Stock Market Recent Sell Off Mystery

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boogiehead
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Stock Market Recent Sell Off Mystery

Post by boogiehead »

It seems like we're currently in a market correction since we have so much uncertainty, however with interest rates so low and real estate still booming I'm curious where the cash would be flowing to? Are there other viable investment vehicles I'm unaware of??
000
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Re: Stock Market Recent Sell Off Mystery

Post by 000 »

The cash isn't flowing anywhere. It just disappears. The stock market is not a USD container. Its market cap is determined by trading, not holding.

Stock prices are set by trading. There is a buyer and seller for every share transacted. If those traders think it's worth less than previously, the market price goes down, but there isn't any money entering or leaving the stock market. For every $1 put into stocks, there is someone else getting $1 out. The only exceptions are new share offerings, dissolutions, and of course dividends.

Consider an example. I spend $100k buying a house at its market price. Then a tornado destroys my house. Now my lot is worth $30k. The $70k difference didn't go into some other asset, people just aren't willing to give me as much for my destroyed house as for the upright house.
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Sheepdog
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Re: Stock Market Recent Sell Off Mystery

Post by Sheepdog »

error so deleted
Last edited by Sheepdog on Thu Sep 24, 2020 4:19 am, edited 1 time in total.
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Tingting1013
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Re: Stock Market Recent Sell Off Mystery

Post by Tingting1013 »

000 wrote: Thu Sep 24, 2020 1:38 am The cash isn't flowing anywhere. It just disappears. The stock market is not a USD container. Its market cap is determined by trading, not holding.

Stock prices are set by trading. There is a buyer and seller for every share transacted. If those traders think it's worth less than previously, the market price goes down, but there isn't any money entering or leaving the stock market. For every $1 put into stocks, there is someone else getting $1 out. The only exceptions are new share offerings, dissolutions, and of course dividends.

Consider an example. I spend $100k buying a house at its market price. Then a tornado destroys my house. Now my lot is worth $30k. The $70k difference didn't go into some other asset, people just aren't willing to give me as much for my destroyed house as for the upright house.
Money actually has been leaving equity funds at a record pace this year.

https://www.morningstar.com/articles/10 ... -strangely
000
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Re: Stock Market Recent Sell Off Mystery

Post by 000 »

Tingting1013 wrote: Thu Sep 24, 2020 1:57 am
000 wrote: Thu Sep 24, 2020 1:38 am The cash isn't flowing anywhere. It just disappears. The stock market is not a USD container. Its market cap is determined by trading, not holding.

Stock prices are set by trading. There is a buyer and seller for every share transacted. If those traders think it's worth less than previously, the market price goes down, but there isn't any money entering or leaving the stock market. For every $1 put into stocks, there is someone else getting $1 out. The only exceptions are new share offerings, dissolutions, and of course dividends.

Consider an example. I spend $100k buying a house at its market price. Then a tornado destroys my house. Now my lot is worth $30k. The $70k difference didn't go into some other asset, people just aren't willing to give me as much for my destroyed house as for the upright house.
Money actually has been leaving equity funds at a record pace this year.

https://www.morningstar.com/articles/10 ... -strangely
How did they get the money out without finding someone to buy their stocks?
bog007
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Re: Stock Market Recent Sell Off Mystery

Post by bog007 »

aren't we at 10%
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Sheepdog
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Re: Stock Market Recent Sell Off Mystery

Post by Sheepdog »

deleted because of error
Last edited by Sheepdog on Thu Sep 24, 2020 4:20 am, edited 1 time in total.
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keanoz
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Re: Stock Market Recent Sell Off Mystery

Post by keanoz »

Sheepdog wrote: Thu Sep 24, 2020 3:49 am
bog007 wrote: Thu Sep 24, 2020 2:01 am aren't we at 10%
No, we are not. The high this year was 3390 on August 20,2020. Yesterday, 9/23, it closed at 3237, a drop of 4.5%.
Woof
The high was 3580 on Sep 2. -9.6%
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Sheepdog
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Re: Stock Market Recent Sell Off Mystery

Post by Sheepdog »

keanoz wrote: Thu Sep 24, 2020 4:13 am
Sheepdog wrote: Thu Sep 24, 2020 3:49 am
bog007 wrote: Thu Sep 24, 2020 2:01 am aren't we at 10%
No, we are not. The high this year was 3390 on August 20,2020. Yesterday, 9/23, it closed at 3237, a drop of 4.5%.
Woof
The high was 3580 on Sep 2. -9.6%
Thank you for the correction. My source said different than yours. I don't know why it is
Woof
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Escapevelocity
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Re: Stock Market Recent Sell Off Mystery

Post by Escapevelocity »

000 wrote: Thu Sep 24, 2020 1:38 am The cash isn't flowing anywhere. It just disappears. The stock market is not a USD container. Its market cap is determined by trading, not holding.

Stock prices are set by trading. There is a buyer and seller for every share transacted. If those traders think it's worth less than previously, the market price goes down, but there isn't any money entering or leaving the stock market. For every $1 put into stocks, there is someone else getting $1 out. The only exceptions are new share offerings, dissolutions, and of course dividends.

Consider an example. I spend $100k buying a house at its market price. Then a tornado destroys my house. Now my lot is worth $30k. The $70k difference didn't go into some other asset, people just aren't willing to give me as much for my destroyed house as for the upright house.
This is a good explanation. It’s a question I hear frequently. I do think the explanation is somewhat incomplete though. There is a phenomenon of money flowing in between asset classes. To extend your analogy, there could be a trend of apartment dwellings becoming more popular relative to single family houses. This would tend to reduce the valuations of houses and increase the valuations of apartment buildings.
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Re: Stock Market Recent Sell Off Mystery

Post by nisiprius »

I'm not sure I know of any situation where it is worth asking "why" something happened in the stock market.

Everybody want to know "why," so there is a demand for answers, which creates a supply of answers. But they are basically folk tales. The best you can say about them is that perhaps they are accurately reporting what "the talk" is.

At some level one has to believe there is some kind of reason, but it is much closer to the truth to say that nobody knows. Certainly you should not base any investing actions on your guesses, or anybody else's, about the causes or reasons for daily, weekly, or month market movements.

Two noted authors have provided amusing evidence that the "reasons" given for financial market movements are spurious.

In 'The Black Swan', Nassim Nicholas Taleb wrote:
One day in December 2003, when Saddam Hussein was captured, Bloomberg News flashed the following headline at 13:01: U.S. Treasuries Rise; Hussein Capture May Not Curb Terrorism. ... Half an hour later, they had to issue a new headline. As these U.S. Treasury bonds fell in price (they fluctuate all day long, so there was nothing special about that), Bloomberg News had a new reason for the fall: Saddam's capture (the same Saddam). At 13:31 they issued the next bulletin: U.S. Treasuries Fall; Hussein Capture Boosts Allure of Risky Assets. So it was the same capture (the cause) explaining one event and its exact opposite.
In 'Stocks for the Long Run,' Jeremy Siegel wrote:
On November 15, 1991, when the Dow fell more than 120 points, or nearly 4 percent, Investor's Business Daily ran an article about the market entitled "Dow Plunges 120 in a Scary Stock Sell-Off: Biotechs, Programs, Expiration and Congress Get the Blame." In contrast, the London-based Financial Times published a front-page article by a New York writer entitled "Wall Street Drops 120 Points on Concern at Russian Moves." What is interesting is that such news, specifically that Russian government had suspended oil licenses and taken over the gold supplies, was not mentioned even once in the Investor's Business Daily article!
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Ping Pong
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Re: Stock Market Recent Sell Off Mystery

Post by Ping Pong »

Sheepdog wrote: Thu Sep 24, 2020 4:15 am Thank you for the correction.
Not quite a correction
Fortune Seeker
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Re: Stock Market Recent Sell Off Mystery

Post by Fortune Seeker »

You can narrow down the reason broad market indexes are dropping with websites that track biggest stock gains/losses in an index, for example here:
https://markets.businessinsider.com/ind ... nasdaq_100

It's not very varied though, usually it's one of FAANG stocks, energy or financials. Other sectors very rarely make market index move.

That doesn't answer the question "why", only "what" though.
Nowizard
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Re: Stock Market Recent Sell Off Mystery

Post by Nowizard »

Simply put, the market dislikes uncertainty and reacts. Additionally, the institutional traders use various markers to determine buy/sell. Add in that there is much emotional uncertainty in many areas of life, that many of us are acting "mysteriously" in terms of our general patterns, and you have a mystery solved. The solution is not necessarily correct, but neither are the ones offered by anyone else that proclaims to be an expert. In short, as always, make your decisions based on what information you can glean, then accept the consequences of your actions. That strongly suggests that when we are confused, the best approach is often to do nothing.

Tim
UpperNwGuy
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Re: Stock Market Recent Sell Off Mystery

Post by UpperNwGuy »

To me, the bigger mystery was why the stock market rebounded so quickly and so completely from the March 23 low point when the problem causing the economic uncertainty was (and is) still unsolved.
perfectuncertainty
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Re: Stock Market Recent Sell Off Mystery

Post by perfectuncertainty »

000 wrote: Thu Sep 24, 2020 2:01 am
Tingting1013 wrote: Thu Sep 24, 2020 1:57 am
000 wrote: Thu Sep 24, 2020 1:38 am The cash isn't flowing anywhere. It just disappears. The stock market is not a USD container. Its market cap is determined by trading, not holding.

Stock prices are set by trading. There is a buyer and seller for every share transacted. If those traders think it's worth less than previously, the market price goes down, but there isn't any money entering or leaving the stock market. For every $1 put into stocks, there is someone else getting $1 out. The only exceptions are new share offerings, dissolutions, and of course dividends.

Consider an example. I spend $100k buying a house at its market price. Then a tornado destroys my house. Now my lot is worth $30k. The $70k difference didn't go into some other asset, people just aren't willing to give me as much for my destroyed house as for the upright house.
Money actually has been leaving equity funds at a record pace this year.

https://www.morningstar.com/articles/10 ... -strangely
How did they get the money out without finding someone to buy their stocks?
I agree - it is a zero-sum game even if many claim it isn't. Money goes to where it was last treated best.
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Re: Stock Market Recent Sell Off Mystery

Post by barnaclebob »

000 wrote: Thu Sep 24, 2020 2:01 am
Tingting1013 wrote: Thu Sep 24, 2020 1:57 am
000 wrote: Thu Sep 24, 2020 1:38 am The cash isn't flowing anywhere. It just disappears. The stock market is not a USD container. Its market cap is determined by trading, not holding.

Stock prices are set by trading. There is a buyer and seller for every share transacted. If those traders think it's worth less than previously, the market price goes down, but there isn't any money entering or leaving the stock market. For every $1 put into stocks, there is someone else getting $1 out. The only exceptions are new share offerings, dissolutions, and of course dividends.

Consider an example. I spend $100k buying a house at its market price. Then a tornado destroys my house. Now my lot is worth $30k. The $70k difference didn't go into some other asset, people just aren't willing to give me as much for my destroyed house as for the upright house.
Money actually has been leaving equity funds at a record pace this year.

https://www.morningstar.com/articles/10 ... -strangely
How did they get the money out without finding someone to buy their stocks?
Other people or institutions were buying the stocks from the funds.
occambogle
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Re: Stock Market Recent Sell Off Mystery

Post by occambogle »

UpperNwGuy wrote: Thu Sep 24, 2020 8:26 am To me, the bigger mystery was why the stock market rebounded so quickly and so completely from the March 23 low point when the problem causing the economic uncertainty was (and is) still unsolved.
I was also really surprised until I realised, and I forget the exact numbers, but if I recollect... the Fed pumped in significantly more dollars into the economy than there was drop of GDP....
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Re: Stock Market Recent Sell Off Mystery

Post by barnaclebob »

perfectuncertainty wrote: Thu Sep 24, 2020 8:27 am
000 wrote: Thu Sep 24, 2020 2:01 am
How did they get the money out without finding someone to buy their stocks?
I agree - it is a zero-sum game even if many claim it isn't. Money goes to where it was last treated best.
Only if you change the definition of a zero sum game.
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Re: Stock Market Recent Sell Off Mystery

Post by minimalistmarc »

UpperNwGuy wrote: Thu Sep 24, 2020 8:26 am To me, the bigger mystery was why the stock market rebounded so quickly and so completely from the March 23 low point when the problem causing the economic uncertainty was (and is) still unsolved.
Maybe you missed the global printing of trillions of dollars, furlough schemes, temporary socialist policies, and a not so subtle intention to support equities from the fed?

It’s crazy out there. Ignore the noise, stay the course!
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Re: Stock Market Recent Sell Off Mystery

Post by 000 »

barnaclebob wrote: Thu Sep 24, 2020 8:28 am Other people or institutions were buying the stocks from the funds.
So, as I said, no money flowed out of the stock market into other asset classes.
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Re: Stock Market Recent Sell Off Mystery

Post by firebirdparts »

000 wrote: Thu Sep 24, 2020 2:01 am How did they get the money out without finding someone to buy their stocks?
This is basic stuff. Money cannot move in or out of tradeable securities at all. However, enormous sums of money flow in and out of mutual funds regularly. Simple.

When people mis-state this (which wasn't the case here) you just read it as if they were correct and then see if you can provide any insight as if they said it right.
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Re: Stock Market Recent Sell Off Mystery

Post by hightower »

I too think the real mystery is why the stock market recovered so quickly this year after it's March crash. COVID is not gone, nor is it going to be gone anytime soon (if you listen to factual sources/scientists). Millions and millions of people lost their jobs and are living on unemployment still today (I have a group of friends who are all professional musicians who see no end in sight for their unemployment) and thousands upon thousands of small businesses have permanently closed. Consumer debt is at all time highs. Yet, the stock market went wild. Makes no sense. [Political comment removed by Moderator Misenplace] I've kept a very conservative AA through all of this with plenty of cash on hand for what I expect to be another crash as investors wake up to the reality of the world over the coming months. I am expecting a good buying opportunity in the next year or less.
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Re: Stock Market Recent Sell Off Mystery

Post by firebirdparts »

Getting back on the subject at hand and away from reading comprehension issues, we are down about 9% on the S&P right this minute. That's where we are. As with all selloffs, we could write the headlines just as well as the people who really write the, but it wouldn't do any good. Stocks are high, but not ridiculously so, and times are bad, but not ridiculously so.

It's probably more fruitful to think of "support levels" as real than to think of 10% as being real, but ultimately, people buying and selling will decide what's real.
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perfectuncertainty
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Re: Stock Market Recent Sell Off Mystery

Post by perfectuncertainty »

barnaclebob wrote: Thu Sep 24, 2020 8:30 am
perfectuncertainty wrote: Thu Sep 24, 2020 8:27 am
000 wrote: Thu Sep 24, 2020 2:01 am
How did they get the money out without finding someone to buy their stocks?
I agree - it is a zero-sum game even if many claim it isn't. Money goes to where it was last treated best.
Only if you change the definition of a zero sum game.
Care to explain? The money doesn't evaporate. It goes somewhere.
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Re: Stock Market Recent Sell Off Mystery

Post by perfectuncertainty »

firebirdparts wrote: Thu Sep 24, 2020 8:52 am
000 wrote: Thu Sep 24, 2020 2:01 am How did they get the money out without finding someone to buy their stocks?
This is basic stuff. Money cannot move in or out of tradeable securities at all. However, enormous sums of money flow in and out of mutual funds regularly. Simple.

When people mis-state this (which wasn't the case here) you just read it as if they were correct and then see if you can provide any insight as if they said it right.
And mutual funds buy securities or bonds. Money changes hands. It doesn't disappear.
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Re: Stock Market Recent Sell Off Mystery

Post by 000 »

firebirdparts wrote: Thu Sep 24, 2020 8:52 am
000 wrote: Thu Sep 24, 2020 2:01 am How did they get the money out without finding someone to buy their stocks?
This is basic stuff. Money cannot move in or out of tradeable securities at all. However, enormous sums of money flow in and out of mutual funds regularly. Simple.

When people mis-state this (which wasn't the case here) you just read it as if they were correct and then see if you can provide any insight as if they said it right.
Not sure what you're picking at here.

The OP literally asked "where the cash would be flowing to? Are there other viable investment vehicles I'm unaware of??".

Then someone else posted something about mutual fund flows which isn't relevant to what the OP asked about.

Stocks can move in any direction irrespective of mutual fund flows. Stocks can go up when mutual funds have net outflows.

OP, are you asking about what other stock mutual fund investors (as opposed to the whole group of stock investors) are doing with the sale proceeds?
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Re: Stock Market Recent Sell Off Mystery

Post by celia »

There are millions more people out of work this year and small businesses are floundering. People need money to live, so some are drawing down their assets. They take the price they can get while the buyer gets a good deal.
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Re: Stock Market Recent Sell Off Mystery

Post by aristotelian »

Just as mysterious as why the market went to new records in the midst of a pandemic and recession.
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Re: Stock Market Recent Sell Off Mystery

Post by barnaclebob »

perfectuncertainty wrote: Thu Sep 24, 2020 9:27 am
barnaclebob wrote: Thu Sep 24, 2020 8:30 am
perfectuncertainty wrote: Thu Sep 24, 2020 8:27 am
000 wrote: Thu Sep 24, 2020 2:01 am
How did they get the money out without finding someone to buy their stocks?
I agree - it is a zero-sum game even if many claim it isn't. Money goes to where it was last treated best.
Only if you change the definition of a zero sum game.
Care to explain? The money doesn't evaporate. It goes somewhere.
It does evaporate as explained in the prior examples. If I buy a car from you for $20k and then immediately crash it, will you buy it back for $20k? Where did that money go? The car isn't sonic the hedgehog exploding gold rings when I hit a pole. The same principle applies to stocks.
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Re: Stock Market Recent Sell Off Mystery

Post by AlohaBill »

Morningstar had an article recently that said money was moving from stock funds into bond funds, bigly.
perfectuncertainty
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Re: Stock Market Recent Sell Off Mystery

Post by perfectuncertainty »

barnaclebob wrote: Thu Sep 24, 2020 9:47 am
perfectuncertainty wrote: Thu Sep 24, 2020 9:27 am
barnaclebob wrote: Thu Sep 24, 2020 8:30 am
perfectuncertainty wrote: Thu Sep 24, 2020 8:27 am
000 wrote: Thu Sep 24, 2020 2:01 am
How did they get the money out without finding someone to buy their stocks?
I agree - it is a zero-sum game even if many claim it isn't. Money goes to where it was last treated best.
Only if you change the definition of a zero sum game.
Care to explain? The money doesn't evaporate. It goes somewhere.
It does evaporate as explained in the prior examples. If I buy a car from you for $20k and then immediately crash it, will you buy it back for $20k? Where did that money go? The car isn't sonic the hedgehog exploding gold rings when I hit a pole. The same principle applies to stocks.
https://www.morningstar.com/articles/84 ... o-sum-game
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Re: Stock Market Recent Sell Off Mystery

Post by barnaclebob »

perfectuncertainty wrote: Thu Sep 24, 2020 10:34 am
barnaclebob wrote: Thu Sep 24, 2020 9:47 am
perfectuncertainty wrote: Thu Sep 24, 2020 9:27 am
barnaclebob wrote: Thu Sep 24, 2020 8:30 am
perfectuncertainty wrote: Thu Sep 24, 2020 8:27 am

I agree - it is a zero-sum game even if many claim it isn't. Money goes to where it was last treated best.
Only if you change the definition of a zero sum game.
Care to explain? The money doesn't evaporate. It goes somewhere.
It does evaporate as explained in the prior examples. If I buy a car from you for $20k and then immediately crash it, will you buy it back for $20k? Where did that money go? The car isn't sonic the hedgehog exploding gold rings when I hit a pole. The same principle applies to stocks.
https://www.morningstar.com/articles/84 ... o-sum-game
The zero sum part in that article refers to individual trades, not the market as a whole. Its kind of a pointless argument because pretty much any transaction is zero sum at the instant it happens assuming both sides have valued their side of the exchange fairly.
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Re: Stock Market Recent Sell Off Mystery

Post by snowox »

aristotelian wrote: Thu Sep 24, 2020 9:38 am Just as mysterious as why the market went to new records in the midst of a pandemic and recession.

A lot of momentum chasers for one. Two many new people to the markets and alot of player like Robinhood would rather buy even as the stock is rising then in there minds miss and wait for a pull back.
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Re: Stock Market Recent Sell Off Mystery

Post by langlands »

For this most recent selloff, the cash is going to cash. In other words, people are just selling off stocks and holding it in cash. Don't forget that cash itself is an asset class. Notice that gold also sold off during the same period. Investors are not happy at the lack of fiscal stimulus because of political gridlock and not particularly satisfied with Powell's statements either. It's a repricing towards stagnation and deflation/Japanification.
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Re: Stock Market Recent Sell Off Mystery

Post by perfectuncertainty »

langlands wrote: Thu Sep 24, 2020 12:40 pm For this most recent selloff, the cash is going to cash. In other words, people are just selling off stocks and holding it in cash. Don't forget that cash itself is an asset class. Notice that gold also sold off during the same period. Investors are not happy at the lack of fiscal stimulus because of political gridlock and not particularly satisfied with Powell's statements either. It's a repricing towards stagnation and deflation/Japanification.
+1
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Re: Stock Market Recent Sell Off Mystery

Post by luckyducky99 »

langlands wrote: Thu Sep 24, 2020 12:40 pm For this most recent selloff, the cash is going to cash. In other words, people are just selling off stocks and holding it in cash.
I’m confused. Someone sells $100 XYZ and just holds the proceeds in cash. But the buyer on the other side of the transaction paid $100 cash. So there’s the same amount of cash out of the market before and after the transaction.

What am I missing?
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Re: Stock Market Recent Sell Off Mystery

Post by shess »

barnaclebob wrote: Thu Sep 24, 2020 9:47 am
perfectuncertainty wrote: Thu Sep 24, 2020 9:27 am
barnaclebob wrote: Thu Sep 24, 2020 8:30 am
perfectuncertainty wrote: Thu Sep 24, 2020 8:27 am
000 wrote: Thu Sep 24, 2020 2:01 am
How did they get the money out without finding someone to buy their stocks?
I agree - it is a zero-sum game even if many claim it isn't. Money goes to where it was last treated best.
Only if you change the definition of a zero sum game.
Care to explain? The money doesn't evaporate. It goes somewhere.
It does evaporate as explained in the prior examples. If I buy a car from you for $20k and then immediately crash it, will you buy it back for $20k? Where did that money go? The car isn't sonic the hedgehog exploding gold rings when I hit a pole. The same principle applies to stocks.
If you buy a car from me for $20k and immediately crash it, I still have $20k. It's sitting on my counter waiting to be deposited. You still have the car, or at least the pieces of the car. Probably nobody would buy the car pieces from you for $20k, because of the wear your driving put on them. My $20k will still be worth $20k regardless of what you do with the car or pieces thereof. Maybe among the pieces you find 100 1-oz gold coins that were hidden where the spare tire was supposed to be. My $20k is _still_ worth just $20k.
langlands
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Re: Stock Market Recent Sell Off Mystery

Post by langlands »

luckyducky99 wrote: Thu Sep 24, 2020 1:27 pm
langlands wrote: Thu Sep 24, 2020 12:40 pm For this most recent selloff, the cash is going to cash. In other words, people are just selling off stocks and holding it in cash.
I’m confused. Someone sells $100 XYZ and just holds the proceeds in cash. But the buyer on the other side of the transaction paid $100 cash. So there’s the same amount of cash out of the market before and after the transaction.

What am I missing?
There's nothing wrong with what you said. In a simplified closed environment in which the stock supply and money supply is fixed, people are basically trading dollar bills and stock certificates but the total amount of both is fixed.

My phrasing was perhaps a little confusing, but I believe it is the standard usage. Now that I think about it, "sell off" is a little misleading since as you point out, whenever someone sells, someone else buys. The usage comes from emphasizing which side is "stronger" or more "aggressive." Visually, I imagine a bunch of passive limit buy orders and a stream of aggressive sell orders coming in smashing the bid. After the dust clears, the end result is that each stock is now worth less USD.

I think part of the confusion you are experiencing comes from privileging USD. People tend to view everything from the lens of dollars, i.e. everything else is valued in terms of dollars, but the value of the dollar stays constant. For this topic, I think it helps to take a more neutral view and consider USD as just another asset in the system. When the stock market drops, what is basically happening is that the exchange rate between stock shares and USD is changing. There's the same "amount" of everything. The exchange rate changed.
Last edited by langlands on Thu Sep 24, 2020 2:16 pm, edited 4 times in total.
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Re: Stock Market Recent Sell Off Mystery

Post by nisiprius »

I have to admit I was very taken by an analogy the other day... in an interview with Joshua W. Brown of Ritholtz Wealth Management on NPR's Planet Money:
BROWN: And I’m now going to give you my favorite analogy. So a woman is walking through Central Park, and she’s got a dog. What’s a very active kind of dog?

VANEK SMITH: Oh, like a Jack Russell terrier or something like that?

BROWN: Fine. Jack Russell Terrier is great. If you just looked at her, what is she doing? She’s taking normal steps. She’s going in a straight line. She’s walking, you know, upright at a moderate pace – nothing terribly exciting. Then let your eyes pan down a little bit. Look at the dog. The dog is going crazy. It’s chasing birds. It’s digging up clumps of mud. It’s running at trees. It’s peeing all over the place. The dog is the stock market. The woman is the economy. The dog is chasing butterflies, then it’s sniffing itself, you know. So if you’re just watching the dog, you’re not watching the economy. You’re watching the manifestation of hundreds of millions of people’s greed and fear with buying and selling. But you’re not watching an actual representation of how the economy’s doing. So it’s important to understand that, yes, the stock market leads the economy and, to some extent, reflects the economy…

VANEK SMITH: Yeah, they’re connected, like the dog and the…

BROWN: Yeah, the dog’s going walk in the general direction that the woman walks the dog. So the economy and the dog – or the economy the stock market are somewhat connected. But they do not look the same. They do not act the same even if they’re walking in the same direction.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
burritoLover
Posts: 328
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Re: Stock Market Recent Sell Off Mystery

Post by burritoLover »

nisiprius wrote: Thu Sep 24, 2020 2:05 pm I have to admit I was very taken by an analogy the other day... in an interview with Joshua W. Brown of Ritholtz Wealth Management on NPR's Planet Money:
BROWN: And I’m now going to give you my favorite analogy. So a woman is walking through Central Park, and she’s got a dog. What’s a very active kind of dog?

VANEK SMITH: Oh, like a Jack Russell terrier or something like that?

BROWN: Fine. Jack Russell Terrier is great. If you just looked at her, what is she doing? She’s taking normal steps. She’s going in a straight line. She’s walking, you know, upright at a moderate pace – nothing terribly exciting. Then let your eyes pan down a little bit. Look at the dog. The dog is going crazy. It’s chasing birds. It’s digging up clumps of mud. It’s running at trees. It’s peeing all over the place. The dog is the stock market. The woman is the economy. The dog is chasing butterflies, then it’s sniffing itself, you know. So if you’re just watching the dog, you’re not watching the economy. You’re watching the manifestation of hundreds of millions of people’s greed and fear with buying and selling. But you’re not watching an actual representation of how the economy’s doing. So it’s important to understand that, yes, the stock market leads the economy and, to some extent, reflects the economy…

VANEK SMITH: Yeah, they’re connected, like the dog and the…

BROWN: Yeah, the dog’s going walk in the general direction that the woman walks the dog. So the economy and the dog – or the economy the stock market are somewhat connected. But they do not look the same. They do not act the same even if they’re walking in the same direction.
Nice!
"Your money is like a bar of soap. The more you handle it, the less you’ll have." - Gene Fama
barnaclebob
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Re: Stock Market Recent Sell Off Mystery

Post by barnaclebob »

shess wrote: Thu Sep 24, 2020 1:52 pm
barnaclebob wrote: Thu Sep 24, 2020 9:47 am It does evaporate as explained in the prior examples. If I buy a car from you for $20k and then immediately crash it, will you buy it back for $20k? Where did that money go? The car isn't sonic the hedgehog exploding gold rings when I hit a pole. The same principle applies to stocks.
If you buy a car from me for $20k and immediately crash it, I still have $20k. It's sitting on my counter waiting to be deposited. You still have the car, or at least the pieces of the car. Probably nobody would buy the car pieces from you for $20k, because of the wear your driving put on them. My $20k will still be worth $20k regardless of what you do with the car or pieces thereof. Maybe among the pieces you find 100 1-oz gold coins that were hidden where the spare tire was supposed to be. My $20k is _still_ worth just $20k.
Correct but we are talking about the definition of a zero sum game with the car being analogous to a share of stock. In a zero sum game there can be no change to the total value of assets within the game. When I crash the car most of its value disappears into nothing. Where there was 40k worth of assets there is now 20k plus scrap value.

When Elon tweets about Tesla and its market cap goes up a few billion $ where did that value come from? When the federal reserve says its going to increase interest rates and stocks drop, where did that value go? No money changed hands, value was created or destroyed making it a non zero sum game.
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MortgageOnBlack
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Re: Stock Market Recent Sell Off Mystery

Post by MortgageOnBlack »

I wouldn't be surprised if we see DOW 19,000 again in the next 6 months... Feels like one big dead cat bounce to me. Of course, I know nothing.
striker79
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Re: Stock Market Recent Sell Off Mystery

Post by striker79 »

Stocks do not go up in a straight line. Everone has gotten spoiled by the big stock market bubble from forever low interest rates and the fed support. A normal market has corrections, and you should be happy that we are finally getting a correction
luckyducky99
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Re: Stock Market Recent Sell Off Mystery

Post by luckyducky99 »

langlands wrote: Thu Sep 24, 2020 2:02 pm When the stock market drops, what is basically happening is that the exchange rate between stock shares and USD is changing. There's the same "amount" of everything. The exchange rate changed.
Oh interesting. I've never heard it described that way before, but it makes sense.
langlands wrote: Thu Sep 24, 2020 2:02 pm The usage comes from emphasizing which side is "stronger" or more "aggressive."
Makes total sense now. Words are hard. Thanks for clearing that up :beer
bugleheadd
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Re: Stock Market Recent Sell Off Mystery

Post by bugleheadd »

my uneducated guess for reasons of this months stock market drops

-RBG death
-still waiting for COVID vaccine
-still waiting for more govt stimulus
-priced in Biden win
-priced in Trump loss
-possible covid lockdowns this winter
-markets not impressed with battery day
perfectuncertainty
Posts: 126
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Re: Stock Market Recent Sell Off Mystery

Post by perfectuncertainty »

bugleheadd wrote: Thu Sep 24, 2020 4:06 pm my uneducated guess for reasons of this months stock market drops

-RBG death
-still waiting for COVID vaccine
-still waiting for more govt stimulus
-priced in Biden win
-priced in Trump loss
-possible covid lockdowns this winter
-markets not impressed with battery day
More sellers than buyers.
sabhen
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Re: Stock Market Recent Sell Off Mystery

Post by sabhen »

Rising uncertainty.
wreckinpa
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Re: Stock Market Recent Sell Off Mystery

Post by wreckinpa »

My guess and 2 cents:

1--Many Wall Street money managers and institutions close their books at the end of September. It's possible they are just profit taking while also goosing their returns for next year's sales and marketing push.

2--Individuals with long-term capital gains could be fearful of a Biden victory (and his promises to reverse all of the Trump tax cuts) and are taking profits knowing they will be taxed at a lower rate for 2020. Staying on the sidelines until Election Day is just being cautious while locking in those capital gains.
sabhen
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Re: Stock Market Recent Sell Off Mystery

Post by sabhen »

Then how do you explain that historically September has been a month of typical seasonal weakness - per the pundits.

i.e.: not the political conjecture you are making.
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