Dow closes 1000 points down

[Bad_Reporter]

What gives?

A reason for future concern?

[Benny B]

Personally, a correction has been in order for some time now.  Fundamentals remain good, but the markets got a little too overbought which made the quants and pros very sensitive to any external news... in this case, higher wage growth leading to inflation leading to higher interest rates.

All of this began last Friday when it came out that hourly wages were rising.  You read that correctly... good news is bad and bad news is good.

Things will settle down soon.... today I bought summer puts on VIX and VXX and call LEAPS on GE.  I have GME, AAL, AAPL, BCE and a few add'l small caps on my watchlist... will probably pick one or two and jump when VIX slows down. 

Sold TWTR, took 90% of my BA off the table a couple weeks ago, and my largest position today is cash, but I'm not even considering selling anything else.

[Jockey]

Interesting that the guy who took credit everyday when it was going up is stone cold silent about the markets now. But at least he has Hannity to lay the blame on BO.

[Golden Avalanche]

Personally, a correction has been in order for some time now.  Fundamentals remain good, but the markets got a little too overbought which made the quants and pros very sensitive to any external news... in this case, higher wage growth leading to inflation leading to higher interest rates.

All of this began last Friday when it came out that hourly wages were rising.  You read that correctly... good news is bad and bad news is good.

Things will settle down soon.... today I bought summer puts on VIX and VXX and call LEAPS on GE.  I have GME, AAL, AAPL, BCE and a few add'l small caps on my watchlist... will probably pick one or two and jump when VIX slows down. 

Sold TWTR, took 90% of my BA off the table a couple weeks ago, and my largest position today is cash, but I'm not even considering selling anything else.

To add, when an economy is at full rip it has been historically unwise to flush it with a stimulus package. This spooks otherwise prudent investors and leads to panic ups and downs. It's in the same boat as your "good news is bad news" thought process.

[Silkk the Shaka]

To add, when an economy is at full rip it has been historically unwise to flush it with a stimulus package. This spooks otherwise prudent investors and leads to panic ups and downs. It's in the same boat as your "good news is bad news" thought process.

Along those lines, rates have been rising steadily (almost 80 bps on the 10-year the last 4 months), and with increased stimulus people are baking in even further increases in treasury rates. That expected risk free rate increase does a couple things. It increses discount rates analysts use in their models, meaning prices have to go down to reach the same excess return over treasuries all else equal.  Second, it provides an actual alternative use of cash, meaning some rotation away from equities and into less risky assets offering better yields than recent history.

Along with a bunch of other things...

[jesmu84]

To add, when an economy is at full rip it has been historically unwise to flush it with a stimulus package. This spooks otherwise prudent investors and leads to panic ups and downs. It's in the same boat as your "good news is bad news" thought process.

Seems like a good time for a HUGE budget/stimulus package. Also seemed like a great time for tax cuts.

Next, you'll tell me it's a great time to cut citizen benefits. Those benefits that citizens pay into with an understood contract that they'd get something out of.

[MU82]

To add, when an economy is at full rip it has been historically unwise to flush it with a stimulus package. This spooks otherwise prudent investors and leads to panic ups and downs. It's in the same boat as your "good news is bad news" thought process.

This.

At the exact time the "stewards of the economy" party should have been paying down the deficit/debt, they flooded the market with stimulus.

There's an old saying that the only real deficit hawk is the party that's not in power.

As for the OP ...

This already is moving into "correction" territory, which as Benny said was long overdue. Will it end up igniting a bear and/or recession? Anybody who claims to know is lying.

Long-term investors holding high-quality stocks and/or 401k investors who are buying funds every 2 weeks like clockwork ... this will likely be a blip on a chart 20 years from now. I mean, if one looks at a 60 year stock chart, it's hard to even see the crash of 1987.

[muwarrior69]

This.

At the exact time the "stewards of the economy" party should have been paying down the deficit/debt, they flooded the market with stimulus.

There's an old saying that the only real deficit hawk is the party that's not in power.

As for the OP ...

This already is moving into "correction" territory, which as Benny said was long overdue. Will it end up igniting a bear and/or recession? Anybody who claims to know is lying.

Long-term investors holding high-quality stocks and/or 401k investors who are buying funds every 2 weeks like clockwork ... this will likely be a blip on a chart 20 years from now. I mean, if one looks at a 60 year stock chart, it's hard to even see the crash of 1987.

That is why it is a good time to buy. The market will go up in the long run. I can remember when the DOW made it to 1000 for the first time and all the excitement that caused.

[muwarrior69]

Seems like a good time for a HUGE budget/stimulus package. Also seemed like a great time for tax cuts.

Next, you'll tell me it's a great time to cut citizen benefits. Those benefits that citizens pay into with an understood contract that they'd get something out of.

SS, Medicare and Medicaid do need to be managed. They cannot continue to increase at the rate they are now and be sustainable. Kicking that albatross down the road is the worse thing we can do, but we know how dysfunctional Washington is and we'll eventually fall off that fiscal cliff.

[TSmith34, Inc.]

SS, Medicare and Medicaid do need to be managed. They cannot continue to increase at the rate they are now and be sustainable. Kicking that albatross down the road is the worse thing we can do, but we know how dysfunctional Washington is and we'll eventually fall off that fiscal cliff.

Yes.  Instead, we took out a $1.5T loan and gave it to corporations and very wealthy individuals and in the process poured gas on an economy that was doing fine.  Unbelievably stupid, but the representatives that passed the law aren't being paid for good governance.

[forgetful]

SS, Medicare and Medicaid do need to be managed. They cannot continue to increase at the rate they are now and be sustainable. Kicking that albatross down the road is the worse thing we can do, but we know how dysfunctional Washington is and we'll eventually fall off that fiscal cliff.

The same could be said about military spending.  Our spending on wars and military is unsustainable. 

SS/Medicare/Medicaid is actually sustainable if the government doesn't raid the coffers to fund its other albatross.

[Silkk the Shaka]

The same could be said about military spending.  Our spending on wars and military is unsustainable. 

SS/Medicare/Medicaid is actually sustainable if the government doesn't raid the coffers to fund its other albatross.

Deficits don't matter with a fiat currency. At least not nearly to the extent that they are currently used to demagogue against spending. The federal budget is NOT analagous to a famiily budget. But "deficit hawks" use that framing as an excuse to try to cut good programs like social security, medicare, medicaid, CHIP, etc.

The proof is in exactly what you stated. The hawks passed a massive tax cut while increasing military spending for the largest military in the world by a factor of 10x without blinking an eye.

They don't care about deficits. They know they don't matter. They care about slashing programs for the poor. That's it.

[MUBurrow]

[MU82]

SS, Medicare and Medicaid do need to be managed. They cannot continue to increase at the rate they are now and be sustainable. Kicking that albatross down the road is the worse thing we can do, but we know how dysfunctional Washington is and we'll eventually fall off that fiscal cliff.

Social Security is a relatively easy fix. First, tax more income. I like the idea of keeping the cap where it is now - $128,400 - but then applying it to everything over $500K. That way, you don't  "punish" the middle class/upper middle class, but it serves as kind of "forward means testing" the program. Then, maybe raise "full retirement" age to 67.5 or 68 if necessary. Boom ... "fixed"!

Heck, even if it doesn't get "fixed," the idea that SS will "run out of money" or "go bankrupt" is a myth. Very worst case scenario: By the mid 2030s, if nothing is done to bring in more money, those who were expecting, say, $2000/month would only get $1500/month. That would suck - I want the 2K! - but it's a far cry from zero as some would have us believe.

Medicare and Medicaid are much more difficult fixes.

If people from 55-64 were allowed to "buy into" Medicare, it would bring in much needed revenue from a group of people that would be less likely to need the costliest services than the 75+ group. Not sure what else might need to be done.

Medicaid ... I've got nothing, but there must be decent, compassionate possibilities.

Giving billionaires a trillion-dollar tax cut and handing hundreds of billions of dollars to an already-bloated military - all when the economy already had been doing well - certainly WASN'T the answer.

[Silkk the Shaka]

Social Security is a relatively easy fix. First, tax more income. I like the idea of keeping the cap where it is now - $128,400 - but then applying it to everything over $500K. That way, you don't  "punish" the middle class/upper middle class, but it serves as kind of "forward means testing" the program. Then, maybe raise "full retirement" age to 67.5 or 68 if necessary. Boom ... "fixed"!

Heck, even if it doesn't get "fixed," the idea that SS will "run out of money" or "go bankrupt" is a myth. Very worst case scenario: By the mid 2030s, if nothing is done to bring in more money, those who were expecting, say, $2000/month would only get $1500/month. That would suck - I want the 2K! - but it's a far cry from zero as some would have us believe.

Medicare and Medicaid are much more difficult fixes.

If people from 55-64 were allowed to "buy into" Medicare, it would bring in much needed revenue from a group of people that would be less likely to need the costliest services than the 75+ group. Not sure what else might need to be done.

Medicaid ... I've got nothing, but there must be decent, compassionate possibilities.

Giving billionaires a trillion-dollar tax cut and handing hundreds of billions of dollars to an already-bloated military - all when the economy already had been doing well - certainly WASN'T the answer.

You're way overthinking it. We wrote a $700bn check to the military while simultaneously cutting taxes. None of this needs to be "fixed." Just cut the checks.

[MU82]

You're way overthinking it. We wrote a $700bn check to the military while simultaneously cutting taxes. None of this needs to be "fixed." Just cut the checks.

Indeed.

[Benny B]

Social Security is a relatively easy fix. First, tax more income. I like the idea of keeping the cap where it is now - $128,400 - but then applying it to everything over $500K. That way, you don't  "punish" the middle class/upper middle class, but it serves as kind of "forward means testing" the program. Then, maybe raise "full retirement" age to 67.5 or 68 if necessary. Boom ... "fixed"!

I have a better idea: Carrousel.

[muwarrior69]

The same could be said about military spending.  Our spending on wars and military is unsustainable. 

SS/Medicare/Medicaid is actually sustainable if the government doesn't raid the coffers to fund its other albatross.

Military spending is discretionary as is Medicaid; SS and Medicare are not as they are entitlements i.e. we pay into them via FICA when we are working and get the benefit when we retire or opt in. As of now we are spending more on SS and Medicare than we take in and "raiding the coffers", thus at some point it won't be sustainable even if we cut our entire discretionary budget.

[mu03eng]

Deficits don't matter with a fiat currency. At least not nearly to the extent that they are currently used to demagogue against spending. The federal budget is NOT analagous to a famiily budget. But "deficit hawks" use that framing as an excuse to try to cut good programs like social security, medicare, medicaid, CHIP, etc.

The proof is in exactly what you stated. The hawks passed a massive tax cut while increasing military spending for the largest military in the world by a factor of 10x without blinking an eye.

They don't care about deficits. They know they don't matter. They care about slashing programs for the poor. That's it.

Deficits don't in isolation but Debt absolutely does. When the rates go up so does the service on our debt which will soak up more and more of our budget. Could be a fiscal crisis coming in the next 5 years, which if trickle down economic theory is incorrect(meaning if the idea that slashing taxes can also increase tax revenue collected is wrong) it means we will have shrinking revenue(tax collections) at the same time that we have increasing costs(entitlements, debt service, discretionary spending).

Not great.

[mu_hilltopper]

I have a better idea: Carrousel.

As long as they hand out a few beef and cheddars before you go into the Carrousel, I'm good.

https://www.youtube.com/watch?v=41tYQ18oK40&spfreload=10

[Silkk the Shaka]

Deficits don't in isolation but Debt absolutely does. When the rates go up so does the service on our debt which will soak up more and more of our budget. Could be a fiscal crisis coming in the next 5 years, which if trickle down economic theory is incorrect(meaning if the idea that slashing taxes can also increase tax revenue collected is wrong) it means we will have shrinking revenue(tax collections) at the same time that we have increasing costs(entitlements, debt service, discretionary spending).

Not great.

Can you envision a scenario in which the U.S. government cannot pay its obligations? It issues the currency. It will always be able to pay. The debt is not a concern. The government is not a family, the government is not a business.

Deficits are inflationary, the magnitude of the deficits are how inflation is controlled. You want to control inflation? Stop slashing taxes at the top. You don't care about inflation? Keep taxes low.

[GB Warrior]

I'm so tired of all the winning

[Benny B]

This already is moving into "correction" territory, which as Benny said was long overdue. Will it end up igniting a bear and/or recession? Anybody who claims to know is lying.

I'm not advocating whether the next 60 days is going to be bearish or bullish (let alone the next 60 months), but what's really catalyzing this whole sell-off are the hedge funds ETNs who were leveraging long on inverse volatility.  What should have been a much smaller dip on the perceived greater risk of higher wages and inflation (a good portion of which was already priced into the market) from the jobs report last Friday turned into an avalanche rather quickly.  In layman's terms, recall the blackjack table scene in The Big Short; that's exactly what happened here.

What I do know is this: we are not on the verge of another Great Recession... the leveraged VIX positions here do not have anywhere near the penetration on Main Street, let alone Wall Street, as the mortgage/housing crisis.  In other words, this has no effect on the average investor, or even the non-investing average American.  In fact, BrandyJock should be reveling in the fact that these VIX losses are pretty much isolated to the 1%... as long as you've been investing for more than a few weeks, you're in great shape right now.  The economy is still growing... although not as fast as some would hope, it is at sustainable levels.  In fact, I would propose that the 3% GDP growth target is an outdated benchmark that was only made possible by the lingering effects of the aftermath of WWII and the Cold War (e.g. the rebuilding of Europe and Asia, infrastructure, defense, etc.)  Nevertheless, the bottom line here is that fundamentals are still strong... again, perhaps not as strong as some analysts thought, but corporate earnings are still strong, the economy is growing, people are still employed, and wages are rising.

Some people don't like the quants and the hedge funds as they claim they have an unfair advantage against and artificially cause prices to go up for the average investor... I don't disagree with that, but I liken them to the house in a game of blackjack, i.e. if the individual investor plays smart, he/she will reduce the house advantage to nearly nothing, and in times like these, can even reverse that advantage in favor of the investor.  Some of the hedges & quants are bleeding right now, so don't be afraid to be a shark; if you're in it for the long run, some excellent buying opportunities are out there right now.

[Jockey]

What I do know is this: we are not on the verge of another Great Recession... the leveraged VIX positions here do not have anywhere near the penetration on Main Street, let alone Wall Street, as the mortgage/housing crisis.  In other words, this has no effect on the average investor, or even the non-investing average American.  In fact, BrandyJock should be reveling ......

This obsession is getting a little disturbing

[4everwarriors]

That is why it is a good time to buy. The market will go up in the long run. I can remember when the DOW made it to 1000 for the first time and all the excitement that caused.

Yeah butt, black and white tv's, typewriters, and slide rules drove da DJIA wey back den, aina?