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> 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 everyo

> 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.
- fwdpropaganda 9y ago
  I hear you, but it's still interesting to think that high inflation expectations means both bonds and stocks down, but much higher inflation expectations means stocks crash and therefore bonds is safe so they go up :-) Put differently, I could also argue that bonds up is irrational given higher inflation expectations and this move up will be short lived. Time to short bonds ;-) Will check out older NFP, thanks. > Tiny bit of data? I phrased it all wrong. What I wanted to convey is a lot of data points slightly pointing in one direction, none of which move anything individually, but at some point people realize that everything in pointing in a downwards direction, and get scared. Anyway, thanks for the chat.
  - rmrm 9y ago
    Taking that line of thought further, that means if bonds and stocks are both down, then cash is a good place to be...when inflation is up? Investing is hard.
    - fwdpropaganda 9y ago
      That's right, because cash is money now, bonds is money later. If inflation is high I'd rather have $100 now than $100 later. Of course, real decisions are made on figures. The actual way of making this decision would be to compare the bond yield with the expected inflation. If expected inflation is higher than the bonds yields I'm going to sell my bonds for cash and so will a lot of people, so the bonds price will drop and the yields will raise until a point where they're attractive again. But yes, it is hard.
      - rmrm 9y ago
        Projecting bonds being down/increasing yields isnt surprising in any way in inflationary environment. The harder thing to get around is stocks, which should outperform cash in an inflationary environment. To me it just shows that there are many dependencies, and it is not always simple to project an outcome or response for a given class to an event.
    - 9y ago
hueving 9y ago
>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? Treasuries become risk aversion vehicles during large equity sell-offs. Whatever downward pressure was put on them for a hypothetical rate raise was dwarfed by the fear driven movement from stocks into bonds. Why into US treasuries you might ask. It's because they are a nearly risk-free way of parking money at a better rate than the money market while maintaining good enough liquidity to easy sell back out of the position.
pyoung 9y ago
> if the NFP comes out about X we sell, if it comes out below X we buy The stock market works on supply and demand. For every seller, there needs to be a buyer. Let's assume that TSLA stock changes hands at a rate of 10k shares per day on average. The NFP report could cause a number of potential buyers to decide to hold off on buying. Assuming the sell interest is constant, this would likely result in a price drop. So no one has to actively buy/sell on the data in the NFP report (although some people might do that). If the NFP report causes buyers to stay home, prices will go down, and if it causes sellers to sit on their stock, prices can go up. And of course this greatly oversimplifies reality. In any given day there are probably a number of different factors influencing sellers and buyers. Some people might be selling/buying to rebalance a portfolio. Some might be buying for their 401k. Some might be selling to cash out employee stock options. Some might be daytrading on the NFP report. And the movement in price is largely just a result of any aggregate imbalance between supply and demand. For me personally, I have stopped buying stock because I think the market is too overvalued right now. I know a few others how have stopped as well. As more people do this, the 'buy side' gets thinner increasing the odds of a drop.

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.

fwdpropaganda 9y ago
I hear you, but it's still interesting to think that high inflation expectations means both bonds and stocks down, but much higher inflation expectations means stocks crash and therefore bonds is safe so they go up :-) Put differently, I could also argue that bonds up is irrational given higher inflation expectations and this move up will be short lived. Time to short bonds ;-) Will check out older NFP, thanks. > Tiny bit of data? I phrased it all wrong. What I wanted to convey is a lot of data points slightly pointing in one direction, none of which move anything individually, but at some point people realize that everything in pointing in a downwards direction, and get scared. Anyway, thanks for the chat.
- rmrm 9y ago
  Taking that line of thought further, that means if bonds and stocks are both down, then cash is a good place to be...when inflation is up? Investing is hard.
  - fwdpropaganda 9y ago
    That's right, because cash is money now, bonds is money later. If inflation is high I'd rather have $100 now than $100 later. Of course, real decisions are made on figures. The actual way of making this decision would be to compare the bond yield with the expected inflation. If expected inflation is higher than the bonds yields I'm going to sell my bonds for cash and so will a lot of people, so the bonds price will drop and the yields will raise until a point where they're attractive again. But yes, it is hard.
    - rmrm 9y ago
      Projecting bonds being down/increasing yields isnt surprising in any way in inflationary environment. The harder thing to get around is stocks, which should outperform cash in an inflationary environment. To me it just shows that there are many dependencies, and it is not always simple to project an outcome or response for a given class to an event.
  - 9y ago

hueving 9y ago

>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? Treasuries become risk aversion vehicles during large equity sell-offs. Whatever downward pressure was put on them for a hypothetical rate raise was dwarfed by the fear driven movement from stocks into bonds. Why into US treasuries you might ask. It's because they are a nearly risk-free way of parking money at a better rate than the money market while maintaining good enough liquidity to easy sell back out of the position.

pyoung 9y ago

> if the NFP comes out about X we sell, if it comes out below X we buy The stock market works on supply and demand. For every seller, there needs to be a buyer. Let's assume that TSLA stock changes hands at a rate of 10k shares per day on average. The NFP report could cause a number of potential buyers to decide to hold off on buying. Assuming the sell interest is constant, this would likely result in a price drop. So no one has to actively buy/sell on the data in the NFP report (although some people might do that). If the NFP report causes buyers to stay home, prices will go down, and if it causes sellers to sit on their stock, prices can go up. And of course this greatly oversimplifies reality. In any given day there are probably a number of different factors influencing sellers and buyers. Some people might be selling/buying to rebalance a portfolio. Some might be buying for their 401k. Some might be selling to cash out employee stock options. Some might be daytrading on the NFP report. And the movement in price is largely just a result of any aggregate imbalance between supply and demand. For me personally, I have stopped buying stock because I think the market is too overvalued right now. I know a few others how have stopped as well. As more people do this, the 'buy side' gets thinner increasing the odds of a drop.