So what happened with the DOW today −457.21

[malaise]

Curious

[elleng]

1. ALL down:

S&P 500
-2.05%
Dow
-1.89%
Nasdaq
-2.06%

Stocks on Wall Street drop with sell-off that picked up near end of trading.
U.S. stocks fell on Tuesday as reports from China, South Korea and the United States offered sobering reminders to investors of how long and difficult the coronavirus recovery is likely to be. . .

The decline on Wall Street picked up steam as the day progressed, with shares making a move lower after Senator Lindsey Graham, Republican of South Carolina, proposed legislation that would authorize sanctions on China unless it provided a full accounting of the events leading up to the outbreak of the coronavirus.

Though investors have been able to shrug off a number of risks to the economy lately, rising tensions with China have spooked investors who are worried about a trade conflict between the world’s two largest economies.

https://www.nytimes.com/2020/05/12/business/stock-market-live-coronavirus.html?

[spanone]

2. trump is still president

[Takket]

3. Maybe some company that makes yachts had to close for Covid?

Since the Dow is only for the rich...

[CountAllVotes]

4. Who knows?

They were keeping the CPI #'s out of the news I noticed; you know that bad bad news!

[Bucky]

5. It's bad, but if you're in the market, you should know not to watch daily ups and downs

My meager holdings seems to correlate more to NASDAQ performance (but a little bit better), but the market will bounce around over the course of a week or fortnight. You have to learn to look at longer-term trends. If you ever google DJIA or S&P500, you'd be wise to move the slider from the 1day setting out to the 6month or YTD setting.

Personally I don't change my stock holdings more than twice a year. People who try to time the market pay for it in blood pressure and overthinking. The current Dow is toying with optimism. I was lucky enough to move about 1/3 of my retirement holdings over to real estate last year because I had faith in Trump (and Republicans in general) to fuck up the stock market. History loves repetition.

[Bucky]

10. This chart gives a sense of what personal longterm investments should look like

You have to click on this link to see it (it's a png image)

https://cdn.substack.com/image/fetch/c_limit,f_auto,q_auto:good/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fa47186ee-dca5-484b-b321-27dcf9f4ad90_1100x618.png

But if you track where it went from the start of 2009, you can see why I owe my retirement security to Obama.

[progree]

17. Thanks for the graph. Here's S&P 500 from 1928 on a logarithmic scale for a different kind of view

Very worthwhile to right click on the image and open in a new tab or window (so as to enlarge it)

I made it after the March 20 2304.92 close, which was the lowest point in 2020 so far except for March 23's 2237 close.

How I made it, and what's special about a logarithmic scale --
https://www.democraticunderground.com/10142452339#post14

In short, the important characteristic of the logarithmic y-axis scale to me is that an upward sloping STRAIGHT line represents a constant percentage increase, e.g. something that rises by e.g. 9% per year (or whatever percent a year) is a straight line on a logarithmic graph like this. (Ditto for something declining by a fixed percentage per year -- it will appear as a downward sloping straight line).

A doubling of the index back when it was like 40 is just as important to wealth (it doubles it) as a doubling when it is at 1000. On a linear scale, the movement of the market in the early years is just about impossible to see because it's all just a slightly wiggling line crawling around the horizontal axis. Whereas on a logarithmic scale, a doubling is the same vertical distance whether its a doubling from 40 or from 1000.

It's interesting how insignificant the dot-com bust and the housing bubble bust and the March 2020 32% crash are, compared to the doubling of the index that occurs about every 9 years ON AVERAGE.

Note this is just the index (dividends are ignored). A graph that included reinvested dividends would reach about triple the amount.

[Blue_true]

23. How many people have 27 years to get their nose back to the waterline?

After the great crash, the market didn't get back to where it was before the crash until 1955. So anyone in their 40s or 50s that needed their money to retire comfortably had less money for that purpose than pre crash.

[Bucky]

26. That's part of what's making me nervous about this market.

I've been in the market a little over 20 years and bought big on all three of the major dips, thinking of market corrections as bargain-basement sales.

I've done good that way, seeing about 14% annual growth, but that may be a historical anomaly. I don't think there's any other period of time when that's possible, and I don't think we're going to see that rate of growth continue.

It's mostly a result of people with too much money putting their wealth into stocks instead of investing it in new enterprises. But that's kind of the definition of creating a market bubble: Stock prices that represent growing demand for stocks as much as they represent creation of real economic wealth. I think there's a very good chance we're in for another major correction over the next five years.

[Blue_true]

27. If you are in your fifties maybe you should go to the sidelines.

Cash may not appreciate, but at least it won't get decimated.

[Bucky]

28. I kind of did that already...

I pulled a third of my retirement out of the market and put it in real estate last year, expecting Trump to tank the market somehow. So yes, I'm protected that way.

I'll have a modest pension plus Social Security waiting for me. Plus now I own a property outright, so no mortgage or rent in my future. What I'm trying to do now is pay into an IRA for my daughter, who's 30-35 yrs away from retirement.

I got lucky. I'd like to try and pass a little bit of that luck down the line.

[progree]

31. Actually with reinvested dividends it took S&P 500 16 years to recover from Great Depression

Last edited Wed May 13, 2020, 03:28 AM - Edit history (1)

For example, a buy and hold equity investor with $143.81 at the end of 1928 had $166.15 at the end of 1944 (16 years later), and $1038.47 at the end of 1955.

The "safe" 3 month T-bill and the Treasury bond investor had $134.45 and $215.65 respectively at the end of 1955.

http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html

His listing of all current data sets he has: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datacurrent.html
Excel spreadsheet: http://www.stern.nyu.edu/~adamodar/pc/datasets/histretSP.xls

One can always focus on the very worst case. What I do is go by the monte carlo multi-thousands of simulations where, for example, in retirement one withdraws 4% of their balance to meet their spending needs in the first year of retirement, and that withdrawal dollar amount increases at the rate of inflation each year after. The investors who started out and maintained mostly equities, like 80-20 equities-fixed income have far less chance of running out of money in retirement than do mostly fixed income investors, and all-cash investors (T-bills) are hopeless.

https://www.democraticunderground.com/11211712#post4

If one doesn't need any of their retirement savings in retirement, yeah, it doesn't matter what the heck one invests their money in. But for most who aren't so lucky, then the risk of keeping up with inflation and not running out during retirement is the risk that matters.

[Blue_true]

35. You make sound points. The main issue is how quickly a person will need retirement money and how

much that person had invested before a big drop. If a person is going to need the money soon, they are simply better off in cash before a decline happens, that was my main point.

Say a man or woman is 53 years old at the time of a massive drop. The person would have to wait, by your number, 16 years not counting the effect of inflation to get back to the waterline. At the point the person surfaces, he or she will be 69. Is that catastrophic? It depends. If the person had $125,000 invested like most Americans, that person is going to face brutal hardships if a decline takes that investment to $62,500. There simply won't be enough money without help from SS and Medicare. But if a person had $2 million and that got taken to $1 million, at the time the person retires, he or she could chose at minimum to draw $50,000 per year in income for 20 years.

Like everything in America, people that are better off to begin with ride out problems better than those that aren't. Your situation sounds like you are toward the better off end, that is not the reality for the vast majority of Americans.

[progree]

38. Actually, I had in mind the people who need their retirement money, not well-off people

who don't need to live off their retirement savings. What I wrote:

If one doesn't need any of their retirement savings in retirement, yeah, it doesn't matter what the heck one invests their money in. But for most who aren't so lucky, then the risk of keeping up with inflation and not running out during retirement is the risk that matters.

I was thinking of the vast majority of Americans when I wrote about people needing to withdraw say an average of 4% (or more) annually of their initial retirement account in retirement, increasing with inflation, and the thousands of monte carlo simulations that show that a high equity to fixed income allocation in the beginning years of retirement have the lowest probabiility of running out retirement, when all scenarios are weighted by their probabilities. As opposed to obsessively fixate on just one extremely low probability event like a Great Depression near the beginning of retirement. Where probably everyone is screwed anyway.

All of the post WWII bear markets recovery times have been 7.5 years or less (the 74-75 and dot-com were 7.5 years and 7.2 years respectively) and the other 3 were 5.5 years (housing bubble), 1.9 (1980) and 1.9 years (1987). And these ignore reinvested dividends, which would shorten the recovery times somewhat.

One of the big risk factors of retirement is longevity risk. The other is unexpectedly high expenses, such as medical and long term care. Another is higher-than-expected inflation. I rank these scenarios as higher in probability than a Great Depression 16 year recovery time stock market, and that's why I feel I need the growth that only a high equity allocation can provide.

I don't think I'll need 4%/year withdrawals, if things go well and I don't live past about 85. But I am concerned about healthcare costs -- e.g. studies by both Fidelity and the Employee Benefits Research Institute of a 65 year old Medicare-covered couple will pay on average (or is it a median, I forget) about $280,000 in out-of-pocket medical costs including premiums over their lifetimes. And this doesn't cover long term care costs, e.g. nursing homes (which BTW aren't at all covered by Medicare). I don't think it includes vision, dental, or hearing either (none of these BTW are generally covered by Medicare).

in response to:

Your situation sounds like you are toward the better off end, that is not the reality for the vast majority of Americans.

[Blue_true]

39. Again, it depends upon what a person has in retirement funds.

For the average American that hav less than $200,000 (many less than $100,000), 4% works out to $8,000 per year max, without any other money stream, that leaves a person in deep deep poverty, even in my area of Florida. But if a person has a nest egg of $1 million, 4% is $40,000, an income that is just below the median family income for my area (incomes range from nothing here to several million per year, very few people earn above $40,000 per year though).

[progree]

40. If a person needs much more than 4%/year withdrawal, all simulations show they are screwed (will

deplete their savings before they die with high probability) regardless of what their asset allocation is. Well, some financial whizzes (a minority) argue a 5%/year withdrawal rate (again of the original retirement account amount, and increasing annually by the inflation rate) will work in the majority of scenarios, but that's the max I've seen that could work out. Anything above that is almost certainly doomed.

[Bucky]

25. That's one reason I don't like logarithmic scales for graphs

People can intuitively figure out adjustment for inflation. But the logarithmic scale really underplays the scope of the 2001 and 2008 market crashes. In both cases the market lost something like of its value within one quarter.

That's a pretty substantial distortion on this graph, which makes it look like a 5 to 10% dip. I wonder if they do that in order to hide the risks that and investor takes getting into the market

[progree]

32. I struggle a lot with which view is the more distorted one - linear or logarithmic

Last edited Wed May 13, 2020, 05:09 AM - Edit history (4)

I keep going back and forth between the two views and scratching my head.

After several doublings, an occasional halving is not a big deal. Especially ones where the recovery period from the peak to reaching that peak value again is only 7.2 years (dot com crash) and 5.5 years (housing bubble crash). And these recovery periods don't include reinvested dividends, they are just based on S&P 500 index values.

But yeah, a 57% drop, like occurred peak-to-trough in the housing bubble crash (S&P 500 index) ought to look like, well, a 57% drop. (Au similar the 48% drop in the '73-'74 crash and the 49% drop in the dot-com crash).

Probably the biggest distortion in both graphs is not including reinvested dividends. That wouldn't affect the recovery periods above much, but it definitely affects 50 year and 100 year graphs.

Over the last 59 years, from 1960 through 2019 the S&P 500 dividend yield was 2.98% (arithmetic average)
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/spearn.htm
which has a link to the spreadsheet version

For example, over 59 years, $1 at 7% compounds to $54.16. At 10% it compounds to $276.80 -- a figure 5.1 X as large. That's an example of what happens when one includes 3% reinvested dividends.

The same numbers with a more modern 2% dividend yield:

For example, over 59 years, $1 at 7% compounds to $54.16. At 9% it compounds to $161.50 -- a figure 3.0 X as large.

[muriel_volestrangler]

33. It's the logarithmic scale that allows dips, or growth, to look the same whatever the date

You think the 2001 and 2008 crashes look too small; but in the 1930s crash, the market went down to about one fifth of its earlier value. But plot that on a linear scale that includes 2001 and 2008, and it'll look flat, because it went from 21.45 to 4.43 in under 3 years. On a linear scale that goes up to 1600 to fit 2008 in, you just can't see that earlier, worse, crash, because a loss of 17 points is nothing, these days.

"They" don't do it to hide risks; they give you the option so that you can see a more realistic picture.

[progree]

34. I think the peak to trough drop in the Dow index was 89%, meaning $100 became $11, or

about 8/9 was lost, leaving 1/9 left.

https://www.investopedia.com/ask/answers/042115/what-caused-stock-market-crash-1929-preceded-great-depression.asp

Before this crash... the stock market peaked on Sept. 3, 1929, with the Dow Jones Industrial Average (DJIA) at 381.17. The ultimate bottom was reached on July 8, 1932, where the Dow stood at 41.22. From peak to trough, this was a loss of 89.19%.

[Rstrstx]

6. Mmm, maybe the printers broke at the FED?

They might not have been able to pump their daily $200 billion into the markets.

[empedocles]

7. Market was holding its own, until about 1p - when it collapsed 1.89%,

which is a significant drop.

[Jim__]

8. U.S. Stocks Slump After Fauci, Fed Set Somber Tone: Markets Wrap

From yahoo finance:

(Bloomberg) -- Stocks tumbled after a U.S. health official warned against a premature reopening of the economy and as traders assessed a dire outlook from Federal Reserve regional chiefs. Treasuries and the dollar climbed.

The S&P 500 extended losses as Anthony Fauci, the nation’s top infectious disease official, said states reopening too quickly could “set you back on the road on trying to get economic recovery.” Meanwhile, some central bank officials said the virus outbreak and a partial shutdown would risk massive bankruptcies that could create a lasting scar. The Fed could curtail Wall Street banks’ ability to pay dividends by cranking up the amount of capital they need to maintain due to the coronavirus crisis, Governor Randal Quarles said Tuesday.

“You will get business failures on a grand scale and you will be taking risks that you would go into depression” if shutdowns persist, Federal Reserve Bank of St. Louis President James Bullard said in a video speech from that city Tuesday. Minneapolis Fed President Neel Kashkari warned of a “gradual, muted recovery” from the outbreak, while Dallas Fed President Robert Kaplan said the economy will need more fiscal stimulus if the jobless rate continues to rise.

The disastrous fallout of business closures and stay-at-home orders caused an unprecedented 20.5 million job losses in April, tripling the unemployment rate to 14.7%, the highest since the Great Depression era of the 1930s. A key measure of U.S. consumer prices declined last month by the most on record. A sustained trend of declining prices would spur worries about deflation, exacerbating concern that the recovery from the deep economic downturn will be very slow.

more ...

[malaise]

11. I did wonder about that

Thanks for the link

[bluestarone]

9. tRUMP will blame

Fauci!

[uponit7771]

12. ***FAUCI !!! *** I've been saying for nearly 3 weeks Trump and ManureChin have been lying about

... the time of recovery to wall street via CNBC and FAUX Business News intimating consummately that this thing is going to be short and it wasn't.

Saying its going to be 3Q when the economy will be positive and today Fauci threw cold water on that shit.

Every single day they were talking about vaccinnes and shit like Trump is an authority.

Its a failure of the 4th estate that 90% of America doesn't know Trump is insane.

[malaise]

13. THIS

Its a failure of the 4th estate that 90% of America doesn't know Trump is insane.

He is not just insane, he is reckless with other people's reputations. These attacks on Obama must not be tolerated. The birther shit was enough!

[Shermann]

14. I think the extended LA county stay-at-home order was a market mover as well

The market looks for bellwethers and that could be a significant one.

[malaise]

15. True

The new projections re deaths from the virus can't help either

[MoonlitKnight]

16. June WTI futures contracts end Thursday

Could see something similar to last month. I guess they have room for supply now. If not tomorrow will be brutal.

It’s all being manipulated now, so no point in trying to make sense of it.

[JmAln]

18. The market is worried

that the Senate repugs will drag their feet on more stimulus. We could see the great depression all over again if they do.

[malaise]

36. Interesting - at noon −497.38

We'll see

[tinrobot]

19. Fauci pretty much confirmed we're not re-opening anytime soon.

Los Angeles just indicated that we'll probably extend for another three months.

[herding cats]

29. It might be more about several of the early reopening states ticking up in cases?

That and Fauci warning there would be lives to pay for opening before the benchmarks are met.

We're opening, sans Los Angeles and a few holdouts, but there will be a price to pay. As was pointed out today.

I seriously doubt some investors care about the actual collateral damage of workers lives, it's just the potential optics they kneejerked to here. If you're fortunate enough to be in a work from home bubble, the reality is many think of those working to provide them services as easily replaced. It's why the job numbers and rising death tolls are ignored. Their portfolios are regaining ground and they're buying on the dips. That's their lives.

Oh, and the stock market isn't the economy. That's a lesson people are about to have served up and shoved down their throats.

[Algernon Moncrieff]

20. The market will remain volatile until the COVID numbers drop or a promising drug or vaccine drops

Also, not all of the downturn is COVID related. Think about COVID being the finger that tipped the first domino.

The big danger now is deflation. We are a debt-financed society. A deflationary spiral with falling wages would mean bankruptcy for a sizable portion of America.

[malaise]

37. That's not what the Con and his goons are saying

?516.81 at close

[Steelrolled]

21. Today was a minor move given the times we are in.

People are still skittish. It is close to where it was a week ago.

[Blue_true]

22. Fleecing the unsuspecting again.

Expect a couple more cycles before the axe comes down on the necks of little investors.

[Johnny2X2X]

24. Stocks are way way way way overvalued

Taking predicted earnings the Price earning ratio is 22.5. Hasn’t been that high in decades.

There’s a lot of factors propping there markets up right now. Cash being added by the Fed. But mostly I think it’s because there’s nowhere to park money right now. Eventually a play will become obvious, and it will get ugly.

I am in bonds and cash. Have some equities still, but it’s stiff I bought low on, I am back in at DOW 15K, maybe 16K if the values look back in line then.

[Hugin]

30. Dumbasses gotta dumbass.