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The bigger concern is on the interest rate hikes. Low rates were expected to help kickstart the economy and prices and wages to increase. What has happened inst

The bigger concern is on the interest rate hikes. Low rates were expected to help kickstart the economy and prices and wages to increase. What has happened instead is that all the cheap money has caused asset inflation. US companies now have record amount of debt. Too fast increase in interest rates will cause their debt obligations to balloon and lower profitability. Though this will take couple of quarters to fully manifest. So, this is just a reaction in line with Amara's law applied to stock markets- We tend to overestimate the effect of a news item (technology) in the short run and underestimate the effect in the long run. I expect media to be soon cheering another round of upward zag.

fwdpropaganda 9y ago
You see, the problem that I have with these kind of "explanations", is that those facts have been around for a long time. Why is it that precisely today (well, yesterday) was the day that everyone decided "right guys, we're selling equities"? The things you describe explain why people keep their finger hovering over the "sell" button, they don't explain why precisely today they decided to press it.
- guiriduro 9y ago
  I think context is important - think power laws, faultline stress in plate tectonics, or as in this case magnitude of movement when the move actually comes. As to what triggers the move itself - my feeling is that some kind of crowd effect occurs, i.e. once we get over some resistance level, then the movement implied in the imbalances described by the context takes over; the crowd creates its own impetus. But it is very difficult or even impossible to determine ahead of time what minor movement will become the catalyst, in much the same way that determining which butterfly flap vortex will become a hurricane.
- thisisit 9y ago
  Why today(and Friday)? People track government data to form opinions. and first Friday of the month is very important because of a data point called Non-Farm Payroll or NFP. It is known to cause a lot of movement in the markets. Lot of brokers will tell you not trade during the announcement. You can see a lot of opinions on what was expected to happen on Monday by googling for NFP. Case in point: https://www.cnbc.com/2018/02/02/best-wage-growth-since-2009-spurs-talk-of-more-fed-rate-hikes.html https://www.cnbc.com/2018/02/02/best-wage-growth-since-2009-... Second, it seems you think these decisions are binary - to be or not to be or rather sell or not sell. It's not that simple. Lower markets doesn't mean everyone has sold off all their shares. They just reduce probabilities of their losses by reducing exposure. Then people go back to their drawing boards and see if the hypothesis holds up. If not, they come back and market moves higher.
  - fwdpropaganda 9y ago
    > Second, it seems you think these decisions are binary - to be or not to be or rather sell or not sell. It's not that simple. Lower markets doesn't mean everyone has sold off all their shares. They just reduce probabilities of their losses by reducing exposure. No. Obviously when I say "everyone decided to sell" I'm speaking figuratively. In any case, thanks a lot for that link. Cool stuff, I didn't know about the NFP. So if it was released Friday in the morning, how come the plunge happened only happened Monday? I still prefer my view that a tiny bit of data cause people to expect a drop and get edgy, and at some point they all start selling. ("all start selling", again figuratively.) This is opposed to a bunch of people having done some ahead of time calculations like "if the NFP comes out about X we sell, if it comes out below X we buy. Oops it's about X, lets sell". I suspect very few market participants behave like this. (Agains, below/above X is figurative. I do understand what a probability distribution function is, what an expected value is, etc.) So here's one for you. If your reasoning is correct I would've expected to see treasuries down (which indeed was the case Friday). Instead they went up. How do you explain that?
    - simonh 9y ago
      > So if it was released Friday in the morning, how come the plunge happened only happened Monday? It started on Friday and accelerated on Monday. Adjust the chart to 5 days. Note the significant dip down right at the beginning of Friday 2nd followed by an all-day slide. https://www.google.co.uk/search?q=dow+jones+chart&oq=dow+jones+chart&aqs=chrome..69i57j0l5.3599j0j7&sourceid=chrome&ie=UTF-8 https://www.google.co.uk/search?q=dow+jones+chart&oq=dow+jon...
    - thisisit 9y ago
      Tiny bit of data? I can only say this - check out some older NFP releases and see what happens when there is a huge difference between the expected and actual data. During Greenspan's era there was another data point which was monitored a lot. I forgot the exact data point name. In the current NFP consensus on this one was 181k while the report was 200k which is nearly 10% variation from the expected value. As for treasuries, the upward movement is expected. It is considered to be a safe asset in the sense that there is a fixed return. Equities on the other hand are considered risky assets. So, for the most part they are negatively correlated. Markets are down, then bonds should go up. That said, markets and crowd wisdom are not perfect and don't always reflect all the information correctly all the time.
- imron 9y ago
  > The things you describe explain why people keep their finger hovering over the "sell" button, they don't explain why precisely today they decided to press it. How much was fingers on buttons, and how much was just automated trading algorithms?
  - fwdpropaganda 9y ago
    Why is it that everything these days gets blamed on algorithms? Seems like intelectual laziness to me. "Algorithms did it, there's no sense to it, lets not think too hard."
    - w0utert 9y ago
      I don't believe algorithms decide the direction of markets, but it's pretty clear that they amplify effects triggered by real-world conditions. HFT trading is just a way to make money, and things like large market swings, high trade volumes etc. provides interesting exploits to do exactly that. You could call it 'intellectual laziness', I would call it Occam's razor.
      - fwdpropaganda 9y ago
        You realize that these things happened before computers too, right? Saying "algorithms did it" is as much of Occam's as saying "god created the universe": it's certainly an easier explanation than studying high-energy physics.
      - OscarCunningham 9y ago
        If HFT makes money from the large swings then you would expect HFT to have made the large swings less common. Exploiting an inefficiency removes it.
    - crucialfelix 9y ago
      Traders use mental algorithms. Portfolio managers write up trading plans with expectations, theories and the actions they intend to take. Computers are programmed to execute some of those algorithms. There isn't a dividing line between what algorithms in the heads of humans are doing and what the computers are doing, except that the computers are doing it several orders of magnitude faster.
- adventured 9y ago
  The 10 year treasury yield has recently strongly overtaken the S&P 500 dividend yield. That aggressive shift is guaranteed to end such a bubbly bull market run. https://assets.bwbx.io/images/users/iqjWHBFdfxIU/i9Zchv.nY_Nk/v2/-1x-1.png https://assets.bwbx.io/images/users/iqjWHBFdfxIU/i9Zchv.nY_N... The treasury move since September is one of the most aggressive of the last five years. What happened is simply an inflection point. Markets operate heavily by trigger points. Those are getting taken out, sparking reactions (selling, asset allocation adjustments). The Dow went up three thousand points in two months, after the market was already at bubble price levels on multiples. Shiller PE: http://www.multpl.com/shiller-pe/ http://www.multpl.com/shiller-pe/ These valuation levels are batshit crazy. It doesn't take much to crash something that over-extended. Let's be realistic here. Where was this market going from there? Dow 36,000 by 2019? A 45 PE for the S&P 500? It'll already take ten years of 3% US GDP expansion and higher global growth to bring the S&P's earnings multiple back to being close to reasonable.
  - fwdpropaganda 9y ago
    I hear you. So are you saying that the 10-year yield compared to the S&P dividend yield is one of these trigger points?
  - Economics4u 9y ago
    Why look at dividend yield when many large companies pay no dividends? The earnings yield on stocks is a bit over 5%. The 10 year isn't even 3%.
    - fwdpropaganda 9y ago
      I would guess the relevant metric is called "real returns": capital appreciation plus dividends minus inflation.
- headmelted 9y ago
  I don't live in the US, and my understanding of how the electoral system works out there is not fantastic, but it would also seem like there's some impact from the existential dread of democrats taking majorities in your mid-term elections. A lot of the run up since the end of last year was based on Trump's new tax plans, which the left were very much against, so it makes sense that measures would be taken to roll that back were they to be in a position to do so - and I'd expect that people are nervous because (unpopular as Trump is in polls) no-one knows how that's going to go. It seems (like here in the UK to be fair) that it's going to be a toss of a coin as to which extreme your economy is swung towards in the next election. Also, new money is entering the financial markets all the time that doesn't have the past experience of the ups-and-downs. People can be well read on the topic and still not have a steady hand when it comes to the first turbulence event they experience with their savings, so there will always be (or at least, has always been) a proportion of panic sellers in the market at any one time. (edit: This reads like I'm very right-wing. I'm really not, all I mean is that the market has gone up because of the big giveaway that might be snatched back again soon.)
  - rectang 9y ago
    > measures would be taken to roll that back No chance of that happening until 2021 at the earliest, thanks to the presidential veto. The Democrats have zero chance of obtaining a veto-proof majority in the in the Senate.
    - headmelted 9y ago
      I didn't realize this, thanks for explaining that.
- fro0116 9y ago
  Indeed. All I see from this and similar threads here and articles all over the internet on topics like these is: "blah blah hindsight bias blah blah rationalization blah blah" At the end of the day, the only useful theories for the stock market are the ones that have predictive power. I'd be interested in reading articles by people who are consistently willing to put their money where their mouths are and consistently make money on their theories' predictions, but anyone who can do that of course tend to know better and tend to keep their mouths shut.
  - fauigerzigerk 9y ago
    I think you're right that these theories and explanations are rarely useful for trading, but that's not the same as being wrong or unfounded. There is clearly some causality in the economy. There is also a causal relationship between the economy and the stock market. It's just that identifying a correct causal relationship or correlation and even making a correct prediction doesn't make you any money if everyone else is making the same correct prediction.
  - mannykannot 9y ago
    All the theories are probabilistic, and it could not be any other way, because if there was a deterministic theory, people would react in ways that would invalidate the data and assumptions on which that theory's predictions are based.
- bryanlarsen 9y ago
  "everyone decided" It takes very few people to move the market. To dramatically oversimplify, if there are 1 million buyers and 1 million and 1 sellers, the market goes down until the number of buyers and sellers are equal again.
  - viraptor 9y ago
    That's not really how the market is balanced. If there's a million sellers at 12.34 and 1 buyer at 12.33, nothing changes and the price didn't move.
    - bryanlarsen 9y ago
      The word "seller" and "buyer" implies there is actually selling and buying happening. In your scenario there are no sales, so no actual sellers and no actual buyers. We can argue over whose dramatic oversimplification is worse, but do you disagree with the basic point that a small number of people can dramatically move a large market?
      - viraptor 9y ago
        I'd go with "it takes a lot of money (relative to normal volume) to move the market, but it doesn't matter if it's one rich investor, or millions of tiny ones with the same idea".
- mannykannot 9y ago
  It is a simple matter of positive feedback. The more prices drop, the more of those people (and systems) with hovering fingers decide it is time to push the button. The tipping point might be when people who did not have hovering fingers become persuaded that it is time to sell. When things avalanche like this, the size of the response is determined by the size of the instability, not the size of the triggering event. Consequently, you cannot understand the event by looking at its trigger, but if you would like to know what sort of considerations the trigger was comprised of, the fact that the new Federal Reserve chairman is avowedly more determined to raise interest rates than his predecessor is as good as any.
- patricius 9y ago
  Perhaps because Jerome Powell took office February 5th as new Fed chairman
- pbhjpbhj 9y ago
  It's a chaotic system, if there were logical explanations (in general) then it would be predictable and everyone/no-one would always win the stock market gamble. Someone found out they had cancer, sold their shares, their broker thought they were acting on a tip-off because the women with cancer mentioned they play tennis with some CEO. The broker, goes short for all they're worth thinking it's their big opportunity, and recommends to others to sell (to guarantee the fall!), stock starts to fall, trips an algorithm that's looking for a particular gradient on index Y, ... meanwhile a rookie at a trading firm sells 1000 something instead of buying ... people who lost on Bitcoin recently are on edge and feeling cautious, a little blip and they want to end their position ... and on and on the snowball rolls. Someone sneezed in Mogadishu seems just as likely to be the "reason".
akhatri_aus 9y ago
> Too fast increase in interest rates will cause their debt obligations to balloon and lower profitability Its not so bad for companies that export with a weaker dollar. Also for primarily domestic businesses where higher inflation correlates to a higher top line. In fact is advantageous to be in such a situation.
- Economics4u 9y ago
  Exactly. There are winners and losers on every transaction. Did you ever wonder why people cry about rates being too low, now they cry about them being too high?
tonyedgecombe 9y ago
US companies now have record amount of debt. Yes, and the economy is at record size, nothing surprising here.
- tome 9y ago
  They key figure is debt to market cap ratio. So what's that figure?
  - tonyedgecombe 9y ago
    So what's that figure? Go and look it up yourself if you are so excited about it, that has nothing to do with the vagueness of the original statement which was what I was highlighting.
    - tome 9y ago
      Your response was equally vague.
  - danmaz74 9y ago
    Why debt to market cap? Maybe debt to assets, debt to sales and EBITDA, but debt to market cap doesn't look very significant.
    - tome 9y ago
      That's a fair point. But what's important is debt to something ratio (I don't know to what exactly) which neither of the first two comments on this thread seemed to make clear enough.
      - danmaz74 9y ago
        Fair enough.
rorykoehler 9y ago
This was always going to happen. Instead of trickle down we should be practicing filter up economics. Give the money to the people that need it so they can service their debts rather than turning the debts into derivatives and isolating them from the real economy.
crdoconnor 9y ago
>Low rates were expected to help kickstart the economy and prices and wages to increase. You're confusing the sales pitch used to justify low interest rates with what they were expected to do. They were expected to bail out insolvent banks and save them from the consequences of their collective bad decisions. Not raise wages. Not kickstart the economy. Fiscal stimulus is how you do that and they knew that. Had politicians instead gone to unions and asked "what the fuck should we do now?" the answer likely would have been "let those fuckers go under, fire/lock up all management that had fraud going on underneath them, nationalise the systemically important institutions and counteract the economic contraction brought on by a wave of banrkuptices with fiscal stimulus." That's no good though because reliable political donors like Jamie Dimon would be in an orange jumpsuit and wages might actually go up (bad for profits). So we got the band aid that was zero interest rates that kept the current lot on Wall Street who blew up the economy and encouraged fraud in a position where they still get to direct it.
- adventured 9y ago
  > They were expected to bail out insolvent banks and save them from the consequences of their collective bad decisions. They were also expected to - and did - bail out homeowners, having taken the hit of losing ten plus trillion dollars in fake housing value. The Fed also took trillions of dollars worth of junk mortgages off the market, dramatically accelerating value recovery for home owners. US home owners received the largest bailout in world history by a factor of 10. The Fed successfully fully reinflated the housing bubble. The four giant US banks are making ~$90 billion a year in profit. US home owners gained $20 trillion in fake housing wealth from the bottom, courtesy of the Fed's zero rate asset reinflation party with record low mortgage rates. It's obvious who got the sweetest bailout there. The big banks love higher interest rates. Their profits go up substantially as rates go up. If they had their way, rates would be a lot higher. Rates have been kept so artificially low, for the benefit of the housing market and the stock market (ie ~100 million of the wealthiest people on earth that reside in the top 1/2 income bracket and own everything in the US).
  - crdoconnor 9y ago
    Bailing out homeowners is done with loan modifications not 0% interest rates. HAMP was the closest thing we got to that but even that was done as a gift to the banks (Google for "HAMP foaming the runway" for deets). A lot of homeowners did well out of low interest rates, but that was incidental. A lot also lost their homes and were rendered homeless. Under HAMP some home owners had their homes stolen from them - they were directed to go in to arrears in order to qualify for HAMP and after the bait and switch they were foreclosed upon. In other countries fraud like that gets you sent to prison. Not America.
Economics4u 9y ago
How are rising interest rates a risk? The Fed has been telling us they are coming for years. Long rates are finally moving up. I think people are going to be surprised about the coming global growth, just like they said the Fed moves would cause massive inflation, or that interest rates would never go beyond zero.
marcosdumay 9y ago
> US companies now have record amount of debt. By itself, this state is meaningless. This is exactly what investment kickstarting the economy looks like, as well as wasted investment on useless garbage.

fwdpropaganda 9y ago

You see, the problem that I have with these kind of "explanations", is that those facts have been around for a long time. Why is it that precisely today (well, yesterday) was the day that everyone decided "right guys, we're selling equities"? The things you describe explain why people keep their finger hovering over the "sell" button, they don't explain why precisely today they decided to press it.

guiriduro 9y ago
I think context is important - think power laws, faultline stress in plate tectonics, or as in this case magnitude of movement when the move actually comes. As to what triggers the move itself - my feeling is that some kind of crowd effect occurs, i.e. once we get over some resistance level, then the movement implied in the imbalances described by the context takes over; the crowd creates its own impetus. But it is very difficult or even impossible to determine ahead of time what minor movement will become the catalyst, in much the same way that determining which butterfly flap vortex will become a hurricane.
thisisit 9y ago
Why today(and Friday)? People track government data to form opinions. and first Friday of the month is very important because of a data point called Non-Farm Payroll or NFP. It is known to cause a lot of movement in the markets. Lot of brokers will tell you not trade during the announcement. You can see a lot of opinions on what was expected to happen on Monday by googling for NFP. Case in point: https://www.cnbc.com/2018/02/02/best-wage-growth-since-2009-spurs-talk-of-more-fed-rate-hikes.html https://www.cnbc.com/2018/02/02/best-wage-growth-since-2009-... Second, it seems you think these decisions are binary - to be or not to be or rather sell or not sell. It's not that simple. Lower markets doesn't mean everyone has sold off all their shares. They just reduce probabilities of their losses by reducing exposure. Then people go back to their drawing boards and see if the hypothesis holds up. If not, they come back and market moves higher.
- fwdpropaganda 9y ago
  > Second, it seems you think these decisions are binary - to be or not to be or rather sell or not sell. It's not that simple. Lower markets doesn't mean everyone has sold off all their shares. They just reduce probabilities of their losses by reducing exposure. No. Obviously when I say "everyone decided to sell" I'm speaking figuratively. In any case, thanks a lot for that link. Cool stuff, I didn't know about the NFP. So if it was released Friday in the morning, how come the plunge happened only happened Monday? I still prefer my view that a tiny bit of data cause people to expect a drop and get edgy, and at some point they all start selling. ("all start selling", again figuratively.) This is opposed to a bunch of people having done some ahead of time calculations like "if the NFP comes out about X we sell, if it comes out below X we buy. Oops it's about X, lets sell". I suspect very few market participants behave like this. (Agains, below/above X is figurative. I do understand what a probability distribution function is, what an expected value is, etc.) So here's one for you. If your reasoning is correct I would've expected to see treasuries down (which indeed was the case Friday). Instead they went up. How do you explain that?
  - simonh 9y ago
    > So if it was released Friday in the morning, how come the plunge happened only happened Monday? It started on Friday and accelerated on Monday. Adjust the chart to 5 days. Note the significant dip down right at the beginning of Friday 2nd followed by an all-day slide. https://www.google.co.uk/search?q=dow+jones+chart&oq=dow+jones+chart&aqs=chrome..69i57j0l5.3599j0j7&sourceid=chrome&ie=UTF-8 https://www.google.co.uk/search?q=dow+jones+chart&oq=dow+jon...
  - thisisit 9y ago
    Tiny bit of data? I can only say this - check out some older NFP releases and see what happens when there is a huge difference between the expected and actual data. During Greenspan's era there was another data point which was monitored a lot. I forgot the exact data point name. In the current NFP consensus on this one was 181k while the report was 200k which is nearly 10% variation from the expected value. As for treasuries, the upward movement is expected. It is considered to be a safe asset in the sense that there is a fixed return. Equities on the other hand are considered risky assets. So, for the most part they are negatively correlated. Markets are down, then bonds should go up. That said, markets and crowd wisdom are not perfect and don't always reflect all the information correctly all the time.
imron 9y ago
> The things you describe explain why people keep their finger hovering over the "sell" button, they don't explain why precisely today they decided to press it. How much was fingers on buttons, and how much was just automated trading algorithms?
- fwdpropaganda 9y ago
  Why is it that everything these days gets blamed on algorithms? Seems like intelectual laziness to me. "Algorithms did it, there's no sense to it, lets not think too hard."
  - w0utert 9y ago
    I don't believe algorithms decide the direction of markets, but it's pretty clear that they amplify effects triggered by real-world conditions. HFT trading is just a way to make money, and things like large market swings, high trade volumes etc. provides interesting exploits to do exactly that. You could call it 'intellectual laziness', I would call it Occam's razor.
    - fwdpropaganda 9y ago
      You realize that these things happened before computers too, right? Saying "algorithms did it" is as much of Occam's as saying "god created the universe": it's certainly an easier explanation than studying high-energy physics.
    - OscarCunningham 9y ago
      If HFT makes money from the large swings then you would expect HFT to have made the large swings less common. Exploiting an inefficiency removes it.
  - crucialfelix 9y ago
    Traders use mental algorithms. Portfolio managers write up trading plans with expectations, theories and the actions they intend to take. Computers are programmed to execute some of those algorithms. There isn't a dividing line between what algorithms in the heads of humans are doing and what the computers are doing, except that the computers are doing it several orders of magnitude faster.
adventured 9y ago
The 10 year treasury yield has recently strongly overtaken the S&P 500 dividend yield. That aggressive shift is guaranteed to end such a bubbly bull market run. https://assets.bwbx.io/images/users/iqjWHBFdfxIU/i9Zchv.nY_Nk/v2/-1x-1.png https://assets.bwbx.io/images/users/iqjWHBFdfxIU/i9Zchv.nY_N... The treasury move since September is one of the most aggressive of the last five years. What happened is simply an inflection point. Markets operate heavily by trigger points. Those are getting taken out, sparking reactions (selling, asset allocation adjustments). The Dow went up three thousand points in two months, after the market was already at bubble price levels on multiples. Shiller PE: http://www.multpl.com/shiller-pe/ http://www.multpl.com/shiller-pe/ These valuation levels are batshit crazy. It doesn't take much to crash something that over-extended. Let's be realistic here. Where was this market going from there? Dow 36,000 by 2019? A 45 PE for the S&P 500? It'll already take ten years of 3% US GDP expansion and higher global growth to bring the S&P's earnings multiple back to being close to reasonable.
- fwdpropaganda 9y ago
  I hear you. So are you saying that the 10-year yield compared to the S&P dividend yield is one of these trigger points?
- Economics4u 9y ago
  Why look at dividend yield when many large companies pay no dividends? The earnings yield on stocks is a bit over 5%. The 10 year isn't even 3%.
  - fwdpropaganda 9y ago
    I would guess the relevant metric is called "real returns": capital appreciation plus dividends minus inflation.
headmelted 9y ago
I don't live in the US, and my understanding of how the electoral system works out there is not fantastic, but it would also seem like there's some impact from the existential dread of democrats taking majorities in your mid-term elections. A lot of the run up since the end of last year was based on Trump's new tax plans, which the left were very much against, so it makes sense that measures would be taken to roll that back were they to be in a position to do so - and I'd expect that people are nervous because (unpopular as Trump is in polls) no-one knows how that's going to go. It seems (like here in the UK to be fair) that it's going to be a toss of a coin as to which extreme your economy is swung towards in the next election. Also, new money is entering the financial markets all the time that doesn't have the past experience of the ups-and-downs. People can be well read on the topic and still not have a steady hand when it comes to the first turbulence event they experience with their savings, so there will always be (or at least, has always been) a proportion of panic sellers in the market at any one time. (edit: This reads like I'm very right-wing. I'm really not, all I mean is that the market has gone up because of the big giveaway that might be snatched back again soon.)
- rectang 9y ago
  > measures would be taken to roll that back No chance of that happening until 2021 at the earliest, thanks to the presidential veto. The Democrats have zero chance of obtaining a veto-proof majority in the in the Senate.
  - headmelted 9y ago
    I didn't realize this, thanks for explaining that.
fro0116 9y ago
Indeed. All I see from this and similar threads here and articles all over the internet on topics like these is: "blah blah hindsight bias blah blah rationalization blah blah" At the end of the day, the only useful theories for the stock market are the ones that have predictive power. I'd be interested in reading articles by people who are consistently willing to put their money where their mouths are and consistently make money on their theories' predictions, but anyone who can do that of course tend to know better and tend to keep their mouths shut.
- fauigerzigerk 9y ago
  I think you're right that these theories and explanations are rarely useful for trading, but that's not the same as being wrong or unfounded. There is clearly some causality in the economy. There is also a causal relationship between the economy and the stock market. It's just that identifying a correct causal relationship or correlation and even making a correct prediction doesn't make you any money if everyone else is making the same correct prediction.
- mannykannot 9y ago
  All the theories are probabilistic, and it could not be any other way, because if there was a deterministic theory, people would react in ways that would invalidate the data and assumptions on which that theory's predictions are based.
bryanlarsen 9y ago
"everyone decided" It takes very few people to move the market. To dramatically oversimplify, if there are 1 million buyers and 1 million and 1 sellers, the market goes down until the number of buyers and sellers are equal again.
- viraptor 9y ago
  That's not really how the market is balanced. If there's a million sellers at 12.34 and 1 buyer at 12.33, nothing changes and the price didn't move.
  - bryanlarsen 9y ago
    The word "seller" and "buyer" implies there is actually selling and buying happening. In your scenario there are no sales, so no actual sellers and no actual buyers. We can argue over whose dramatic oversimplification is worse, but do you disagree with the basic point that a small number of people can dramatically move a large market?
    - viraptor 9y ago
      I'd go with "it takes a lot of money (relative to normal volume) to move the market, but it doesn't matter if it's one rich investor, or millions of tiny ones with the same idea".
mannykannot 9y ago
It is a simple matter of positive feedback. The more prices drop, the more of those people (and systems) with hovering fingers decide it is time to push the button. The tipping point might be when people who did not have hovering fingers become persuaded that it is time to sell. When things avalanche like this, the size of the response is determined by the size of the instability, not the size of the triggering event. Consequently, you cannot understand the event by looking at its trigger, but if you would like to know what sort of considerations the trigger was comprised of, the fact that the new Federal Reserve chairman is avowedly more determined to raise interest rates than his predecessor is as good as any.
patricius 9y ago
Perhaps because Jerome Powell took office February 5th as new Fed chairman
pbhjpbhj 9y ago
It's a chaotic system, if there were logical explanations (in general) then it would be predictable and everyone/no-one would always win the stock market gamble. Someone found out they had cancer, sold their shares, their broker thought they were acting on a tip-off because the women with cancer mentioned they play tennis with some CEO. The broker, goes short for all they're worth thinking it's their big opportunity, and recommends to others to sell (to guarantee the fall!), stock starts to fall, trips an algorithm that's looking for a particular gradient on index Y, ... meanwhile a rookie at a trading firm sells 1000 something instead of buying ... people who lost on Bitcoin recently are on edge and feeling cautious, a little blip and they want to end their position ... and on and on the snowball rolls. Someone sneezed in Mogadishu seems just as likely to be the "reason".

akhatri_aus 9y ago

> Too fast increase in interest rates will cause their debt obligations to balloon and lower profitability Its not so bad for companies that export with a weaker dollar. Also for primarily domestic businesses where higher inflation correlates to a higher top line. In fact is advantageous to be in such a situation.

Economics4u 9y ago
Exactly. There are winners and losers on every transaction. Did you ever wonder why people cry about rates being too low, now they cry about them being too high?

tonyedgecombe 9y ago

US companies now have record amount of debt. Yes, and the economy is at record size, nothing surprising here.

tome 9y ago
They key figure is debt to market cap ratio. So what's that figure?
- tonyedgecombe 9y ago
  So what's that figure? Go and look it up yourself if you are so excited about it, that has nothing to do with the vagueness of the original statement which was what I was highlighting.
  - tome 9y ago
    Your response was equally vague.
- danmaz74 9y ago
  Why debt to market cap? Maybe debt to assets, debt to sales and EBITDA, but debt to market cap doesn't look very significant.
  - tome 9y ago
    That's a fair point. But what's important is debt to something ratio (I don't know to what exactly) which neither of the first two comments on this thread seemed to make clear enough.
    - danmaz74 9y ago
      Fair enough.

rorykoehler 9y ago

This was always going to happen. Instead of trickle down we should be practicing filter up economics. Give the money to the people that need it so they can service their debts rather than turning the debts into derivatives and isolating them from the real economy.

crdoconnor 9y ago

>Low rates were expected to help kickstart the economy and prices and wages to increase. You're confusing the sales pitch used to justify low interest rates with what they were expected to do. They were expected to bail out insolvent banks and save them from the consequences of their collective bad decisions. Not raise wages. Not kickstart the economy. Fiscal stimulus is how you do that and they knew that. Had politicians instead gone to unions and asked "what the fuck should we do now?" the answer likely would have been "let those fuckers go under, fire/lock up all management that had fraud going on underneath them, nationalise the systemically important institutions and counteract the economic contraction brought on by a wave of banrkuptices with fiscal stimulus." That's no good though because reliable political donors like Jamie Dimon would be in an orange jumpsuit and wages might actually go up (bad for profits). So we got the band aid that was zero interest rates that kept the current lot on Wall Street who blew up the economy and encouraged fraud in a position where they still get to direct it.

adventured 9y ago
> They were expected to bail out insolvent banks and save them from the consequences of their collective bad decisions. They were also expected to - and did - bail out homeowners, having taken the hit of losing ten plus trillion dollars in fake housing value. The Fed also took trillions of dollars worth of junk mortgages off the market, dramatically accelerating value recovery for home owners. US home owners received the largest bailout in world history by a factor of 10. The Fed successfully fully reinflated the housing bubble. The four giant US banks are making ~$90 billion a year in profit. US home owners gained $20 trillion in fake housing wealth from the bottom, courtesy of the Fed's zero rate asset reinflation party with record low mortgage rates. It's obvious who got the sweetest bailout there. The big banks love higher interest rates. Their profits go up substantially as rates go up. If they had their way, rates would be a lot higher. Rates have been kept so artificially low, for the benefit of the housing market and the stock market (ie ~100 million of the wealthiest people on earth that reside in the top 1/2 income bracket and own everything in the US).
- crdoconnor 9y ago
  Bailing out homeowners is done with loan modifications not 0% interest rates. HAMP was the closest thing we got to that but even that was done as a gift to the banks (Google for "HAMP foaming the runway" for deets). A lot of homeowners did well out of low interest rates, but that was incidental. A lot also lost their homes and were rendered homeless. Under HAMP some home owners had their homes stolen from them - they were directed to go in to arrears in order to qualify for HAMP and after the bait and switch they were foreclosed upon. In other countries fraud like that gets you sent to prison. Not America.

Economics4u 9y ago

How are rising interest rates a risk? The Fed has been telling us they are coming for years. Long rates are finally moving up. I think people are going to be surprised about the coming global growth, just like they said the Fed moves would cause massive inflation, or that interest rates would never go beyond zero.

marcosdumay 9y ago

> US companies now have record amount of debt. By itself, this state is meaningless. This is exactly what investment kickstarting the economy looks like, as well as wasted investment on useless garbage.