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Bear Markets and food for thought...


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#1 cycletimer

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Posted 02 January 2019 - 11:53 AM

Here's some food for thought.   Occasional bear markets, stock market downturns such as the one we're in are a good thing over the long term.  Like an occasional Hurricane (Katrina for instance), they have a "cleansing effect."  The 9 year bull market from March 2009 until Sept. 20th, 2018 is unsustainable.  EVERYONE was in the market.  Now that we've corrected almost 20% from the Sept. top, greed turned to outright FEAR.  People are worried about their finances, worried about their net worth, all because they had too much allocated to equities, way more than their comfort levels.   The public lost sight of that and have been fully-invested and passive investors (index funds, robo-advisors, etc.) for the past couple of years.  As bearish as some of the technicians on this board are, this correction (even if there's a few more % of downside from here) is healthy and has done what it's supposed to do, it's been "cleansing."

 

 



#2 LMF

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Posted 02 January 2019 - 12:12 PM

This market is simply having to suffer for no good reason in the penalty box trying to recover after one of the biggest Fed policy mistakes on record.  All the 2 year olds out there know it takes time to fix the damage on the charts......but that was before the Fed blunder in December.  The Fed did the dogpile trick,,,,,they are the enemy of every market.



#3 cycletimer

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Posted 02 January 2019 - 12:43 PM

Dogpile meaning pile of poop?  LOL



#4 OEXCHAOS

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Posted 02 January 2019 - 12:52 PM

With $1.85/gallon gasoline and the long bond under 3%, it's pretty obvious that either the Fed screwed up, or they are trying to accomplish something political or non-monetary.


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#5 typicalbear

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Posted 02 January 2019 - 01:24 PM

With $1.85/gallon gasoline and the long bond under 3%, it's pretty obvious that either the Fed screwed up, or they are trying to accomplish something political or non-monetary.

 

Over drilling....not Fed related(?)  If everyone feels that a 1/4% rate increase is such a big problem, how will the money-hungry market and economy react when they try reducing the $T yearly spending deficit?



#6 Iblayz

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Posted 02 January 2019 - 01:27 PM

The FED didn't screw up anything. They did exactly what they had announced WELL in advance that they were going to do. People overreact to nearly everything and since people make the decisions that send the market where it ultimately goes, the market overreacts to everything. The market got TOO bullish because the people trading it got too bullish. The temptation to squeeze shorts was just too good to pass up once the market became overextended. The market had to pay the price for its excess. Then, like a bunch of crying babies, the participants started whining for the FED to extend it an olive branch. The FED's mandate is NOT to support the stock market. The FED did what it had announced it would do. A few years ago, the market started whining about FED surprises. The FED responded with a greater amount of transparency and started telegraphing its moves. The funny part of all this is the notion that higher interest rates are destined to kill the market. Historically, we are not even close to prohibitively high interest rates. And the market has a history of RISING (regardless of exceptions) with rising interest rates because the demand for money increases as the economy strengthens. The players got spoiled by rates at of near ZERO for so long they forgot what normal rates even look like. Once a lot of states and local governments start going belly up because the historically low interest rates killed their pension assumptions, you will figure out one of the reasons why the FED did this.


Edited by Iblayz, 02 January 2019 - 01:28 PM.


#7 cycletimer

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Posted 02 January 2019 - 02:17 PM

The FED didn't screw up anything. They did exactly what they had announced WELL in advance that they were going to do. People overreact to nearly everything and since people make the decisions that send the market where it ultimately goes, the market overreacts to everything. The market got TOO bullish because the people trading it got too bullish. The temptation to squeeze shorts was just too good to pass up once the market became overextended. The market had to pay the price for its excess. Then, like a bunch of crying babies, the participants started whining for the FED to extend it an olive branch. The FED's mandate is NOT to support the stock market. The FED did what it had announced it would do. A few years ago, the market started whining about FED surprises. The FED responded with a greater amount of transparency and started telegraphing its moves. The funny part of all this is the notion that higher interest rates are destined to kill the market. Historically, we are not even close to prohibitively high interest rates. And the market has a history of RISING (regardless of exceptions) with rising interest rates because the demand for money increases as the economy strengthens. The players got spoiled by rates at of near ZERO for so long they forgot what normal rates even look like. Once a lot of states and local governments start going belly up because the historically low interest rates killed their pension assumptions, you will figure out one of the reasons why the FED did this.


AMEN!

#8 slupert

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Posted 02 January 2019 - 02:51 PM

The FED didn't screw up anything. They did exactly what they had announced WELL in advance that they were going to do. People overreact to nearly everything and since people make the decisions that send the market where it ultimately goes, the market overreacts to everything. The market got TOO bullish because the people trading it got too bullish. The temptation to squeeze shorts was just too good to pass up once the market became overextended. The market had to pay the price for its excess. Then, like a bunch of crying babies, the participants started whining for the FED to extend it an olive branch. The FED's mandate is NOT to support the stock market. The FED did what it had announced it would do. A few years ago, the market started whining about FED surprises. The FED responded with a greater amount of transparency and started telegraphing its moves. The funny part of all this is the notion that higher interest rates are destined to kill the market. Historically, we are not even close to prohibitively high interest rates. And the market has a history of RISING (regardless of exceptions) with rising interest rates because the demand for money increases as the economy strengthens. The players got spoiled by rates at of near ZERO for so long they forgot what normal rates even look like. Once a lot of states and local governments start going belly up because the historically low interest rates killed their pension assumptions, you will figure out one of the reasons why the FED did this.

Double Amen, 25 basis point pebble and the market is going to trip over it??? Way off base.



#9 qqqqtrdr

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Posted 02 January 2019 - 03:11 PM

The FED did exactly what they said they would do in raising rates...   They look at more than just inflation, housing, spending...   They look at wage growth which has been higher than what they would like...    Uncertainly in Tariffs, economy, and high PE is what drove the market lower, and yes the FED raising rates did not help...      Expected Growth Rates have dropped from 3.1 to 2.6% over the last three months.  This has put downward pressure on the market as well..   



#10 LMF

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Posted 02 January 2019 - 04:58 PM

We can argue all this year about whether the Fed communicated their intentions to the markets.....and whether the markets heard it correctly or not.

 

What can not EVER be argued is whether they made a de facto POLICY ERROR.   They made the policy error based on the configuration of the RUT chart which is directly leveraged to the job market.  Those companies along with the private sector small companies are the net job creators for the entire economy.  And anybody that is arguing actual levels for interest rates at this point needs to back track IMMEDIATELY and figure out what the effect of the Fed balance sheet reduction is actually doing.  That means some serious hard number crunching, and forget the hot air.  No hot air period.  Even if the Fed is stays on hold with rate hikes during 2019, it will not really help this market deal with the $50 billion a month trick.  I have studied the M1 money supply which updates weekly on the FRED website.....and it should provide a good view by mid year whether the economy is heading toward a recession setup or not.  M1 going sideways this year and the recession is getting baked in with no doubt.  The only question is the timing when it finally starts.....