it up) each time they to settle their payments.

Matt

Yes, but don't also forget that the US is printing like crazy and that is effectively devaluing the US$ in terms of commodities that can cause their $ value to rise leading to inflation in them, although we are not seeing the panic rush to gold that has happened before, it is something to watch. There are several competing forces here in what is an overall deflation environment with too many goods and too little demand.

Meanwhile we have a lot of serious US wealth in real estate, residential and commercial, the sort of stuff that Trump has been good at: Take on lots of debt at x and make (x+margin) with hotels, golf courses, recreation, shopping molls, factories, School etc. Even if margin is small when you have billions it can still lead to a nice life, but if hotels are going bust, golf and recreation are forbidden etc, margin can go negative and the usually story that if you owe the bank £5k and can't pay you are in trouble, but if you owe the bank £5b and can't pay, the bank is in trouble. The cutting of all UK bank divi payments suggests that the regulators see this and are a little concerned.

I have no idea what will happen, but we have all the ingredients for a monumental bust and a depression 1930's style and in the worst of all things for the UK we have a vacuum at the very top with Boris ill.

Regards,

[odysseus2000]

Fed rolls out $2.3 trillion loan package:

https://finance.yahoo.com/news/fed-roll ... 40322.html

Should help with the Easter mood

Regards,