Stock market is a "fully-fledged epic bubble" and will burst

[RSTurboPaul]

vulture1 said:

Mr Whippy said:

The big question now is does this bubble go fast, or slooioowwww.

1929 was just the start of the Great Depression.

Much much faster than 29 as the world is a faster more connected place.

And there wasn't (what I have heard guesstimated as) 2 quadrillion dollars worth of derivatives in the US market.

[RSTurboPaul]

BorkBorkBork said:

...

Consumer debt in the US spiked this year, after all the free covid money ran out, people still want to spend. And they’re taking on debt to do it.

Nothing to do with rampant price inflation of goods and services, meaning a need to take on debt to maintain even a basic standard of living?

[ATM]

Mr Whippy said:

Today an absolute ton of garbage is bought at any price because it’s in big tracker packages, a ton of the buyers aren’t even making a choice based on data or guidance or the outlook.

This

Buffet told everyone to just buy sp500 trackers and a massive amount of money does just that every month. They are all dollar cost averaging. It takes really big moves to scare them out of their positions. These inflows to the market pour in like clockwork.

The only real shorters are the hedge funds who have massive amounts of funds now as they made lots over the last few years. When they short it's like shooting fish in a barrel because quite literally everyone else is long.

If there is a world full of people blindly buying sp500 trackers I can't understand how anyone can think this market has good price discovery.

Then we have the big fund managers who actively manage their clients money. They can't really go short on anything. They have to just buy stuff as this money also pours in like clockwork every month. They can't be going in and out willy nilly and therefore adjust allocations slowly. They do obviously sell when adjusting or reallocating. They can rotate out of sectors and into others or out of individual stocks and into others. Some may be able to park some as cash but some are not allowed or the percentage is limited.

There are some fringe funds with much much lower amounts of money who are allowed to short or hedge with puts and derivatives.

[Derek Chevalier]

ATM said:

They are all dollar cost averaging. It takes really big moves to scare them out of their positions

https://www.bloomberg.com/news/articles/2022-02-01/worst-ever-outflows-for-spy-etf-as-qqq-bleeds-most-since-dot-com

"The world’s biggest exchange-traded fund posted its worst monthly outflow in its near three-decade history with investors selling the Monday stock rebound en masse."

There's certainly some sellers.

ATM said:

These inflows to the market pour in like clockwork.

See above

ATM said:

The only real shorters are the hedge funds who have massive amounts of funds now as they made lots over the last few years

Which type/style of hedge fund in particular were you thinking of? Any examples? Certainly some of the quant funds have done very well making money from the influx of novice day traders, but this isn't necessarily shorting.

ATM said:

When they short it's like shooting fish in a barrel because quite literally everyone else is long.

You sure about that? I don't see much evidence of such an approach working consistently over time.

"If there is a world full of people blindly buying sp500 trackers I can't understand how anyone can think this market has good price discovery."

What exactly is your definition of price discovery?

https://en.wikipedia.org/wiki/Price_discovery

There seems to be plenty of volume, and lots of "innovation" to enable people to short (potentially on a leveraged basis).

https://www.cnbc.com/2022/08/18/tactical-trading-v...
https://www.morningstar.co.uk/uk/news/226198/dont-...
https://www.nasdaq.com/articles/what-is-the-real-t...

ATM said:

There are some fringe funds with much much lower amounts of money who are allowed to short or hedge with puts and derivatives.

Examples?

[Derek Chevalier]

RSTurboPaul said:

vulture1 said:

Mr Whippy said:

The big question now is does this bubble go fast, or slooioowwww.

1929 was just the start of the Great Depression.

Much much faster than 29 as the world is a faster more connected place.

And there wasn't (what I have heard guesstimated as) 2 quadrillion dollars worth of derivatives in the US market.

What types of derivative in particular concern you? Do you still feel there are problems (counterparty risk etc) since the GFC?

[LeoSayer]

ATM said:

Buffet told everyone to just buy sp500 trackers and a massive amount of money does just that every month. They are all dollar cost averaging. It takes really big moves to scare them out of their positions. These inflows to the market pour in like clockwork.

The only real shorters are the hedge funds who have massive amounts of funds now as they made lots over the last few years. When they short it's like shooting fish in a barrel because quite literally everyone else is long.

If there is a world full of people blindly buying sp500 trackers I can't understand how anyone can think this market has good price discovery.

Then we have the big fund managers who actively manage their clients money. They can't really go short on anything. They have to just buy stuff as this money also pours in like clockwork every month. They can't be going in and out willy nilly and therefore adjust allocations slowly. They do obviously sell when adjusting or reallocating. They can rotate out of sectors and into others or out of individual stocks and into others. Some may be able to park some as cash but some are not allowed or the percentage is limited.

There are some fringe funds with much much lower amounts of money who are allowed to short or hedge with puts and derivatives.

Index funds make up a small amount (c. 5%?) of all trading activity. If they were truly starting to distort the market then I expect we'd see much less stock and market volatility than we currently see. Equally, I don't see liquidity drying up because of index fund demand - there are always sellers.

There may well be a tipping point in the future where index funds do start to have material influence on prices but equally I expect active asset managers/traders will increasingly find ways to exploit that.

[Sheepshanks]

Derek Chevalier said:

https://www.bloomberg.com/news/articles/2022-02-01...

"The world’s biggest exchange-traded fund posted its worst monthly outflow in its near three-decade history with investors selling the Monday stock rebound en masse."

At first I thought that was for this week - nice increase on US markets on Monday then yesterday was a bloodbath.

[Mr Whippy]

Derek Chevalier said:

RSTurboPaul said:

vulture1 said:

Mr Whippy said:

The big question now is does this bubble go fast, or slooioowwww.

1929 was just the start of the Great Depression.

Much much faster than 29 as the world is a faster more connected place.

And there wasn't (what I have heard guesstimated as) 2 quadrillion dollars worth of derivatives in the US market.

What types of derivative in particular concern you? Do you still feel there are problems (counterparty risk etc) since the GFC?

So you’re saying everyone can be made whole in a heavy selling event?

Isn’t the issue the leverage of collateral that itself can be leveraged?

Isn’t this why thing like Archegos show the potential risks because the exposures across the system either aren’t fully documented, or known at all?

[ATM]

Mr Whippy said:

Isn’t the issue the leverage of collateral that itself can be leveraged?

Isn’t this why thing like Archegos show the potential risks because the exposures across the system either aren’t fully documented, or known at all?

Surely as rates rise the cost of borrowing becomes a factor, as in these leveraged positions have to start paying interest on the money borrowed right?

[Derek Chevalier]

Mr Whippy said:

Derek Chevalier said:

RSTurboPaul said:

vulture1 said:

Mr Whippy said:

The big question now is does this bubble go fast, or slooioowwww.

1929 was just the start of the Great Depression.

Much much faster than 29 as the world is a faster more connected place.

And there wasn't (what I have heard guesstimated as) 2 quadrillion dollars worth of derivatives in the US market.

What types of derivative in particular concern you? Do you still feel there are problems (counterparty risk etc) since the GFC?

So you’re saying everyone can be made whole in a heavy selling event?

Isn’t the issue the leverage of collateral that itself can be leveraged?

Isn’t this why thing like Archegos show the potential risks because the exposures across the system either aren’t fully documented, or known at all?

We really need someone to comment who is a lot closer to the action.

Certainly winding back to the GFC, the credit markets evolved to try and reduce/eliminate potential issues

https://cdn.ihsmarkit.com/www/pdf/1221/CDS-Indices...

"In the years following the Global Financial Crisis there has also been a continued push for
centralised clearing of CDS to reduce uncertainty around counterparty risk and to increase
transparency. Without clearing, the CDS market would be an opaque and systemic-risk prone web
of exposures across multiple bi-lateral counterparties. However, via intermediary clearing and its
11
hub-and-spoke model, a well-funded central counterparty (a CCP) can act as the counterpart for all
trades with all collateral flowing through them thus reducing the amount of inter-dealer positions
and associated counterparty risks.
Standardisation and central clearing (in place now for most standard CDS and CDS index
contracts) has facilitated the netting or novation of excess and redundant CDS positions, resulting
in compression of total notional amount outstanding. This has benefited dealers and other
participants as it has led to lower margin requirements and capital charges."


A decent writeup on Archegos - you can see how the setup differs from a central counterparty type model.

https://www.securitiesfinancetimes.com/sltimes/SFT...

[Mr Whippy]

Derek Chevalier said:

Mr Whippy said:

Derek Chevalier said:

RSTurboPaul said:

vulture1 said:

Mr Whippy said:

The big question now is does this bubble go fast, or slooioowwww.

1929 was just the start of the Great Depression.

Much much faster than 29 as the world is a faster more connected place.

And there wasn't (what I have heard guesstimated as) 2 quadrillion dollars worth of derivatives in the US market.

What types of derivative in particular concern you? Do you still feel there are problems (counterparty risk etc) since the GFC?

So you’re saying everyone can be made whole in a heavy selling event?

Isn’t the issue the leverage of collateral that itself can be leveraged?

Isn’t this why thing like Archegos show the potential risks because the exposures across the system either aren’t fully documented, or known at all?

We really need someone to comment who is a lot closer to the action.

Certainly winding back to the GFC, the credit markets evolved to try and reduce/eliminate potential issues

https://cdn.ihsmarkit.com/www/pdf/1221/CDS-Indices...

"In the years following the Global Financial Crisis there has also been a continued push for
centralised clearing of CDS to reduce uncertainty around counterparty risk and to increase
transparency. Without clearing, the CDS market would be an opaque and systemic-risk prone web
of exposures across multiple bi-lateral counterparties. However, via intermediary clearing and its
11
hub-and-spoke model, a well-funded central counterparty (a CCP) can act as the counterpart for all
trades with all collateral flowing through them thus reducing the amount of inter-dealer positions
and associated counterparty risks.
Standardisation and central clearing (in place now for most standard CDS and CDS index
contracts) has facilitated the netting or novation of excess and redundant CDS positions, resulting
in compression of total notional amount outstanding. This has benefited dealers and other
participants as it has led to lower margin requirements and capital charges."


A decent writeup on Archegos - you can see how the setup differs from a central counterparty type model.

https://www.securitiesfinancetimes.com/sltimes/SFT...

Thanks for that. I’ll take a further look wrt Archegos.

But let’s not forget Reddit groups were causing hedge funds issues too.

Then the systemic cross-contamination of panicked crypto buying and selling.

The Woodford REIT(?) liquidisation events.


I think it’s acceptable to say that everything looks ok while no one is panicking.
When they are, by definition, everything will be shuttered. Confidence lost. Pop?

[Mr Whippy]

LeoSayer said:

ATM said:

Buffet told everyone to just buy sp500 trackers and a massive amount of money does just that every month. They are all dollar cost averaging. It takes really big moves to scare them out of their positions. These inflows to the market pour in like clockwork.

The only real shorters are the hedge funds who have massive amounts of funds now as they made lots over the last few years. When they short it's like shooting fish in a barrel because quite literally everyone else is long.

If there is a world full of people blindly buying sp500 trackers I can't understand how anyone can think this market has good price discovery.

Then we have the big fund managers who actively manage their clients money. They can't really go short on anything. They have to just buy stuff as this money also pours in like clockwork every month. They can't be going in and out willy nilly and therefore adjust allocations slowly. They do obviously sell when adjusting or reallocating. They can rotate out of sectors and into others or out of individual stocks and into others. Some may be able to park some as cash but some are not allowed or the percentage is limited.

There are some fringe funds with much much lower amounts of money who are allowed to short or hedge with puts and derivatives.

Index funds make up a small amount (c. 5%?) of all trading activity. If they were truly starting to distort the market then I expect we'd see much less stock and market volatility than we currently see. Equally, I don't see liquidity drying up because of index fund demand - there are always sellers.

There may well be a tipping point in the future where index funds do start to have material influence on prices but equally I expect active asset managers/traders will increasingly find ways to exploit that.

But surely index funds have low trading activity because people’s intention is to buy a unit then hold to retirement?

I think the issue is that despite low volume contribution, they’re a high bidder, always willing to pay even after a bull run, or bad news, or a high valuation.
A constant source of buyers without discrimination, even if the volumes are low, is surely quite a distorting variable?

[leef44]

Mr Whippy said:

LeoSayer said:

ATM said:

Buffet told everyone to just buy sp500 trackers and a massive amount of money does just that every month. They are all dollar cost averaging. It takes really big moves to scare them out of their positions. These inflows to the market pour in like clockwork.

The only real shorters are the hedge funds who have massive amounts of funds now as they made lots over the last few years. When they short it's like shooting fish in a barrel because quite literally everyone else is long.

If there is a world full of people blindly buying sp500 trackers I can't understand how anyone can think this market has good price discovery.

Then we have the big fund managers who actively manage their clients money. They can't really go short on anything. They have to just buy stuff as this money also pours in like clockwork every month. They can't be going in and out willy nilly and therefore adjust allocations slowly. They do obviously sell when adjusting or reallocating. They can rotate out of sectors and into others or out of individual stocks and into others. Some may be able to park some as cash but some are not allowed or the percentage is limited.

There are some fringe funds with much much lower amounts of money who are allowed to short or hedge with puts and derivatives.

Index funds make up a small amount (c. 5%?) of all trading activity. If they were truly starting to distort the market then I expect we'd see much less stock and market volatility than we currently see. Equally, I don't see liquidity drying up because of index fund demand - there are always sellers.

There may well be a tipping point in the future where index funds do start to have material influence on prices but equally I expect active asset managers/traders will increasingly find ways to exploit that.

But surely index funds have low trading activity because people’s intention is to buy a unit then hold to retirement?

I think the issue is that despite low volume contribution, they’re a high bidder, always willing to pay even after a bull run, or bad news, or a high valuation.
A constant source of buyers without discrimination, even if the volumes are low, is surely quite a distorting variable?

So funds are unconditionally thrown at top 500 companies. This is actually a good thing. This allows those companies to focus on longer term growth and investment.

If they fail to perform then they drop out of the top 500 and their liquidity takes a giant step backward.

Those companies management will have to perform well and failure is not an option.

This was what the stock market was originally intended for, not speculative trading.

[DaveA8]

For anyone who didn't foresee the risk of volatility yesterday, they shouldn't actively investing. All I hear is people claiming to be long term investors yet worrying about one day, one month or one year.
I'll readily admit and my posts prove, I have the investing attention span of a gnat but I cut my clothe accordingly.
Also be careful of wanting inflation down too quickly because that perceived wealth effect is not missed on the FED and inflation had dropped yesterday, given the probable bounce in equities, that in of itself would have been inflationary and only caused rates to rise later in that cycle.
The FED both past and present are almost maniacal about 2% inflation over the medium term and whilst they might bend on Political pressure, Powell knows his name is attached to this and if he is forced to go, he won't go quietly and the Democrats will worry about 2024.
It would appear likely to be 4% to 4.25% for most of 2023, stocks have priced in this but again catch 22, if inflation falls quickly to 2%, it's demand destruction, which affects earnings or if it stays high, it reduces the P/E multiple on stocks and makes stocks less attractive.

The whole Michael Burry/Jeremy Grantham thing becomes tedious because let's face it, where other than the US is there for the rest of the world to park it's money, the UK and Europe, Japan, China are all basket cases of differing types from an investment point of view. As some billionaire once said the US is the prettiest hog in the slaughterhouse. the strength of the Dollar only proves that point
Look up Howard Lutnick , Cantor Fitzgerald CEO on Youtube on Monday and he summed it up, the market is going up anytime soon but it's not the end of the world either, it just since 2008 we've all seen it as a one way bet and over the longer term it must be but for now we are stuck in a downward range and that uncertainty requires reflection otherwise it's overwhelming.

[Panamax]

DaveA8 said:

For anyone who didn't foresee the risk of volatility yesterday, they shouldn't actively investing.

This. If you can't stand the heat, keep out of the kitchen.

Which doesn't mean I'm anywhere near happy about the pasting my "safe" bonds are taking! Fortunately, they only represent a small portion of the whole.

[gotoPzero]

DaveA8 said:

good stuff.....

I agree.

If you look at the S&P 500 2 years before the last few big crashes you get:

2000 crashed from 1500. 2 years prior it was 1000. 2 years later 850.

2007 crashed from 1500. 2 years prior it was 1200. 2 years later 1000.

Today we are at 4000. 2 years ago we were at 3300.

So its possible we could drop back on the S&P to maybe 2000-2500 into 2023-2024.

Sounds bad but its actually pretty much on the trend line for the last 30 years.




IMVHO.

[LeoSayer]

Mr Whippy said:

But surely index funds have low trading activity because people’s intention is to buy a unit then hold to retirement?

The have low trading activity because they should only need to place, at most, one order per constituent per day to bring the fund back into tolerance with the index and meet any cash demands eg. settling net subscriptions & redemptions from their investors.

Mr Whippy said:

I think the issue is that despite low volume contribution, they’re a high bidder, always willing to pay even after a bull run, or bad news, or a high valuation.
A constant source of buyers without discrimination, even if the volumes are low, is surely quite a distorting variable?

It seems logical that index funds should create price distortions but I haven't seen compelling evidence that it happens.

As Derek posted above, index fund investors can be sensitive to the market even if they don't know too much above individual companies, resulting in index funds becoming net sellers. ETFs are designed to be traded intra-day to fulfill this need.

[Phooey]

If anyone can be arsed, this is worth a listen https://many-happy-returns.captivate.fm/episode/ho...

[Derek Chevalier]

Mr Whippy said:

But let’s not forget Reddit groups were causing hedge funds issues too.

I think there were other players giving Melvin Capital, erm, a Melvin

https://seekingalpha.com/article/4472973-quants-hi...

Mr Whippy said:

Then the systemic cross-contamination of panicked crypto buying and selling.
The Woodford REIT(?) liquidisation events.

But were these big enough to cause systematic issues (like AIG, LTCM etc)?

Mr Whippy said:

I think it’s acceptable to say that everything looks ok while no one is panicking.
When they are, by definition, everything will be shuttered. Confidence lost. Pop?

There's always the chance that something can go heinously wrong - we can only learn from mistakes that have already happened. That said, we managed to come out of the other side of the GFC, despite some hiccups along the way.

https://www.reuters.com/article/us-credit-swaps-re...
https://www.reuters.com/article/us-lehman-cds-sett...

[ooid]

I geniunely wonder if any retail investors here doing deep research before engaging in stock market activities? I mean beyond fundamental metrics but serious analog and analytical research on specific equities because many of the comments here seem quite generic "market sentiments" IMHO.