When Both Stocks and Bonds Fall, Where Does the Money Go?

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sjwoo
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Joined: Mon Jan 20, 2014 11:41 am

When Both Stocks and Bonds Fall, Where Does the Money Go?

Post by sjwoo » Thu Oct 11, 2018 8:43 am

One thing I can't quite understand on a day like yesterday is that when there's a significant amount of stock selling, the 10-year bond yield also rose. Which means there were more people selling 10-year bonds than buying, right? Or do bond yields work in a different way than my simple-minded supply/demand dynamic?

Short-term bonds like GSY, MINT, and FLOT predictably went up yesterday, which makes sense to me, people running for ultra-safety. Gold of course went up as well. Maybe long-term bonds dropped because people sold them in order to buy stocks at a later date?

Of course, by "people" I mean institutional investors, who of course move the market than lowly individual investors like us.

None of this is actionable, but I do enjoy thinking about the massive movements of money on days like yesterday...

aristotelian
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Re: When Both Stocks and Bonds Fall, Where Does the Money Go?

Post by aristotelian » Thu Oct 11, 2018 8:49 am

I suppose cash, as people wait for the dust to settle. The bots must have decision rule to avoid anything until the VIX gets back to a normal number.

sabtastic
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Joined: Tue Dec 03, 2013 1:00 am

Re: When Both Stocks and Bonds Fall, Where Does the Money Go?

Post by sabtastic » Thu Oct 11, 2018 9:19 am

When you sell stock/bond funds, where does your money go?!

There is also a lot of shorting going on, too. My guts hurt thinking about how much leverage pretty much every asset class has right now...

bhsince87
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Re: When Both Stocks and Bonds Fall, Where Does the Money Go?

Post by bhsince87 » Thu Oct 11, 2018 9:34 am

"The money" goes to whoever is selling.

The downside for the sellers is that if they had sold it the day before, they could have got more money.
Retirement: When you reach a point where you have enough. Or when you've had enough.

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Cyclesafe
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Re: When Both Stocks and Bonds Fall, Where Does the Money Go?

Post by Cyclesafe » Thu Oct 11, 2018 9:38 am

sjwoo wrote:
Thu Oct 11, 2018 8:43 am
One thing I can't quite understand on a day like yesterday is that when there's a significant amount of stock selling, the 10-year bond yield also rose. Which means there were more people selling 10-year bonds than buying, right? Or do bond yields work in a different way than my simple-minded supply/demand dynamic? No. For every seller there is a buyer and vice versa.

Short-term bonds like GSY, MINT, and FLOT predictably went up yesterday, which makes sense to me, people running for ultra-safety. Gold of course went up as well. Maybe long-term bonds dropped because people sold them in order to buy stocks at a later date? No. Bonds dropped because yesterday the market "thought" rates will increase more than it thought the day before.

Of course, by "people" I mean institutional investors, who of course move the market than lowly individual investors like us.

None of this is actionable, but I do enjoy thinking about the massive movements of money on days like yesterday...

robertmcd
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Re: When Both Stocks and Bonds Fall, Where Does the Money Go?

Post by robertmcd » Thu Oct 11, 2018 9:41 am

The money goes into thin air, for that is where it came from. The market value of a company is simply the number of shares multiplied by the last price the share traded at.

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JoMoney
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Re: When Both Stocks and Bonds Fall, Where Does the Money Go?

Post by JoMoney » Thu Oct 11, 2018 9:42 am

"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

kaeltor
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Re: When Both Stocks and Bonds Fall, Where Does the Money Go?

Post by kaeltor » Thu Oct 11, 2018 10:33 am

If you have capital, then real estate?

discman017
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Joined: Mon Jan 28, 2008 1:07 pm

Re: When Both Stocks and Bonds Fall, Where Does the Money Go?

Post by discman017 » Thu Oct 11, 2018 10:44 am

Understanding that this is a fairly theoretical question, let me give a theoretical answer...

In theory, the value of a company is the sum of its expected future cash flows, discounted to present-day dollars.

If the sentiment of the "market" (institutions, computers, etc.) changes, such that they believe future cash flows will be smaller or the discount rate should be higher, then the value of the company drops.

Purely hypothetically now, not a single share has to trade, so no money needs to change hands. The sentiment of the "market" can simply be reflected in the bid and ask prices decreasing. In reality shares do obviously trade hands every day, but that's not a requirement for valuations to change. The concept of "value" is purely an agreement among market participants.

stlutz
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Re: When Both Stocks and Bonds Fall, Where Does the Money Go?

Post by stlutz » Thu Oct 11, 2018 10:46 am

Gold.

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parsi1
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Re: When Both Stocks and Bonds Fall, Where Does the Money Go?

Post by parsi1 » Thu Oct 11, 2018 11:09 am

JoMoney wrote:
Thu Oct 11, 2018 9:42 am
https://youtu.be/iPkJH6BT7dM?t=48
One of the best movies ever made

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Phineas J. Whoopee
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Re: When Both Stocks and Bonds Fall, Where Does the Money Go?

Post by Phineas J. Whoopee » Thu Oct 11, 2018 12:39 pm

sjwoo wrote:
Thu Oct 11, 2018 8:43 am
One thing I can't quite understand on a day like yesterday is that when there's a significant amount of stock selling, the 10-year bond yield also rose. Which means there were more people selling 10-year bonds than buying, right? Or do bond yields work in a different way than my simple-minded supply/demand dynamic?
...
There is no money, in the sense of a person possessing physical bills or owning a bank deposit.

What we call the market price is simply the most recent price the most eager seller and most eager buyer agreed on. Other potential sellers and buyers disagree.

If PJW Enterprises, Inc., has 1000 shares outstanding, and you and I each own 100, and the most recent price was $10 per share, each of us owns $1,000 worth of shares. If there's a new transaction at $9 per share, without having transacted ourselves at all each of us owns, by market convention, $900 worth of shares.

There was no money in its medium of exchange sense to go anywhere.

PJW

bo105954027
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Re: When Both Stocks and Bonds Fall, Where Does the Money Go?

Post by bo105954027 » Fri Oct 12, 2018 11:49 am

Stock price doesn't reflect their real value, but their expected (future) earning potential. The falling price just means people don't expect the stock having a strong increasing potential anymore. The money disappearing is merely a number indicating of the falling of people's confidence on the stock.
Time in market beats timing the market.

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