7 ms·

A whole lot of aphorisms in this commentary about falling knives and dead cats, but very little actual information. If you're trying to time the bottom you may

A whole lot of aphorisms in this commentary about falling knives and dead cats, but very little actual information. If you're trying to time the bottom you may as well take your money to the blackjack table. The quants are probably going to make a bunch of money, but if you're just a regular person, you should probably just continue making your regularly scheduled 401k contributions and diversified investments. Historically speaking, all the movement is going to average out in the long run to modest gains.

lotharbot 11y ago
If you're just a regular person, you shouldn't be trying to make millisecond-timing decisions. But you can absolutely say "thus-and-such appears to be systematically underpriced" and make a decision to transition some funds toward bargains. I recognized there were bargains to be had in March of 2009. I didn't hit the exact bottom (March 6), but I got some pretty nice deals on March 12. Right now, I wouldn't go out of my way to make excess contributions. The signal isn't strong enough. But sometimes it is.
rsmckinney 11y ago
"Historically speaking" Historically speaking, when has the Fed kept interest rates at ZERO for 7 years? After pumping QE full throttle at $80B/mo? The economy has been in continuous "recovery" mode since '08, but not much has actually recovered. The market is going to collapse my friend because, historically speaking, we are in dark, uncharted territory and have lost our way back.
- cynicalkane 11y ago
  Interest rates are nominal; they only matter relative to some equilibrium. The equilibrium interest rate is somewhere close to zero.
  - rsmckinney 11y ago
    On earth, a zero interest rate indicates a sick or at least stalled economy. The rate cannot be held at zero for much longer without risking a deeper debt via evermore unhealthy credit expansion, yet the consequences of raising it, even a little, will likely crush global markets as investors react etc. There is no question this economy is quite sick and has been breathing with aid of the Fed's iron lung so long that it probably can no longer sustain itself without resetting (hard).
    - 6stringmerc 11y ago
      Also of note: US worker demographics do not substantiate the narrative that a recovery is going on. Jobs added are typically in the service industry, and a large percentage of those are part-time situations. Also the only age group that has added jobs since 2008 is the 55 and up cohort, which only further punishes the under-employed youth with significant student loan / other debt burdens and stalls the general progression into higher classes. I have my suspicions that the 55 and up group simply can't retire (no savings) or refuses to retire (standard of living). Basically what I see are indicators the collapse will come around by way of massive defaults on student load debt. This will be combined with Federal Government idiocy promising Baby Boomers that the benefits will aways be there for them as a pandering for votes. Everybody knows full well the lower tiers of society and the working population are forced to make do with unapologetically low wages which aren't condusive to a healthy tax system, but there's no end to people voting against self-interest because they're clouded ideologically. I'm not sure a total reset is this time or this year but probably next summer it'll be the focus of all the Presidential candidates.
      - ArkyBeagle 11y ago
        We will retire and the Fed will end up bailing out the IOUs on the SS trust fund. This is not a problem so long as it's done once. All SS money ends up strengthening the metric formerly known as M3, so it'll work out just fine. The problem is the closely-held belief that There Must Be Suffering or we're not being responsible adults. The economy has been liquidity constrained ( outside of bubbles ) since 1980, with the odd 24 or 12 month period off. http://www.interfluidity.com/v2/3212.html http://www.interfluidity.com/v2/3212.html
  - msandford 11y ago
    > The equilibrium interest rate is somewhere close to zero Really? Who are all these people who -- with their own money -- are willing to lend $100mm today for $100.05mm in a decade? If there are people willing to lend OTHER PEOPLE's money for near-zero rates, that doesn't count. Because ostensibly all money has to be someone's money. And if it's not -- like say if it's the Fed's money -- then that's clearly some kind of forcing function that can totally disturb the natural equilibrium. The only way that interest rates accurately reflect people's true time preference for money (which is what it's supposed to be, really) is if all money loaned is money owned by a real human being, somehow, somewhere, who has actual influence over what is being done with it. If there's money in the system that doesn't fit that criteria, you're screwing with the interest rate in a non-natural way and suggesting that this artifice is reflective of the aggregate time-preference for money is totally bonkers.
    - jbooth 11y ago
      People ARE buying federal bonds at that rate, right? You can find a figure for the sales, look at the yield curve, and quantify exactly how many people are acting that way with their own money (or how much money, at least). Looking at http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield http://www.treasury.gov/resource-center/data-chart-center/in..., the yield for 10 years is actually more like 2%. Less than a year is very close to 0, so there are apparently a ton of people out there who will lend you money for 1 year at 0.33% interest.
      - lmm 11y ago
        There are a ton of people out there who will lend the fed money at that rate. But the fed is in a rather special position.
        msandford 11y ago
        They're not loaning it to the Fed, they're borrowing it from the Fed and loaning it to the Treasury. By doing it this way everyone gets to pretend that the Fed isn't the entity buying government debt, and so it's not "monetizing the debt" and therefore -- somehow miraculously -- it isn't outright theft. Ultimately though it's not as though banks are making the decision to loan to the Treasury at very low rates all by themselves. It was coordinated how the money flows would happen and it would do two things: allow the banks to repair their balance sheets through "free money" loans and also help the government out of a bind where there was nobody to buy their debt that they desperately needed in order to fund expansions of social services during the downturn. Personally I think that it's pretty immoral to steal from savers to bail out borrowers, but that's because I'm a saver who's been locked out of the housing market by not having gotten in prior to prices going 2x, 3x, 5x or whatever. Ultimately I think the whole thing is going to end very badly, but of course I have no idea how long it'll take. It might take another 2-3 years, it might take another 20-30. No way to know how long the speculative mania will last.
- bunderbunder 11y ago
  Historically we've always been in dark, uncharted territory. There are only two things you can guarantee about the market: First, it will fluctuate. Second, those fluctuations will be unwittingly used as a Rorschach test by everyone with a political axe to grind.
  - 6stringmerc 11y ago
    Actually, I think it's fair to point out that the sophistication of the financial markets, vis-a-vis fiat currency, drastically outstrips the capabilities of regulators and financial decision makers to comprehend and/or manage with any believable outcome.
    - bunderbunder 11y ago
      It's less fair, though, to say, "Nobody knows with what will happen next, therefore X will happen next," as the grandparent did. Surrounding the argument from uncertainty with a few popular talking points doesn't make it any less fallacious.
      - 6stringmerc 11y ago
        I see the grandparent as pointing out Cause-and-Effect more than one of uncertainty, or simply dismissing volatility as media-fodder "political gamesmanship" as your response seemed to imply. I think there is a significant amount of visible actions and structures in global and US finance which indicate that yes, we have entered into conditions that refuse to abide by 'traditional thinking' on how to solve problems. Thus, I agree with the initial postulation that it is appropriate to be fearful of the conditions at present, built up over many years of other decisions, which may not be solvable by the same actors thus far.
- acconrad 11y ago
  We were also in uncharted territory when the stock market collapsed in 1929. The market had never crashed like that before. The market had also never crashed like 2000 because the internet tech sector had never existed like that before. The market had also never crashed like in 2008 because home loans had never been so lax in terms of lending such highly-leveraged loans to such low quality lenders. Every new crash lies within dark, uncharted territory because no one can predict the future and a crash could only come about from a set of new circumstances we couldn't have predicted before (or else it wouldn't have crashed).
  - conistonwater 11y ago
    Maybe this doesn't matter, but how did you leave out the long history of market crashes prior to 1929 [1], and how did you leave out the S&L crisis [2]? That is some really selective reading of history. > a crash could only come about from a set of new circumstances we couldn't have predicted before (or else it wouldn't have crashed) This claim isn't actually correct. Economic history is full of crashes and recessions where nothing new happened. [1] https://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States https://en.wikipedia.org/wiki/List_of_recessions_in_the_Unit... https://en.wikipedia.org/wiki/List_of_stock_market_crashes_and_bear_markets https://en.wikipedia.org/wiki/List_of_stock_market_crashes_a... [2] https://en.wikipedia.org/wiki/Savings_and_loan_crisis https://en.wikipedia.org/wiki/Savings_and_loan_crisis
  - dperfect 11y ago
    Exactly. This is why I don't follow the hypothesis that we're witnessing a crash due to unhealthy economic indicators/behaviors (debt ratios, QE, interest rates, etc). Of course those things matter, and they certainly suggest the economy is in bad shape (or at least on some pretty intense life support), but they don't seem to trigger crashes by themselves - the indicators and alarm signals have been painfully obvious for years now, and the market should have already taken them into consideration (at least to some degree). As you say, we can't predict future crashes or the circumstances that trigger them, and I'm not entirely sure we've seen the trigger for a crash now. Perhaps we've set ourselves up for one, but it's doubtful that the indicators themselves will "pop the balloon". In personal finance, you can use a variety of tricks to hide your bad finances for a while, but it's not usually your debt-to-income ratio (or any other technical indicator) that triggers bankruptcy; more often than not, people keep digging themselves deeper until the bank actually knocks on the door to repossess the house. Governments have historically shown that they can keep the game going far longer than any bank might allow (there are no real terms attached to their debt when they can literally print their own money). We probably won't know the trigger this time (or any other time) until a collapse is already well underway, if it's indeed happening.
- AnimalMuppet 11y ago
  > After pumping QE full throttle at $80B/mo? They did for a while. That part's over, though.
  - rsmckinney 11y ago
    "Over"... i see no fat lady on stage
    - AnimalMuppet 11y ago
      You see the Fed no longer pumping QE at $80B/month.
      - rsmckinney 11y ago
        For now... QE 4 is coming, there is no doubt. It's the only tool in the chest. This time around though it won't be parked directly in the banks, but more likely it will be helicoptered directly to consumers, probably in the form of tax breaks, directly or indirectly. QE 4 will happen, but it still won't work of course because the economy sucks and people won't spend it, it will find its way back into the banks after all.
        AnimalMuppet 11y ago
        > For now... QE 4 is coming, there is no doubt. Actually, I doubt that. But if you're going to classify even tax breaks as QE4, then, sure, sooner or later there's going to be some tax breaks to somebody for something. Big enough to really classify as QE4? I doubt it.
        dragonwriter 11y ago
        > QE 4 is coming, there is no doubt. It's the only tool in the chest. Only if -- as you apparently do -- you redefine "QE" so broadly as to include not only every tool in the chest, but tools in completely different chests, as well. > This time around though it won't be parked directly in the banks, but more likely it will be helicoptered directly to consumers, probably in the form of tax breaks, directly or indirectly. QE is a kind of monetary policy, tax breaks are fiscal policy (and QE is specifically monetary stimulus by central bank purchase of financial assets from financial institutions.) These differ in kind (not degree) and authority -- the Federal Reserve can do monetary policy like QE, but not tax breaks; only Congress can do fiscal stimulus.
- busyant 11y ago
  > The market is going to collapse my friend .... Put your $ where your mouth is.
dave_sullivan 11y ago
Ah, but those quants are going to make a bunch of money... There's a cottage industry forming around finding market distortions caused by bad algos. You'd think that there wouldn't be a bunch of bots running around making stupid decisions, but there are a lot of bots that haven't been updated in some time and were put in place according to some idealized rule-based model in some esoteric area of finance that one guy came up with. It's kind of like asking yourself seriously how many computers out there are running outdated software. The less fundamentals matter, the more computers handle various activities that have a more or less direct impact on prices of marketable securities, the more this is a valid strategy. It's basically anomaly detection on very messy data. If transaction costs keep coming down and data becomes cheaper (both of which seem likely), trading as an independent might become less ludicrous than it is. And to be clear, it is currently ludicrous. Transaction costs will eat up any potential gains on the retail side unless you're operating with very large amounts of money.
- anonu 11y ago
  Someone really bit the dust this morning in ETF land. Lots of US ETFs were down 10,20,30% and were halted due to circuit breakers. There is some quant/market-making firm out there that is really paying for this today.
  - rdtsc 11y ago
    Could one make a bot to make money off crashes like these (like gp post suggested). It would seem circuit breakers would limit that possibility, and also, didn't they revert trades in the past during such flash crashes as well?
    - anonu 11y ago
      Yes - if you have better information than everyone else - or at least can extrapolate where the fair value of products are based on where other things are trading - then you would be able to make a bunch of money. On the other hand - many of these names kept flipping their circuit breakers on and off. So, not much volume may have traded at these "wrong" prices. I was expecting a lot of CEE (Clearly Erroneous Executions) to be raised this morning in all these ETFs - but I haven't seen it yet.
pyrrhotech 11y ago
The only way quants can make money is from active traders on the other side. It's impossible for quants to make money off buy and hold index investors. If everyone took your advice (and I do), there'd be no such thing as quants
- rm999 11y ago
  The typical self-described "buy and hold investor" I know is actually a "buy and hold then panic and sell" investor. Take a look at r/investing to see what I'm talking about. I'm not criticizing them per se; it's unnerving to imagine half your life savings or retirement being gone in a flash.
  - saryant 11y ago
    Since when is /r/investing a buy-and-hold type of place? Those guys live at /r/personalfinance.
cryoshon 11y ago
So the assumption is that stock prices increase on an infinite time scale? Seems a bit naive...
- duderific 11y ago
  Probably as measured with fiat currency, which can be created out of thin air, yes, stock prices will "increase" infinitely. Measured against an actual real-world asset such as gold, oil etc., probably not. http://www.macrotrends.net/1378/dow-to-gold-ratio-100-year-historical-chart http://www.macrotrends.net/1378/dow-to-gold-ratio-100-year-h...
- acjohnson55 11y ago
  Not necessarily, assuming there's still a whole lot of economic development, growth, and innovation left before we achieve stasis. I think we've got generations left to go before we shift into a new paradigm.

lotharbot 11y ago

If you're just a regular person, you shouldn't be trying to make millisecond-timing decisions. But you can absolutely say "thus-and-such appears to be systematically underpriced" and make a decision to transition some funds toward bargains. I recognized there were bargains to be had in March of 2009. I didn't hit the exact bottom (March 6), but I got some pretty nice deals on March 12. Right now, I wouldn't go out of my way to make excess contributions. The signal isn't strong enough. But sometimes it is.

rsmckinney 11y ago

"Historically speaking" Historically speaking, when has the Fed kept interest rates at ZERO for 7 years? After pumping QE full throttle at $80B/mo? The economy has been in continuous "recovery" mode since '08, but not much has actually recovered. The market is going to collapse my friend because, historically speaking, we are in dark, uncharted territory and have lost our way back.

cynicalkane 11y ago
Interest rates are nominal; they only matter relative to some equilibrium. The equilibrium interest rate is somewhere close to zero.
- rsmckinney 11y ago
  On earth, a zero interest rate indicates a sick or at least stalled economy. The rate cannot be held at zero for much longer without risking a deeper debt via evermore unhealthy credit expansion, yet the consequences of raising it, even a little, will likely crush global markets as investors react etc. There is no question this economy is quite sick and has been breathing with aid of the Fed's iron lung so long that it probably can no longer sustain itself without resetting (hard).
  - 6stringmerc 11y ago
    Also of note: US worker demographics do not substantiate the narrative that a recovery is going on. Jobs added are typically in the service industry, and a large percentage of those are part-time situations. Also the only age group that has added jobs since 2008 is the 55 and up cohort, which only further punishes the under-employed youth with significant student loan / other debt burdens and stalls the general progression into higher classes. I have my suspicions that the 55 and up group simply can't retire (no savings) or refuses to retire (standard of living). Basically what I see are indicators the collapse will come around by way of massive defaults on student load debt. This will be combined with Federal Government idiocy promising Baby Boomers that the benefits will aways be there for them as a pandering for votes. Everybody knows full well the lower tiers of society and the working population are forced to make do with unapologetically low wages which aren't condusive to a healthy tax system, but there's no end to people voting against self-interest because they're clouded ideologically. I'm not sure a total reset is this time or this year but probably next summer it'll be the focus of all the Presidential candidates.
    - ArkyBeagle 11y ago
      We will retire and the Fed will end up bailing out the IOUs on the SS trust fund. This is not a problem so long as it's done once. All SS money ends up strengthening the metric formerly known as M3, so it'll work out just fine. The problem is the closely-held belief that There Must Be Suffering or we're not being responsible adults. The economy has been liquidity constrained ( outside of bubbles ) since 1980, with the odd 24 or 12 month period off. http://www.interfluidity.com/v2/3212.html http://www.interfluidity.com/v2/3212.html
- msandford 11y ago
  > The equilibrium interest rate is somewhere close to zero Really? Who are all these people who -- with their own money -- are willing to lend $100mm today for $100.05mm in a decade? If there are people willing to lend OTHER PEOPLE's money for near-zero rates, that doesn't count. Because ostensibly all money has to be someone's money. And if it's not -- like say if it's the Fed's money -- then that's clearly some kind of forcing function that can totally disturb the natural equilibrium. The only way that interest rates accurately reflect people's true time preference for money (which is what it's supposed to be, really) is if all money loaned is money owned by a real human being, somehow, somewhere, who has actual influence over what is being done with it. If there's money in the system that doesn't fit that criteria, you're screwing with the interest rate in a non-natural way and suggesting that this artifice is reflective of the aggregate time-preference for money is totally bonkers.
  - jbooth 11y ago
    People ARE buying federal bonds at that rate, right? You can find a figure for the sales, look at the yield curve, and quantify exactly how many people are acting that way with their own money (or how much money, at least). Looking at http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield http://www.treasury.gov/resource-center/data-chart-center/in..., the yield for 10 years is actually more like 2%. Less than a year is very close to 0, so there are apparently a ton of people out there who will lend you money for 1 year at 0.33% interest.
    - lmm 11y ago
      There are a ton of people out there who will lend the fed money at that rate. But the fed is in a rather special position.
      - msandford 11y ago
        They're not loaning it to the Fed, they're borrowing it from the Fed and loaning it to the Treasury. By doing it this way everyone gets to pretend that the Fed isn't the entity buying government debt, and so it's not "monetizing the debt" and therefore -- somehow miraculously -- it isn't outright theft. Ultimately though it's not as though banks are making the decision to loan to the Treasury at very low rates all by themselves. It was coordinated how the money flows would happen and it would do two things: allow the banks to repair their balance sheets through "free money" loans and also help the government out of a bind where there was nobody to buy their debt that they desperately needed in order to fund expansions of social services during the downturn. Personally I think that it's pretty immoral to steal from savers to bail out borrowers, but that's because I'm a saver who's been locked out of the housing market by not having gotten in prior to prices going 2x, 3x, 5x or whatever. Ultimately I think the whole thing is going to end very badly, but of course I have no idea how long it'll take. It might take another 2-3 years, it might take another 20-30. No way to know how long the speculative mania will last.
bunderbunder 11y ago
Historically we've always been in dark, uncharted territory. There are only two things you can guarantee about the market: First, it will fluctuate. Second, those fluctuations will be unwittingly used as a Rorschach test by everyone with a political axe to grind.
- 6stringmerc 11y ago
  Actually, I think it's fair to point out that the sophistication of the financial markets, vis-a-vis fiat currency, drastically outstrips the capabilities of regulators and financial decision makers to comprehend and/or manage with any believable outcome.
  - bunderbunder 11y ago
    It's less fair, though, to say, "Nobody knows with what will happen next, therefore X will happen next," as the grandparent did. Surrounding the argument from uncertainty with a few popular talking points doesn't make it any less fallacious.
    - 6stringmerc 11y ago
      I see the grandparent as pointing out Cause-and-Effect more than one of uncertainty, or simply dismissing volatility as media-fodder "political gamesmanship" as your response seemed to imply. I think there is a significant amount of visible actions and structures in global and US finance which indicate that yes, we have entered into conditions that refuse to abide by 'traditional thinking' on how to solve problems. Thus, I agree with the initial postulation that it is appropriate to be fearful of the conditions at present, built up over many years of other decisions, which may not be solvable by the same actors thus far.
acconrad 11y ago
We were also in uncharted territory when the stock market collapsed in 1929. The market had never crashed like that before. The market had also never crashed like 2000 because the internet tech sector had never existed like that before. The market had also never crashed like in 2008 because home loans had never been so lax in terms of lending such highly-leveraged loans to such low quality lenders. Every new crash lies within dark, uncharted territory because no one can predict the future and a crash could only come about from a set of new circumstances we couldn't have predicted before (or else it wouldn't have crashed).
- conistonwater 11y ago
  Maybe this doesn't matter, but how did you leave out the long history of market crashes prior to 1929 [1], and how did you leave out the S&L crisis [2]? That is some really selective reading of history. > a crash could only come about from a set of new circumstances we couldn't have predicted before (or else it wouldn't have crashed) This claim isn't actually correct. Economic history is full of crashes and recessions where nothing new happened. [1] https://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States https://en.wikipedia.org/wiki/List_of_recessions_in_the_Unit... https://en.wikipedia.org/wiki/List_of_stock_market_crashes_and_bear_markets https://en.wikipedia.org/wiki/List_of_stock_market_crashes_a... [2] https://en.wikipedia.org/wiki/Savings_and_loan_crisis https://en.wikipedia.org/wiki/Savings_and_loan_crisis
- dperfect 11y ago
  Exactly. This is why I don't follow the hypothesis that we're witnessing a crash due to unhealthy economic indicators/behaviors (debt ratios, QE, interest rates, etc). Of course those things matter, and they certainly suggest the economy is in bad shape (or at least on some pretty intense life support), but they don't seem to trigger crashes by themselves - the indicators and alarm signals have been painfully obvious for years now, and the market should have already taken them into consideration (at least to some degree). As you say, we can't predict future crashes or the circumstances that trigger them, and I'm not entirely sure we've seen the trigger for a crash now. Perhaps we've set ourselves up for one, but it's doubtful that the indicators themselves will "pop the balloon". In personal finance, you can use a variety of tricks to hide your bad finances for a while, but it's not usually your debt-to-income ratio (or any other technical indicator) that triggers bankruptcy; more often than not, people keep digging themselves deeper until the bank actually knocks on the door to repossess the house. Governments have historically shown that they can keep the game going far longer than any bank might allow (there are no real terms attached to their debt when they can literally print their own money). We probably won't know the trigger this time (or any other time) until a collapse is already well underway, if it's indeed happening.
AnimalMuppet 11y ago
> After pumping QE full throttle at $80B/mo? They did for a while. That part's over, though.
- rsmckinney 11y ago
  "Over"... i see no fat lady on stage
  - AnimalMuppet 11y ago
    You see the Fed no longer pumping QE at $80B/month.
    - rsmckinney 11y ago
      For now... QE 4 is coming, there is no doubt. It's the only tool in the chest. This time around though it won't be parked directly in the banks, but more likely it will be helicoptered directly to consumers, probably in the form of tax breaks, directly or indirectly. QE 4 will happen, but it still won't work of course because the economy sucks and people won't spend it, it will find its way back into the banks after all.
      - AnimalMuppet 11y ago
        > For now... QE 4 is coming, there is no doubt. Actually, I doubt that. But if you're going to classify even tax breaks as QE4, then, sure, sooner or later there's going to be some tax breaks to somebody for something. Big enough to really classify as QE4? I doubt it.
      - dragonwriter 11y ago
        > QE 4 is coming, there is no doubt. It's the only tool in the chest. Only if -- as you apparently do -- you redefine "QE" so broadly as to include not only every tool in the chest, but tools in completely different chests, as well. > This time around though it won't be parked directly in the banks, but more likely it will be helicoptered directly to consumers, probably in the form of tax breaks, directly or indirectly. QE is a kind of monetary policy, tax breaks are fiscal policy (and QE is specifically monetary stimulus by central bank purchase of financial assets from financial institutions.) These differ in kind (not degree) and authority -- the Federal Reserve can do monetary policy like QE, but not tax breaks; only Congress can do fiscal stimulus.
busyant 11y ago
> The market is going to collapse my friend .... Put your $ where your mouth is.

dave_sullivan 11y ago

Ah, but those quants are going to make a bunch of money... There's a cottage industry forming around finding market distortions caused by bad algos. You'd think that there wouldn't be a bunch of bots running around making stupid decisions, but there are a lot of bots that haven't been updated in some time and were put in place according to some idealized rule-based model in some esoteric area of finance that one guy came up with. It's kind of like asking yourself seriously how many computers out there are running outdated software. The less fundamentals matter, the more computers handle various activities that have a more or less direct impact on prices of marketable securities, the more this is a valid strategy. It's basically anomaly detection on very messy data. If transaction costs keep coming down and data becomes cheaper (both of which seem likely), trading as an independent might become less ludicrous than it is. And to be clear, it is currently ludicrous. Transaction costs will eat up any potential gains on the retail side unless you're operating with very large amounts of money.

anonu 11y ago
Someone really bit the dust this morning in ETF land. Lots of US ETFs were down 10,20,30% and were halted due to circuit breakers. There is some quant/market-making firm out there that is really paying for this today.
- rdtsc 11y ago
  Could one make a bot to make money off crashes like these (like gp post suggested). It would seem circuit breakers would limit that possibility, and also, didn't they revert trades in the past during such flash crashes as well?
  - anonu 11y ago
    Yes - if you have better information than everyone else - or at least can extrapolate where the fair value of products are based on where other things are trading - then you would be able to make a bunch of money. On the other hand - many of these names kept flipping their circuit breakers on and off. So, not much volume may have traded at these "wrong" prices. I was expecting a lot of CEE (Clearly Erroneous Executions) to be raised this morning in all these ETFs - but I haven't seen it yet.

pyrrhotech 11y ago

The only way quants can make money is from active traders on the other side. It's impossible for quants to make money off buy and hold index investors. If everyone took your advice (and I do), there'd be no such thing as quants

rm999 11y ago
The typical self-described "buy and hold investor" I know is actually a "buy and hold then panic and sell" investor. Take a look at r/investing to see what I'm talking about. I'm not criticizing them per se; it's unnerving to imagine half your life savings or retirement being gone in a flash.
- saryant 11y ago
  Since when is /r/investing a buy-and-hold type of place? Those guys live at /r/personalfinance.

cryoshon 11y ago

So the assumption is that stock prices increase on an infinite time scale? Seems a bit naive...

duderific 11y ago
Probably as measured with fiat currency, which can be created out of thin air, yes, stock prices will "increase" infinitely. Measured against an actual real-world asset such as gold, oil etc., probably not. http://www.macrotrends.net/1378/dow-to-gold-ratio-100-year-historical-chart http://www.macrotrends.net/1378/dow-to-gold-ratio-100-year-h...
acjohnson55 11y ago
Not necessarily, assuming there's still a whole lot of economic development, growth, and innovation left before we achieve stasis. I think we've got generations left to go before we shift into a new paradigm.