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It's kind of like asking yourself seriously how many computers out there are running outdated software.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.
There are other reasons why stupid decisions are being made by bots.
For example, response times matter. Often you have a tradeoff between making a bad decision quickly, or a good decision more slowly. It isn't clear that being smart is worthwhile...
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.
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.
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).
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.
> 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_Unit... https://en.wikipedia.org/wiki/List_of_stock_market_crashes_a...
2008 and 2015 are economic events which feel to me like they're based in inequality manifesting in different ways.
The problem for those younger people entering the market is not that they don't consume - in fact, they consume readily - but that they can't afford property and don't receive adequate pensions or other benefits.
If they can't afford to buy a property, a whole cascade of secondary 'new place' purchases don't happen.. it's a symptom of not enough circulating money at the center of society to sustain the economy.
The crash part comes when investors look at falling activity in China, and falling commodity prices as strong indicators that global demand is falling.
The phenomenon where lots of cheap capital causes junk companies to do dumb things fueled by debt isn't a new one.
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.
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.
Medicare will be a second-tier service. That's nearly inevitable. But nobody will do anything about this until they have to.
And frankly, longevity of Baby Boomers doesn't seem as likely to work out as it did for the WWII and Silent Generations.
I agree wholeheartedly about "mismanaged the finances" but this is the world we live in.
While this is quite true, there are underlying demographic factors to take into account. Namely, insofar as voting means anything at all, Generations X and Y together now outnumber the Baby Boomers among voting, working adults. This means that there is now an active, demographically-driven political conflict between the interest of incumbent creditors and the interest of an increasingly large majority of the voting, working adult public.
Very little of the credit created on the balance sheet has actually entered the market.
In the public bond market, how is lending fleecing the "non-investor class"?
Again, much of the money printed is just sitting on the balance sheets and haven't made it's way into the market.
You're saying that lenders who borrow from the Fed then lend to large organizations who do buybacks. Why does this hurt non-investors?
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.
Looking at 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.
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.
They did for a while. That part's over, though.
Which is the tricky part.
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.
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.
Put your $ where your mouth is.
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.
Seems a bit naive...
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-h...
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.