Nasdaq 100's Unrelenting Declines Ring a Dot-Com Bust Alarm Bell (bloomberg.com) 78
An anonymous reader quotes a report from Bloomberg: To wit, the Nasdaq 100 just did something it hasn't done since the aftermath of the internet bubble: fall more than 1% in every session of a week. It doesn't count as a superlative because Monday was a holiday. But for investors caught up in the selloff, it felt like something shifted. A full week of big down days hasn't happened since the dot-com bubble burst, first in April 2000 and then in September 2001. Back then, the Nasdaq went on to fall another 28% before the market bottomed roughly a year later.
The Nasdaq 100 tumbled 7.5% this week as what started as an aggressive selloff in speculative corners spread to the rest of the market. Disappointing results from pandemic darlings like Netflix accentuated investor angst that as the economy recovers, tech's growth edge is disappearing. Add that to stretched valuations and there was room for a pullback. Down almost 12% in January, the Nasdaq 100 is on course for its worst month since the 2008 global financial crisis. On any four-day basis, the current streak of 1% drops was the first since 2018.
Investors appear to be paying up for near-term hedges as share prices spiraled down. The CBOE NDX Volatility Index, a gauge of cost options tied to the Nasdaq, jumped 8 points over the four days to 34.06, the highest level since last March. Whether this is the start of a bottoming process or something worse is hard to tell. In Bank of America Corp.'s latest survey of global fund managers, net allocation to the technology sector fell to the lowest level since 2008. "If there's this kind of liquidation underway here, you have to wonder how much further things could fall," said Pearkes at Bespoke. "On the other hand, this sort of pervasive negativity and selling is what contrarians look for as a sign sentiment has gotten carried away to the downside."
The Nasdaq 100 tumbled 7.5% this week as what started as an aggressive selloff in speculative corners spread to the rest of the market. Disappointing results from pandemic darlings like Netflix accentuated investor angst that as the economy recovers, tech's growth edge is disappearing. Add that to stretched valuations and there was room for a pullback. Down almost 12% in January, the Nasdaq 100 is on course for its worst month since the 2008 global financial crisis. On any four-day basis, the current streak of 1% drops was the first since 2018.
Investors appear to be paying up for near-term hedges as share prices spiraled down. The CBOE NDX Volatility Index, a gauge of cost options tied to the Nasdaq, jumped 8 points over the four days to 34.06, the highest level since last March. Whether this is the start of a bottoming process or something worse is hard to tell. In Bank of America Corp.'s latest survey of global fund managers, net allocation to the technology sector fell to the lowest level since 2008. "If there's this kind of liquidation underway here, you have to wonder how much further things could fall," said Pearkes at Bespoke. "On the other hand, this sort of pervasive negativity and selling is what contrarians look for as a sign sentiment has gotten carried away to the downside."
Are boom-bust cycles necessary? (Score:3)
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The people running the show don't want that.
They people running the show want the plebs to believe they'll get rich just by handing over their money.
Re:Are boom-bust cycles necessary? (Score:5, Insightful)
It's somewhat a feature.
The downturns shake out poorly run businesses, freeing up resources to be allocated to new companies. Booms create ideas, busts test them.
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Booms create ideas, busts test them.
Except when they're "Too Big Too Fail".
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And we’re LONG overdue for one. The stockmarket has gotten unglued from reality, even more so than usual. That usually a sign that a recession is needed to slap some sense into people.
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It's somewhat a feature.
The downturns shake out poorly run businesses, freeing up resources to be allocated to new companies. Booms create ideas, busts test them.
They also enshrine the lucky as market leaders/controllers. The reality of the Free Market is that it is largely blind luck with a fancy name and a load of self-congratulatory back-slapping from the people who just happened to be in the right place when the music stopped.
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Sure. But a lot of people are greedy beyond all reason and many of them are stupid in addition. Hence the cycles.
Re: Are boom-bust cycles necessary? (Score:5, Informative)
This is the big reason we need central banks. To maintain balance.
It is a human group behavior thing. Not sure how to eliminate the effect without eliminating the humans. One way to make it more stable may be by making people feel more secure. Chances of them overreacting are slimmer. It reduces the gain in the feedback loop. Decent social security comes to mind. That may be a bit controversial.
Re: Are boom-bust cycles necessary? (Score:2)
In theory you can create limit locks. A given index or stock can only fall so much per day before the market locks out trades. This effectively limits the momentum of the mood swings. Some markets do this. This being said, a long term net negative outlook is not mitigated by this. And even the implications of such policy pushes the conclusion that you no longer have a free market... so the whole matter is beyond complex.
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no, an economy is way too adaptive
a bridge is basically a static structure
not the same at all
monetary policy is what pushes oscillations though, even more than the economy... would generally have fewer movements if there was no interference via this external agenda...
Re: Are boom-bust cycles necessary? (Score:1)
Re: Are boom-bust cycles necessary? (Score:2)
Exactly! This may not be the point you're trying to make. But economics is purely man made, much like religion. The things the gp makes notes of, while man made are based in science, not desire and greed. To change the economy would mean changing how humans behave.
Re: Are boom-bust cycles necessary? (Score:2)
Re:Are boom-bust cycles necessary? (Score:5, Interesting)
It was explained back 1770s by Adam Smith. Society consists of people acting on their self interest. Self interest and profit motive is the key driver, motivator and energy source for the economy.
If the government prevents monopolies, collusion, coordination among the providers of goods and services, we can just trust the "invisible hand" of the market to deliver maximum benefits to most people with least cost.
One key factor that most advocates of free market fail to mention, or consider is the importance of the price signal or "voting with the dollar". Free market depends on goods and services remaining simple enough for consumers to understand and act on. As services get complicated, think VCR, smart phones, computers, health service, insurance, investing, ... they depend on doctors, financial managers, gadget testers, bond rating agencies, 10-K filings explained by talking heads in Bloomber TV ...
Think about it. People understand breakfast cereals, they send price signals, switching cost is nothing.
In USA employers pay health insurance companies to pay the health care providers to deliver health care to employees. Chronic predictable health care like diabetes and cholesterol is mixed up catastrophic accidents and unexpected diagnosis of cancers. Employers pay just enough to keep employees from quitting citing health care as the reason to switch.
So .... grocery stores operate on razor thin margins, health care companies spend more on acquiring customers, claims processing and paper work than payment to doctors.
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Re:Are boom-bust cycles necessary? (Score:5, Insightful)
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Re:Are boom-bust cycles necessary? (Score:5, Interesting)
Here's a web page about it
https://www.moneyandbanking.co... [moneyandbanking.com]
Covid was obviously a huge economic impact, putting millions out of work for extended periods, and forcing sudden changes like remote work. I'm frankly surprised the impact hasn't been worse. Any upcoming drop in stock and housing values needs to be viewed in light of the huge run-up that just occurred. When an existing house doubles in value in a couple years, that isn't real. Somebody is going to pay for all that free money one way or another.
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Seems to me the current problems go back to the measures the Fed used in 2008 and didn't stop using. Low interest rates and injecting tons of money into the system right up to Covid, when they had to double down on it. Basically politics interfering with those measures when not needed.
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The point of abandoning the gold standard and allowing the Fed to manage the money supply is to reduce the boom/bust cycle.
No. The point of abandoning the gold standard was that the US couldn't cover its commitments after the pointless waste of resources and people that was the Vietnam War. When France turned up and asked for their gold, the US couldn't pay up.
That's why the gold standard ended. The Fed can make up all the post-rationalisation it wants, but they had no choice.
Which is not to say that doing so didn't reduce boom/bust cycles, of course. But it may simply have made it easier to push the problem further down the li
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Without stimulus we would have been in a spiralling depression about now ... with wonderful creative destruction and soup kitchens.
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Part of the problem was the stimulus from about 2012 to 2019 when it wasn't really needed. I chose 2012 as after the elections, it would have been an ideal time to scale them back, instead they continued and increased with the Trump tax cuts, a kind of stimulus.
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remove greed!
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It is. All you need is being ready, willing and able to cull people just like you have to cull electric charge in the directions you don't want in transistors in those electronic circuits.
Most people see culling more people than Mao, Stalin and HItler combined as something that just too much of a sacrifice for having stable economy with no oscillations.
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You should study the 19th century, pretty well no regulation and regular hard depression level crashes in the economy.
Re: Are boom-bust cycles necessary? (Score:2)
They are a necessity. At the peak of the boom part of the cycle is usually massive inefficiencys: overcapacity, for example, or a housing market that is operating utterly disconnected to the rest of the economy.
The bust cycle clears out all those inefficiencies. In the case of the housing market in Australia, where successive governments have done whatever it takes to prop up the market, there are people over-leveraged by over 400% yet boast of property portfolios of 50 - 100 properties- and these people ar
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Re: Are boom-bust cycles necessary? (Score:3)
Re: Are boom-bust cycles necessary? (Score:2)
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Unluckily empires ending are usually not nice to live through.
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Well, all these are based on physics.
When you try to fit physics into the current economic model, it comes crashing down. (in most scenarios around 2050, +/- 20 years)
Economics is a social science. People's behaviour change all the time. You can't design something for a constantly changing environment.
The Choluteca Bridge could be an example of that: very well desinged, but conditions changed, and now useless.
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It should be possible to design an economy the same way.
Fundamental economic inputs are becoming more scarce or unusable driving their cost up.
The most essential example of this is energy where effort to procure mined fuels is increasing, essentially returning humanity to a "hunter gatherer" mode and relying on luck to find sources of stored solar energy (Coal,Oil, Uranium) for legacy energy *extraction* systems, which worked well in the 1950's.
This is an indirect reason why investment in contemporary energy *production* systems (Solar, Wind, Geothermal, S
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Maybe nothing to see here . . . (Score:5, Informative)
During the pandemic, the U.S. Federal Reserve started practically giving away money which had the effect of making traditional investments like savings accounts and bonds not very attractive because the returns were so low. All of that money flowed into stocks, and it's not as if there were suddenly way more public companies in which to invest. Instead, this is simple macroeconomics where an outward shift in the demand curve raises prices. In this case, demand for stocks increased which raised the prices of stocks. People investing in stocks have felt really smart because their investments were growing during the pandemic, but the smart money (i.e., institutional investors, etc.) were always going to find other places for their money once the Fed stopped giving away money. For anyone following business news before the holidays when talk of inflation started becoming more common, this was inevitable.
Re:Maybe nothing to see here . . . (Score:5, Insightful)
I mean you almost sound smart on the subject except one little niggle, savings accounts and bonds have been in the single digits for decades, not just cause some political figure did X during Y event within the last year
Re:Maybe nothing to see here . . . (Score:5, Interesting)
Unfortunately you are correct. Greenspan refused to pull the choke-chain on the dot com boom, so it eventually collapsed. Bernanke refused to throttle the housing boom, and that really blew out. Then the Fed really firehosed money into the banks, which then overflowed into the stock market. When the Fed even hinted at pulling the free money there was a taper tantrum, as they called it.
Now we have the everything bubble. Will Powell and the rest of the Fed have the guts to raise interest rates, or will they cave again? Look up The Fed Put. That is the bet that the Fed will cut interest rates the instant the market drops some small percentage.
In favor of that view, remember that local governments love expensive houses because that gives high property tax receipts. There is a large number of boomers living on their stock market profits, and high inflation will drain those quickly, exposing those IRAs and 401ks to taxation. And when the retirement accounts run out the boomers will have to sell hard assets and Blackrock will be there with buckets ofthe newly printed cash to buy them up. And the Federal Deficit will be much easier to pay off once everyone is shopping with trillion dollar bills. Not that the government will pay it off, of course.
This is not the doing of a single political figure, it's a consistent trend. Whether it's a conspiracy or the path of least resistance by politicians who only look to the next election is up to your interpretation. Never attribute to malice what can be adequately explained by incompetence, but sometimes they really are out to get you. Which is why Klaus and his "You will own nothing and like it" comment riled up so many people.
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The result is a massiv
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And yet if you keep interest rates low, because there's a relatively inelastic supply of housing (because it takes time to build a house, and regulations limit where you can build one), all that happens is that prices increase up to the limit of what people can afford. You still need to be able to afford the down payment and the property tax, and a higher purchase price offsets any advantage you get from a lower monthly mortgage rate.
Not Federal Reserve's job to micromanage (Score:2)
> Bernanke refused to throttle the housing boom
The Federal Reserve's (FR) job is to focus on the entire economy, not just one sector. The economy in general was still sluggish from the Dot-Com crash while the housing market was hot, and the FR were raising interest rates at the time, starting in mid 2004.
FR are not given the tools nor the mandate to regulate specific sectors. That's not their job.
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One of the Fed’s two mandates is “price stability”. Do you think letting housing values run out of control for years or the current stock market bubble and accompanying inflation is adhering to their mandate?
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But individual category prices are going to go up and down. They can't risk killing Peter to fix Paul. Perhaps they should have suggested Congress check, or requested funds for investigations into housing prices. That alone may have put a damper on low-verification loans. Otherwise, the Fed R. is the wrong tool for that job.
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U.S. Federal Reserve started practically giving away money
Yes, but they have done this many times before - QE was going on until ~2018. IMHO the big difference this time is that your average shoe shine boy now understands that the Fed has the power to make asset prices go up and down. They have suspected this was the case since the GFC, but now they have definitive proof - stocks and real estate should not go up to record highs when an economy loses 20% of its output.
Now that people understand this, the Fed IS the market. Everyone is looking at the fed to see what
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The total amount of dollars is a made-up quantity, which could be large or small, and doesn't matter over the long term. But the proportion of dollars allocated to different companies (or put into other commodities like housing) certainly still does depend on the company's current profits and expected growth, as it should, and that is
Congress a permanent drunkard (Score:2)
A large problem is that Congress doesn't manage finances well, and the Federal Reserve has to try to clean up their messes.
If Congress followed proper Keynesian practices, the Federal debt would be paid down during the boom years so that we could have juicy stimuluses during slumps. Instead, Congress hands out favors during boom years rather than pay down debt. Short-term thinking.
QE is an ugly tool, a "Plan B", that would not have to be used if Congress did it's job.
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Minor correction: "if Congress did its job."
Happens every year (Score:1)
You need only look at the evidence.
The market routinely drops/stalls starting some time around Christmas, ending some time in Mid-February. There's many reasons, including when bonuses are calculated, tax is calculated, etc, etc....
But, please, go ahead, make a story out of nothing, it's a slow news day
Inverted Yield Curve (Score:5, Interesting)
Pretty much all recessions have been predated by an inverted yield curve event. As of yet, that hasn't happen. I suspect this is more of a correction, though an inversion can still occur.
There was an inversion in late 2020, but it was extremely brief which has happened before without a recession. A more sustained inversion is pretty much a warning sign that it's definitely coming.
That said, the inverted yield curve can predate a recession by over a year in some cases. So just because we had a minor inversion doesn't mean it cannot still lead a recession a year afterwards.
Remember, the Fed has been feeding the economy since COVID struck and are about to tapper off that feeding and make the economy stand on it's own legs. Clearly what we are seeing now means it doesn't like what it's tasting. Of course, when you're being fed free money, who would like it when that pipeline gets turned off.
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This correction is due to the Fed admitting that they were wrong, inflation was never transitory, it is manipulation of the money supply - expansion of money, which prevents prices from falling that would be falling and causes prices to rise. Federal, State, municipal, corporate and personal debts are at such levels that they cannot be covered by current productivity. So if the Fed pushes interest rates up even slightly qnd stops expanding, the cost of borrowing will be impossible to pay. Even the inter
Inflation causes are many and messy (Score:1)
The causes of the inflation are hard to pin down. It may take years of studies to find out what's really going on.
For one, the cost of doing business has gone up because of the pandemic. Many employees had to quit or reduce hours to manage school age kids who couldn't go to class, for example. JIT inventory systems stopped being effective during supply disruptions, and pre-JIT techniques are more expensive. Will the industry go back to JIT after the pandemic?
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> For about 3 decades now the Fed and other central banks had their 'inflation target' set at the infamous 2% level.
What's that have to do with the discussion?
> Then it became the official target that the Fed said was necessary for reasons that are completely political
Side issue, but 2% is a decent value. History shows if inflation is too low, the economy is sluggish, and too high triggers bubbles and/or runaway inflation.
As far as the rest, you seem to be reiterating that the pandemic caused the inf
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Addendum. Note that pandemic-related factory shutdowns happened all over the world, and the Federal Reserve has no control over those, being offshore sources.
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Remember, the Fed has been feeding the economy since COVID struck and are about to taper off that feeding...
That's what the Fed says. What they say and what they do is quite regularly opposite.
Inflation (Score:5, Informative)
The question is what the impact of inflation is going to be on markets.
The traditional view is that in periods of inflation or hyperinflation ownership of shares is at least ownership of real assets so will protect.
However inflation may have another effect as well as or before this. It may lead to households being unable to raise incomes as fast as prices are rising which will mean a sharp fall in discretionary spending, and this can lead to a serious recession and to company collapses.
If this happens, then you can see a share price crash before the indexing effect occurs. Large numbers of companies can just go bust. It can get very difficult or impossible to raise the amounts of debt that are required to stay afloat. And any unsound business models can lead to disaster.
Peleton, take an example, has had the idea of taking a standard stationary bike and attaching a screen to it, then selling the combination for a high markup, including an ongoing service subscription.
Well, if your budget is getting squeezed you drop the subscription. You don't buy the expensive bike in the first place.
NetFlix is easily cancellable as well. Spending retreats to necessities. The next iPhone stops being something you think about. After all, your rent is about to rise faster than your salary, if you still have one.
If this happens, you can see a crash like the dotcom crash, but now that tech is so much more of the market, a much broader one, and one attended by far more wealth destruction.
I have no idea what will happen, but figuring out how inflation and wages play into this is key.
Re: Inflation (Score:2)
10 years, maybe (Score:1)
Inflation is a lagging indicator.
Yes and what it is lagging, are huge rises in fundamental costs of things like energy and raw materials.
Wholesale price increase last year was over 10%, so we have not even seen that increase reflected fully in inflation.
The fact luddites are discussing it means that the peak is probably in and all downhill now.
Oh it's all downhill now, yes. Just not in the way you think.
Oh, no, Luvey. (Score:2)
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Our stocks. Our bonds. What are we to do?
Keep in mind that this includes your average workers 401k and IRA. Nowadays, everyone is basically forced to gamble on the market if they want any hope of retiring.
Crash alarm bells or gradual decline? (Score:2)
If I'm reading this right ... (Score:2)
Nasdaq 100's Unrelenting Declines Ring a Dot-Com Bust Alarm Bell
100 Nasdaq dot-com companies really, really don't want to use Ring door bells?
Must be a slow news day... :-)
Where is everyone (Score:3)
I'll ride it out, thankyouverymuch.
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These people must be sitting on the cash hoping to time the market. Which has been shown to be exactly gambling, even for the pros.
I'll ride it out, thankyouverymuch.
Riding it out may be fine if you're in your 20's and 30's - maybe even 40's. But the closer you get to the end of your earning years, the less time you have to ride out a crash. For my part, for instance, I just retired. If my money was in securities, and the shit hit the fan, maybe my children could "ride it out" with my estate holdings? But I kinda need that money, assuming I don't go below ground in the immediate future (and then there are burial costs to consider as well).
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There's lots of places to put the money. Just they are all outside the United States which is the center of the 'everything bubble'.
Stable and well developed countries with reasonable CAPE ratios exist and are good places to put money in situations like this. You do it based on CAPE ratio. It is a very strong predictor of future returns and was devised by Robert Shiller, a Yale economist.
CAPE (same as PE 10 or Shiller ratio) - it is the inflation adjusted preceding 10 years P/E average and a very strong ind
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Wrong (Score:2)
The Dot-com bubble and bust was because investors finally realized that there was nothing of value in the startups they poured billions into. The same can be said of the housing bubble. The house that was selling at nosebleed prices was the same house that was reasonably priced a few short years even six months prior. Couple that with crap ton of loans taken out by people who could never afford them (but who felt that somehow they deserved a McMansion). Put simply, these two instances were due to total
It goes up; it goes down (Score:1)