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How Far Will The Market Fall?

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I'm interested to understand why people don't see this playing out like the GFC?

Back in Nov 2007, the XJO was at 6874, interest rates were 6.75%, government debt was $58m, and household debt was approximately $109m. The AUDUSD was 97c. By the time the GFC was over (14 - 15 months) the XJO had fallen to 3120, interest rates were 3.4%, and the AUDUSD had dropped to around 60c

Now in Feb 2020, the XJO was at 7197, interest rates were 0.75%, government debt is 10x $541m, household debt is 20% higher $120m, and the AUDUSD is already at 65c. We can't lower interest rates like in the GFC, the AUDUSD is already at record lows, and China isn't growing near as much as it was back in 2007.

I can't see how this doesn't end up much much worse than 2007/09.

 
J1eyed said:
I'm interested to understand why people don't see this playing out like the GFC?
Click to expand...

People are saying one (or more) of:
1. Stimulus is coming, i.e. print money, which devalues the AUD and makes stocks worth more (nominally).
2. Stocks will go up because they "always" went up.
3. Crisis and therefore risk premium will subside so we will revert to highs not to lows.

Not that I agree or disagree, just providing you a summary for your understanding.
 

Yes, one big advantage we had prior to GFC was that the Interest Rates lever had a lot of gears to move down and China was going at full pace supporting higher and higher Aussie Iron Ore and other commodity prices.

It is a little worrying what you said, as Interest Rate lever is pulled to almost Neutral which means only the -ve gear is left to shift into and China seems to be experiencing a slow down
 
Smurf1976 said:
When you say short term or long term, what sort of time frame do you have in mind?

Days? Weeks? Months?

I’m not disagreeing, just trying to understand.
Click to expand...

Honestly if you'd asked me 24 hours ago I would have said the low in CBA and CSL might not get breached but then cba lost 6% today lol. I'll revise the short term comment to 'days to weeks'

We should change this thread to 'why do people think buying 10 year + bonds at negative real rates is a good idea'
 
J1eyed said:
... and China isn't growing near as much as it was back in 2007.
Click to expand...
was growing at 8% a year 12 years ago. And did for a decade. Now, let's say its growing at 6, or 4, or whatever. In absolute terms, more than happy to sell iron ore to them now.
 
I really get the feeling since the GFC(which was a pretty uncommon event, big 50-60% declines don't happen that often in peoples lifetimes) people have just been waiting for the proverbial other shoe to drop so to speak.

I have a question then if this is going to be like the GFC, 50-60% decline and a couple(or more you choose) of years to recover. Do you plan to take advantage of it? When & how exactly do you plan to do that? This being an investment forum and all.

I don't profess to know what will happen but I know that at the end of January when I made multiple sizeable purchases I liked the prices then. I bought more again last week at lower prices. I plan on averaging down the whole way if prices keep dropping.
 
kid hustlr said:
Honestly if you'd asked me 24 hours ago I would have said the low in CBA and CSL might not get breached but then cba lost 6% today lol. I'll revise the short term comment to 'days to weeks'
Click to expand...

I'm thinking that we'll get a second "shock" when one of three things happens (in random order):

1. There's a collective realisation that in the service sector most of what is being lost in terms of activity is being lost outright, it is not in practice simply being postponed.

People who aren't eating at restaurants, aren't taking holidays, aren't going to concerts or whatever. Some of that will be rescheduled but a lot is gone for good. Nobody's going to go to a restaurant and order 5 meals because they didn't go there the previous 4 weeks. With personal finances taking a hit they're just not going to be booking that cancelled trip again at least not for anytime soon. The artist will do a concert tour sometime in the future but they'd have done that anyway, the one that was cancelled is gone for good. We're not going to have a cancelled 2 week festival in 2020 run as a 4 week festival in 2021 with twice as many artists and twice as many people attending. Etc. What's gone is gone largely when it comes to the service sector and that's where the major impact is.

2. The US passes a major milestone with infections - 10,000 or 100,000 would be the likely trigger simply because it's a big round number.

3. Someone "important" in the eyes of financial markets is diagnosed with the virus. President of the US or governor of the Fed would be the most obvious but it would probably give the markets a bit of a shake if it was anyone well known and wealthy.

If Warren Buffet, Elon Musk or the Queen can't avoid it with $ billions or being actual Royalty well then that sends a very clear message that nobody's safe.

Timing is hard to say but I'm thinking before Easter.
 
I agree with Smurfs second shock triggers but would add major collapses in financial sectors triggering problems in our banking systems. If the banking systems fail it is very hard to see how other economic activity can easily continue.

Also I think important people need to actually die from the virus to have an impact. For example if Mars a Largo social club had infections and half a dozen people died and the club had to close down - THAT would have a monumental impact. Similarly if politicians in the Senate or Congress fell sick and died.

And that is not an unrealistic scenario given the age of people in these institutions.
 
basilio said:
I agree with Smurfs second shock triggers but would add major collapses in financial sectors triggering problems in our banking systems
Click to expand...
Agreed and I think it's really a case of saying there will be a "shock" and it will be in the not too distant future, the only question being about the detail of what and precisely when it occurs.
 
basilio said:
. Similarly if politicians in the Senate or Congress fell sick and died.
Click to expand...
I was thinking today that one or 2 celebrities dying, or politicians, anyone high profile will be a shock, a negative quarter, rise in unemployment, rise in credit defaults, rise in bankruptcies, a few high profile bankruptcies, airlines, travel companies, hotels chains, casinos...so many triggers.

------

VFC - perfect.
 

Depends on what you are buying I suppose, quality companies may come out alive maybe slightly bruised on the other side but crap may get stress tested during this downturn.

From personal experience I got pretty badly wiped by averaging down into all sorts of mining companies and other rubbish that eventually collapsed or got de-listed thanks to the GFC. Those lessons are hard to forget, still fresh in memory.
 
kid hustlr said:
We should change this thread to 'why do people think buying 10 year + bonds at negative real rates is a good idea'
Click to expand...

If you know the rate of change in growth and inflation will continue to slow then you duration is the place to be.

Level is unimportant, RoC is important.

Worth getting a Hedgeye subscription to learn about this. I used to pay for the full package but now I just get “Market Edges” for a couple of hundred USD per year.

If you read Jeffrey Sniders blog, you know sovereign bonds, especially US, are “pristine collateral” in the Eurodollar system, and always in demand as that system slowly collapses, especially during liquidity/balance sheet squeezes like the one which has been unfolding since mid 2018. Listen to all the “Eurodollar University” podcasts on MacroVoices along with every other appearance he has made on the show.

Both of those things are why GSBE47 looks like this

and TLT looks like this
 
CBerg said:
I have a question then if this is going to be like the GFC, 50-60% decline and a couple(or more you choose) of years to recover. Do you plan to take advantage of it? When & how exactly do you plan to do that? This being an investment forum and all.
.
Click to expand...

Since January 2019 I've been putting regular money into a savings account.
Since 28th Feb I've been using those savings to put into the market gradually.
When those savings run out, instead of putting money into a savings account it will be going straight into the market (if it's low enough).
I don't really care when the bottom is. If it's today.. then I won't put any more money in.
If it's a year from now, I guess I'll have accumulated a fair few more shares.
 

I used to follow hedge eye on Twitter bit he's a bit much. The rate of change concept he spoke to did appeal to me though.

Surprises by TLT price action last 3 days??
 
How far will the market fall ? That assumes there is a table on which to gamble and the capacity to take your winnings home.

I would be seriously concerned about considering the US as any sort of safe harbour financially as this crisis unfolds.

Why ? The widespread increase in cases is already exponential. The criminal denial of the danger of the disease by the comic genius Donald Trump has blunted any effective protection measures.
The destruction of testing capacity and hamstringing of the CDC has also fatally undermined the capacity to treat people. The poor and working class with no health insurance or savings will fall sick and spread the virus across the country. The USA will not have the capacity to effectively undertake the very strict isolation and support activities required to control the spread of this virus.

The super rich are already fleeing to their bunkers. The financial vultures will be stripping value out of all financial institutions as quickly as possible before it all falls over. This will happen "legally" or far more likely illegally. Don't be surprised if/when financial markets are frozen-closed-disappear. All the charting in the world won't make a dollar if the table is upended.

Be nice to offer a more measured view to the situation and for what its worth I will do that on other threads. However I think there is a very real risk that the US could collapse as an economic superpower and in fact leave a ruthless, effective China as head of the pack.

And even worse scenario or course is a break out/escalation of wars if the situation deteriorates as quickly as it seems to going now.
 
kid hustlr said:
Surprises by TLT price action last 3 days??
Click to expand...

Nah not really, I was more surprised by the action in the week before that, just complete and utter deflation panic pricing. Pullback on a capitulation move like that is to be expected.

Even the market makers on GSBE47 pulled out of the market a couple of times, Tuesday they were gone for 2-3 hours and Monday they just gave up after about 1PM. This is while they were still providing liquidity on shorter durations like 10Y.

Word on fintwit is liquidity sucks and people are selling whatever they can to meet redemptions and margin calls,
You can see it on the board too, last night looked like everything was down except for vols.
 
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