Before the GFC the index was 1550, and after it was ~760 (~50% drop)
At the peak of the dotcom boom it was generally under 1500. In 2002 after that crash it was 800. (45% drop)
The recent peak was ~3380. A 50% drop is ~1700, which is almost 30% below where we ended today.
The question to ask yourself is how does this collapse compare to the dotcom collapse and the GFC?
The dotcom collapse affected internet businesses and was contagious (sorry) from there.
The GFC start with banks and finance and was contagious from there.
This starts with pretty much every industry, and has immediate impacts on supply and demand. It's going to be very ugly.
In this case, on the other hand, the primary mechanism is "people can't work/aren't going out and buying things". That's absolutely going to "go back to the way things were", in some sense. It's just a question of how long it will take, and how much damage will be dealt in the meantime. But it feels very different from those other ones, which could be good or bad.
Put differently, the GFC was like organ failure: things couldn't just heal, they had to be reworked and replaced. The current crisis is like a knife wound: the basic problem will heal on its own, but in the meantime you have to keep from bleeding out and hopefully avoid necrosis.
Once COVID-19 passes I would expect more of the same. For reasons that aren't entirely understood, inflationary effects of monetary stimulus are highly attenuated, at least for the average consumer, although they clearly contribute to the ever increasing wealth of top earners, not to mention financial assets. Who knows how long we can keep going down this road.
In the 1929 crash there was a run on the banks because there was no confidence in their survival. The world going to a wartime economy and increasing public spending reinvigorated things but it eventually caused high inflation in the US by the 1960's - one of those factors in the country's "1970 turning" in many policies. Fear of the balance sheet getting out of control again created the strategy of huge bailouts in the latter part of the 20th century, but a downside of doing it just through lending is the "crowding out" of those actors who aren't given bailouts - which in prior recent crashes were generally individual workers, homeowners and retail investors who just took it on the chin and were told to lower their expectations.
This time is different. The attention is on individuals and their problems, and I'm seeing an uptick in discussion of UBI and benefits beyond the existing trend. There isn't faith in this crisis being solved through the existing toolset.
https://www.washingtonpost.com/business/economy/corporate-de...
We can’t go back to the way things were if the global supply chain is damaged or completely stopped. And that’s not even considering local businesses that may never come back after this is over.
Public spaces on the other hand (retail, restaurants/bars, travel destinations), are just totally infeasible to make safe until things are fully over with. That's a serious cut to demand that just has to be waited-out.
This to me is more akin to a natural disaster which wipes out large amounts of our economic infrastructure in the form of consumer spending. How do people and businesses bridge the gap? Businesses are already over-leveraged due to incredibly cheap debt. Some have good balance sheets and will survive, but many many will not. Most small businesses cannot survive 2 months without being in business, let alone 6. The solution can't be for them to take out loans which they'll never be able to pay off.
The thought that this is just an acute problem that will go away is wishful thinking. The effects will be further and wider than many of us can imagine right now.
China printed money in the past 10 years on a scale we've never before seen in history (300% Debt-to-GDP). They remain in a trade war with the US, are being blamed for the virus and their economy has shut down. Things aren't "going back to normal".
You claimed the the GFC and dotcom bust "revealed fundamental problems in the marketplace", but "In this case...the primary mechanism is "people can't work/aren't going out and buying things". That's..going to "go back to the way things were"
To which I explained to you there are fundamental issues with this as well, mainly the world's second largest economy is messed up, royally. What context did I miss?
> the primary mechanism is "people can't work/aren't going out and buying things"
As soon as it's safe, people will very quickly start working and consuming again. The world around that mechanism will have changed - some businesses will have closed, some jobs will have been lost, some personal finances will have taken a hit - but people's desire to work for income and spend money on goods didn't break. It's only being blocked for a little while. The circumstances around that are an independent question.
Your premise is at fault ("this is about buying goods"). The virus is a catalyst, not a cause.
Do you know if the Chinese economy will ever recover in the way you claim? Are you even considering the world outside your country? This is bigger than a few people not going out to bars and restaurants. Industrial production has been slowing for months, global debt was increasing exponentially for a decade, political tensions are rising globally, people are dying around the world because of government mismanagement of a pandemic.
You can keep repeating that things will go back to normal when people start shopping again, but if that's the extent of how you view what's happening now, you're likely wrong.
Disproportionately affecting people outside of prime working ages.
> political tensions are rising globally
For now, and they will eventually subside. Because they always do. And always will.
> Do you know if the Chinese economy will ever recover
Why wouldn't it (eventually)? Demand will change, but people aren't going to forget how to work, how to buy, or how to build. There is a _ton_ of cultural infrastructure that goes beyond physical infrastructure and ultimately, unless we were all building stuff nobody actually wanted or could use (e.g. dotcom bubble) the economy will eventually recover.
We don't know the timing, or the extent that bad assets will be kicked out (e.g. mortgages), and we also don't know to what extent money printing has erased savings, but ultimately there's a tremendous amount of cultural and physical infrastructure that will continue to exist, and a tremendous amount of demand that will return.
This is not how markets work.
Not sure why a crash has to be expected or should be the norm.
All you have to do is have an unlikely intersection of events (one being a bust) and you have a crash.
South Korea, China, Singapore are encouraging and seeing a return back to (almost) normal life. Granted, we're not dealing with this nearly as effectively and there may be a 2nd wave to come. But at this point they seem to make the case for optimism.
‘It’s Just Everywhere Already’: How Delays in Testing Set Back the U.S. Coronavirus Response[1]
[0]: https://www.vox.com/science-and-health/2020/3/12/21175034/co...
[1]: https://www.nytimes.com/2020/03/10/us/coronavirus-testing-de...
In contrast, Japan, Taiwan, Singapore, Thailand, and Hong Kong got right on top of it, and early. They're also the only countries seeing a flat rather than exponential trend right now. Which means their hospitals are not at threat of being overwhelmed.
Let's not forget screwing up the manufacturing of the test. [1]
[1] https://www.cdc.gov/coronavirus/2019-ncov/about/testing.html
What would a housing correction look like? Demand still outstrip supply in hot markets, so the worst thing that'll happen is that the housing prices will have a slight dip, and that's it. Also, with the Fed lowering interest rates to zero and possibly lower, that'll continue to inflate the value of assets such as houses.
"apt get" -- automatically update your Debian machine.
I don't have a full understanding of the Repo market, but I do get it at a moderate level. I understand that it acts as the "lube" to our financial system and It's obvious it's not functioning correctly. What effect will this happen on the growing corporate debt that's out there? What effect will the lower revenues have on the ability for business' to pay back the debt and interest?
These are questions I have, but don't necessarily have factual answers for. However I don't feel good about the answers to them and for that reason do think were in for a recession.
If S&P drops ratings for many companies, many banks will end up holding bags; in which case, the fed will come to rescue these banks.
I'm not sure I agree with this statement. The repo market may not help or hinder corp debt directly, but I think it very much so effects corporate debt.
Corporations presumably get their loans from banks. What facilitates banks to make these loans? The Repo market. What happens if the repo market collapses / shrinks / endures instability? Banks most likely, would not be able to make as many loans and the rate for future loans would increase due to lower supply and higher demand.
On top of future loans, this could have a negative impact to current outstanding loans held by corps. I'm not 100% sure the terms of corporate loans, but if they have variable rate loans with banks, this shrinking of loan supply coupled with increased demand for liquidity would surely hurt some of these corporations.
What repos do: swap one kind of IOU (I owe you) with another kind of IOU. This doesn't make banks to issue new loans to distressed companies, any more than you/I can give loans to a dead beat. During good times, everyone is happy to issue loans.
Exogenous shocks usually don't provoke recessions but is going to be like a planet-wide tidal wave. Things are going to be very different at the end. Huge, efficient enterprises may well end up even stronger but would the market for a given medium sized enterprise even make sense? We don't know.
Full disclosure: I've been short term short the market for the last three weeks.
You hit the exact peak of the market before deciding to short? Wow. Can you share with us your prognostications on just how "short-term" you expect this to be, or will you update us with hindsight on that, too?
"I've been short the market" after a 30% draw-down is the new version of all prisoners claiming they're innocent. It's never "I started to get defensive 6 months ago" or "I went to half cash expecting a crash near-term". Top tick and went short. Every forum, every time.
This is where /r/wallstreetbets has it right: if you aren't going to post your trade in advance or verify it, don't talk about it.
I just don't tell people that I chickened out and covered on the first rally...
(or that I then put it all into GLD...)
A significant cause for the massive drop today is that indicators out of China are that the disruption is much, much larger than anyone accounted for.
A few days ago there was a guy talking about refinancing his house and putting 20% of the value into the market[1]. He asked whether it was a bad time. I said it was a bad time -- not that it was going up or down but that there is enormous uncertainty and a long way to drop -- and got moderated down to the gray. The non-gray comments were all that this is a great time. Buy 'em on sale is a claim that has been foolishly made again and again.
No, it isn't a great time. Anyone deluding themselves that there is a market "bottom" that it is bouncing off of has been proven wrong repeatedly. Over the past couple of days the federal government has done more to try to fix the markets than they did during the entire housing crash, but compressing it all into a weekend. They have essentially nothing left.
And here we are, staring into the abyss.
Things will improve, and at one point we'll laugh about this and consider it all an overreaction, etc. But there's a lot of downside between now and then. And if history is any example, once we bottom out we'll hang around for a while.
[1] Oh add that we have historic debt levels, bubbled house prices in some areas, and the simple idea of financing the current, elevated value of a house seems risky.
One minor point the Federal Reserve has pulled all of their levers to keep credit moving.
The Federal Government has yet to do any fiscal stimulus, which is what's really needed here. If the US government decided to go into $2T+ of debt over the next few weeks and directed that spending at individuals instead of industry bailouts, then I predict the economic consequences of this event would be much shallower than it would be otherwise. They can borrow this money at damn near zero interest right now.
> And here we are, staring into the abyss.
Just in the Seattle area, we've had 10's of restaurant closures announced. The Tom Douglas restaurant group has laid off a good portion of its 800 employees. So the Seattle area alone has probably lost >2,000 jobs already. That's probably seriously on the low side.
I truly think we're looking at a staggering number of unemployed in this country within a few months. Like, great depression staggering. The GFC was terrible, but every neighbourhood service business did not suddenly have 75% of their business disappear or were forced to close. This is much, much different. These jobs will go away in a flood and come back in a trickle. Without a vaccine, we will need to hold some level of countermeasures for up to 18 months - nobody will go out to eat, etc.
They have very good control of their borders and the (medical) resources to act in case of trouble. Not only that but I think they have learned a few lessons after the 2002-2004 SARS outbreak.
Anecdotal, but while in Hong Kong (2014) there were a few things that stood out:
- they had thermal screening for ALL passengers - while walking towards customs an agent asked me to take my hat off and pointed to the thermal cameras. In contrast, at Bucharest's airport they were set up 3 weeks ago. As of 2019, there were 1.2M Romanian citizens living in Italy, about 600k in the northern part.
- banners against spitting in the trash bin - coming with a big fine. More generally speaking, a general state of cleanliness which can't be found in many EU capitals.
- no toilets in the subway - might be sources of contamination. And when you finally found a public toilet, they were as clean as they can be.
I think there are better odds of finding a cure fast than for Europe to contain this. Note, the evening before the Milan area lockdown people were rushing to the train stations - Schenghen area is borderless.
The moment I step out of a train arriving at central station it smells like piss and a bunch of drunk homeless people perform a spitting contest.
Of course. Do you think people will stop working, going out, watching movies, buying cars, etc forever?
Every market decline, people think the world is going to end. But the world just keeps chugging along.
During the 2008 financial crisis, people were predicting the end of the world, bank runs, financial collapse, etc. The most recent ebola scare, people were talking about pandemic, every hospital being at capacity, death rate, triage and the end of the world.
In a few years, we'll do this all over again. The markets will be reinflated, the markets will decline, we'll have another crisis, the news will feed panic for ad money and people will go out of their minds. Then things will return to normal.
If these health policies undershoot their targets in term of number of people infected, then we may have to deal with this virus again next fall/winter, so add a few more months of similar pain.
I just don't see how this will not have lasting effects. Even in Dec 2008, at the very worst of the crisis, you had deep discounts in shops, but at least you could consume. But here all malls will be basically closed.
Our state and many others have closed schools, made all restaurants take-out/delivery only, barred gatherings of > 10 people, etc. I don't know how the small businesses are going to survive more than a couple weeks of this.
I worry this will go so far that it’ll take a very long time for worldwide business to heal due to layoffs and wrecked personal finances killing demand even when we’re past the corona spike, and by then weapons like Fed’s lowered rates will have already been used.
I wouldn’t be surprised if we’re leaving this year with a -50% stock market value and 5-10 years for everything to get back to speed and valuation like it were.
It’s not even uncommon advice to not be heavily into the stock market if you have less than a >7 year savings horizon for these reasons.
* I kid, I kid. Mostly...
Even if this is only a relatively mild recession like 2000 or 1973, we'll be seeing 1600 - 1700 SPX or at least 30% below today's close.
In November, Goldman Sachs was calling for 3.5% Global GDP growth. They are guessing, like the rest of us.
You're right, there's a lot of research that goes into the forecasts. What I meant was the results are no better than guessing.
>They would have likely been right
I would have likely been right about every forecast I've ever made if it wasn't for unexpected things happening.
Covid19 had started in China in November, when the forecast was made. How did they account for it in their models? "It won't matter" was a huge miss.
How about this one?:
"According to Goldman Sachs, Brent and WTI crude oil spot prices could average $63 per barrel and $58.5 per barrel, respectively, in 2020."
We're at <$30. I mean, they correctly anticipated the breakup of "OPEC+", but blew the forecast tremendously.
https://marketrealist.com/2019/12/oil-prices-outlook-goldman...
You can endlessly Google examples. My point isn't that I'm better, but that Goldman Sachs' predictions are nigh worthless. And that's before taking into account any conflict of interest.
The swings, and combined with high leverage positions, can wipe out firms.
Today, Vanguard and Fidelity wanted to sell 6M shares of $ROKU after hours through Morgan Stanley. That's how things will go.
It is a panic, but its justifiable to panic over the entire economy being shut down for an undetermined amount of time. No person on earth can say when this will end, given what we currently know about the virus, whether its possible to become reinfected, and how effective our strategies will be.
I'd love to make large buys of stocks at a time like this, but I have no idea whether my job/company/industry is safe. Last time I was laid off from work was particularly rough for me, and I'm only just now getting back on my feet.
The uncertainty of the situation is probably making many others think twice before buying/spending so that's going to make it harder for stock prices to recover in the short term.
If you have stocks in a pre-tax retirement account like a traditional IRA in the US (or RRSP in Canada?), now could be a good time to sell them, move the money into a post-tax account like a ROTH IRA (or TFSA?), then buy the equivalent number of stocks there.
You will pay reduced taxes because the value of the stocks is relatively low, then pay no tax when you finally withdraw from the ROTH. (All else being equal and imho, the market is likely to recover over time)
That is, if you don't mind the risk that the market might massively rebound in the middle of the transaction.
There are a bunch of assumptions here. Do your own research and don't blindly believe a stranger on the Internet. Make sure you understand the taxes, fees, penalties, or whatever you will have to pay.
I've made that mistake before.
If you have a healthy emergency fund in cash to cover your liabilities for 6 months (or even 1 year to be more conservative in this environment), what is the problem in throwing every bit of cash that comes your way (paycheck savings, ...) and you won't need for a few years, at the stock market as it goes down? Over decades the stock market has had an IRR or 8%+, and that IRR includes crashes like these.
No it doesn’t.
This is what I mean and what I do, by always allocating the same amount of savings per year, in good or bad times [1]. You can see how in 2008 such portfolio had a drawdown of more than -50%. Despite that, it performed well above the 8% IRR I mentioned.
Another interesting data point, by investing lump sums of money at the very peak of every market cycle, immediately followed by a massive crash [2]. I believe the IRR in this case is still above 7%, which is absolutely phenomenal considering the horrible investing timing.
If you don't agree, please tell me exactly why I am wrong and why you are right, so I might learn something. I come to HN to read HN-quality comments, not Reddit-quality content. Thank you.
[1] https://www.portfoliovisualizer.com/backtest-asset-class-all...
[2] https://awealthofcommonsense.com/2014/02/worlds-worst-market...
I don’t know any other investment which is completely passive that will statistically allow me to grow my capital over the long term. So yes, I will rely on 100 years of data I have, and to prevent Nikkei I try to diversify using a healthy international allocation. If you have a different investing vehicle to suggest, please let me know.
Land, seeds, livestock and ammo. If you're worried that the market might collapse so hard that it won't recover in your lifetime, then trading money for lasting goods while money still has value is the best course of action.
Personally, I'm not convinced it's going to get that bad, but I have friends who have gone down that route. They all prefer their new lives to their old ones.
When you sell a stock for less than you bought it (like if you sell something right now that you bought less than 3 years ago) you can subtract that from your capital gains taxes. This works even when you turn around an immediately buy something similar (but not the same, you'll have to wait a month to buy the same thing back).
There is a limit to the amount of tax losses you can claim for a given year, but you can claim the rest of your losses in the years to come.
I'm not sure if you'll actually come out ahead, since everything you buy today will have a lower cost basis and thus will increase your capital gains taxes in the future.
For now, wait and see if I just invoked Cunningham's Law. :)
This is why you have a robust social safety net. Not because the liberals and hippies think lazy people are entitled to free stuff; because everything - everything - is built on faith that the bottom won't ruin "you," specifically.
Huh, I didn't consider this possibility because I can't imagine the underlying index (this one's related to the S&P 500) going up enough for that to happen. But then again, I suppose those speculating in XIV didn't expect those volatility spikes either.
For me, though, I figure the downside is capped for the relatively small amount of money I put into this 3x inverse ETF: if the fund goes all the way to $0, then I've only lost the original investment. (But also, if it goes to $0, that's probably a good thing for the rest of my portfolio.)
https://finance.yahoo.com/quote/tvix?ltr=1What's 'a few years' mean to you? The Nikkei hit its high of 40K around 1989-89 and hasn't traded above 80% of that in the 30 years since.
We will continue to provide workers and consumers over the coming decades - economy-wide demand will return once the crononavirus threat subsides.
I'm guessing the above poster meant something more like "period of society-wide economic hardship" by recession. By that more colloquial definition, you might say the great recession lasted through 2014. The stock price plummet, however, was largely finished for most of that period of hardship.
I have no crystal ball; I can't tell you where we are going to be. But if the above poster meant "We're past the plummet, all that's left is the slow climb back to normalcy" then their comment makes more sense.
What you are suggesting is market timing. I am not very good at it, and I don't think most people are. You not only have to know when to sell, but you have to know when to buy back in. You have to get it right twice.
You should not try to time the market. And hopefully you don't really mean "buy back in" (meaning your panicked and sold, you should just be adding/averaging down). Just look for general buying opportunities and don't kick yourself if the market falls a bit further before it rebounds.
Sure loss harvesting is nice but those credits still represent money lost, and said loss far exceeds any taxes on gains I'll be making for a while
To anyone else, recognize that the citizenry is not limited to being passively investing in stocks, yet many of them are when they shouldn't be.
People in all the other markets say "buy the dip" arbitrarily too, and many of those markets are often inversely correlated to the stock market. So just repeating what your favorite investment guru once said does not give you any more insight than the next person.
They all fell.
If. Make your own decisions.
Since 2008 money means something different. The fed will keep releasing liquid funds for banks to buy up all the cheap stock. Or the US government might even give away money to keep consumer spending going. Either way it will expand the money supply enough until the SP500 goes back to 3000 even if 3000 equals 1500 in 2019 money.
But that's exactly what a good many fools are doing, which explains the downward price pressure.
> I think a severe recession is all but guaranteed at this point. Let's hope we get through this with no more than that.
I suspect it's going to be remembered as a redistribution of wealth from hotter heads to cooler heads.
we can already observe this on the health side, there was quite a good amount of monitoring and collaboration (too late and too little) but nothing compared to 100 years ago pandemic for instance
we have a bit more tools to work with and a bit more knowledge. hopefully (hopefully) we can flatten the dip too :)
Recession yes, severe, maybe not. (thought I admit the possibility) I think if the current distancing measures curtail the spread, then by July (maybe sooner) things could begin to inch back upwards. Then it's a matter of how much the next flu season impacts things, but by that time we should also be within 6-8 months or so of a vaccine. Recession for the next 1.5 years is definitely in the cards, but this is a unique circumstance with a unique, specific cause. If that cause is removed, a return to normalcy shouldn't be so far behind that a recession is "severe".
Businesses, big and small, are going to take a huge hit from this that will take a long time to recover from. Probably more than most (all?) of is have seen in our lifetime.
Seems like this is something we’ve never faced before, and it’s not that highly unlikely that we’ll see some pretty nasty and long-term impacts from this.
1. Today's drop is sort of misleading because it followed an irrational (IMO) low volume rally on Friday. We're still roughly flat from last week.
2. A recession is pretty much what we're ASKING for in order to stop the virus. People need to stay away from one another. So if it's not online, the business should be closed.
3. (bonus point) Unlike systemic recessions (like 2008), this one is purely externally driven (like 2001) - which means it's temporary. Whether we deploy a vaccine, deploy anti-virals, flatten the curve, or just suffer, it'll still be over in a maximum of 18 months. Since stocks are valued by their 20 year forward earnings, the market is very much oversold. (the exception being for companies that is going to go bankrupt in the next year due to cash flow issues - and receive no bailout).
https://www.cnbc.com/2020/03/16/coronavirus-makes-airlines-c...
I'll be curious how this affects package delivery, personally. A lot of 2-day shipping flies on those passenger planes. If anything shipping volume will be up but there will be fewer planes to put it on.
This is not a small issue. If businesses are closed for two or three months, I believe half of the businesses in this country will be close to bankruptcy.
You can't just assert it's temporary. You can say, "The causes of this downturn are temporary."
We have no idea what the market will do in the future. We have strong evidence it will recover, but that's not the same thing.
I too am hopeful, but I think there is 10-15% chance of massive long term economic downside
This can't be stressed enough. It may take a while but everything is going to be alright and normal again.
A lot of the companies that do survive, will take a huge beating by the government, forcing them to be more resilient (to supply chain problems, short-term lack of labour, ...), reducing expected profits.
I 100% expect made in USA (or made locally for other countries) to be the selling point of both Trump and the Democratic candidate the next election. Most certainly after a shock like this.
Now is not a good time to sell your stock holdings (at least not anymore). This smells of a panic right now.
I think a severe recession is all but guaranteed at this point. Let's hope we get through this with no more than that.