Anybody remember Black Wednesday?

Investment Analysis Clubs Saul’s Investing Discussions
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Does anybody remember Black Wednesday, just a couple of weeks ago, when the market took a nosedive and we all were commiserating with each other and sharing how much we had fallen in one day. Many of us thought it was the beginning of a major correction (me included). I fell 4.15% from my high of 137.1% (starting from 100%) the day before, and it dropped me to just 131.4%. Well here we are two weeks later and I just topped that previous yearly high.

What’s the point of mentioning that? I said at the time that I don’t try to time the Market, as I’m no good at it at all. There are some posters on some boards I’ve read who have been sure that the market was overvalued, and that that big correction was coming imminently, for at least the past five years now (maybe six or seven years), and have been preparing for it by keeping 50% in cash, or more, or whatever. What an opportunity waste over the past five years! It would have to be a major depression indeed to bring the market back to where it was five years ago, when their metrics were showing that it was so overvalued. As I have said before, it’s better to only have to worry about picking good companies, without having to guess the market too.

Just saying…

Saul

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Thanks Saul. Global technology advancements are accelerating. They may be on the cusp of going exponential. I believe that these advancements will lead to continuing efficiencies and increasing global economic prosperity. Yes, there will be shocks and temporary setbacks due to the business cycle, geopolitical events, and other unforeseen shocks. But, as Saul has pointed out, there is a huge opportunity cost to sitting out or trying to time “the market”. Just look back 5, 10, 20, 50, 100, and 200 years and you will notice how quickly humans have advanced and changed the world. You will also notice that it takes less and less time to advance as we move into the future. What does this mean for economies? I think a lot is unpredictable, but I think we are in the early part of economic efficiency gains that will make past gains look small.

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Saul,

I remember black Monday, I was sitting in a Bread Truck packed with electronics somewhere in Northern Virginia. The Market well and truly crashed that day.

On Monday Octber 19 the market fell 22 percent, about 500 points to the 1700 range. If one had bought after the 50 run up from 800 in 1983 to 1200 in 1984 and sold at the bottom of the crash on Monday October 19th, he would still have been up 40 percent in a mutual fund. (No index funds then and no intra day trading for little guys either.)

Looking at the charts, and the macro implications, the odds are with those that are fully invested and/or buying the dips. While a 20 percent drop in the indexs are almost a given, and a return to the 2008 lows are an outside possibilty, these would just be “last call” for those still holding cash.

Even a thermonuclear exchange with North Korea would not stop this bull market. History shows us this. Check the charts from 1936 to 1945, this was the last age of transformation where old empires fell and new ones were formed.

Cheers
Qazulight

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I disagree with all of you because of mass-complacency about:

  1. World debt to GDP.

  2. Demographics and the complete inability of the main economies to fund their rash promises,
    therefore, inevitably, more world debt to GDP and civil unrest.

  3. The direct effect of (1) and (2) on the free market, low taxes and limited government (drivers of
    prosperity).

  4. Every year, there are fewer market participants who know how companies were once valued and, you
    could say, should be valued and more who think that, outside tech., everything is quite normal.

It is the elephants in the room which worry me. These are not exactly just picking good stocks or whether the market is going to go down. Artificial interest rates and artificial QE can only be here to stay - until they are not.

I am not saying we should not keep doing what we do. I am saying we are doing it in the Valley of Death. I believe it is customary on these occasions to say

Just sayin’.

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I disagree with all of you because of mass-complacency about:

1. World debt to GDP.

2. Demographics and the complete inability of the main economies to fund their rash promises,
therefore, inevitably, more world debt to GDP and civil unrest.

3. The direct effect of (1) and (2) on the free market, low taxes and limited government (drivers of
prosperity).

4. Every year, there are fewer market participants who know how companies were once valued and, you
could say, should be valued and more who think that, outside tech., everything is quite normal.

It is the elephants in the room which worry me. These are not exactly just picking good stocks or whether the market is going to go down. Artificial interest rates and artificial QE can only be here to stay - until they are not.

I am not saying we should not keep doing what we do. I am saying we are doing it in the Valley of Death. I believe it is customary on these occasions to say

Just sayin’.

I have been watching these types of things since I got my series 7 (series 6?) license to sell mutual funds in 1984. I have been scared out of the market multiple times, typically at the lows. However, I have been around enough to know that one thing is absolutely guaranteed, the markets will go up and down.

However, if you look at well run companies that have a moat, low debt, and a growing share of a growing market, we can make money no matter what the market does.

By the way, you left out the biggest crisis we will face in the next decade, that is rising water on the East and Gulf Coasts. At sometime there will be crisis of confidence and the there will be serious real estate market problem. If it is as big as the data indicates, we could effectively (Lose the value, not the structure) of two major cities and several mid sized ones. Economically this will be the same as thermonuclear destruction of a couple of cities.

Please note: We are talking loss of value. I recall in 1985, or 1986 when the Saudi’s announced that they would “protect market share” one pundit calculated that 900 billion dollars in wealth evaporated over night. As one that was working in the oil industry in Houston, I can tell you the economic destruction was significant. Yet, when I arrived in Northern Virginia in 1987, as an economic refugee, I found a booming economy. So I even discount the loss of major cities as not enough to stop the massive creation of wealth that will take place in the next 20 years.

Cheers
Qazulight

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I disagree with all of you because of mass-complacency about:

1. World debt to GDP.

2. Demographics and the complete inability of the main economies to fund their rash promises,
therefore, inevitably, more world debt to GDP and civil unrest.

3. The direct effect of (1) and (2) on the free market, low taxes and limited government (drivers of
prosperity).

4. Every year, there are fewer market participants who know how companies were once valued and, you
could say, should be valued and more who think that, outside tech., everything is quite normal.

What do we need to create value? We need energy, we need human ingenuity, and we need focus. Money is a human invention to make trade efficient. Money also serves as a way to get people to do things. And it serves as a way to focus effort. If there were no money, how many people would be willing to work for others? Would anyone be willing to serve you food, cook your dinner, clean your house?

The price of energy is getting cheaper and since we have an unlimited supply of free energy in the sun it’s only a matter of time before we figure out how to make energy virtually free. This will make everything less costly. Could there be a long term trend toward deflation, even with QE? Perhaps QE may be necessary just to keep inflation positive which is necessary just to keep the economic system going.

Human ingenuity is accelerating. Soon machines (AI) will contribute to ingenuity. Did anyone read what Google did with AI and the game of Go? The AI defeated the best player in the world using strategies that have never been used in Go ever before. Thus, the AI invented new ways which can now be used in this game. This is a game that’s thousands of years old! As I mentioned in my previous post, the efficiency of so many things will vastly increase in the coming years. I think that increased efficiency will be a major contributor to economic expansion. If nothing else, efficiency will greatly reduces costs and thereby increase earnings of enterprises. There will be thousands of use cases where information will lead to decisions that will decrease corporations’ costs and improve revenue. One example that I recently heard was how real-time data can be used to make decisions about how many employees to keep at specific times. The example was a change in the weather and the resulting decisions that people make to attend a baseball game. If data from many sources can be aggregated to determine how many people will attend the game, some employees can be sent home if attendance will be low. What data can be used? Data from many sources can be aggregated. Past attendances. Traffic patterns. Locations (GPS) of individual ticket holders. The weather. And many other factors that can be used by an algorithm to determine how many people will show up for the game. So let’s say 5000 fewer people will attend the game and this prediction can be made with a very high degree of certainty. There will be less of a need for security. Less of a need for people at concession stands. Fewer employees to take people’s tickets as they enter the stadium. Less beer. Less food. Fewer idle employees. Less food and beer wasted. Now imaging such AI impacting potentially every business and every industry. The efficiency gains will be like nothing we have ever seen.

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“… Many of us thought it was the beginning of a major correction (me included).”

that was just the volatility in the market. There should be more. It would be surprising if anyone could ‘identify’ the inflection point for a more definite pull back.

what did you do then when you thought it could have been the start of a definite pull back? Did you put your finger on the sell trigger? or were you ready to ride the pullback down because you have a longer term perspective? Think at that moment what were you thinking? it is easy to say anything on hindsight. You have to put yourself back at that gut wrenching moment down >4%. Will there be more downside?

tj

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I am saying we are doing it in the Valley of Death.

strelna - I find that perspective puzzling. How can we be in the Valley of Death when every major market index is at a historical all time high? And by the way looking at a monthly candlestick 20 year chart you can see that we have been at this historical all time high each month for the last 18 months or so. Now if we were at the end of 2002 or the end of 2008, you wouldn’t even need to see the future from that point to say we were in a Valley of Death, but NOW? - I just don’t see it.

There are many market forces that give promise for even more market increases to come. Every industry is getting better at what they do and changing faster than the previous decade. Potential tax changes in the US could provide overnight higher earnings for multiple sectors which would justify the higher prices. Potential regulations are changing that will reduce costs (particularly in finance and energy). The US currently has the lowest unemployment, 4.3%, that it has seen the last 10 years or so which may drive personal income wages higher.
https://tradingeconomics.com/united-states/unemployment-rate…

I think ‘The Cars’ say it best
https://www.youtube.com/watch?v=7BDBzgHXf64

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The example was a change in the weather and the resulting decisions that people make to attend a baseball game. If data from many sources can be aggregated to determine how many people will attend the game, some employees can be sent home if attendance will be low.

This sounds great, if you’re the one who owns the team.

Jeb

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I might have noticed a little dip in my holdings, and maybe noticed a dip in the S&P 500, but I didn’t think it was a major trend happening.

I do think that the macroeconomic situation is sketchy, and that most of the big problems of the Great Recession haven’t been dealt with. Another crash in the near future would leave so many with their pants down.

I’ve also raised my eyebrows strongly at the steep upward climb of my holdings over the last several days. I’m not bragging; I don’t think the climb makes sense. I would just as soon have everything stay flat while I sell puts left and right. The recent jumps are based on “animal spirits” amplified by cocaine or something similar, like hotter and hotter air coming out of Our President. I imagine them all snorting up in the White House and shooting darts at a board that sets stock prices.

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I keep hearing, from nearly everyone, that going up makes no sense, and going down is sensible. Really? So I wonder why this is? Why is this the consensus view point of things?

I mean, we got through Brexit, Donald Trump is president and we were told that was the end of the Union, Paris accords are out (renegade Trump, end of the planet) and yet your shares went up.

What I am concerned about is when you cave and just start buying everything in sight. It will be at that point, that the last man, driving his Uber (instead of cab) has gotten in to the market, without fear of loss, but fear of not getting in on the action. That is when we turn out the lights.

Tinker

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F1Fun, the Valley of Death has nothing to do with the market, candlestick charts, all-time-highs, technological progress, potential tax changes, cost reduction, low employment and the rest.

Two remarkable things have happened.

The US, China, Japan and the Eurozone (there are many others but these are the big players) all took a decision some years ago deliberately to emulate and behave like juvenile delinquents. I mean that quite seriously. Each juvenile delinquent set about ruining his family (country) by successive actions of reckless profligacy and establishing debts which could never be repaid without massive equivalents to outright default.

So that is the first remarkable thing. Of course in times past we used to laugh at the economics of Argentina and Zimbabwe. But then we decided to copy them! I am surprised the Fed. does not have a statue of Gideon Gono outside the building.

The second remarkable thing is that here we have a catastrophe of the first order but no-one mentions it! The Fed. does not mention it. Congress does not mention it. Wall Street certainly does not mention it. One almost wonders if it is a gargantuan conspiracy to hide the truth - but I prefer the other obvious explanation: every single one of these is an ostrich with its head in the sand. The world-wide situation is so dreadful, it is unendurable to think about, or contemplate or discuss. It is a no-go area. It must be ignored or we might wake up to the implications. And that would spoil everything. Anyway, like a rat in a pipe, we can now only go forwards, more debt, more champagne.

I am enjoying it too.

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It will be at that point, that the last man, driving his Uber (instead of cab) has gotten in to the market, without fear of loss, but fear of not getting in on the action. That is when we turn out the lights.
Be sure to tell us when that is mate! Preferably in advance.
Ant

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Loving the sombre Brit in you Strelna!
You couldn’t be mistaken for an American just yet until you’ve worked on that positive mental attitude and kick ass optimistic outlook.
:wink:
Ant

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¿Black Wednesday?

Just another day in the market.

Of course one asks “Is this the start or end of something?” but beyond being aware of a fat tail day and taking the opportunity to trade some specific positions, I hardy see the need for any portfolio wide action.

Black Wednesday, May 17, what did I do?


No trades    May 17, 2017  
Buy          May 18, 2017  PSCT - add on dip
Buy          May 19, 2017  XSD - add on dip
Sell to open May 19, 2017  SRCL call - sell on premium rise on volatility*
Sell to open May 19, 2017  CLB call - sell on premium rise on volatility*

*Closed both positions at the end of May 
for a quick profit once volatility subsided

Denny Schlesinger

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Ant, talking of Brits…

The pessimist sees difficulty in every opportunity. The optimist sees the opportunity in every difficulty.
Winston Churchill

Read more at: https://www.brainyquote.com/quotes/quotes/w/winstonchu156899…

Denny Schlesinger

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Yeh - he was a class act Denny - even more than Sir Francis Drake! :wink:
That’s a great quote, Sir Winston Churchill is probably up there with Shakespeare, Oscar Wilde & Mark Twain as one of the most quotable figures in history.
Ant

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Speaking of somber (and sober), what does James Grant have to say about the current situation? He’s pretty good at calling out irresponsibility and irrational exuberance.

Another huge source of unsustainable debt has been student loans. Aren’t they up past $1 trillion?

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I’m with Tinker, I’m not worried until everyone seems to forget the market can go down.

It’s also worth remembering this forum is more or less a mastermind group. The companies discussed here are not representative of the market in general because there are many smart people here helping each other pick only the best growth stocks. Gives a bit of a skewed perspective sometimes!

I also recall lots of discussion last year about stock prices that seem artificially depressed, showing as P/E compression month after month. If that was correct, this year may look artificially good because of P/E decompression on top of normal growth. Could be simply a return to normal? Though of so, the market seems likely to “overshoot” normal.

Just a few random thoughts…

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Another huge source of unsustainable debt has been student loans. Aren’t they up past $1 trillion? - EdGrey

They are indeed, to the tune of $1.4 TRILLION. The numbers are very sobering.

https://studentloanhero.com/student-loan-debt-statistics/

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