Financial topics

[Higgenbotham]

A Story of Arrogance and Hubris


We're not above talking about arrogance and hubris here, even our own.

So last year around September an email went out that it was time to update our high school class page and to let classmates know what you've been up to the past 10 years.

The recent updates go to the front of the page where they are displayed with name and date.

So I updated mine. I volunteered that I was still trading and admitted it wasn't going very well because my inclination over the past few years was to think the stock market was way too high.

The next day, an old friend that nobody has heard from in decades (didn't attend any reunions, wasn't in communication with anybody that we know of), popped up and updated his page. He triumphantly announced that everything was going great in his construction engineering field and he was "set to retire" in 2021! His update sat on the list right above mine, an obvious juxtaposition.

All of a sudden, perhaps noticing that obvious juxtaposition, people stopped updated their pages. And now those 2 updates are still sitting prominently on the front page of our class page.

[Higgenbotham]

** 24-Mar-2020 World View: History of wild stock market swings

The DJIA increased 11.37% on Tuesday, and commentators are pointing
out that this was the largest increase since 1933.

That's true, according to my DJIA historical page:

** DJIA Historical Page
** http://www.generationaldynamics.com/pg/ ... i.djia.htm

The following is a list of all the days when the DJIA increased by
more than 10%:

Code: Select all

Date              DJIA (Change)   (% of trend)    
----------------- --------------  ----------------
Wed 1929-10-30    258.47(+12.34%) (171% of 150.40)
Mon 1931-06-22    145.82(+11.90%) ( 89% of 162.13)
Tue 1931-10-06     99.34(+14.87%) ( 60% of 164.30)
Wed 1932-09-21     75.16(+11.36%) ( 43% of 171.68)
Wed 1933-03-15     62.10(+15.34%) ( 35% of 175.46)
Wed 1987-10-21   2027.85(+10.15%) ( 95% of 2128.8)
Mon 2008-10-13   9387.61(+11.08%) (169% of 5554.3)
Tue 2008-10-28   9065.12(+10.88%) (162% of 5564.8)
Tue 2020-03-24  20704.91(+11.37%) (220% of 9371.5)

[/b]

And the following is a list of all the days when the DJIA decreased
by more than 10%:

Code: Select all

Date              DJIA (Change)   (% of trend)    
----------------- --------------  ----------------
Mon 1929-10-28    260.64(-13.47%) (173% of 150.36) Black Monday
Tue 1929-10-29    230.07(-11.73%) (152% of 150.38)
Mon 1931-10-05     86.48(-10.73%) ( 52% of 164.28)
Mon 1987-10-19   1738.74(-22.61%) ( 81% of 2128.2)
Mon 2020-03-16  20188.52(-12.93%) (215% of 9362.1)

[/b]

So the wild swings that we've been seeing recently are not
good news, but are harbingers of a financial crisis, and possibly
a major panic and financial crisis.

And as long-time readers are well aware, the stock market is in a
bubble. Take a look at the "% of trend" column for two days
in March 2020. The DJIA is far above its trend value of around
9370. This shows how huge the stock market bubble is.

This is good information because it infers that today is comparable to the aftermath of the 1929 and 1987 crashes, where the market rallied for a day or two before going back down to near or below the lows. And that does seem to be about where things are.

[Higgenbotham]

I would add re the above story and the idea of Maximum Ruin.

The economy and stock market have probably gone down enough that most people near retirement will not be able to, even if they thought based on 2019 end of year values that they would be able to.

In the meantime, those who thought they could bet on a bad stock market or gold as their ticket to retirement won't be able to either or at least any time soon because the faux good times lasted so much longer than any reasonable person would have thought.

[vincecate]

The market has seen rebounds like this before, only for them to wash out immediately. Since stocks began selling off on Feb. 20, the S&P 500 has had six days where it’s risen, and all but one of them were big gains of more than 4%. After them, stocks fell an average of 5% the next day.

https://www.nbcmiami.com/news/business/ ... t/2210041/

If the "stimulus" is not finalized tomorrow I would expect a down day, and maybe even if it is.

[John]

** 24-Mar-2020 World View: The Principle of Maximum Ruin

> I would add re the above story and the idea of Maximum Ruin.

> The economy and stock market have probably gone down enough that
> most people near retirement will not be able to, even if they
> thought based on 2019 end of year values that they would be able
> to.

> In the meantime, those who thought they could bet on a bad stock
> market or gold as their ticket to retirement won't be able to
> either or at least any time soon because the faux good times
> lasted so much longer than any reasonable person would have
> thought.

I had forgotten about the Principle of Maximum Ruin. It's worthwhile
quoting again the excerpt from John Kenneth Galbraith's 1954 book
The Great Crash - 1929, which seems to have a mystical quality
that makes it more and more meaningful each time you read it:

> "A common feature of all these earlier troubles
> [previous panics] was that having happened they were over. The
> worst was reasonably recognizable as such. The singular feature
> of the great crash of 1929 was that the worst continued to
> worsen. What looked one day like the end proved on the next day to
> have been only the beginning. Nothing could have been more
> ingeniously designed to maximize the suffering, and also to insure
> that as few as possible escaped the common misfortune.

> The fortunate speculator who had funds to answer the first margin
> call presently got another and equally urgent one, and if he met
> that there would still be another. In the end all the money he
> had was extracted from him and lost. The man with the smart
> money, who was safely out of the market when the first crash came,
> naturally went back in to pick up bargains. ... The bargains then
> suffered a ruinous fall. Even the man who waited out all of
> October and all of November, who saw the volume of trading return
> to normal and saw Wall Street become as placid as a produce
> market, and who then bought common stocks would see their value
> drop to a third or fourth of the purchase price in the next
> twenty-four months. ... The ruthlessness of [the stock market was]
> remarkable." (p. 108)

So millions of people are being screwed once again, by the Principle
of Maximum Ruin.

[Higgenbotham]

** 24-Mar-2020 World View: The Principle of Maximum Ruin

> I would add re the above story and the idea of Maximum Ruin.

> The economy and stock market have probably gone down enough that
> most people near retirement will not be able to, even if they
> thought based on 2019 end of year values that they would be able
> to.

> In the meantime, those who thought they could bet on a bad stock
> market or gold as their ticket to retirement won't be able to
> either or at least any time soon because the faux good times
> lasted so much longer than any reasonable person would have
> thought.

I had forgotten about the Principle of Maximum Ruin. It's worthwhile
quoting again the excerpt from John Kenneth Galbraith's 1954 book
The Great Crash - 1929, which seems to have a mystical quality
that makes it more and more meaningful each time you read it:

> "A common feature of all these earlier troubles
> [previous panics] was that having happened they were over. The
> worst was reasonably recognizable as such. The singular feature
> of the great crash of 1929 was that the worst continued to
> worsen. What looked one day like the end proved on the next day to
> have been only the beginning. Nothing could have been more
> ingeniously designed to maximize the suffering, and also to insure
> that as few as possible escaped the common misfortune.

> The fortunate speculator who had funds to answer the first margin
> call presently got another and equally urgent one, and if he met
> that there would still be another. In the end all the money he
> had was extracted from him and lost. The man with the smart
> money, who was safely out of the market when the first crash came,
> naturally went back in to pick up bargains. ... The bargains then
> suffered a ruinous fall. Even the man who waited out all of
> October and all of November, who saw the volume of trading return
> to normal and saw Wall Street become as placid as a produce
> market, and who then bought common stocks would see their value
> drop to a third or fourth of the purchase price in the next
> twenty-four months. ... The ruthlessness of [the stock market was]
> remarkable." (p. 108)

So millions of people are being screwed once again, by the Principle
of Maximum Ruin.

This is the line that particularly rings true to me re what I see going on around me:

Nothing could have been more ingeniously designed to maximize the suffering, and also to insure that as few as possible escaped the common misfortune.

[vincecate]

GM to draw down $16 billion from revolving credit facilities, withdraws 2020 guidance

https://www.marketwatch.com/story/gm-to ... 2020-03-24

[vincecate]

Coronavirus: India enters 'total lockdown' after spike in cases

https://www.bbc.com/news/world-asia-india-52024239

[John]

Coronavirus: India enters 'total lockdown' after spike in cases

https://www.bbc.com/news/world-asia-india-52024239

Ditto New Zealand.

[richard5za]

Coronavirus: India enters 'total lockdown' after spike in cases

https://www.bbc.com/news/world-asia-india-52024239

Ditto New Zealand.

Total lockdown in South Africa from midnight this coming Thursday 26 August