U.S. stocks in freefall

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Re: U.S. stocks in freefall

Postby HomerJ » Wed Nov 09, 2011 3:21 pm

Heh, we're still 1000 points higher than when this thread started or about 8.5% up.

Really shouldn't add to this thread until we drop below 10800 again.
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Re: U.S. stocks in freefall

Postby rob » Wed Nov 09, 2011 3:33 pm

Munir wrote:Oi Oi !!! Yesterday it was Greece, today it's Italy, tomorrow Spain?

Seriously, we need another coin flip by Rick. :roll:

or maybe 2 coins or a die.... unless you count one option as the coin landing on the edge :-)
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Re: U.S. stocks in freefall

Postby Lbill » Wed Nov 09, 2011 3:43 pm

I guess it's official, according to MSN Money:

TOP NEWS

New worries in Europe send stocks into free fall
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Re: U.S. stocks in freefall

Postby umfundi » Wed Nov 09, 2011 4:01 pm

Greece's GDP is $300 billion. (Italy's is $2 trillion, the US is $15 trillion.)

http://www.google.com/publicdata/explor ... greece+gdp

Walmart's annual revenues are $421 billion.

The downside of a bad outcome of the Greek crisis is what? $100 billion? (1/3 of their GDP?) 1 trillion over the next ten years?

I don't know what is driving the US market's direction and volatility, but I doubt it is the reality of the situation in Greece (or Italy).

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Re: U.S. stocks in freefall

Postby Jay69 » Wed Nov 09, 2011 4:13 pm

rrosenkoetter wrote:Heh, we're still 1000 points higher than when this thread started or about 8.5% up.

Really shouldn't add to this thread until we drop below 10800 again.



Or maybe a max drop in one day of, I dont know 2%-4%.

Maybe we can get LBill to change the title and ground rules a little :wink:

I just keep adding to this when all the doom and gloom is around to keep from another thread starting.

Just doing my part to keep the thread count down :beer
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Re: U.S. stocks in freefall

Postby Gumby » Wed Nov 09, 2011 4:32 pm

umfundi wrote:The downside of a bad outcome of the Greek crisis is what? $100 billion? (1/3 of their GDP?) 1 trillion over the next ten years?

I don't know what is driving the US market's direction and volatility, but I doubt it is the reality of the situation in Greece (or Italy).


The European situation is far more serious than you make it out to be. What you are not considering is that a Greek and Italian default would cause French banks to implode. French bonds are already reacting violently to this possibility. That would easily trigger a French downgrade and then all hell breaks loose, to the tune of trillions of Euros as banks begin to fail across the Eurozone — which could feasibly spread to other continents.

How US Banks Are Lying About Their European Exposure; Or How Bilateral Netting Ends With A Bang, Not A Whimper

We are likely on the verge of a world wide banking crisis. The only thing that can stop it is a printing spree by central banks. The only problem is that Germany will be the last planet on earth to agree to printing, since Weimar hyperinflation is still fresh in their minds.

And if that weren't enough, back here in the US, half of all mortgages are underwater.

CNBC: Half of US Mortgages Are Effectively Underwater

...and because of this, many hedge funds are heavily shorting PrimeX — the index that tracks the price of bonds backed by pools of adjustable-rate prime mortgages.

WSJ: Prime Mortgage-Bond Index Drops, Stirring Worries

These aren't the crappy sub-prime mortgages that brought us down in 2008. These are the highest quality mortgages that are being shorted.

As more and more managers short PrimeX, and more Prime mortgages go underwater, the risk of a prime mortgage crisis rises significantly, until it becomes self-fulfilling.

So, get ready for a banking crisis, and a Prime mortgage crisis in the months ahead...
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Re: U.S. stocks in freefall

Postby plnelson » Wed Nov 09, 2011 4:43 pm

rrosenkoetter wrote:Heh, we're still 1000 points higher than when this thread started or about 8.5% up.

Really shouldn't add to this thread until we drop below 10800 again.

SECONDED!!
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Re: U.S. stocks in freefall

Postby Lbill » Wed Nov 09, 2011 4:44 pm

Heh, we're still 1000 points higher than when this thread started or about 8.5% up.

It depends on whether you are measuring from the start of the freefall on Aug 8 or the end. The market dropped 635 points that day. We're up 336 points from the start of the freefall or 2.9%. That's about one day's loss nowadays. :|
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Re: U.S. stocks in freefall

Postby umfundi » Wed Nov 09, 2011 4:58 pm

Gumby wrote:
umfundi wrote:The downside of a bad outcome of the Greek crisis is what? $100 billion? (1/3 of their GDP?) 1 trillion over the next ten years?

I don't know what is driving the US market's direction and volatility, but I doubt it is the reality of the situation in Greece (or Italy).


The European situation is far more serious than you make it out to be. What you are not considering is that a Greek and Italian default would cause French banks to implode. French bonds are already reacting violently to this possibility. That would easily trigger a French downgrade and then all hell breaks loose, to the tune of trillions of Euros as banks begin to fail across the Eurozone — which could feasibly spread to other continents.

How US Banks Are Lying About Their European Exposure; Or How Bilateral Netting Ends With A Bang, Not A Whimper

We are likely on the verge of a world wide banking crisis. The only thing that can stop it is a printing spree by central banks. The only problem is that Germany will be the last planet on earth to agree to printing, since Weimar hyperinflation is still fresh in their minds.

And if that weren't enough, back here in the US, half of all mortgages are underwater.

CNBC: Half of US Mortgages Are Effectively Underwater

...and because of this, many hedge funds are heavily shorting PrimeX — the index that tracks the price of bonds backed by pools of adjustable-rate prime mortgages.

WSJ: Prime Mortgage-Bond Index Drops, Stirring Worries

These aren't the crappy sub-prime mortgages that brought us down in 2008. These are the highest quality mortgages that are being shorted.

As more and more managers short PrimeX, and more Prime mortgages go underwater, the risk of a prime mortgage crisis rises significantly, until it becomes self-fulfilling.

So, get ready for a a banking crisis, and a Prime mortgage crisis in the months ahead...


Gumby,

I do not at all disagree with what you say, but,

1) To postdict the day to day market movements by referencing daily (mostly political) events re Greece (and now Italy) is in my opinion, horse puckey.

2) All the evidence you cite is known. In an efficient market, that knowledge must be reflected in the current price. So, what is the optimal thing to do? As a Boglehead, I see no need to do anything special to prepare for
a banking crisis, and a Prime mortgage crisis in the months ahead...
In other words, my asset allocation is based on my needs and my risk tolerance. It is not based on anticipated future events.

I follow the news with interest, but I rarely find anything to act on.

Keith
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Re: U.S. stocks in freefall

Postby HomerJ » Wed Nov 09, 2011 5:16 pm

Jay69 wrote:
rrosenkoetter wrote:Heh, we're still 1000 points higher than when this thread started or about 8.5% up.

Really shouldn't add to this thread until we drop below 10800 again.



Or maybe a max drop in one day of, I dont know 2%-4%.


If the market goes up 1% for ten days straight, then why is it bad it if drops 3%? Why do we need posts of doom and gloom if we're all effectively 7% up? (Just an example)
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Re: U.S. stocks in freefall

Postby livesoft » Wed Nov 09, 2011 5:32 pm

Today was not even a ReallyBadDay. Call me when it gets worse.
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Re: U.S. stocks in freefall

Postby hsv_climber » Wed Nov 09, 2011 6:04 pm

livesoft wrote:Today was not even a ReallyBadDay. Call me when it gets worse.


???
Today was the 2nd worst drop in the last 12 months for: VGK, VEU, VWO, VSS
3rd worst drop for VTI, VOO, VNQI, VEA
4th for DGS, VPL, VXF, VNQ
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Re: U.S. stocks in freefall

Postby chaz » Wed Nov 09, 2011 6:13 pm

It will rise again. Fluctuation happens.
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Re: U.S. stocks in freefall

Postby john94549 » Wed Nov 09, 2011 6:49 pm

It might not have been a "really bad day", but it was "bad enough" for me to scoop up 50 shares of SPY at $123.

I tried to get VTI at $63, but my bid didn't fill. Oh, well.

I'm in the "very-low-stakes" poker room. I move to the quarter slots in extended trading hours.

Where can I buy one of those Italian CDs? Bunga-Bunga.
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Re: U.S. stocks in freefall

Postby livesoft » Wed Nov 09, 2011 6:56 pm

hsv_climber wrote:
livesoft wrote:Today was not even a ReallyBadDay. Call me when it gets worse.


???
Today was the 2nd worst drop in the last 12 months for: VGK, VEU, VWO, VSS
3rd worst drop for VTI, VOO, VNQI, VEA
4th for DGS, VPL, VXF, VNQ


??? Let's take VWO for instance. What percentage did it drop on August 8th? September 22nd? August 4th?
Did not VEA drop more on October 31st than it did today? Today is probably the 5th worst day for VEA in the last 120 trading days or so.
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Re: U.S. stocks in freefall

Postby hsv_climber » Wed Nov 09, 2011 7:34 pm

livesoft wrote:??? Let's take VWO for instance. What percentage did it drop on August 8th? September 22nd? August 4th?
Did not VEA drop more on October 31st than it did today? Today is probably the 5th worst day for VEA in the last 120 trading days or so.


~5-10 min. before the closing, VWO was 40.35 for a drop of 5.73%. That is probably what I've got with google delayed quotes at the time of my post.
On Aug. 4th, 46.66 -> 43.99 ... Drop of 5.72%. :wink:

On Oct. 31, VEA dropped from 34.88 to 33.07 -> 5.18% drop. Today's (end of day) drop was 5.17%, but price was slightly lower during the day with a bigger drop. So, it is probably another case where 1E-3 precision and delayed quotes could be the difference.
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Re: U.S. stocks in freefall

Postby hazlitt777 » Wed Nov 09, 2011 7:43 pm

The question is "Why all this volatility?" A healthy market shouldn't be this way.

But putting that aside, I just keep invested and rebalance. Trying to outsmart the market, trying to get out and back in at the "right time" is a bad thing to try, especially when volatile like this.
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Re: U.S. stocks in freefall

Postby Alan S. » Wed Nov 09, 2011 7:48 pm

Remember the story of Nero fiddling while Rome burned?

Current version will be the Italian govt bickering, but the inevitable austerity measures will surely trigger some incendiarism in Rome and beyond. This reaction of course really helps to solve the problem.... :?
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Re: U.S. stocks in freefall

Postby Gumby » Wed Nov 09, 2011 8:11 pm

umfundi wrote:All the evidence you cite is known. In an efficient market, that knowledge must be reflected in the current price.


I don't believe the market is as efficient as you imagine it to be. If it was, it would have seen this coming weeks ago. Many people figured out that the latest Euro plan couldn't possibly work — over three weeks ago — using some very straightforward math...

There Is No Bailout Spoon: The Math Behind The €2 Trillion EFSF Reveals A "Pea Shooter" Not A "Bazooka" (10/18/2011)

So, three weeks ago, the math revealed that the EFSF needed to be able to backstop about €3 Trillion to stop a full-blown crisis from unfolding — rather than the €440 billion unworkable plan that the market rallied on. The HFT algos rallied the market every time an unsubstantiated rumor surfaced.

The market ignored the obvious math. Bogleheads actually made jokes and dismissed the math. Not very efficient if you ask me.

umfundi wrote:So, what is the optimal thing to do? As a Boglehead, I see no need to do anything special to prepare for
a banking crisis, and a Prime mortgage crisis in the months ahead...
In other words, my asset allocation is based on my needs and my risk tolerance. It is not based on anticipated future events.

I follow the news with interest, but I rarely find anything to act on.


You must either have an awesome portfolio, or have a lot of risk tolerance... or believe in miracles.
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Re: U.S. stocks in freefall

Postby Bungo » Wed Nov 09, 2011 8:51 pm

hsv_climber wrote:
livesoft wrote:Today was not even a ReallyBadDay. Call me when it gets worse.


???
Today was the 2nd worst drop in the last 12 months for: VGK, VEU, VWO, VSS
3rd worst drop for VTI, VOO, VNQI, VEA
4th for DGS, VPL, VXF, VNQ

So what? By definition, some day out of this year's 365 has to be the 2nd worst drop for VGK, VEU, yadda yadda. Why not this one?
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Re: U.S. stocks in freefall

Postby Bungo » Wed Nov 09, 2011 9:46 pm

Gumby wrote:You must either have an awesome portfolio, or have a lot of risk tolerance... or believe in miracles.

I would think that one's ability to shrug off market volatility has much to do with whether one is in the accumulation phase or the withdrawal phase. I'm in the former, adding fresh blood every two weeks, so I'm happy to get more shares for my money.
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Re: U.S. stocks in freefall

Postby umfundi » Wed Nov 09, 2011 10:24 pm

Gumby wrote:
umfundi wrote:All the evidence you cite is known. In an efficient market, that knowledge must be reflected in the current price.


I don't believe the market is as efficient as you imagine it to be. If it was, it would have seen this coming weeks ago. Many people figured out that the latest Euro plan couldn't possibly work — over three weeks ago — using some very straightforward math...

There Is No Bailout Spoon: The Math Behind The €2 Trillion EFSF Reveals A "Pea Shooter" Not A "Bazooka" (10/18/2011)

So, three weeks ago, the math revealed that the EFSF needed to be able to backstop about €3 Trillion to stop a full-blown crisis from unfolding — rather than the €440 billion unworkable plan that the market rallied on. The HFT algos rallied the market every time an unsubstantiated rumor surfaced.

The market ignored the obvious math. Bogleheads actually made jokes and dismissed the math. Not very efficient if you ask me.

umfundi wrote:So, what is the optimal thing to do? As a Boglehead, I see no need to do anything special to prepare for
a banking crisis, and a Prime mortgage crisis in the months ahead...
In other words, my asset allocation is based on my needs and my risk tolerance. It is not based on anticipated future events.

I follow the news with interest, but I rarely find anything to act on.


You must either have an awesome portfolio, or have a lot of risk tolerance... or believe in miracles.

I simply believe that the market is efficient enough that I am too stupid and too slow to take advantage of its inefficiencies. Yes, I do have an awesome portfolio. 75% stocks, (1/3 of those global non-US), 25% bonds, all diversified in low-cost index funds. 12 months cash equivalents outside of that portfolio. I don't think that involves a lot of risk. It involves a lot of noise tolerance.

For the life of me, given the "news" out of Italy today, I see nothing that I should change.

I don't believe in miracles. But, when your ship does go down, I plan not to be on it. If I am, I believe I will be among the last to drown.

The market ignored the obvious math.
And so, can you show us the people who became very rich by not ignoring the obvious math? In the last three weeks? What investments did they buy or sell mid-October?

Is there a post for that? What did you do about the link you quote?

http://www.zerohedge.com/news/why-doing ... ka-pea-sho

Best wishes,

Keith
(edited for typos)
Last edited by umfundi on Wed Nov 09, 2011 10:51 pm, edited 2 times in total.
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Re: U.S. stocks in freefall

Postby umfundi » Wed Nov 09, 2011 10:43 pm

Bungo wrote:
Gumby wrote:You must either have an awesome portfolio, or have a lot of risk tolerance... or believe in miracles.

I would think that one's ability to shrug off market volatility has much to do with whether one is in the accumulation phase or the withdrawal phase. I'm in the former, adding fresh blood every two weeks, so I'm happy to get more shares for my money.

Bungo,

For what it's worth, I am a "tweener": I am retired, so I am not in the accumulation phase. But, we have enough income from my pension and various part-time activities to cover our cash flow, so I am not yet in the withdrawal phase. A good place to be.

The interesting thing (to me) is that, as I have become more experienced and battle-scarred, my risk tolerance has gone up. Maybe, as I said in my previous post, it's my noise tolerance. Don't jump just because people are shouting in your ear.

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Re: U.S. stocks in freefall

Postby Jfet » Wed Nov 09, 2011 11:05 pm

umfundi wrote:
The market ignored the obvious math.
And so, can you show us the people who became very rich by not ignoring the obvious math? In the last three weeks? What investments did they buy or sell mid-October?

Is there a post for that? What did you do about the link you quote?

http://www.zerohedge.com/news/why-doing ... ka-pea-sho

Best wishes,

Keith
(edited for typos)


Einhorn sure looks like he did the correct math by shorting GMCR in mid-October. Based on the AH price he just made a few hundred million. The market ignored the inflated price of this stock as they did with Netflix for awhile and as they are still doing with Salesforce and to a lesser extent Amazon. Netflix went from $300 to $80 in a matter of weeks...Green Mountain Coffee Roasters went from $115 to $50 in the same amount of time. The data was out there and was just ignored. The data is out there for Salesforce, but investors are ignoring it as well. Efficient market my a$$
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Re: U.S. stocks in freefall

Postby Gumby » Wed Nov 09, 2011 11:31 pm

umfundi wrote:And so, can you show us the people who became very rich by not ignoring the obvious math? In the last three weeks? What investments did they buy or sell mid-October?


Yep...

http://www.zerohedge.com/news/timberx

And, of course, anyone who shorted French or Italian bonds has done very well.

http://www.zerohedge.com/news/ecb-buyin ... ginot-line

umfundi wrote:What did you do about the link you quote?


I read it. Understood it. And realized that most investors with stock-heavy portfolios are delusional that Europe will resolve itself without a €2 or €3 Trillion EFSF — which it doesn't have and won't be able to raise through external funding.
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Re: U.S. stocks in freefall

Postby umfundi » Wed Nov 09, 2011 11:44 pm

Jfet wrote:
umfundi wrote:
The market ignored the obvious math.
And so, can you show us the people who became very rich by not ignoring the obvious math? In the last three weeks? What investments did they buy or sell mid-October?

Is there a post for that? What did you do about the link you quote?

http://www.zerohedge.com/news/why-doing ... ka-pea-sho

Best wishes,

Keith
(edited for typos)


Einhorn sure looks like he did the correct math by shorting GMCR in mid-October. Based on the AH price he just made a few hundred million. The market ignored the inflated price of this stock as they did with Netflix for awhile and as they are still doing with Salesforce and to a lesser extent Amazon. Netflix went from $300 to $80 in a matter of weeks...Green Mountain Coffee Roasters went from $115 to $50 in the same amount of time. The data was out there and was just ignored. The data is out there for Salesforce, but investors are ignoring it as well. Efficient market my a$$


Jfet, what did you do? I am sure you must have made a lot of money.

I thought the "obvious math" of the current thread had to do with predicting responses to the the European crisis. I am pleased to see that it also predicted the events at Green Mountain Coffee Roasters and Netflix.

So: What of the next three weeks?

I predict that Thanksgiving will occur, and that Black Friday will be more black, or more gray, or even whiter, than some other past Fridays.

Green Mountain Coffee Roasters went from $115 to $50 in the same amount of time.
Since mid-October, GMCR has gone from about $90 to about $70. YTD, GMCR has more than doubled, $34.45 to $70.30.

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Re: U.S. stocks in freefall

Postby umfundi » Wed Nov 09, 2011 11:56 pm

Gumby wrote:
umfundi wrote:And so, can you show us the people who became very rich by not ignoring the obvious math? In the last three weeks? What investments did they buy or sell mid-October?


Yep...

http://www.zerohedge.com/news/timberx

And, of course, anyone who shorted French or Italian bonds has done very well.

http://www.zerohedge.com/news/ecb-buyin ... ginot-line

umfundi wrote:What did you do about the link you quote?


I read it. Understood it. And realized that most investors with stock-heavy portfolios are delusional that Europe will resolve itself without a €2 or €3 Trillion EFSF — which it doesn't have and can't raise through external funding.

So you did not personally profit from this opportunity?

Even though you are one of only about five people in the entire universe who knows how to post the Euro symbol € ? (I am assuming you are using an American keyboard.)

:lol: Keith
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Re: U.S. stocks in freefall

Postby Jfet » Thu Nov 10, 2011 7:27 am

umfundi wrote:
Jfet wrote:
umfundi wrote:
The market ignored the obvious math.
And so, can you show us the people who became very rich by not ignoring the obvious math? In the last three weeks? What investments did they buy or sell mid-October?

Is there a post for that? What did you do about the link you quote?

http://www.zerohedge.com/news/why-doing ... ka-pea-sho

Best wishes,

Keith
(edited for typos)


Einhorn sure looks like he did the correct math by shorting GMCR in mid-October. Based on the AH price he just made a few hundred million. The market ignored the inflated price of this stock as they did with Netflix for awhile and as they are still doing with Salesforce and to a lesser extent Amazon. Netflix went from $300 to $80 in a matter of weeks...Green Mountain Coffee Roasters went from $115 to $50 in the same amount of time. The data was out there and was just ignored. The data is out there for Salesforce, but investors are ignoring it as well. Efficient market my a$$


Jfet, what did you do? I am sure you must have made a lot of money.

I thought the "obvious math" of the current thread had to do with predicting responses to the the European crisis. I am pleased to see that it also predicted the events at Green Mountain Coffee Roasters and Netflix.

So: What of the next three weeks?

I predict that Thanksgiving will occur, and that Black Friday will be more black, or more gray, or even whiter, than some other past Fridays.

Green Mountain Coffee Roasters went from $115 to $50 in the same amount of time.
Since mid-October, GMCR has gone from about $90 to about $70. YTD, GMCR has more than doubled, $34.45 to $70.30.

Keith


You should probably check GMCR this morning...$70 was so yesterday.

What did I do? I bought a $270 put on Netflix early this year and sold it for a small loss before the drop, and I bought a $110 put on GMCR and sold it when GMCR dropped to $100 for a small profit. I am never able to convince the general market they are holding doo doo in a reasonable amount of time before I get nervous the put is going to expire worthless. I am holding 5 Jan 2012 $140 puts on CRM (salesforce) that are in the money right now but this will probably be the one overvalued stock that doesn't drop...
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Re: U.S. stocks in freefall

Postby Jay69 » Thu Nov 10, 2011 8:25 am

O Boy this has a been a busy thread from yesterday when I put it back to the top :shock:

Well be intresting to see what the market gods come up with today.

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Re: U.S. stocks in freefall

Postby Gumby » Thu Nov 10, 2011 8:45 am

umfundi wrote:So you did not personally profit from this opportunity?


Me? I just read about the €uro zone to stay informed, mostly for entertainment. My 4x25 Permanent Portfolio tends to have steady profits, with very low volatility, regardless of what good or bad things are happening in the world. I don't check it very often, but let's see... Yep. I'm doing just fine. +13.5% YTD.
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Re: U.S. stocks in freefall

Postby grayfox » Thu Nov 10, 2011 9:18 am

Yesterday was a really good day to pick up some Vanguard MSCI Europe ETF (VGK). It went from $46.11 on 11/08 to $43.01 on 11/09, which is -7.2%. Not as low a price as 9.22 ($39.25) or 10.03 ($39.43), but still pretty good price. It was $48.88 on 10.27. Crazy volatility.

According to Yahoo, the last 6 years dividends were:

2010 2.306
2009 1.912
2008 2.901
2007 2.356
2006 1.809
2005 1.380

Average is 2.11, At 43.31, that is 4.9% dividend yield.

http://finance.yahoo.com/q/hp?s=VGK+Historical+Prices
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Re: U.S. stocks in freefall

Postby Bongleur » Mon Nov 14, 2011 12:48 am

umfundi wrote:Greece's GDP is $300 billion. (Italy's is $2 trillion, the US is $15 trillion.)

http://www.google.com/publicdata/explor ... greece+gdp

Walmart's annual revenues are $421 billion.

The downside of a bad outcome of the Greek crisis is what? $100 billion? (1/3 of their GDP?) 1 trillion over the next ten years?

I don't know what is driving the US market's direction and volatility, but I doubt it is the reality of the situation in Greece (or Italy).

Keith


The Greek etc bonds held by Euro banks have been leveraged from 30:1 up to 50:1. Lots more money involved than just the "principle" amount.

And the US giant banks have loaned money to the Euro banks... again, leveraged.

So there is 1 domino set up, and it falls against 2 dominos, which each fall against 2 more...how many get knocked over when its all done? And the _rate_ at which they fall over might overwhelm the ability of the financial system to deal with it, even if the domino could be stood up again quite soon. Liquidity crisis.
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Re: U.S. stocks in freefall

Postby umfundi » Mon Nov 14, 2011 1:08 am

Bongleur wrote:The Greek etc bonds held by Euro banks have been leveraged from 30:1 up to 50:1. Lots more money involved than just the "principle" amount.

And the US giant banks have loaned money to the Euro banks... again, leveraged.

So there is 1 domino set up, and it falls against 2 dominos, which each fall against 2 more...how many get knocked over when its all done? And the _rate_ at which they fall over might overwhelm the ability of the financial system to deal with it, even if the domino could be stood up again quite soon. Liquidity crisis.

Too big to fail?

In the good old days, The Greeks would have devalued their currency, added a dose of inflation, and have been done with it.

With the Euro, they cannot do that. They have to reduce real wages by austerity, and they have to convince the banks to write down their "investments". The end result is the same, there's just a lot more noise in the process.

I stand by my opinion, that the size of the Greek problem does not justify the noise.

Best wishes,

Keith

(On the bright side, Beaujolais Noveau will be released on Thursday. My frivolous thing for Thanksgiving.)
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Re: U.S. stocks in freefall

Postby Valuethinker » Mon Nov 14, 2011 8:35 am

umfundi wrote:I stand by my opinion, that the size of the Greek problem does not justify the noise.

Best wishes,

Keith

(On the bright side, Beaujolais Noveau will be released on Thursday. My frivolous thing for Thanksgiving.)


1. it is other European financial institutions that hold the Greek government bonds. The recipe for another post Lehman Crash has the right ingredients

2. when Greece goes, then what about Portugal, Ireland, Spain and Italy? Italy is the big cahuna.

And of course if Italy goes, it takes the French banking system with it, as they are loaded to the gills with Italian government bonds.

Contagion. Lehman was a relatively small financial institution. Yet its shock waves still echo.
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Re: U.S. stocks in freefall

Postby Bongleur » Mon Nov 14, 2011 6:36 pm

wrt leverage, this week's commentary is helpful:

http://www.hussman.net/wmc/wmc111114.htm

SNIP

...So Italy's debt is not just huge relative to its own economy - it is just plain huge, at about $2.5 trillion in dollar terms. This is a terrible problem for France, whose banks are the largest single creditor to Italy, holding Italian debt worth about one-fifth of Italian GDP.

With Italian yields pushing past 6% and briefly passing 7% last week, Italy is actually very much in the situation that Greece was in about 18 months ago, when it was hoped that new "austerity" measures would shrink the deficit by forcing painful cuts in government spending. They didn't. The effect of austerity policies in weak economies is generally to damage the economy even more, causing a significant shortfall in tax revenues, so deficits don't materially improve despite the reduced spending.

As I noted more than a year ago in Violating the No-Ponzi Condition :

"The basic problem is that Greece has insufficient economic growth, enormous deficits (nearly 14% of GDP), a heavy existing debt burden as a proportion of GDP (over 120%), accruing at high interest rates (about 8%), payable in a currency that it is unable to devalue. This creates a violation of what economists call the "transversality" or "no-Ponzi" condition. In order to credibly pay debt off, the debt has to have a well-defined present value (technically, the present value of the future debt should vanish if you look far enough into the future). Unless Greece implements enormous fiscal austerity, its debt will grow faster than the rate that investors use to discount it back to present value.

SNIP

end quote of previous commentary

SNIP

If the problem broadens to Italy (and mathematically, we suspect it will because Italy's debt now also violates the no-Ponzi condition), the implications are very unpleasant. Given leverage ratios of more than 40-to-1 for most European banks, there is no way to meaningfully restructure Italian debt without wiping out the capital base of Europe's banks, and forcing the nationalization of the entire European banking system.

This is not just a technical issue, and not one that some appropriately "technocratic" government can solve (despite heroic expectations for the Super Mario Brothers heading Italy and the ECB). It is an algebraic issue that cannot be solved without making 2 and 2 something other than 4. Austerity plans will not help, particularly in the context of a likely global recession, which is already clearly evident in peripheral Europe and is showing up now in the coincident indicators of even the presumably "stronger" European economies (Germany had already reported unexpected weakness in factory orders; last week, it reported "surprising" job losses for October). Europe's problems are simply beyond the point where greater "austerity" will be sufficient.

SNIP
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Moderator warning

Postby Taylor Larimore » Mon Nov 14, 2011 8:02 pm

We do not want to lock or delete this long thread, however U.S. and Foreign economic policy discussions/arguments are prohibited on the Bogleheads Forum. Please post accordingly. -- Moderator
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Re: U.S. stocks in freefall

Postby Gumby » Mon Nov 21, 2011 11:18 am

The epic saga continues...

Image
Last edited by Gumby on Mon Nov 21, 2011 11:49 am, edited 2 times in total.
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Re: U.S. stocks in freefall

Postby Lbill » Mon Nov 21, 2011 11:37 am

Image
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Re: U.S. stocks in freefall

Postby gkaplan » Mon Nov 21, 2011 11:42 am

Yawn.
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Re: U.S. stocks in freefall

Postby manuvns » Mon Nov 21, 2011 12:37 pm

I have set up buy triggers for SPY below 1100 . you think that can happen this year ?
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What can happen this year?

Postby Taylor Larimore » Mon Nov 21, 2011 1:00 pm

manuvns wrote:I have set up buy triggers for SPY below 1100 . you think that can happen this year ?


Anything can happen in the short-term. Long-term, it is a reasonable guess that the stock market will probably be higher.

Stay-the-course.

Best wishes.
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Re: What can happen this year?

Postby manuvns » Mon Nov 21, 2011 1:17 pm

Taylor Larimore wrote:Anything can happen in the short-term. Long-term, it is a reasonable guess that the stock market will probably be higher.

Stay-the-course.

Best wishes.
Taylor


stock market have remained at the same level last 13 years .

http://www.google.com//finance?chdnp=1& ... INX&ntsp=0
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Re: What can happen this year?

Postby mptfan » Mon Nov 21, 2011 1:26 pm

manuvns wrote:stock market have remained at the same level last 13 years .

http://www.google.com//finance?chdnp=1& ... INX&ntsp=0

Umm...let's see...where do I start?

First, the chart you cited is a price chart, so it does not reflect the total return of the S&P500.

Second, the S&P 500 index is an index that reflects the price of 500 stocks, not the whole U.S. stock market, which I think is over 7,000 stocks.

Third, the U.S. stock market is less than half of the world stock market.

Fourth, a wise investor is diversified among different asset classes other than the 500 stocks in the S&P 500, including bonds and cash.
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Re: U.S. stocks in freefall

Postby Grt2bOutdoors » Mon Nov 21, 2011 1:39 pm

How many folks do you know are invested in 25% domestic diversified equity 25% cash 25% Fixed Income 25% Intl diversified equity?
Theoretically speaking from a doomsday scenario only, if diversified equity were wiped out or depressed for a longer than normal time frame (think 20 years), chances are some portion of diversified fixed income would be affected negatively, leaving you with about 40 cents on the dollar. Sounds like Mr. Potter was offering a better deal buying up George Bailey's shares at 50 cents on the dollar, cash!!

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Re: What can happen this year?

Postby manuvns » Mon Nov 21, 2011 1:56 pm

mptfan wrote:
manuvns wrote:stock market have remained at the same level last 13 years .

http://www.google.com//finance?chdnp=1& ... INX&ntsp=0

Umm...let's see...where do I start?

First, the chart you cited is a price chart, so it does not reflect the total return of the S&P500.

Second, the S&P 500 index is an index that reflects the price of 500 stocks, not the whole U.S. stock market, which I think is over 7,000 stocks.

Third, the U.S. stock market is less than half of the world stock market.

Fourth, a wise investor is diversified among different asset classes other than the 500 stocks in the S&P 500, including bonds and cash.



look at annual returns here http://en.wikipedia.org/wiki/S%26P_500

form the end of 1998 the till today the returns/CAGR are close to 1.8% . you can do better with a CD .
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Re: What can happen this year?

Postby Bungo » Mon Nov 21, 2011 2:19 pm

manuvns wrote:look at annual returns here http://en.wikipedia.org/wiki/S%26P_500

form the end of 1998 the till today the returns/CAGR are close to 1.8% . you can do better with a CD .

Pretty good deal if you're in the accumulation phase.
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Re: What can happen this year?

Postby nisiprius » Mon Nov 21, 2011 2:33 pm

manuvns wrote:stock market have remained at the same level last 13 years .

manuvns wrote:form the end of 1998 the till today the returns/CAGR are close to 1.8%. You can do better with a CD.
But you said "the same level," implying though not saying no growth.

What's your point? Everybody ought to know that stock market returns are highly variable even over periods as long as a decade. That's why there's a risk premium. You get it because you actually are taking risk. Invest in stocks, and sometimes you won't do any better than a CD over a whole decade.
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Re: U.S. stocks in freefall

Postby Lbill » Mon Nov 21, 2011 2:50 pm

What's your point? Everybody ought to know that stock market returns are highly variable even over periods as long as a decade. That's why there's a risk premium. You get it because you actually are taking risk. Invest in stocks, and sometimes you won't do any better than a CD over a whole decade.

And, as far as I know it's not written in stone tablets anywhere that you'll ever earn anything in stocks, or that you'll earn enough to justify all the worry and uncertainty you have to endure. Nobody knows nothin'.
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Re: What can happen this year?

Postby Gumby » Mon Nov 21, 2011 3:07 pm

manuvns wrote:form the end of 1998 the till today the returns/CAGR are close to 1.8% . you can do better with a CD .


Actually, it's worse than that. Fully reinvesting dividends and adjusting for inflation on yields about a 0.28% return over the same 13 year period. And that's before taxes.

See: Investing Through Time Calculator
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Re: What can happen this year?

Postby nisiprius » Mon Nov 21, 2011 3:30 pm

Gumby wrote:
manuvns wrote:form the end of 1998 the till today the returns/CAGR are close to 1.8% . you can do better with a CD .


Actually, it's worse than that. Fully reinvesting dividends and adjusting for inflation on yields about a 0.28% return over the same 13 year period. And that's before taxes.

See: Investing Through Time Calculator
It's not fair to adjust one investment for inflation and not adjust the other. Adjust CDs for inflation, too, please. And if you're assuming taxable investing, allow for the fact that stocks get favored tax treatment over CDs.

Neither of them did as well as plain old boring Series I Savings Bonds, of course.

Also, of course, being stocks, the answer you get will vary wildly depending on the choice of starting point, and I think it's sort of incumbent on someone to explain why they chose the starting point they did. "10 years" isn't totally arbitrary, because it's the longest time period that is customarily reported for mutual funds. "Start of available data" isn't totally arbitrary. "Start of a decade" isn't totally arbitrary. "End of 1998" isn't an obvious attempt to measure from the peak, but I don't quite know why you'd choose that particular epoch.
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