My understanding is that these automatic limit down rules were added in response to the flash crash in 2010, during which the Dow Jones lost 1000 points over the course of minutes.
This is incorrect, it was somewhere during/after the 2008 recession that these circuit breakers went into effect (because I remember they didn't exist at that time)
not exactly - circuit breaker was put in place after the 1987 crash, but the 3-tier system (7-13-20) went into effect only in 2013: https://www.wikiwand.com/en/Trading_curb
It's up what, 30 % over the last few months? The real economy didn't grow nearly that much.
In terms of real value, the only way for the economy to take that degree of a hit in a day would be a natural disaster. But these numbers are mostly speculation, so yeah they can go up and down very fast minus techinal restrictions like these halts.
It would indeed, but if it's an irrational panic or an algorithmic mess-up it also allows people to stop and think for a bit. It's a tradeoff, and the main goal is to reduce the extreme failures.
The volumes on Vix futures are a fraction of what they were two years ago. Vix is shooting up but I assume it is following the stock market rather than the other way round.
Actually not true. This is the first time ever these circuit breakers were triggered during regular trading hours. Even still, on election night, stock futures were only under the 'limit-down rule'. You could have still been buying futures while that restriction was in place, so this is very much different and unprecedented
This is official policy, but not "common practice."
According to CNBC: "These circuit breakers have never been triggered in their current form during regular trading hours."
This will be blamed on COVID-19, but the problems go much deeper. Last year the Fed lost control of the repo market. the event was widely discounted at the time as an end-of-tax-year fluke. It wasn't. Six month ago, the yield curve inverted. People who should have known better said "this time is different."
Speculators have been trained over the course of 10+ years to buy the dip. The Fed has your back.
What we're seeing is the beginning of the end of that resolve.
The last time this happened was during the GFC. It's not normal, and it's probably not a one-time event, either.
I started getting defensive right after the election of 2016.
Modern history does not have an example of you know which party going on a tax cutting, over-spending, self-dealing, deregulation binge that did not end in a catastrophe. Add to that complete lack of competency when it comes to dealing with a not self-made crisis (a matter of time), and only a chump would think the good times would keep on rolling.
The market so far has absorbed the dumb trade war by pure optimism, and we only narrowly avoided a war with Iran. It all has been blind luck so far, and it just ran out.
Your everyday investor probably shouldn't be shorting in ultra high volatility periods like this. Markets spike for one day in the course of leading to a recession leads to a margin call and you can't post collateral, then you're done. Doesn't matter if it goes to zero a week after.
Buying puts on SPY. Realized gains (so far) are $30k from an initial "investment" of $1k about three weeks ago. Currently have about $10k riding with expirations in April and May. If the market shoots up because the Fed announces stimulus, I'll buy more. It's pretty clear that the virus is going to decimate the world economy for many months, maybe years. And watching the complete mismanagement by the US only increases my confidence.
I also moved $600k to cash, about 80% of it a month ago. Never done that in 20 years of investing, and probably wouldn't advise it to anyone now either. But when China locked down the whole country, I knew it was time to stand on the sidelines. Worst case, I'd lose out on a few percentage points of growth and jump back in once the threat had passed. I also still have significant indirect exposure through unvested employer stock.
To be clear, this is all fairly risky and ill-advised.
I'll add certain "tech companies" making no money doubling and tripling in a matter of months. The blow-off top was obvious, Covid19 was a mere catalyst.
I've been skeptical of the whole yield curve as metric thing because it's not directly tied to the actual state of the economy directly just to the sentiment about the market X years in the future. Given how much we know the whole market is prone to group think, self delusion, and outright manipulation I've grown very skeptical of any indicator about the market that comes directly from the market.
In most places yeah which is why the kind of highly instrumented self reflection of the sentiment like the yield curve inversion can be dangerous. It's not a sign that says there's going to be a recession it's just a sign the people in that market think there will be one.
I always wonder how much of a self-fulfilling prophecy it is, especially now the yield-curve-inversions-precede-recessions thing is so well known, i.e. people see the yield curve inverts and therefore believe the market will drop, therefore it does. Markets are just a reflection of aggregate human beliefs after all.
> Shortly after 6 a.m. ET on Wednesday, the yield on the 10-year U.S. Treasury bond dipped below the yield on the 2-year U.S. Treasury as the 10-year fell 1 basis point below the 2-year. The yield curve inversion has a strong track record of predicting a recession; each of the last seven recessions (dating back to 1969) were preceded by the 10-year falling below the 2-year.
Bond rates are like a thermometer or barometer. So the fact that (economic) storm clouds are gathering are not caused by the measuring instrument (bond rates), but rather the metric is reading the (business) atmosphere.
Third option is that it is an indicator as long as people aren't treating it as one, but once people react to it then it ceases having the power to indicate what is happening.
I kind of think that the Fed will not let this go too far in the middle of an election year, particularly given Trump. But yeah, the market was clearly overextended, and stock price growth was accelerating.
The multi-trillion dollar question, though, is whether the Fed actually has much ability to help much with the current situation. Flooding the economy with cash probably isn't going to make people want to book a cruise anytime soon.
It's really not up to the Fed; they had an emergency rate cut last week and it was just a minor blip on the overall downward slide. This is a demand-driven crisis, not a liquidity crisis or credit crunch like 2008. Monetary policy isn't going to get you very far this time.
Only if restricted to the relatively arms length levers like interest rates. There's still plenty of room for more drastic measures like buying stock directly in companies like Japan has done or huge prop ups like a new WPA.
The Fed has as much ammo as there is wealth held in dollars. Which is to say, a lot.
First, there is negative rates. Punishing people for holding cash. The ECB and Bank of Japan have done a lot of pioneering work there, the Fed will have already extensively studied what they did, what worked, what didn't work.
Second, they have QE, monetizing debt & debasing dollar wealth, which is exactly what they'll unleash for the next recession. Inflation isn't much of a concern right now, so they'll feel free to 'print' rather wildly.
Annual budget deficits will blowout, probably up to $2 trillion or more, with the next recession, so the Fed will have to print dramatically to fund that regardless.
The purpose of Fed easing would be precisely to generate/maintain target levels of inflation. The idea that the "Fed is out of ammunition" is that its conventional policy tool (rate changes) is seen as near a limit, such that the Fed can't generate further inflation if it wants to.
But here, you "smell the inflation," so by definition the contemplated actions are in fact ammunition.
==First, there is negative rates. Punishing people for holding cash. The ECB and Bank of Japan have done a lot of pioneering work there, the Fed will have already extensively studied what they did, what worked, what didn't work.
Second, they have QE, monetizing debt & debasing dollar wealth, which is exactly what they'll unleash for the next recession. Inflation isn't much of a concern right now, so they'll feel free to 'print' rather wildly.==
I'm not sure I see where either of these options has worked. Can you share the successes of either of these measures?
In option 1, you have a stagnant Japan with a lost generation.
Option 2, is what we have been doing for 12 years and has led us to this point. The inflation seems to be hiding in asset prices (housing, stocks) not household items.
Since 2007, there has been one year with GDP growth [1] above the annual deficit as % of GDP [2]. That was 2015, with 2.4% deficit and 2.9% GDP growth. 2018 saw the US spending 3.8% of GDP in deficits to generate 2.9% GDP growth. Does that sound like a "strong" economy?
This administration has a single minded project that has been a struggle to get financed. It would be a huge coup for them to use this downturn to get it financed without borrowing from Peter to pay Paul. Then again, this is all probably just fake news.
Right. Borrow $5 trillion for infrastructure and pay <$50 billion / year. That's a positive ROI for sure. Only issue is you would flood the markets and raise those rates, so you wouldn't get all of it, but still a lot. I have always though that the government should act strategically and take advantage of low rates like other market participants.
It is not a problem with correction or even recession. Without one you cannot eliminate those weak and continue the rich as rich. You need some cycle. Desperately need it.
Good. Because I don't buy for a moment that without COVID-19 the situation would be what it is now. Hindsight is 2020 and predictions of doom and stock market collapse is a dime a dozen.
> Is what we are seeing now primarily a consequence of of COVID-19 or not?
"is the 2008 crisis primarily a consequence of mortgages or not?"
In the grand scheme of things, no, it's a consequence of a bubbled economy that has been goosed with tax cuts, extremely low interest rates, and deregulation for too long and is overdue for a correction. The proximate cause is Covid but it just was the spark that lit the fire, there was lots of fuel building up.
This is why you don't cut tax rates and keep interest rates super low when the economy is already roaring. Now we're out of options for dealing with a real financial crisis.
Trump of course understands none of this since he's a narcissistic con man who just understands "tax cuts = economy more better!". Insofar as he can be said to understand anything - he's not a man that can be described as intellectually curious.
Well, while he doesn't seem to have much understanding of economics or how to run a government properly, let's give credit where credit is due: he certainly seemed to understand how to get people to vote for him a lot better than his political competitors did.
Are you seriously bringing that up again? He won the election. The number of votes is irrelevant. Maybe that's why he won: he actually understands this simple fact about how the Constitution works, and people like you either don't, or simply refuse to.
> he certainly seemed to understand how to get people to vote for him a lot better than his political competitors did
This is false. The fact that he won the election is completely irrelevant to this point. The election isn't won by the candidate who understands how to get people to vote for him. If it was, he'd have lost.
Obviously, you are completely unwilling to accept the fact that Trump won the election, and somehow you're creating utterly insane logic to continue the fantasy in your head.
So you're saying that getting less votes in an election makes one better at getting the most votes? Fascinating the logic, or rather lack thereof, of Trump supporters. Then instead of admitting you are wrong, you double down on your illogical premise and accuse those who point it out of being illogical. I can see why you like the man so much. Illogical, nonsensical ideas must attract each other especially when coupled with fear of criticism and anger towards those that disagree with said ideas.
>So you're saying that getting less votes in an election makes one better at getting the most votes? Fascinating the logic, or rather lack thereof, of Trump supporters.
Wow, this is an incredibly stupid post. I'm not a Trump supporter; that should have been obvious from my posts. And you think that getting more votes equals winning an election, in a place where the electoral system makes this not the case? And then you fire back at me with this idiotic post? You're beyond help. It's no wonder Trump won with people like you on the other side.
Agreed, let's not discount COVID-19. You're going to get a steady drip of ugly news for months. There is reality to the COVID-19 news too. I'm expecting heavy hits to airlines, cruises, theme parks, sporting events, etc... Profits will decline.
If you're not needing the money soon, you'll probably be fine with riding it out like you may have with the great recession. I'm pained by the stories of boomers and others who sold low during the great recession and didn't catch any of the gains when things started turning back around. This too shall pass.
Well... that might not be true. Were in a weird spot right now where banks handed out billions in loans to oil companies. And now it looks like a lot of these companies are going to be insolvent well before they can even start drilling. So were talking about big banks being hit hard with billions in loans not being paid.
They didn't (and still don't) know the true financial impact of the virus (even epidemiologists don't know what it's going to take to get it under control), so the true effect of the virus wasn't priced into the market, plus now many investors are trading on fear.
I also knew about it a month ago, I was more optimistic then. If no new information ever comes into play or if views and outlooks never changes then markets would be static. People knew about viruses for decades now also ... does not mean all possible consequences of viruses are already priced in.
The markets may have "priced in" the impact of COVID-19 based on a couple of scenarios. But they may also have priced in other factors, such as the plateauing impact of US corp tax cuts, share buybacks and cheap capital.
It's likely however that those scenarios didn't attach a high weight to the probability like 20 million Italians living in a state of quarantine, or that 8,000 plus patients in China would die and industrial production levels would plummet.
There were lay investors that reported betting on a covid related drop and profiting significantly by buying options (eg Wei Dai on LessWrong, will find direct link when I get to desktop).
[Usual caveat about reading too much into plays like this.]
Edit: Here's the thread, and sincere apologies for the flaketastic LW interface now, they don't even have a parent button and it took several seconds for the thread to render after the page loaded:
no no,,, COVID-19 is not the trigger its just one of the steps leading to the trigger...you had to have the fed manipulation of money to account for the 2008 losses on mortgages combined with the firm's stock performance via profits etc.
This is widely being blamed on oil prices (edit: the virus would have been priced in last week to some extent, but the decision by Saudi Arabia to increase oil production happened over the weekend and hadn't been).
Oil prices going down is a good thing for the economy.
I think people are confusing cause with an effect/correlation. Oil going down usually indicates a recession. Bad economy -> Lower demand for Oil -> Lower oil prices. In that case it's a signal/trailing indicator.
In this case it's: Increased oil supply -> Lower oil prices -> Everything gets cheaper to make -> Increased economic activity
Good for short/medium term economy, terrible for the environment though unfortunately. So probably bad for the long term economy when carbon/environmental risks take effect.
Maybe it's because the US is now a massive oil producer, but there are a lot of oil companies in a lot of debt, so depressed oil prices will force them to go into bankruptcy. Next step will be US government propping up the industry somehow, IMO, either with a bailout or by buying oil at above market prices and increasing strategic reserves.
Most of those who work in drilling will be laid off in the next six months. Been there done that. But it doesn't change the fact that it will be over all beneficial to the economy.
I do believe you are correct that the money the average consumer will have in their pocket will be good. But can’t help but think there are other economic implications in this huge oil drop. The drop was not initially put in place by breakdowns in opec talks. But COVID-19. So what I am getting at is a drop in manufacturing, consumer spending, and travel. I’m just scratching the surface but I hope you understand what I’m getting at.
> Oil prices going down is a good thing for the economy.
That is no longer strictly correct. The ideal oil price for the US economy is a balance between high and low, which provides a high degree of employment for the US oil industry, oil production and export expansion remain high, and provides a reasonable price for US consumers when it comes to gasoline.
Oil in a range of perhaps $45 to $75, is ideal.
At $25-$35 you're going to eventually hammer the US oil industry and its jobs, as the hedges fall away. That will hit the US economy negatively at least as much as the low oil prices benefit consumers.
Russia is playing a bad game of chicken with Saudi Arabia and US oil, claiming they can endure ~$30 oil for a decade. It's false of course. Their personal incomes have been falling for six or seven years in a row. $30 oil will contract the Russian economy at worst, and stagnate it at best, so it would be ten more years of declining living standards in Russia (the last thing Putin wants to see, so it's a false bravado on his part, as typical).
Saudi Arabia and Iraq will be crushed fiscally by low oil prices. Saudi needs $83 oil to balance their budget. Canada will take a modest hit as well.
China is the prime beneficiary as a massive importer with modest production, they're in the position the US was in previously.
I think you're the only person in this thread presenting arguments based on facts. I would just like to say that I really appreciate that, especially when everyone else is running around like chickens with their heads cut off like the sky is falling.
You are not fully correct with "Oil prices going down is a good thing for the economy."
This is true only as long as oil prices are high enough for producers to keep producing.
Heard of shale-oil margins?
There's also decreased demand - look at airlines, jet fuel uses 1.7 million barrels per day normally, and COVID-19 is causing fewer people to want to get on planes.
The fraction of the price drop that can be attributed to large producers flexing market power versus the decreased demand is a tricky thing to determine.
"Increased oil supply -> Lower oil prices -> Everything gets cheaper to make -> Increased economic activity"
There would be increased economic activity if businesses don't close left and right because of a combination of decreased demand and supply as both consumers and workers self-isolate and live in quarantine, and the knock-on effects of China's reduced manufacturing capability (soon to be followed by reduced manufacturing capability of much of the rest of the world).
This stock market crash is just the tip of the iceberg.
The tops of political, administrative, business, and military hierarchies tend to be overwhelmingly old, and most susceptible to succumbing to this outbreak. As many of them die, as the bodies they govern are plunged in to chaos and societies around the world go in to crisis mode, the markets will respond even more adversely than they have already, as the markets don't like uncertainty, and there's no end in sight to such uncertainty for the foreseeable future.
There is little economic upside from this pandemic. Few ways of profiting from it except by shorting nearly everything and buying gold. The bond markets and treasuries are also likely to suffer as governments default.
Its easy to play connect-the-dots. Rarely is that the whole story. There are many other dot-to-dot paths that result in very different effects. The sum total of all the chains is what makes the economy so hard to predict.
You are correct. Equities have been propped up by free money for too long. I thought we would have to wait until the election to trigger this correction but better sooner than later. However, the Fed needs to raise rates and we need fiscal policy to fix this, not monetary. There is still too much money out there with nowhere to go. A ton of that money is going to come right back in and run it back up some. At least they are buying the dip even if earnings will crater.
The Market is like a supercooled liquid. It's been poised to freeze for months, just waiting for a crystallization seed. COVID-19 and the Saudis gave it two.
Another way to put it is that Coronavirus is forcing people to realize that we’ve been papering-over weaknesses with easy money for quite some time. That said, “economists have predicted 5 out of the last 3 recessions” — people have been warning against one for years now.
But the problem is that coronavirus is threatening the real “brick and mortar” economy — travel, restaurants, retail, etc. Its hard to address that without fiscal stimulus, and we haven’t seen much talk in terms of that yet.
Add to the list sub-prime auto loans, a huge amount of student loan debt...
Check out the graphs presented, particularly the last one. Default is very likely for those most likely to have student loan debt (younger workers in lower quality service jobs), but there isn't a systemic risk as the federal government is the insurer of last resort. These are loans in name only; they are, in actuality, taxes you can't default on (or so was traditionally thought; we're making headway in having the ability to default on these obligations and get out from underneath them [1]).
Do you have a reference for the claims about the repo market? I see so much FUD posted, and so few references to primary sources. Reader beware of grand proclamations and doomsday predictions, especially from new accounts, especially when they don't provide reputable sources.
Is turning Global Financial Crisis into an acronym necessary? It certainly isn’t standard. Turning things into acronyms that are used a single time in a written statement without reference or explanation is one of the most obnoxious things in this industry. Paraphrasing grandmas everywhere, if you can’t write things properly, don’t write anything at all.
I get your objection but I don't agree with it in this case. As someone who is neither you nor OP, I see GFC as a pretty well-known acronym, especially in this context (recessions, financial troubles).
Hah not a crash? Well it kinda is, and if it keeps going further down it will definitely cause a recession. The oil price drop was a huge punch in the gut, and I wonder what happens to US oil production if it stays this low for longer. Or well any oil production that can't compete with these prices.
Almost nobody is drilling new oil wells, they stopped last year sometime. Almost nobody because there are still investors keeping one skeleton crew running just so they have expertise for when the oil price recovers.
Once a well is drilled the cost to drill the well is a sunk cost. You keep pumping oil if the cost to run the pumps is less than the price you get. Most people with oil are large enough to shut down some wells to keep the price up a bit - they harm their own profit in the short term though and still need to sell enough oil to break even.
Nobody being willing to make large cuts is different from nobody making cuts. The US is not a member of OPEC, nor are several other oil producing countries: they don't follow OPEC but may still reduce output.
There is rumor OPEC isn't cutting production because they believe they can undercut their competitors and put them out of business - I don't think that is their motivation, but it is something that can't be ignored.
Indeed. S&P 500 is still not even below of what it was in the end of 2018 after the last major instability. Partly thanks to this, 2019 was a marvelous year with stocks gaining almost 40% during a single calendar year.
My reading is we're in a normal correction that has been exacerbated by COVID and last night's massive fall (-30%) in oil price.
Point losses don't make sense because it's percentages that matter. The other metrics you mentioned do suggest this is of course a noteworthy market crash, but whether that becomes a recession or is anything to seriously worry about long run is a different question.
"The S&P 500 fell by 7.7%, blowing through the first circuit-breaker level that it tripped minutes after trading opened for the day. The S&P 500 is on pace for its worst day since December 1, 2008, when stocks fell by just over 9%.
It is superficially "asinine" because it is so narrow. However, the DJIA, S&P, Russell, etc all track/correlate each other.
> Look at any other index instead.
Or better yet, inlay the graphs of DJIA, S&P, Russell, Nasdaq, etc on the same chart for comparison. You'll see that the graphs all look similar. Meaning they all go up and down at around the same times.
It would seem that the broader indexes would better reflect the market as a whole. But in the real world, DJIA does good enough a job as the S&P, Russel, etc for a bird's eye view of the market.
Global stock markets have lost $6 trillion in value in six days. It possibly because Soros, Putin, and others are moving money out of the US so that it cannot be taken in lawsuits resulting from their involvement in the story below. Unless of course you believe it is because of COVID19 aka Coronavirus, a sickness with a 2.3% death rate. See below:
Attorney General Barr is not resigning; not before President Trump does. Barr is the same as Mueller,Pelosi,Schiff, & Nadler: feign opposition to cover the true motive of obstruction to keep Trump in power. Supreme Court Justice Alito & FBI Deputy Director Wray also on board. See latest updates
"Impeachment" Is A Diversion And Delay - Part II: Blocking of the "impeachment" witnesses was collusion planned before the new year. Listen to an FBI agent's disclosure from January 1, 2O2O here. The President was to resign late summer securing election for DNC. See latest updates.
Here is the zip file, which was also made available in the 3Jan2O2O update. The file within is VID_20200101_201948.mp3. Turn up the volume and put on headphones.
The dialogue about the impeachment starts near the beginning. Having Biden in the White House is as good as Trump or anyone else in their organization. Obviously Schiff and Nadler pledged their allegiance to the organization by raping boys on the record, with their task being to drag out an impeachment designed to obstruct and delay any real efforts to remove the President, thus keeping Trump in power. The witness blocking was to cause an apparent uproar delaying things with legal actions until late Summer. Soon after, the President would resign, leaving any other candidate with not enough time or support to compete with an opportunistic Biden, who is as good as Trump or any other Illuminati friendly politician in the Presidency.
\Wag The Dog: first was feigned impeachment hearings meant to obstruct, now an attack on Iranians in Iraq. Here is what they are trying to distract from & cover up to retain power. $100+ billion in bribes to the highest offices in this country. 915+ deaths from child rapes to prove loyalty!
See the latest PDF updates: FBI Director Wray, AG Barr, SoD Shanahan, & SoS Pompeo each raped boys and were paid billions in bribes for a Soros & Koch funded child rape org. So did Trump & his "impeachment" team Nadler,Schiff,Mueller.So did media moguls Redstone,Murdoch,Moonves. What are they trying to set up? Who can arrest them since they are all bribed and in on it ?
Their strategy to stay in every office and obstruct until forced to leave no matter what. Feigning impeachment: see page 13O.
\\if;Download the video/audio file, put on headphones and turn up the volume. You will hear these people committing these crimes. Audio was broadcast into my apartment by outdated surveillance equipment illegally embedded within my walls. This very same technology was being used to broadcast me to the internet for five years without my consent. I own this footage. Please use this to prosecute all found within. Note:: I am obliviously speaking throughout the video, and it can be quite loud at times relative to the desired content. The are dozens more links, i...
Like others have said, this was just a 15 minute halt when the Dow/S&P 500 dipped to -7%. This can happen again at -13% and trading will flat out stop at -20% [1]
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Slightly unrelated, but why does the stock market close each night? If trading was open 24/7, we wouldn't have large spikes like this every morning. We'd only have them when certain news is announced.
People need medical care for emergencies in the middle of the night. People don't have the same need to trade 24/7.
Matt Levine and others argue that shorter trading hours would actually increase market liquidity. Synthesize market information outside of market hours, then trade during a shorter window: https://www.bloomberg.com/opinion/articles/2020-03-09/stuff-...
The market is still very much driven by humans; the computers just help out, to varying degrees. The idea that computers are trading unattended is a myth that I hope would die.
Sure, while humans are critical to maintaining the infrastructure of the various markets, but we are beyond the days where markets were tracked on a chalk board. The NASDAQ is very much running on servers from an undisclosed data center off route 95 in New Jersey.
A lot of trading is indeed done by minimally supervised computers, i.e. a human only looks at the computer if alarm bells ring. Source: was one of those humans
The pipeline for a given piece of research to get into production tends to be several months. Therefore, a small firm with only a few researchers might update between once and a few times a month, and a larger company it might be several times a week. It's rare to update the model more than once a day, since it'll normally be updated outside trading hours.
TL;DR: Letting markets take regular breathers probably helps curb swings in the market. It also lets people who manage money get some sleep (though of course there are other markets open 24/7).
So we can use garbage-collected languages in trading systems without turning on the garbage collector - just collect it all at the end of the trading day. I'm joking but this is a real technique.
It is, there was this HFT firm I interned at once that rebooted all their servers at the end of the trading day to make sure they would start clean and fast the next day.
It reeks of code base problems or general misunderstanding of systems administration. Easier to just make sure you're not leaking memory (profilers exist) and actually monitoring the servers than having to reboot your servers just in case.
This is the best reason. Knowing your business systems will simply come back with the power, and having that tested on a daily basis will quickly put everyone at ease.
Yeah this is dumb but it’s actually par for the course for firms I’ve worked at. Build up all the garbage during trading hours (and on days like this hope you don’t hit resource limits) then start collecting it and rebooting at the end of the day.
Most services are shut down after trading/brought up again before trading.
After trading you would have accounting and other processes that would take hours. These are not done in real time and rely on daily downtime.
I honestly can’t imagine these firms figuring out 24/7 trading hours.
I've never used this before, but I suspect this is exactly what you would want to use if you were on .NET and building latency-sensitive systems that see daily reboots:
If I was building something that was on a short fuse like this, I'd also be using structs and stack allocation as much as humanly possible before leaning onto the "having tons of physical memory" crutch. I feel like virtual memory could cover your ass for a small period of time before the whole thing started to grind to a halt.
In addition to it always being done that way, there's also probably some benefit to having there be no such thing as a "night shift" in charge of market operations and security, given how destructive exploitation of vulnerabilities in the system can be.
Lots of good answers below. Additionally most of the trading happens in the opening and closing minutes. So you could trade almost the same volume even when the exchange only opened for 15 minutes per day (let's say once in the morning and evening).
Traders can trade 24/7 in markets around the world, as well as in crypto assets. If all trading was 24/7, what would happen probably is centralization of all trading to 1 or 2 huge exchanges.
Aside from people needing to sleep (back when computers didn't do our trading for us), there's also the matter of information flow: the reason quarterly earnings announcements happen after market close is to avoid giving slightly-faster people an edge.
If you could read and digest an earnings announcement faster than all your peers, you could make trades based on the new information before the price has moved.
While yes, some types of trading does rely on exploiting (usually small) information asymmetries, and "incorrect" pricing, it's much fairer if people have time to digest big required disclosures and all be able to get their orders in at (essentially) the same time: the opening bell the next day.
But this idea is completely invalidated by the fact that many foreign companies (European and Chinese) are listed in U.S. exchanges, which means that the investors can only make informed decisions about the their investment if they are awake 24 hours/day
Markets move more or less instantly on big news nowadays. I mean on the order of seconds. Algos can parse data releases in real time and react in milliseconds.
Good GDP numbers at 2:00:00? It's gaping up at 2:00:01 and near the top of the trend by 2:00:05. I've seen it first hand many times.
Then again, why not shorter hours? Matt Levine writes about this occasionally:
> We talk occasionally about proposals to shorten the stock trading day from its current 6.5 hours (in the U.S.) to, say, half an hour. The idea is partly that traders would have more time to spend with their families and dogs and hobbies, but one shouldn’t overestimate that. Really what it means is that you have 23.5 hours a day to ponder information and synthesize it into stock-price views, and then half an hour to trade stocks based on those views. The big advantage is that anyone who might want to buy stocks can pay attention to the stock market for that half an hour, so the liquidity during that half-hour should be pretty good. When the trading day is 6.5 hours, sometimes no one’s around when things happen, and you have to shut the market down for a bit to call everyone back in. But I don’t think that’s quite what happened this morning.
I wonder how different things would be if instead of those stepped halts, a super high granular delay is injected into the system. Like instead of halting, making it go on but in "slow-motion". And depending on the strength of the drop, the slow-motion factor to inject in the system.
I say this because halting tries to "cool down" emotion but it still "feels like" panic while making it all go slow would "feel kind of crappy yet normal" hence "buying" time to cool things down while still working.
Wouldn't that reward going up and penalize/protect going down?
> I say this because halting tries to "cool down" emotion but it still "feels like" panic while making it all go slow would "feel kind of crappy yet normal" hence "buying" time to cool things down while still working.
I don't think so. Halting would allow the traders to get a cup of coffee and switch to another mental gear. A slowdown would probably just keep them in gear and result in a lot of anxious refreshes and attempts to wrestle the system.
Immediately yes, it will keep them in gear, but it will have no consequence because the output would come forcibly delayed, so the result will come not so immediately. Hence being anxious has no payout and being cool does.
Wouldn't be that with time, the next generation of traders for example, they will relax more when things feel bearish and put the "normal gear" when it feels bullish?
Actually no because the output (reward or penalty) is not selective on your rationale. You can be bullish or bearish. The the input and the output are both allowed, just working at asymmetrical speeds (slower for bearish).
Wouldn't overall cause a "sustentation effect" similar to the asymmetrical speed in the airflow in the wings of a plane?
I'm not convinced myself of this, but the idea made me curious and maybe worth of experimenting with in a limited context?
Ehh... I mean ... if the whole rest of the world was somehow unaffected by this ... then ...
You do get that a reasonably conservative projection is that within a year most people in the world would have gotten COVID-19? How the heck did Trump do that?
The only means of slowing COVID-19 has massive effects on the economy. There is now way in hell this would not have had a massively negative impact on the world economy. If you could give some meaningful argument for why US is handling it worse than the rest of the world, by all means. But just saying "Trump is bad" seems to be completely disregarding the reality.
Well, slowing this is in-control of competent governments, and mitigating the damage is entirely possible. For example, drafting retired nurse and respiratory care specialists and give a path for them to renew their licenses, building out temporary hospitals in-advance, using contract tracing and actual testing to stop the outbreak, rather than denials and calling it a hoax. If everyone shows up at the ICU at once, people die. Slowing it makes sense for tons of reasons.
The lack of those things does fall on Trump, our denialist in cheif.
How did you manage to read what I wrote to mean I was blaming Trump for COVID-19?
I am blaming him for taking Obama's legacy of stability and growth and destroying it for short-term profit. It would be a tragedy if he did not have to answer for that before the primary elections.
Wait what? The administration decides the spending that Congress can approve or reject. Trump was absolutely pushing for the tax cuts when Repubicans had control of the House. Why is no Republican harping about the deficit now? I can understand if the deficit was due to infrastructure spending but giving Zuckerberg a tax cut is not going to help the economy.
1. Many people do not care about the deficit to a great degree on either side of the political aisle. This despite a lot of rhetoric by one party or another.
2. The party in power seems to always find a way to blame their predecessor for their ills. I've personally seen Trump supporters blame immigration for the current rising deficits.
no, budgeting is Congress's job. Traditionally the President sends a proposal, but it's certainly not required. In fact, I believe that Trump has been somewhat derelict in this.
People might forget, but part of his platform was supercharging the economy (really, the stock market) past the moderate, but steady and unexciting post-financial-crisis growth of the Obama era.
To continue the automotive analogy, supercharging an engine with major fragilities usually sets it up for a reckoning, just waiting for a trigger.
Covid-19 is just a particularly powerful trigger since it is globally correlated, and also has its primary effects at the local level. It would have shocked any economy, Obama's or Trump's, but there is much farther to fall in the latter's, because of the huge market rallies and the expectations that drove and emerged from it.
He said a lot of things... often contradictory. And his growth rate hasn't been particularly different than Obama's despite the super stimulus of deficit spending during a non-recession. Maybe it was the trade war or maybe there's just a limit to giving corporations huge tax cuts when they're already awash in abundant profits and capital.
Agreed, but massive tax cuts for corporations and the wealthy are something he campaigned on and delivered on, like it or not (I surely didn't like it).
> And his growth rate hasn't been particularly different than Obama's despite the super stimulus of deficit spending during a non-recession.
On main street and the overall economy, sure, the growth rate hasn't been much better, and wealth and income inequality haven't reduced [1], although they didn't reduce under Obama either.
On Wall St however, growth has been blockbuster since his election (S&P up more than 30%) with investors reaping the rewards of stock buybacks and lower overall taxes. A good deal of this rise was right after his election, on the expectation of the tax cuts that eventually passed. The stock market is what crashed. Main street might follow, we'll see.
> Maybe it was the trade war or maybe there's just a limit to giving corporations huge tax cuts when they're already awash in abundant profits and capital.
I think we're in agreement here. The massive tax cuts to corps and wealthy people are what juiced the market and set expectations sky high. The trade war probably didn't help either.
It doesn't matter how many people eventually get COVID-19. What matters is when. If the ramp up is gradual, healthcare systems can handle it; if it's exponentially explosive, they'll be overwhelmed.
> You do get that a reasonably conservative projection is that within a year most people in the world would have gotten COVID-19? How the heck did Trump do that?
Certainly doesn't help that he fired the US's pandemic response team a few years ago (that pesky "deep state" he's been ranting about). The rest of the world has their own responsibility to some extent but the US usually takes point on these kind of things.
He's also had the CDC sandbagging testing for it. He's been claiming coronavirus is a liberal hoax for weeks now, and anyone who contradicts him gets fired.
One of the side effects of that has been the CDC refusing to approve states that developed their own testing (as they are required to get CDC approval). Because they don't want to be seen as arguing that COVID is not a liberal hoax.
>The rest of the world has their own responsibility to some extent but the US usually takes point on these kind of things.
The US has 330M people. The rest of the world has over 7B. The rest of the world needs to get over this idea that the US is the leader on everything; the election of Trump should have been the canary in the coalmine that the US just can't be trusted for global leadership any more, and continuing to do so is dangerous and foolhardy. As you said, it's been "a few years" since the pandemic response team was fired; so why would any country have trusted the US since then for pandemic response ability or competence?
The fact that these controls on the stock market have been triggered reinforces my doubts that our current "profits and growth over sustainability" view of how public companies should operate is in any way good.
Short of a huge change in COVID-19's mortality rate, few if any of these businesses will go under in the next year naturally. The fire sale of stocks due to short-term impacts to revenue, however, just might do what COVID-19 can't.
I don't know if it was a good bet but I moved all my 401k into money market accounts for the time being last Thursday. I feel like those who say I should ride the wave down are probably not telling me the truth. All indicators seem to suggest a 25% correction or more before the end of the year.
I've been buying stocks heavily on the latest dips and so far that is all down around 20%. I diversified investments in cruises, airlines, real estate, banks, tech and more. It feels like 2008 is happening all over again.
I think you misinterpret what they are saying. What really happens is that even though it was a good move this time, the next time you have the same feeling and make the same move, what you move it into may go down and what you move it out of goes up. Then when you buy back into stocks you are buying at a higher price than when you pulled out.
And this second scenario happens more often to people than the first one (according to common wisdom).
Good move, Dec I moved 33% to Bond, 2 weeks ago I moved another 33% to Bond. I'm kicking myself for not moving the rest, but I can stand to be in the market for a very long time. Most knowledge that say rid the wave is rubbish. Get out if you know that things will be down so you can live to fight another day. If you have $100 and market goes down 50%, you have to wait for it to come back 100% to break even. Most folks don't understand that movement isn't equal in either direction. Market goes down 10%, comes back up 10% most folks think it has balanced, but it hasn't.
aren't you timing the market though? if it's down 10% today, you moved to bonds, then it's up 20% due to recovery and you missed the upswing, then you are in a worse spot compared to if you haven't done anything?
"but I can stand to be in the market for a very long time" -> isn't this the reason to not do anything? So you can recover and buy more while everything is on discount?
You're not being told to ride the wave down per se, you're being told that you can't time the market so there is no point in trying.
You got lucky this time, but next time you might pull out just as it's about to swing up again.
Or when you eventually buy back in, it might not be the bottom. Or more likely, it will be after the bottom on the upswing and then you've lost out even more.
And if the media would stop writing alarmist articles, there would be far less panic. We're in the golden age of yellow journalism. I've learned, in general, panicking creates more problems than there were to begin with.
Agreed. The temptation is there though. I almost jumped in today to capture some of that, but then I saw that the things I would consider are still very much overpriced ( nnn, berkshire, apple ).
I may end up being wrong, but it seems like we are not near bottom.
Don't buy after the first big city is quarantined. Maybe after the second or third... But know you are taking an incredible risk unless you are using funds you can hold in that position for years.
A bunch of people at my office got in last week when the cat bounced. Some sad looking faces today. Timing the market is a fools game most of the time, definitely right now.
Yep, that is due to order flow from retail investors. They always put their orders in at the open (that is why Mondays can be risky) or at the close.
You can see this by looking at the difference between the return on stocks in the first/last hour against the return over the rest of the day. I have no idea if this effect still exists today but you used to be able to print money from this (and I am sure it still works in places like China with lots of retail investors).
I believe it's true for the other direction as well, it's just pretty rare to see a 7% upward move in a single day. I mean, it's rare to see it on the downside too, but not as rare.
Limit up/down rules are not discretionary. They're circuit breakers that fire deterministicly.
It's important to note that limit up/limit down (LULD) is not the same thing as the circuit breakers. They have a very specific meaning and operate independently (with much more complicated rules as well). You probably know this, but others reading your comment will probably not!
There is also no automatic upside circuit breaker.
"They" don't do anything - this is called a circuit breaker, and is automatically triggered. There are three breakers:
L1 - 7% down before 3:25pm - 15 minute halt
L2 - 13% down before 3:25pm - 15 minute halt
L3 - 20% down - halted for the remainder of the day
Only a single L1 and a single L2 breaker can occur in a single day, e.g. the market falling below 7%, rising, then falling again will not trigger a second L1 breaker, but falling to 7%, up to 5%, then down to 13% would trigger an L2.
FYI this is the kind of thing you have to know to become registered as a securities representative.
Market makers are buying - their job is to always buy or sell stock from everybody. They (generally computers, but humans traditionally) will always buy your stocks, or sell you stocks. Their algorithm is simple: buy for $.10 (or some other tiny number) less than you sell - if the amount of stock owned is too low raise the price, if the amount is too much lower the price. They pretty much always make money in the long run.
For agreeing to do this (and having the capital to do it) the Market Maker for a stock typically secures certain benefits from the market in respect of that stock.
For a very popular stock on a typical day the market maker isn't really necessary. Your trades would absolutely execute immediately based on positions other people wanted.
When your stock is more thinly traded, or when things are a bit frantic the market maker is your saviour. When everybody and their dog is selling, the market maker will buy anyway.
Under some circumstances market makers can signal they intended to cease to make a market for specific stocks. When the market makers exit, all hobbyists should make sure they are gone too. Once there is no market maker for the stock you're holding, you will need somebody else to actually take the other side of your trades. "Prices" without a market maker are just a guess, there may be nobody actually promising to take your stock at any price, even if the last trade was for $1.40 your stock might be not sell even at 14¢. This makes for an exciting space in which to gamble with money you can afford to lose if you really know what you're doing, otherwise it's just a way to throw money away.
Having worked for one of the (smaller) big firms, and had a chance to watch from the sidelines and seen how days like this work: No, these circuit breakers don't screw the regular guys. They discourage the regular guys from screwing themselves.
There are a lot of firms whose core business strategy is to keep a level head and take advantage of people who panic and (over)react on days like this. They get damn rich doing it, too.
> They discourage the regular guys from screwing themselves.
If you're a little guy who believes that, say, 2019ncov is about to tear the world a new asshole, that's probably a decision you'd like to make for yourself.
I don't doubt what you're saying, but it's a matter of perspective. Sometimes the "panic" is the correct reaction. We're sitting on top of a perfect storm which is shaping up to be a massive potential black swan. And with the current circuit breakers, trading is only interrupted for something similar in concept to "the 99%".
Across all indicators, too! Oil price, US markets, international markets, t-notes, gold price, and a bunch I'm probably not aware of because I'm not a professional investor. China just shut it's economy down for two weeks. Long term outlook is rightfully poor.
Panic is almost never the correct reaction. Deciding that there's going to be a downturn and you should prepare yourself for it financially is one thing, but under what circumstances would it be optimal for you as an individual to panic-sell?
In my mind, panic is the thing you do when you realize that you haven't prepared. That you don't have enough resources for an extended downturn, that you're financially over-leveraged, and that you are in danger of losing your home and being unable to feed yourself and your family. There are TONS of people who are experiencing this right now in China and Italy, and many others of us who will be experiencing it the next few weeks in the rest of the world.
But panic also implies that you don't have time to fix that, and there's nothing you can do as an individual to change it. If that's the case, you probably don't have a lot of investments in the stock market anyway. Or if you do, and you're over-leveraged in the markets because you were gambling with your money instead of investing with it, then yes, you're panic-selling right now.
Panic sell is the correct thing when your doctor gives you a short time to live. Since your money will be worthless no matter what happens you may as well get it all now and spend it on whatever can buy a moment happiness.
There is an exception if your religion lets you take your stock with you. I don't believe in one, but I guess if you want to.
But that exactly is one of those fallacies. If 2019ncov "tears the world a new ..." then your shares are going to be worth about the same as bills in your hand: nothing. Nobody will seriously risk their health for money.
And what's the rational thing to do in such a case? Let's say you're at a poker game. And you have a deal: you lose, you get shot, you win, you get your winnings. What is the rational thing to do?
You should go all-in. It is one of the very few cases it is actually rational to do that.
The idea that the little guys largely have a chance actively trading in a fast moving market like today’s where they are gonna be crushed by algos is ridiculous to begin with.
If anything this is helps the little guy, by not completely crushing their stock value, and hurts the big guys who can outlast huge swings (something little guys cannot).
Really it's just saying "the market is now closed". But you can still sell those securities on other markets or direct to someone who wants to buy or sell.
Mass sell offs tend to create unorderly markets, which is not beneficial for anyone.
The concept was introduced in US equities after the ‘87 crash, but was only consistently implemented for NYSE-listed stocks. In ‘13 these were made consistent and market wide (thus MWCB), set against a widely published value of the S&P (so that the control was predictable; thus how it executed today).
FYI, there are also bidirectional halts that exist intraday (Limit-Up/Limit-Down) that serve a similar purpose and control rapid, uncontrolled movements in individual stocks. These are also defined in exchange regulation and are well defined so that they are predictable.
Exactly, and when you have an unorderly market, price discovery becomes problematic.
It’s the same reason the single stock LULD bands exist (which put the brakes on both rapid downward and rapid upward movement). Stopping for 15 minutes (or 5 in the case of a LULD pause) is not detrimental to the process of establishing orderly price discovery.
In the event a stock is going to keep rising or falling due to legitimate changes in valuation it will continue to do so (look at NASDAQ’s halts page today to see stocks that have hit their bands multiple times).
Pareto efficiency does not apply, because it is a theoretical construct that assumes perfectly rational actors. It's useful for thinking about the market, but not an actual law.
> Only a single L1 or L2 breaker can occur in a single day.
Then why does L2 exist? It seems redundant, L1 would get triggered before L2, and only one can occur in a single day, so why have L2 at all? What am I missing here?
Edit: Also, anyone who downvoted me for posting the same question as someone at the same minute, you know what to do.
No matter how much you didn't deserve downmodding, complaining about them only invites more. You have a better chance of recovery by not bringing them up, and the News Guidelines ask that you don't.
Please don't comment about the voting on comments. It never does any good, and it makes boring reading.
It's true that such comments are annoying, but they're necessary as a feedback mechanism to regulate the site. Otherwise the site guidelines would have negligible effect.
They're more tedious to write than to read, if that helps at all.
Especially relevant today since after hovering around -5% for most of the session after the first halt, right now we're at -6.9% and threatening to push below 7% again.
As I understand GP: L1 and L2 can each fire only once per day. So if you hit L1, and after a brief rebound the market still goes down, you'll hit L2. If after that it still keeps falling, it'll get stuck at L3.
L1 hit today and there was a 15 minute halt this morning. If the S&P continues to plunge and hit -13% during today, there will be another 15 minute halt.
It's only a 15 minute halt. So if you hit 7% and trigger L1, trading is halted for 15 minutes, but then it resumes. If it drops down to 13% another 15 minute trigger happens.
But each of the L1 or L2 can only occur in a single day, not one or the other. You can hit L1, and then later hit L2, but you can't hit L1 twice.
T5: Single Stock Trading Pause in Effect Trading has been paused by NASDAQ due to a 10% or more price move in the security in a five-minute period.
T6: Halt - Extraordinary Market Activity
Trading is halted when extraordinary market activity in the security is occurring; NASDAQ determines that such extraordinary market activity is likely to have a material effect on the market for that security; and 1) NASDAQ believes that such extraordinary market activity is caused by the misuse or malfunction of an electronic quotation, communication, reporting or execution system operated by or linked to NASDAQ; or 2) after consultation with either a national securities exchange trading the security on an unlisted trading privileges basis or a non-NASDAQ FINRA facility trading the security, NASDAQ believes such extraordinary market activity is caused by the misuse or malfunction of an electronic quotation, communication, reporting or execution system operated by or linked to such national securities exchange or non- NASDAQ FINRA facility.
H10: Halt - SEC Trading Suspension
The Securities and Exchange Commission has suspended trading in this stock.
Those seem to me be to be directed more at price manipulation of individual stocks (eg pump and dump schemes) than restraining enthusiasm across the whole market. I'm open to correction on this (and will not demand a halt).
I don't know if that's a good way to look at it. It's not just "bears" selling when you have a big drop. It's people who need the money for something and are worried about liquidity.
Trading halts may or may not fix that, but that's their purpose.
> It's people who need the money for something and are worried about liquidity.
Then they're doing it wrong. You shouldn't have money that you need immediately in the stock market. Yes, people will do that anyway, but I'm not sure we should cater to those people when the health of the markets as a whole are at stake (assuming circuit breakers are effective; up for debate).
It's a question of velocity - markets go up and down all the time... but speed breaks to prevent the market from going down to fast also need to prevent the reverse case - some sudden inexplicable and extreme price spiking.
Basically - we should protect against any really dramatic sudden changes as chances are that something is wrong.
In the last year the S&P grew ~22% prior to this recent drop, that's fine... and on a day swings in the low single digits might be fine. But if we woke up tomorrow and the S&P had recovered the pre-drop value and then grown 20% over that price - something weird is clearly going on and we should be worried.
Has any stock or financial instrument ever been valued at infinity? I don't know enough about finance to rule that out and it seems unlikely but at least possible.
For instance here is a toy example of unbounded value:
Consider a market for a stock in which the only market participants are two bots with the behavior that they trade the stock back and forth at an asymptotically increasing price. The buys are backed by loans from a zero interest government bank. Since the bank is efficiently hedged to losses. Both sides of the trade owe the bank, the seller can also pay the bank the money the bank needs to back the buyers loan. Thus, the bank could allow both these loans to go to infinity causing the value of the asset to approach infinity.
Similar things have happened with flash loans in the cryptocurrency space.
They have existed since the crash of 1929. There were no algorithms in place then. The goal was just to force human traders caught up in the moment to take a break and stop panicking.
I assume they have been tweaked since 1929, but they started with the crash back then.
Edit: someone else is claiming 1987 as the start. My memory says 1929. If this matters do your own research.
> Regulators put the first circuit breakers in place following the market crash of October 19th 1987, when the Dow Jones Industrial Average (DJIA) shed 508 points (22.6%) in a single day. The crash, which began in Hong Kong and soon affected markets worldwide, came to be known as Black Monday.
> In 1933, the U.S. Congress passed the Glass–Steagall Act mandating a separation between commercial banks, which take deposits and extend loans, and investment banks, which underwrite, issue, and distribute stocks, bonds, and other securities.
It probably doesn't make sense for an individual actor to stop trading when all the assets it holds are tanking. Everyone's selling to cut their short-term losses. Crashes aren't always feedback loops.
You do not want to trust your market's health to some random trading firm's coding skills and goodwill, just like you wouldn't open up a public webservice without some basic rate-limiting.
To address OPs point, someone did do this. Someone (or more accurately, a lot of people) stepped in and introduced an artificial construct that constrains trading under certain conditions.
It's not intrinsically a "bad" thing per se and it was something already established long before the current set of conditions arose. But none the less, it's an artificial constraint introduced on trade systems that is likely beneficial.
To those who believe that all markets are rational and efficient, that interventions cause more harm than good, y, an enforced halt seems to be anti-capitalist.
But we are not rational actors. We can get into panics. Panics can stir more panic. Forced breaks allow for the market to reassess data for a few minutes without fear of loss for not acting immediately.
You would think, by the same arguments, that the stock market could always just trade at 15-minute intervals. Why not? But people go crazy when researchers (e.g. Eric Budish at U. Chicago) suggest lowering the frequency to milliseconds, let alone seconds or minutes.
There are different, additional, objections to that. For example, it would make life rather difficult for market makers, which would mean a lot of the liquidity would dry up, which means the spread would widen out, which means trading would be more expensive.
I think there is scope for designing market mechanisms which have the volatility-reduction effects of periodic auctions, but which still allow market makers to hedge. I hope people are working on those.
And how is that a bad thing in and of itself? It would presumably knock out some of the ultra-low-margin HFT but so what? If it would have the effect of turning the stock market into less of a roulette table, with fewer gamblers compared to bona fide investors - isn’t that a good thing?
The circuit breakers also have an important function in relation to the role algorithmic traders play - it allows a bit more time for humans to step in and either switch off or tweak the algorithms if appropriate.
That's hardly symmetrical to the fear of losing the money that you have already invested – investors feel they have no choice but to sell before it gets worse, whereas in the rally you can always choose not to buy.
> That's hardly symmetrical to the fear of losing the money that you have already invested...
It's pretty symmetrical. Choosing not to buy is not as easy as it looks, when you are under pressure to do so. Madoff took advantage of this. The crash of 1929 was preceded by unhinged buying.
Without going into too much detail, short answer is yes. Most people don't seem to know how far away current setup is from 'free market' touted in school.
It is weird given that this information is not hidden. It is just not widely spread.
Would you care to elaborate? I would argue that guard rails and controlled falls are in opposition to actual free market. The qualifier 'completely' seems misplaced.
These rules are chosen by the participants. By the owners of the property. They are not government imposed.
Consider an analogy. Suppose you were a stamp collector and you wanted to run a weekly stamp exchange. You and your fellow collectors may establish rules about how the trading should happen and the agreed upon behaviors. By-laws if you will. You could of course have no rules. Or you could choose some that promote the overall longevity of the venue and that encourage robust participation. The choice is up to the owners. Both are free. But one will be more successful than the other.
Sure, but I think it makes sense to say that one market is more free than another, even when neither is controlled by a government. In many cases the reasons why it's good for governments to allow free markets are also reasons why its good for private entities to allow free markets.
Free markets are about voluntary interaction. This is a group of people deciding the rules that they'll trade with voluntarily. There's no reason the hours are what they are - the market could be open 1 hour or 24 -- deciding the opening times doesn't not mean it's not a free market.
Hmm, the problem with analogies is that they are analogies. I don't think NYSE or ICE has the same kind of impact on the market as a stamp collectoe. Hell, NYSE is almost literally the market. Thus any rules enforced by it are, for all practical purposes, market rules. They may agree with themselves that saving the market is the right thing to do, but guiding it does not make it free. It makes it not free.
I think you are misrepresting my argument and attempt to dismiss it in an odd way.
I am arguing that rules set up by the market do not automagically enforce free market. I am arguing that rules explicitly do the opposite by introducing guard rails, which DO restrict movement in that free market.
Do you honestly believe that rules derive its effects from who sets them up?
To be perfectly honest I’m not sure I find your argument coherent at all.
Can you define what you mean by free market? Is two parties freely coming to a mutually beneficial agreement that they are then constrained by (i.e. a contract) consistent with that definition?
Two private parties, an exchange and individual trading firms, have freely agreed to a set of rules in order to transact on that exchange. What about that is not consistent with the free market?
Well, first I would like to point out that in your example there are three parties with the exchange being the intermediary and trading firms transacting.
Assuming you agree with my characterization, on the surface nothing about the transaction facilitated by the intermediary makes it not consistent. You have my full support here.
Now, your argument appears to revolve around knee jerk reaction to me saying that in real free market, the rules would not artificially prop the market. My argument is that in a true free market, the rules would not restrict it arbitrarily.
Ergo, we do not have a truly free market, but just a reasonable approximation agreed for by various parties.
> Well, first I would like to point out that in your example there are three parties with the exchange being the intermediary and trading firms transacting.
The agreement to restrictions is still between two parties, but you can read it as "two classes of parties" if it makes you feel better.
> Now, your argument appears to revolve around knee jerk reaction to me saying that in real free market, the rules would not artificially prop the market. My argument is that in a true free market, the rules would not restrict it arbitrarily.
It seems like you're confused about a couple of concepts here and I think it may stem from overloading the words "free market" and the concept of "the free market" generally.
The stock exchange, like any real world marketplace, has many restrictions on trading. These make it a market that is not free in the sense that you cannot trade however or whenever you like. However, the free market is a distinct concept from any individual exchange. It means that parties involved in the open market (i.e. everyone) are able to freely exchange goods and services as they choose. This may involve entering into agreements (like contracts) that restrict future actions, but as long as those agreements are freely agreed to, this is still consistent with the concept of a free market generally. Thus, the fact the stock market has restrictions is still consistent with the concept of a free market so long as the participants freely agreed to those restrictions.
The stock exchange is privately owned, the owners/management of the NYSE and other exchanges chose to implement circuit breakers like this. The exchanges still have to operate within the bounds of regulations, but nothing is stopping Joe Blow (other than capital, expertise, navigating regulations, etc.) from setting up his own stock exchange that doesn't have any circuit breakers put in place to prevent flash crashes.
> from setting up his own stock exchange that doesn't have any circuit breakers put in place to prevent flash crashes.
If you are facilitating the trading of regulated instruments this is wrong and there are indeed SEC regulated circuit breakers you will have to implement.
The reasons for that, both in private institutions like stock exchanges, and in terms of regulation, have mostly to do with how hideously volatile 'freer' markets tend to be, and the frequent, devastating effects banking crises, panics, etc used to have.
I'm a fan of free markets and I'll be the first to admit that it's nonsense to have a black and white perception of the world. It's not either 100% free markets or state-driven economy. There's a huge world in-between both extremes. Being a fan of free markets simply means you err towards one side more than the other.
Having common sense regulations and tools like circuitbreakers are fine with me. I wouldn't say it's meaningfully less of a free market just because we have these tools in place to protect us against the automation we use.
"Free market" doesn't mean "no government regulation". It means that the market responds purely to supply and demand. Government regulation can distort the response of supply and demand, but so do monopolies and lack of information parity between buyers and sellers. From what I've been reading here, the trade halts help prevent a situation where prices are effectively unknown because there are not enough buyers. Such a system is not a "free market" because information is not communicating between buyers and sellers. It sounds like the timeout helps people who want to buy stop panicking and discover what price they are willing to buy. Effectively it gives time for price information to get transmitted across the system. This actually helps restore free market. (Other government regulation, like trust-busting can also have this effect.)
These are well documented rules. They have been built up over years of experience. Not to say its perfect. But they are established and understood by the participants. Further refinements may happen based on today's experience.
Heh, yeah but it's an adversarial problem. Do you assume the other bots are going to "do the right thing" and not intensify the panic? Maybe not. Maybe you just act on immediate information and try to optimize your position for the next few milliseconds.
"We" (the group of people represented by the government) do not control the algorithms, so we can't easily and without many other side effects force that to happen. We do (indirectly) control the stock exchange rules, so we can put systems like this in place that limit the damage done to us when it does happen.
In large part these are designed to break the feedback loops that can happen in automated high frequency trading and give humans a chance to look at things. These policies were implemented by all the stock exchanges after flash crashes triggered by ML algorithms encountering something "weird" and going into hard sell mode.
The breakers were originally implemented as a response to Black Monday in 87, which was before algorithms were so dominant, but it happens that humans are really good at panicking and acting irrationally too.
From the 1988 "Report of the Presidential Task Force on Market Mechanisms : submitted to The President of the United States, The Secretary of the Treasury, and The Chairman of the Federal Reserve Board":
---
Our understanding of these events leads directly to our recommendations. To help prevent a repetition of the events of mid-October and to provide an effective and coordinated response in the face of market disorder, we recommend that:
• One agency should coordinate the few, but critical, regulatory issues which have an impact across the related market segments and throughout the financial system.
• Clearing systems should be unified to reduce financial risk.
• Margins should be made consistent to control speculation and financial leverage.
• Circuit breaker mechanisms (such as price limits and coordinated trading halts) should be formulated and implemented to protect the market system.
• Information systems should be established to monitor transactions and conditions in related markets.
87 had a significant algorithmic element to it too though according to many accounts via "Portfolio insurance" products which were algorithmically traded, as well as traders arbitraging between the index futures markets and the cash market.
One view of the circuit breakers that Matt Levine just discussed this morning is that they help to avoid price drop due to liquidity issues. That is, algorithmic trading aside, many trades are still done by human beings who may not be paying rapt attention when a crash happens. The 15-minute pause gives them time to find out that something is up, at which point they may choose to start buying at the depressed prices, which will stabilize things. This also makes sense with the fact that the L1 and L2 breakers only trigger once each, once an L2 breaker has triggered everyone will probably be paying close attention to what's going on traders simply not being at their desks will become less of an issue.
IIRC this was instituted after the crash of 1987, when they realised that automated trading could set off a crazy plunge. At any rate, it's public knowledge, not some sort of ad-hoc manipulation.
When you think about it, the whole market sort of follows these arbitrary-seeming rules. The actual prices of stocks are constantly changing 24/7/365, but the market is only open from 9:30am-4:00pm on weekdays excluding holidays.
In my part of the world, tell your broker that you’ve done a deal with someone, tell that someone to tell their broker that they done a deal with you. The brokers should be able to report it to the exchange for publishing. Then they should see through the clearing and settlement. Of course your brokers might feel that your little deal is just not worth the hassle, and ask you to take your business elsewhere.
You ask your broker for the physical copy of the stock certificate. The buyer asks their bank for some physical cash. They hand you the cash, you hand them the stock certificates. Same as buying or selling anything else, basically.
Of course, for a transaction of a certain value, you wouldn't want to hold the cash or certificate, so instead you write out a contract and sign it at the moment of exchange. Which is the same as buying or selling something else (e.g. car, house) beyond a certain value.
> The actual prices of stocks are constantly changing 24/7/365
They are not. For any meaningful interpretation of "actual", the only price is the market price during trade hours. Speculative overnight agreements between private parties at agreed-upon values are contract agreements. The stock price doesn't change between market close and open.
Is it the bid? Is it the offer? Is it the last trade? The VWAP?
The stock market only tells you where shares have traded and where the order book would trade them. There is no observable "actual price."
A useful way to think about the price is to imagine a theoretical fair value that is always changing, and a theoretical bid/offer that is always floating around the fair value.
This theoretical fair value is not posted anywhere. Some people give the name "price discovery" to the process of identifying where the theoretical fair value lies. With liquid stocks like AAPL on calm days, price discovery is a simple affair. With other assets, price discovery can be more opaque.
When the stock is trading steadily at high volume, then sure. The last trade is a great representation of the theoretical fair price. But in choppy trading, when there are dislocations between related assets and spreads are wide? The last trade is not representative of the whole picture.
Consider assets whose transactions must be reported to TRACE. If you are long, you have an incentive not to sell aggressively because a downtick will mark down the value of your position. So what's the fair price? Is it the last trade? Not necessarily, because that trade may not represent the current state of the market.
Also, there is generally some illiquid trading taking place pre-/post-market. And US futures trade overnight in other markets. And companies may be exposed to assets that trade outside of US trading hours (eg, refiners that have storage tanks full of crude, or companies that have currency exposure).
I too think it's inane. Some of us want to get into the market but not at these prices. Yet the whole system is built around trying to push markets into higher and higher prices at all times.
Here's a brilliant idea, introduce a rule that says you can only sell a security for more than what you paid. Voila, endlessly rising prices forever!
It's not meant to manipulate the market, it's meant to stop a flash crash from automated trading. It gives people time to recalibrate their algorithms if something is faulty. If the fundamentals are such that it should continue to go down, then it will continue to go down.
The markets are not a public utility, they have owners (I own a teensy, weensy piece of NASDAQ (NDAQ), for instance). The owners can do what they want, within regulations. Use whatever metaphor works for you, but after 1987, it was thought to be a good idea to have an automated breather so that we can get our collective heads back in the game instead of panic-selling.
There is, however, no "liking" or "disliking" market direction. It's automated, with clearly-outlined rules. There's no manipulation; if A, then B.
That's funny. But I was only pointing out that this is akin to markets saying: this game only works as long as we can change the rules. This kind of statement is not conducive to trust. Unfortunately, the whole financial field needs trust to thrive.
I'd agree if the rules had been changed on the fly, as a response to the current events, but they weren't. The rules were known and they were activated as expected.
I trust electricity to be generally a safe and efficient way to improve my life, but I also sure as hell want circuit breakers in place to keep my house from burning down.
Those circuit breakers are not to allow people to come back from "panicked feelings". It's to stop algorithms from deterministically destroying hundreds of billions of dollars.
Yes, they've been put in after previous panics. I've always thought it rather odd that there aren't any corresponding restrictions on sharp upward movement, since euphoria can be just as dangerous as panic.
The trading halt is a result of previously established exchange rules. It's not a manipulation, it's a guardrail that is visible to every market participant.
If the price is going to go lower for an organic reason, it will go lower regardless of a brief delay.
There's a great book on behavior like this, "Extraordinary Popular Delusions and The Madness of Crowds" by Charles MacKay. It was first published in 1841 but feels like it could have been written today. McKay was editor of The Illustrated London News in 1850's.
It’s really more a protection against recursive trading loops by HFT systems.
In the flash crash (2010), it was later determined that the largest part of the drop was driven by competing systems racing to the bottom solely because competing systems were selling off too.
There is no market separate from society that has any “interests” such as not being manipulated. We get to design such systems in whatever way best serves us.
It’s funny how this “ideology of the pure market” has become popular. This idea here is essentially the same as the outrage when obviously wrong transactions are rolled back. The number of people willing to, or entirely oblivious of the possibility not to, let (others) be harmed by fraud or mistakes, in pursuit of some romanticized purity is astonishing.
> Seems strange that the market is kinda able to be manipulated like that.
You might consider it manipulation, but these circuit breakers have been in place for a long time now, IIUC ever since the major market crashes of the 80s when there was no way to slow down the drop. The idea is to potentially lessen panic selling by allowing more time for more information to come to light which might mitigate some of the volatility.
Of course, there is no guarantee that better news will surface in the meantime, but even if the eventual slide will be much larger, its better that it takes place over several days to allow counter-measures to be put into place.
To be honest , the market was in dire need for correction, BUT wonder where we will be when companies starts reporting their quarterly results and impact of that.
So far this looked more like a correction than a precursor to the recession. To make things worse, OPEC dropped bombs which spread the wildfire further..
Oil dropping because an opec monopoly explodes is good news for most of the economy (outside of oil industries obviously). But a drop in crude because of demand is bad for everybody.
no - oil dependent companies bought oil futures to hedge their price risk, so you shouldn't expect much benefit there. additionally, the high yield bond sector has a ton of energy company exposure, and those are falling through the floor. an extended price war could really obliterate those bonds, and their lenders.
I'm having trouble seeing how those two positions/statements contradict each other. If markets need a correction, and then they get it, that is part of the business cycle.
Also, "at this point" is at the point of one of the most runaway bull markets of all time. IMO, the correction has been needed for a couple years now. I didn't have nor did I see that sentiment on HN 5+ years back.
I am not the original poster but I think they are expressing that we were ready for some reversion to the mean after many years of gains including a spectacular 2019.
The market has just been unhinged lately, because there are a lot of huge positions that would love to sell but just can't unwind. Consequently there has not been an effective downward pressure on asset prices, and a lot of garbage is overpriced.
I still don't expect a major correction here because there's so much underused capital flying around out there and it will pour into anything that looks even remotely like a bargain. We have entered a regime where the world's economies have more capital than they are willing to use, which is novel and weird. Expect markets to act in novel and weird ways.
One thing I can easily predict is American governments large and small will take the wrong actions. They will cut taxes and slash spending when the bond markets are begging them to spend more. States and cities should be out there right now selling as many bonds as they can.
Huh, this was a ton of speculation in 3 paragraphs. Could you expand on what are the huge positions that are looking to sell? Are there any examples of overpriced equities?
I think your second paragraph makes sense given some large cap companies holding so much cash on hand due to inability to find anything useful to invest in (and stock buybacks)./
It's widely known state of things because of the current situation (low interest rates for very long time, etc.). Infact, many financial institutions and experts have been of the idea that a major stock crisis was around the corner for a while.
You could argue that most would have disagreed, but at the end 2018 many stock crisis indicators, models and statistics started to turn red and indicate that a crash was close.
2019 had a couple of close calls like the Turkish lira crisis, but there was never widespread panic to feed a worldwide crash. Now there is.
Take this with a train of salt because I’m not an economist, but one of the most often touted general points of the need for a correction is the cyclically adjusted price to earnings ratio being elevated [1].
In other words, stocks are more “expensive” and thus ripe for a correction
Definitely, especially in light of a probable recession.
One possible enhancement to the PE ratio I've read about that seems really helpful is to make it after tax, since the tax rate on companies can vary depending on locality and time.
Note that that's the Shiller P/E ratio, which (even after today) is still at 26, which is quite high. The regular P/E is still only around 20, which is at the upper limit of reasonable.
The whole point of the Shiller ratio is that it's supposed to do a better job predicting overheated markets, and it may well be doing that here. The regular ratio is based on recent earnings, which will be uncharacteristically high during a bull economy.
That's not to say it's incorrect. I was just noting that your link indicated a higher value than I was expecting, and that's why. (It implies that the market could easily fall another 25% before reaching reasonable territory.)
Correct. I deliberately chose the longer CAPE terminology because I thought it was more descriptive than the term Shiller PE. But thank you for adding a better explanation
High P/E ratio, bearish fixed income market, companies unable to deploy capital and buying back stocks to sustain bull market, QE being drained out, etc. Lots of warning signs that we are at the top of the cycle.
I don't know about "need" and I'm no kind of expert, but it seems to me that there's a hard drop roughly every ten years or so and the last one was 12 years ago. I've only been in the market myself for about 15 years, so I don't know that I have the instincts to call it, but historically this seems to be true.
Plot a basic best fit line for the DJIA or S&P 500 over the last 30 years and see where it says we should be in a rational market (about another 10% below today). If you need more evidence, plot a second line showing GDP growth for comparison. The markets have been in an unprecedented situation for the last decade since the Fed cut rates to the bone and then left them there. Effectively, money has been so "easy" that all kinds of weird things have been happening to boost the markets without much actual underlying structural support (actual capital investment, median wage growth, GDP output, etc.).
Bonds have both an income return and price return component. If interest rates go down, Treasuries go up in price. TLT (20+ Year Treasury ETF) has been up nearly 20% since this bout of panic set in.
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[ 3.8 ms ] story [ 428 ms ] threadTrading was halted for 15 minutes.
If it drops 13% it will pause for another 15 minutes. If it drops 20% it will end trading for the day.
There are examples of it happening in other countries though. Zimbabwe and Argentina come to mind for some crazy inflation and stock numbers.
Asset pricing is not continuous. A single trade can take pricing from -18% to -X%, with X having any value between infinity and -100.
The breaker triggers at -20%. If the market crosses at -18% and then trades -25%, that trade will cross and then trip the breaker.
Even the 1929 crash wasn't that much, though it did drop about 24.5% over two days, Oct 28 and 29, 1929.
https://en.wikipedia.org/wiki/List_of_largest_daily_changes_...
My understanding is that these automatic limit down rules were added in response to the flash crash in 2010, during which the Dow Jones lost 1000 points over the course of minutes.
In terms of real value, the only way for the economy to take that degree of a hit in a day would be a natural disaster. But these numbers are mostly speculation, so yeah they can go up and down very fast minus techinal restrictions like these halts.
https://en.m.wikipedia.org/wiki/Trading_curb#Instances_of_us...
https://www.cnbc.com/2020/03/09/sp-500-futures-are-frozen-af...
This is _extremely_ rare.
7% = automatic 15 minute stop
13% = another 15 minute stop
20% = stop for rest of day
Futures have a hault at 5%
Normal trading hours have the 7% stop
Speculators have been trained over the course of 10+ years to buy the dip. The Fed has your back.
What we're seeing is the beginning of the end of that resolve.
The last time this happened was during the GFC. It's not normal, and it's probably not a one-time event, either.
If you think it's easy to short things in a volatile market like this, then you've probably never tried to...
Modern history does not have an example of you know which party going on a tax cutting, over-spending, self-dealing, deregulation binge that did not end in a catastrophe. Add to that complete lack of competency when it comes to dealing with a not self-made crisis (a matter of time), and only a chump would think the good times would keep on rolling.
The market so far has absorbed the dumb trade war by pure optimism, and we only narrowly avoided a war with Iran. It all has been blind luck so far, and it just ran out.
I also moved $600k to cash, about 80% of it a month ago. Never done that in 20 years of investing, and probably wouldn't advise it to anyone now either. But when China locked down the whole country, I knew it was time to stand on the sidelines. Worst case, I'd lose out on a few percentage points of growth and jump back in once the threat had passed. I also still have significant indirect exposure through unvested employer stock.
To be clear, this is all fairly risky and ill-advised.
How does your story jive with the fact that the yield curves went back to normal? Either they are an indicator or they aren't.
Because after the inversion the market (and Fed) reacted? No indicator is infallible or static.
Because:
* https://yourlogicalfallacyis.com/black-or-white
The link is statistical and not causal:
> Shortly after 6 a.m. ET on Wednesday, the yield on the 10-year U.S. Treasury bond dipped below the yield on the 2-year U.S. Treasury as the 10-year fell 1 basis point below the 2-year. The yield curve inversion has a strong track record of predicting a recession; each of the last seven recessions (dating back to 1969) were preceded by the 10-year falling below the 2-year.
* https://finance.yahoo.com/news/yield-curve-inverts-for-first...
Bond rates are like a thermometer or barometer. So the fact that (economic) storm clouds are gathering are not caused by the measuring instrument (bond rates), but rather the metric is reading the (business) atmosphere.
Third option is that it is an indicator as long as people aren't treating it as one, but once people react to it then it ceases having the power to indicate what is happening.
First, there is negative rates. Punishing people for holding cash. The ECB and Bank of Japan have done a lot of pioneering work there, the Fed will have already extensively studied what they did, what worked, what didn't work.
Second, they have QE, monetizing debt & debasing dollar wealth, which is exactly what they'll unleash for the next recession. Inflation isn't much of a concern right now, so they'll feel free to 'print' rather wildly.
Annual budget deficits will blowout, probably up to $2 trillion or more, with the next recession, so the Fed will have to print dramatically to fund that regardless.
Then the Fed isn't out of ammunition.
The purpose of Fed easing would be precisely to generate/maintain target levels of inflation. The idea that the "Fed is out of ammunition" is that its conventional policy tool (rate changes) is seen as near a limit, such that the Fed can't generate further inflation if it wants to.
But here, you "smell the inflation," so by definition the contemplated actions are in fact ammunition.
Second, they have QE, monetizing debt & debasing dollar wealth, which is exactly what they'll unleash for the next recession. Inflation isn't much of a concern right now, so they'll feel free to 'print' rather wildly.==
I'm not sure I see where either of these options has worked. Can you share the successes of either of these measures?
In option 1, you have a stagnant Japan with a lost generation.
Option 2, is what we have been doing for 12 years and has led us to this point. The inflation seems to be hiding in asset prices (housing, stocks) not household items.
Since 2007, there has been one year with GDP growth [1] above the annual deficit as % of GDP [2]. That was 2015, with 2.4% deficit and 2.9% GDP growth. 2018 saw the US spending 3.8% of GDP in deficits to generate 2.9% GDP growth. Does that sound like a "strong" economy?
[1] https://www.macrotrends.net/countries/USA/united-states/gdp-...
[2] https://fred.stlouisfed.org/series/FYFSGDA188S
[1] https://en.wikipedia.org/wiki/Household_goods
Their economy crashed in the 1980s and still hasn't recovered.
If that "success", I'll stick with failure.
https://www.thelocal.se/20191219/sweden-abandons-negative-in...
Good. Because I don't buy for a moment that without COVID-19 the situation would be what it is now. Hindsight is 2020 and predictions of doom and stock market collapse is a dime a dozen.
In 2017 after Trump announced tariffs and it was ~10 years since the last recession. I was concerned.
Maybe stock prices were fine, but multiple companies I've worked for became unprofitable and got rid of tens of thousands of contractors.
Recession? Definitions are toxic to the real problem.
Okay, then lets not use them. Is what we are seeing now primarily a consequence of of COVID-19 or not?
"is the 2008 crisis primarily a consequence of mortgages or not?"
In the grand scheme of things, no, it's a consequence of a bubbled economy that has been goosed with tax cuts, extremely low interest rates, and deregulation for too long and is overdue for a correction. The proximate cause is Covid but it just was the spark that lit the fire, there was lots of fuel building up.
https://en.wikipedia.org/wiki/Necessity_and_sufficiency
This is why you don't cut tax rates and keep interest rates super low when the economy is already roaring. Now we're out of options for dealing with a real financial crisis.
Trump of course understands none of this since he's a narcissistic con man who just understands "tax cuts = economy more better!". Insofar as he can be said to understand anything - he's not a man that can be described as intellectually curious.
Well, while he doesn't seem to have much understanding of economics or how to run a government properly, let's give credit where credit is due: he certainly seemed to understand how to get people to vote for him a lot better than his political competitors did.
This is false. The fact that he won the election is completely irrelevant to this point. The election isn't won by the candidate who understands how to get people to vote for him. If it was, he'd have lost.
Wow, this is an incredibly stupid post. I'm not a Trump supporter; that should have been obvious from my posts. And you think that getting more votes equals winning an election, in a place where the electoral system makes this not the case? And then you fire back at me with this idiotic post? You're beyond help. It's no wonder Trump won with people like you on the other side.
If you're not needing the money soon, you'll probably be fine with riding it out like you may have with the great recession. I'm pained by the stories of boomers and others who sold low during the great recession and didn't catch any of the gains when things started turning back around. This too shall pass.
It's likely however that those scenarios didn't attach a high weight to the probability like 20 million Italians living in a state of quarantine, or that 8,000 plus patients in China would die and industrial production levels would plummet.
[Usual caveat about reading too much into plays like this.]
Edit: Here's the thread, and sincere apologies for the flaketastic LW interface now, they don't even have a parent button and it took several seconds for the thread to render after the page loaded:
https://www.lesswrong.com/posts/jAixPHwn5bmSLXiMZ/open-and-w...
I think people are confusing cause with an effect/correlation. Oil going down usually indicates a recession. Bad economy -> Lower demand for Oil -> Lower oil prices. In that case it's a signal/trailing indicator.
In this case it's: Increased oil supply -> Lower oil prices -> Everything gets cheaper to make -> Increased economic activity
Is it oil prices down -> large oil based economies at risk due to vastly lower margins -> global instability from inability to make payments?
That is no longer strictly correct. The ideal oil price for the US economy is a balance between high and low, which provides a high degree of employment for the US oil industry, oil production and export expansion remain high, and provides a reasonable price for US consumers when it comes to gasoline.
Oil in a range of perhaps $45 to $75, is ideal.
At $25-$35 you're going to eventually hammer the US oil industry and its jobs, as the hedges fall away. That will hit the US economy negatively at least as much as the low oil prices benefit consumers.
Russia is playing a bad game of chicken with Saudi Arabia and US oil, claiming they can endure ~$30 oil for a decade. It's false of course. Their personal incomes have been falling for six or seven years in a row. $30 oil will contract the Russian economy at worst, and stagnate it at best, so it would be ten more years of declining living standards in Russia (the last thing Putin wants to see, so it's a false bravado on his part, as typical).
Saudi Arabia and Iraq will be crushed fiscally by low oil prices. Saudi needs $83 oil to balance their budget. Canada will take a modest hit as well.
China is the prime beneficiary as a massive importer with modest production, they're in the position the US was in previously.
The fraction of the price drop that can be attributed to large producers flexing market power versus the decreased demand is a tricky thing to determine.
There would be increased economic activity if businesses don't close left and right because of a combination of decreased demand and supply as both consumers and workers self-isolate and live in quarantine, and the knock-on effects of China's reduced manufacturing capability (soon to be followed by reduced manufacturing capability of much of the rest of the world).
This stock market crash is just the tip of the iceberg.
The tops of political, administrative, business, and military hierarchies tend to be overwhelmingly old, and most susceptible to succumbing to this outbreak. As many of them die, as the bodies they govern are plunged in to chaos and societies around the world go in to crisis mode, the markets will respond even more adversely than they have already, as the markets don't like uncertainty, and there's no end in sight to such uncertainty for the foreseeable future.
There is little economic upside from this pandemic. Few ways of profiting from it except by shorting nearly everything and buying gold. The bond markets and treasuries are also likely to suffer as governments default.
If you lean bearish, you’re thinking 80s oil bust, S&L Crisis, and the Spanish flu.
But the problem is that coronavirus is threatening the real “brick and mortar” economy — travel, restaurants, retail, etc. Its hard to address that without fiscal stimulus, and we haven’t seen much talk in terms of that yet.
Add to the list sub-prime auto loans, a huge amount of student loan debt...
Check out the graphs presented, particularly the last one. Default is very likely for those most likely to have student loan debt (younger workers in lower quality service jobs), but there isn't a systemic risk as the federal government is the insurer of last resort. These are loans in name only; they are, in actuality, taxes you can't default on (or so was traditionally thought; we're making headway in having the ability to default on these obligations and get out from underneath them [1]).
[1] https://www.natlawreview.com/article/student-loan-discharged...
This is a strong claim. Can you prove it?
https://www.marketwatch.com/story/the-federal-reserve-is-stu...
Probably go under?
Once a well is drilled the cost to drill the well is a sunk cost. You keep pumping oil if the cost to run the pumps is less than the price you get. Most people with oil are large enough to shut down some wells to keep the price up a bit - they harm their own profit in the short term though and still need to sell enough oil to break even.
There is rumor OPEC isn't cutting production because they believe they can undercut their competitors and put them out of business - I don't think that is their motivation, but it is something that can't be ignored.
My reading is we're in a normal correction that has been exacerbated by COVID and last night's massive fall (-30%) in oil price.
The 19th largest daily percentage loss in the Dow is -7.32%. Today we briefly hit -7.9%.
The 19th largest daily percentage loss in the S&P 500 is -7.18. Today we briefly hit -7.2%.
If you don't classify that as a "crash," then please state your criteria for us to examine. It may not be a major crash, but it's definitely notable.
https://en.wikipedia.org/wiki/List_of_largest_daily_changes_...
https://en.wikipedia.org/wiki/List_of_largest_daily_changes_...
[0]: https://www.investopedia.com/articles/investing/010917/opini...
And it's gotten worse, here's an update from CNN:
"The S&P 500 fell by 7.7%, blowing through the first circuit-breaker level that it tripped minutes after trading opened for the day. The S&P 500 is on pace for its worst day since December 1, 2008, when stocks fell by just over 9%.
The Nasdaq was down "only" 6.7%."
It is superficially "asinine" because it is so narrow. However, the DJIA, S&P, Russell, etc all track/correlate each other.
> Look at any other index instead.
Or better yet, inlay the graphs of DJIA, S&P, Russell, Nasdaq, etc on the same chart for comparison. You'll see that the graphs all look similar. Meaning they all go up and down at around the same times.
It would seem that the broader indexes would better reflect the market as a whole. But in the real world, DJIA does good enough a job as the S&P, Russel, etc for a bird's eye view of the market.
http://www.cidrap.umn.edu/news-perspective/2020/02/study-720...
Attorney General Barr is not resigning; not before President Trump does. Barr is the same as Mueller,Pelosi,Schiff, & Nadler: feign opposition to cover the true motive of obstruction to keep Trump in power. Supreme Court Justice Alito & FBI Deputy Director Wray also on board. See latest updates
"Impeachment" Is A Diversion And Delay - Part II: Blocking of the "impeachment" witnesses was collusion planned before the new year. Listen to an FBI agent's disclosure from January 1, 2O2O here. The President was to resign late summer securing election for DNC. See latest updates.
Here is the zip file, which was also made available in the 3Jan2O2O update. The file within is VID_20200101_201948.mp3. Turn up the volume and put on headphones.
BB10Mp3Footage31Dec1Jan.zip 122.4mb
https://drive.google.com/file/d/1IXOOhQhHybwky8Z5pGdr9ZXhWpI...
The dialogue about the impeachment starts near the beginning. Having Biden in the White House is as good as Trump or anyone else in their organization. Obviously Schiff and Nadler pledged their allegiance to the organization by raping boys on the record, with their task being to drag out an impeachment designed to obstruct and delay any real efforts to remove the President, thus keeping Trump in power. The witness blocking was to cause an apparent uproar delaying things with legal actions until late Summer. Soon after, the President would resign, leaving any other candidate with not enough time or support to compete with an opportunistic Biden, who is as good as Trump or any other Illuminati friendly politician in the Presidency.
176 page PDF [last update: March|7|2O2O]:
https://drive.google.com/file/d/1S7T_kDv48E40eHzus6CTXHxcm0W...
Previously reported:
\Wag The Dog: first was feigned impeachment hearings meant to obstruct, now an attack on Iranians in Iraq. Here is what they are trying to distract from & cover up to retain power. $100+ billion in bribes to the highest offices in this country. 915+ deaths from child rapes to prove loyalty!
See the latest PDF updates: FBI Director Wray, AG Barr, SoD Shanahan, & SoS Pompeo each raped boys and were paid billions in bribes for a Soros & Koch funded child rape org. So did Trump & his "impeachment" team Nadler,Schiff,Mueller.So did media moguls Redstone,Murdoch,Moonves. What are they trying to set up? Who can arrest them since they are all bribed and in on it ?
Their strategy to stay in every office and obstruct until forced to leave no matter what. Feigning impeachment: see page 13O.
\\if;Download the video/audio file, put on headphones and turn up the volume. You will hear these people committing these crimes. Audio was broadcast into my apartment by outdated surveillance equipment illegally embedded within my walls. This very same technology was being used to broadcast me to the internet for five years without my consent. I own this footage. Please use this to prosecute all found within. Note:: I am obliviously speaking throughout the video, and it can be quite loud at times relative to the desired content. The are dozens more links, i...
[1] https://www.investopedia.com/terms/c/circuitbreaker.asp
https://www.koyfin.com/home
HEADS UP, YOU ARE USING A WEB BROWSER THAT IS NOT SUPPORTED BY KOYFIN This means that some functionality may not work as intended. We recommend using Google Chrome with our site.
If this was the status of our builds at work, I'd be very worried.
It's interesting to see how it spikes up and down though, never really paid attention to it until now:
https://www.koyfin.com/charts/gip/INDU_EC?t=SPX&t=NDX&frame=...
Matt Levine and others argue that shorter trading hours would actually increase market liquidity. Synthesize market information outside of market hours, then trade during a shorter window: https://www.bloomberg.com/opinion/articles/2020-03-09/stuff-...
https://www.nasdaqtrader.com/Trader.aspx?id=POPs
TL;DR: Letting markets take regular breathers probably helps curb swings in the market. It also lets people who manage money get some sleep (though of course there are other markets open 24/7).
Most services are shut down after trading/brought up again before trading.
After trading you would have accounting and other processes that would take hours. These are not done in real time and rely on daily downtime.
I honestly can’t imagine these firms figuring out 24/7 trading hours.
http://tooslowexception.com/zero-garbage-collector-for-net-c...
If I was building something that was on a short fuse like this, I'd also be using structs and stack allocation as much as humanly possible before leaning onto the "having tons of physical memory" crutch. I feel like virtual memory could cover your ass for a small period of time before the whole thing started to grind to a halt.
[0]: https://www.ft.com/content/9e1f05b4-43e7-11e8-803a-295c97e6f...
If you could read and digest an earnings announcement faster than all your peers, you could make trades based on the new information before the price has moved.
While yes, some types of trading does rely on exploiting (usually small) information asymmetries, and "incorrect" pricing, it's much fairer if people have time to digest big required disclosures and all be able to get their orders in at (essentially) the same time: the opening bell the next day.
Good GDP numbers at 2:00:00? It's gaping up at 2:00:01 and near the top of the trend by 2:00:05. I've seen it first hand many times.
> We talk occasionally about proposals to shorten the stock trading day from its current 6.5 hours (in the U.S.) to, say, half an hour. The idea is partly that traders would have more time to spend with their families and dogs and hobbies, but one shouldn’t overestimate that. Really what it means is that you have 23.5 hours a day to ponder information and synthesize it into stock-price views, and then half an hour to trade stocks based on those views. The big advantage is that anyone who might want to buy stocks can pay attention to the stock market for that half an hour, so the liquidity during that half-hour should be pretty good. When the trading day is 6.5 hours, sometimes no one’s around when things happen, and you have to shut the market down for a bit to call everyone back in. But I don’t think that’s quite what happened this morning.
https://www.bloomberg.com/opinion/articles/2020-03-09/stuff-...
I say this because halting tries to "cool down" emotion but it still "feels like" panic while making it all go slow would "feel kind of crappy yet normal" hence "buying" time to cool things down while still working.
Wouldn't that reward going up and penalize/protect going down?
I don't think so. Halting would allow the traders to get a cup of coffee and switch to another mental gear. A slowdown would probably just keep them in gear and result in a lot of anxious refreshes and attempts to wrestle the system.
Wouldn't be that with time, the next generation of traders for example, they will relax more when things feel bearish and put the "normal gear" when it feels bullish?
That's assuming people are way more rational and less emotional than they really are.
Wouldn't overall cause a "sustentation effect" similar to the asymmetrical speed in the airflow in the wings of a plane?
I'm not convinced myself of this, but the idea made me curious and maybe worth of experimenting with in a limited context?
Too bad it had to be this bad an event.
You do get that a reasonably conservative projection is that within a year most people in the world would have gotten COVID-19? How the heck did Trump do that?
The only means of slowing COVID-19 has massive effects on the economy. There is now way in hell this would not have had a massively negative impact on the world economy. If you could give some meaningful argument for why US is handling it worse than the rest of the world, by all means. But just saying "Trump is bad" seems to be completely disregarding the reality.
I am blaming him for taking Obama's legacy of stability and growth and destroying it for short-term profit. It would be a tragedy if he did not have to answer for that before the primary elections.
(Also, note that Trump doesn't get to run deficits. That's Congress's territory.)
1. Many people do not care about the deficit to a great degree on either side of the political aisle. This despite a lot of rhetoric by one party or another.
2. The party in power seems to always find a way to blame their predecessor for their ills. I've personally seen Trump supporters blame immigration for the current rising deficits.
To continue the automotive analogy, supercharging an engine with major fragilities usually sets it up for a reckoning, just waiting for a trigger.
Covid-19 is just a particularly powerful trigger since it is globally correlated, and also has its primary effects at the local level. It would have shocked any economy, Obama's or Trump's, but there is much farther to fall in the latter's, because of the huge market rallies and the expectations that drove and emerged from it.
Agreed, but massive tax cuts for corporations and the wealthy are something he campaigned on and delivered on, like it or not (I surely didn't like it).
> And his growth rate hasn't been particularly different than Obama's despite the super stimulus of deficit spending during a non-recession.
On main street and the overall economy, sure, the growth rate hasn't been much better, and wealth and income inequality haven't reduced [1], although they didn't reduce under Obama either.
On Wall St however, growth has been blockbuster since his election (S&P up more than 30%) with investors reaping the rewards of stock buybacks and lower overall taxes. A good deal of this rise was right after his election, on the expectation of the tax cuts that eventually passed. The stock market is what crashed. Main street might follow, we'll see.
> Maybe it was the trade war or maybe there's just a limit to giving corporations huge tax cuts when they're already awash in abundant profits and capital.
I think we're in agreement here. The massive tax cuts to corps and wealthy people are what juiced the market and set expectations sky high. The trade war probably didn't help either.
1. https://www.cbpp.org/income-concentration-at-the-top-has-ris...
https://www.cbpp.org/share-of-wealth-held-by-wealthiest-1-pe...
Certainly doesn't help that he fired the US's pandemic response team a few years ago (that pesky "deep state" he's been ranting about). The rest of the world has their own responsibility to some extent but the US usually takes point on these kind of things.
https://www.snopes.com/fact-check/trump-fire-pandemic-team/
He's also had the CDC sandbagging testing for it. He's been claiming coronavirus is a liberal hoax for weeks now, and anyone who contradicts him gets fired.
One of the side effects of that has been the CDC refusing to approve states that developed their own testing (as they are required to get CDC approval). Because they don't want to be seen as arguing that COVID is not a liberal hoax.
The US has 330M people. The rest of the world has over 7B. The rest of the world needs to get over this idea that the US is the leader on everything; the election of Trump should have been the canary in the coalmine that the US just can't be trusted for global leadership any more, and continuing to do so is dangerous and foolhardy. As you said, it's been "a few years" since the pandemic response team was fired; so why would any country have trusted the US since then for pandemic response ability or competence?
We detached this subthread from https://news.ycombinator.com/item?id=22525433.
Short of a huge change in COVID-19's mortality rate, few if any of these businesses will go under in the next year naturally. The fire sale of stocks due to short-term impacts to revenue, however, just might do what COVID-19 can't.
I've been buying stocks heavily on the latest dips and so far that is all down around 20%. I diversified investments in cruises, airlines, real estate, banks, tech and more. It feels like 2008 is happening all over again.
And this second scenario happens more often to people than the first one (according to common wisdom).
"but I can stand to be in the market for a very long time" -> isn't this the reason to not do anything? So you can recover and buy more while everything is on discount?
You got lucky this time, but next time you might pull out just as it's about to swing up again.
Or when you eventually buy back in, it might not be the bottom. Or more likely, it will be after the bottom on the upswing and then you've lost out even more.
Hang onto your butts...
I may end up being wrong, but it seems like we are not near bottom.
Isn't that the case whenever one buys equities? Why is now special? It's definitely less risky to buy now than it was in January.
[0]: https://theirrelevantinvestor.com/2020/03/06/dont-catch-a-fa...
You can see this by looking at the difference between the return on stocks in the first/last hour against the return over the rest of the day. I have no idea if this effect still exists today but you used to be able to print money from this (and I am sure it still works in places like China with lots of retail investors).
> “There’s a reason why they have those circuit breakers -- it’s to give people time to come back from panicked feelings,”
Seems strange that the market is kinda able to be manipulated like that. I'm not saying this is a bad move, just surprised that someone can do it.
Limit up/down rules are not discretionary. They're circuit breakers that fire deterministicly.
There is also no automatic upside circuit breaker.
L1 - 7% down before 3:25pm - 15 minute halt
L2 - 13% down before 3:25pm - 15 minute halt
L3 - 20% down - halted for the remainder of the day
Only a single L1 and a single L2 breaker can occur in a single day, e.g. the market falling below 7%, rising, then falling again will not trigger a second L1 breaker, but falling to 7%, up to 5%, then down to 13% would trigger an L2.
FYI this is the kind of thing you have to know to become registered as a securities representative.
Nice point about only 2 daily. But still seems crazy.
So don't worry, it's only us regular guys that get screwed. Big firms can still contact each other to make deals.
And when everyone is selling, who do you think is buying? No one is moving much of anything for those 15 minutes
For a very popular stock on a typical day the market maker isn't really necessary. Your trades would absolutely execute immediately based on positions other people wanted.
When your stock is more thinly traded, or when things are a bit frantic the market maker is your saviour. When everybody and their dog is selling, the market maker will buy anyway.
Under some circumstances market makers can signal they intended to cease to make a market for specific stocks. When the market makers exit, all hobbyists should make sure they are gone too. Once there is no market maker for the stock you're holding, you will need somebody else to actually take the other side of your trades. "Prices" without a market maker are just a guess, there may be nobody actually promising to take your stock at any price, even if the last trade was for $1.40 your stock might be not sell even at 14¢. This makes for an exciting space in which to gamble with money you can afford to lose if you really know what you're doing, otherwise it's just a way to throw money away.
There are a lot of firms whose core business strategy is to keep a level head and take advantage of people who panic and (over)react on days like this. They get damn rich doing it, too.
If you're a little guy who believes that, say, 2019ncov is about to tear the world a new asshole, that's probably a decision you'd like to make for yourself.
I don't doubt what you're saying, but it's a matter of perspective. Sometimes the "panic" is the correct reaction. We're sitting on top of a perfect storm which is shaping up to be a massive potential black swan. And with the current circuit breakers, trading is only interrupted for something similar in concept to "the 99%".
Across all indicators, too! Oil price, US markets, international markets, t-notes, gold price, and a bunch I'm probably not aware of because I'm not a professional investor. China just shut it's economy down for two weeks. Long term outlook is rightfully poor.
Panic is almost never the correct reaction. Deciding that there's going to be a downturn and you should prepare yourself for it financially is one thing, but under what circumstances would it be optimal for you as an individual to panic-sell?
In my mind, panic is the thing you do when you realize that you haven't prepared. That you don't have enough resources for an extended downturn, that you're financially over-leveraged, and that you are in danger of losing your home and being unable to feed yourself and your family. There are TONS of people who are experiencing this right now in China and Italy, and many others of us who will be experiencing it the next few weeks in the rest of the world.
But panic also implies that you don't have time to fix that, and there's nothing you can do as an individual to change it. If that's the case, you probably don't have a lot of investments in the stock market anyway. Or if you do, and you're over-leveraged in the markets because you were gambling with your money instead of investing with it, then yes, you're panic-selling right now.
There is an exception if your religion lets you take your stock with you. I don't believe in one, but I guess if you want to.
And what's the rational thing to do in such a case? Let's say you're at a poker game. And you have a deal: you lose, you get shot, you win, you get your winnings. What is the rational thing to do?
You should go all-in. It is one of the very few cases it is actually rational to do that.
If anything this is helps the little guy, by not completely crushing their stock value, and hurts the big guys who can outlast huge swings (something little guys cannot).
The concept was introduced in US equities after the ‘87 crash, but was only consistently implemented for NYSE-listed stocks. In ‘13 these were made consistent and market wide (thus MWCB), set against a widely published value of the S&P (so that the control was predictable; thus how it executed today).
FYI, there are also bidirectional halts that exist intraday (Limit-Up/Limit-Down) that serve a similar purpose and control rapid, uncontrolled movements in individual stocks. These are also defined in exchange regulation and are well defined so that they are predictable.
It's beneficial for people who want to buy stocks cheaply or if we truly believe that markets are about price discovery.
Exactly, and when you have an unorderly market, price discovery becomes problematic.
It’s the same reason the single stock LULD bands exist (which put the brakes on both rapid downward and rapid upward movement). Stopping for 15 minutes (or 5 in the case of a LULD pause) is not detrimental to the process of establishing orderly price discovery.
In the event a stock is going to keep rising or falling due to legitimate changes in valuation it will continue to do so (look at NASDAQ’s halts page today to see stocks that have hit their bands multiple times).
I think you can discover the price tomorrow.
this is not incompatible with the believe that prices over a single day (or hour) can be dangerously noisy.
So are we saying the market will be perpetual because it's not allowed to fail ?
At what point does the https://en.wikipedia.org/wiki/Pareto_efficient not apply ?
If it's manipulated, the efficient seems moot.
(For a more humorous statement: https://www.youtube.com/watch?v=oap6_U8-HvI)
Then why does L2 exist? It seems redundant, L1 would get triggered before L2, and only one can occur in a single day, so why have L2 at all? What am I missing here?
Edit: Also, anyone who downvoted me for posting the same question as someone at the same minute, you know what to do.
Please don't comment about the voting on comments. It never does any good, and it makes boring reading.
https://news.ycombinator.com/newsguidelines.html
They're more tedious to write than to read, if that helps at all.
https://hn.algolia.com/?dateRange=all&page=0&prefix=true&que...
I don't follow. You'd hit 7% before 13%, so how would L2 ever execute?
This phrasing makes sense. Thanks!
But each of the L1 or L2 can only occur in a single day, not one or the other. You can hit L1, and then later hit L2, but you can't hit L1 twice.
Does that help clear things up?
T6: Halt - Extraordinary Market Activity Trading is halted when extraordinary market activity in the security is occurring; NASDAQ determines that such extraordinary market activity is likely to have a material effect on the market for that security; and 1) NASDAQ believes that such extraordinary market activity is caused by the misuse or malfunction of an electronic quotation, communication, reporting or execution system operated by or linked to NASDAQ; or 2) after consultation with either a national securities exchange trading the security on an unlisted trading privileges basis or a non-NASDAQ FINRA facility trading the security, NASDAQ believes such extraordinary market activity is caused by the misuse or malfunction of an electronic quotation, communication, reporting or execution system operated by or linked to such national securities exchange or non- NASDAQ FINRA facility.
H10: Halt - SEC Trading Suspension The Securities and Exchange Commission has suspended trading in this stock.
Trading halts may or may not fix that, but that's their purpose.
Then they're doing it wrong. You shouldn't have money that you need immediately in the stock market. Yes, people will do that anyway, but I'm not sure we should cater to those people when the health of the markets as a whole are at stake (assuming circuit breakers are effective; up for debate).
It is actually expected that the market will typically go up, not down. Otherwise there would be no difference between investing and gambling.
Basically - we should protect against any really dramatic sudden changes as chances are that something is wrong.
In the last year the S&P grew ~22% prior to this recent drop, that's fine... and on a day swings in the low single digits might be fine. But if we woke up tomorrow and the S&P had recovered the pre-drop value and then grown 20% over that price - something weird is clearly going on and we should be worried.
For instance here is a toy example of unbounded value: Consider a market for a stock in which the only market participants are two bots with the behavior that they trade the stock back and forth at an asymptotically increasing price. The buys are backed by loans from a zero interest government bank. Since the bank is efficiently hedged to losses. Both sides of the trade owe the bank, the seller can also pay the bank the money the bank needs to back the buyers loan. Thus, the bank could allow both these loans to go to infinity causing the value of the asset to approach infinity.
Similar things have happened with flash loans in the cryptocurrency space.
Emptying out all the asks is a thing that happens.
I assume they have been tweaked since 1929, but they started with the crash back then.
Edit: someone else is claiming 1987 as the start. My memory says 1929. If this matters do your own research.
https://en.wikipedia.org/wiki/1933_Banking_Act
https://en.wikipedia.org/wiki/Aftermath_of_the_repeal_of_the...
It's not intrinsically a "bad" thing per se and it was something already established long before the current set of conditions arose. But none the less, it's an artificial constraint introduced on trade systems that is likely beneficial.
But we are not rational actors. We can get into panics. Panics can stir more panic. Forced breaks allow for the market to reassess data for a few minutes without fear of loss for not acting immediately.
I think there is scope for designing market mechanisms which have the volatility-reduction effects of periodic auctions, but which still allow market makers to hedge. I hope people are working on those.
And how is that a bad thing in and of itself? It would presumably knock out some of the ultra-low-margin HFT but so what? If it would have the effect of turning the stock market into less of a roulette table, with fewer gamblers compared to bona fide investors - isn’t that a good thing?
There's no downside in great news (other than the possibility of a quick reversal thereafer...)
It's pretty symmetrical. Choosing not to buy is not as easy as it looks, when you are under pressure to do so. Madoff took advantage of this. The crash of 1929 was preceded by unhinged buying.
Even better: the percentage split between long and short holders isn't 50%/50%
https://www.sec.gov/oiea/investor-alerts-bulletins/investor-...
The market-wide circuit breakers, which triggered this morning, only apply to declines.
It is weird given that this information is not hidden. It is just not widely spread.
Consider an analogy. Suppose you were a stamp collector and you wanted to run a weekly stamp exchange. You and your fellow collectors may establish rules about how the trading should happen and the agreed upon behaviors. By-laws if you will. You could of course have no rules. Or you could choose some that promote the overall longevity of the venue and that encourage robust participation. The choice is up to the owners. Both are free. But one will be more successful than the other.
Even anarcho-capitalism doesn't go that far.
I am arguing that rules set up by the market do not automagically enforce free market. I am arguing that rules explicitly do the opposite by introducing guard rails, which DO restrict movement in that free market.
Do you honestly believe that rules derive its effects from who sets them up?
Can you define what you mean by free market? Is two parties freely coming to a mutually beneficial agreement that they are then constrained by (i.e. a contract) consistent with that definition?
That said, I am not sure what you disagree with. Please elaborate.
Assuming you agree with my characterization, on the surface nothing about the transaction facilitated by the intermediary makes it not consistent. You have my full support here.
Now, your argument appears to revolve around knee jerk reaction to me saying that in real free market, the rules would not artificially prop the market. My argument is that in a true free market, the rules would not restrict it arbitrarily.
Ergo, we do not have a truly free market, but just a reasonable approximation agreed for by various parties.
Would you accept that?
The agreement to restrictions is still between two parties, but you can read it as "two classes of parties" if it makes you feel better.
> Now, your argument appears to revolve around knee jerk reaction to me saying that in real free market, the rules would not artificially prop the market. My argument is that in a true free market, the rules would not restrict it arbitrarily.
It seems like you're confused about a couple of concepts here and I think it may stem from overloading the words "free market" and the concept of "the free market" generally.
The stock exchange, like any real world marketplace, has many restrictions on trading. These make it a market that is not free in the sense that you cannot trade however or whenever you like. However, the free market is a distinct concept from any individual exchange. It means that parties involved in the open market (i.e. everyone) are able to freely exchange goods and services as they choose. This may involve entering into agreements (like contracts) that restrict future actions, but as long as those agreements are freely agreed to, this is still consistent with the concept of a free market generally. Thus, the fact the stock market has restrictions is still consistent with the concept of a free market so long as the participants freely agreed to those restrictions.
Does that clear anything up?
I will sleep on it a little, but thank you for trying to clear it up for me.
If you are facilitating the trading of regulated instruments this is wrong and there are indeed SEC regulated circuit breakers you will have to implement.
Having common sense regulations and tools like circuitbreakers are fine with me. I wouldn't say it's meaningfully less of a free market just because we have these tools in place to protect us against the automation we use.
https://en.wikipedia.org/wiki/Flash_crash
From the 1988 "Report of the Presidential Task Force on Market Mechanisms : submitted to The President of the United States, The Secretary of the Treasury, and The Chairman of the Federal Reserve Board":
---
Our understanding of these events leads directly to our recommendations. To help prevent a repetition of the events of mid-October and to provide an effective and coordinated response in the face of market disorder, we recommend that:
• One agency should coordinate the few, but critical, regulatory issues which have an impact across the related market segments and throughout the financial system.
• Clearing systems should be unified to reduce financial risk.
• Margins should be made consistent to control speculation and financial leverage.
• Circuit breaker mechanisms (such as price limits and coordinated trading halts) should be formulated and implemented to protect the market system.
• Information systems should be established to monitor transactions and conditions in related markets.
https://archive.org/details/reportofpresiden01unit/mode/2up
Of course, for a transaction of a certain value, you wouldn't want to hold the cash or certificate, so instead you write out a contract and sign it at the moment of exchange. Which is the same as buying or selling something else (e.g. car, house) beyond a certain value.
They are not. For any meaningful interpretation of "actual", the only price is the market price during trade hours. Speculative overnight agreements between private parties at agreed-upon values are contract agreements. The stock price doesn't change between market close and open.
Is it the bid? Is it the offer? Is it the last trade? The VWAP?
The stock market only tells you where shares have traded and where the order book would trade them. There is no observable "actual price."
A useful way to think about the price is to imagine a theoretical fair value that is always changing, and a theoretical bid/offer that is always floating around the fair value.
This theoretical fair value is not posted anywhere. Some people give the name "price discovery" to the process of identifying where the theoretical fair value lies. With liquid stocks like AAPL on calm days, price discovery is a simple affair. With other assets, price discovery can be more opaque.
When the stock is trading steadily at high volume, then sure. The last trade is a great representation of the theoretical fair price. But in choppy trading, when there are dislocations between related assets and spreads are wide? The last trade is not representative of the whole picture.
Consider assets whose transactions must be reported to TRACE. If you are long, you have an incentive not to sell aggressively because a downtick will mark down the value of your position. So what's the fair price? Is it the last trade? Not necessarily, because that trade may not represent the current state of the market.
Also, there is generally some illiquid trading taking place pre-/post-market. And US futures trade overnight in other markets. And companies may be exposed to assets that trade outside of US trading hours (eg, refiners that have storage tanks full of crude, or companies that have currency exposure).
Here's a brilliant idea, introduce a rule that says you can only sell a security for more than what you paid. Voila, endlessly rising prices forever!
Feels like a con.
There is, however, no "liking" or "disliking" market direction. It's automated, with clearly-outlined rules. There's no manipulation; if A, then B.
This is a dangerous game, in that it is indeed revealing the artificial, make-belief, nature of financial markets.
True, if surprising to me. It's a rule from the onset. I didn't know that.
If the price is going to go lower for an organic reason, it will go lower regardless of a brief delay.
https://www.amazon.com/gp/product/B081ZD9CL1/ref=dbs_a_def_r...
In the flash crash (2010), it was later determined that the largest part of the drop was driven by competing systems racing to the bottom solely because competing systems were selling off too.
The rules are well-known and set in advance by the SEC and exchanges. In this case it's SEC Rule 80B and NYSE Rule 7.12.
You can read more about trading curbs here [0] and this one in particular here [1].
[0]: https://www.investopedia.com/terms/t/tradingcurb.asp
[1]: https://www.nyse.com/markets/nyse/trading-info
It’s funny how this “ideology of the pure market” has become popular. This idea here is essentially the same as the outrage when obviously wrong transactions are rolled back. The number of people willing to, or entirely oblivious of the possibility not to, let (others) be harmed by fraud or mistakes, in pursuit of some romanticized purity is astonishing.
You might consider it manipulation, but these circuit breakers have been in place for a long time now, IIUC ever since the major market crashes of the 80s when there was no way to slow down the drop. The idea is to potentially lessen panic selling by allowing more time for more information to come to light which might mitigate some of the volatility.
Of course, there is no guarantee that better news will surface in the meantime, but even if the eventual slide will be much larger, its better that it takes place over several days to allow counter-measures to be put into place.
So far this looked more like a correction than a precursor to the recession. To make things worse, OPEC dropped bombs which spread the wildfire further..
see eg https://twitter.com/TheStalwart/status/1237022304510660608
Not quite, it's bad news for renewables as well to see fossil prices fall.
"It needs a correction"
Everytime something negative happens:
"It's just a cycle"
Maybe we don't have the best economic system where instability is built into its core & foundation?
Also, "at this point" is at the point of one of the most runaway bull markets of all time. IMO, the correction has been needed for a couple years now. I didn't have nor did I see that sentiment on HN 5+ years back.
I still don't expect a major correction here because there's so much underused capital flying around out there and it will pour into anything that looks even remotely like a bargain. We have entered a regime where the world's economies have more capital than they are willing to use, which is novel and weird. Expect markets to act in novel and weird ways.
One thing I can easily predict is American governments large and small will take the wrong actions. They will cut taxes and slash spending when the bond markets are begging them to spend more. States and cities should be out there right now selling as many bonds as they can.
I think your second paragraph makes sense given some large cap companies holding so much cash on hand due to inability to find anything useful to invest in (and stock buybacks)./
You could argue that most would have disagreed, but at the end 2018 many stock crisis indicators, models and statistics started to turn red and indicate that a crash was close.
2019 had a couple of close calls like the Turkish lira crisis, but there was never widespread panic to feed a worldwide crash. Now there is.
In other words, stocks are more “expensive” and thus ripe for a correction
https://www.multpl.com/shiller-pe
One possible enhancement to the PE ratio I've read about that seems really helpful is to make it after tax, since the tax rate on companies can vary depending on locality and time.
Nice Freudian slip.
The whole point of the Shiller ratio is that it's supposed to do a better job predicting overheated markets, and it may well be doing that here. The regular ratio is based on recent earnings, which will be uncharacteristically high during a bull economy.
That's not to say it's incorrect. I was just noting that your link indicated a higher value than I was expecting, and that's why. (It implies that the market could easily fall another 25% before reaching reasonable territory.)
Everything goes down during a recession. The goal is to find things going down less.