
Everything Is Crazy and the Markets Aren’t Freaking Out - uptown
https://www.bloomberg.com/news/articles/2017-10-16/a-crazy-stock-market-is-punishing-sellers
======
emerged
When everyone is screaming how much Trump is literally making the sky fall
24/7 on all media and water coolers, none of the legitimate problems pack any
sort of punch. Nothing causes panic because panic is the new baseline.

~~~
make3
to be fair, trump _is_ fucking up a lot of you guys' institutions, like
foreign policy, immigrant policy, ecological policy, gender & racial (civil)
policy, etc.

~~~
michaelchisari
More importantly, pointing out the damage being done to America's democratic
institutions and civil society should not be dismissed as hysterics or simply
"panic."

The consequences will be greatest in the long term. That we aren't feeling
them yet does not absolve the situation.

~~~
averagewall
Can you give specifics? As far as I know, nothing's changed. They still have
democracy in America, and it still works in exactly the same way it used to,
doesn't it? They still have civil society don't they? There are occasional
riots and ongoing violent crime but that's been the norm for decades at least.
Do you predict a transition to a single party system or more crime in the long
term because of Trump's actions?

Without specifics and concrete problems, it's just more hysteria like the OP
was talking about.

~~~
michaelchisari
> As far as I know, nothing's changed.

As a single example to start, I would recommend looking into the staffing
problems at the the state department. A lot of people don't think about the
state department, but they are the first line of diplomacy on the world stage.
There are hundreds of positions left unfilled, a severe lack of focus, the
requirement of keeping up with major foreign policy pronouncements through
twitter by the POTUS and a disengaged secretary of state with very little
experience. World diplomacy is the kind of thing that does not blow up
overnight, but has a ripple effect for years and possibly even decades to
come, as we've seen with our middle east policies.

All of American democracy shouldn't have to crumble into ashes before we
express concern.

~~~
somecontext
For some recent historical context, the New York Times
[http://www.nytimes.com/2013/05/03/us/politics/top-posts-
rema...](http://www.nytimes.com/2013/05/03/us/politics/top-posts-remain-
vacant-throughout-obama-administration.html) reported in May 2013 that "John
Kerry is practically home alone at the State Department, toiling without
permanent assistant secretaries of state for the Middle East, Asia, Europe and
Africa" and "One of the worst backlogs is at the State Department, where
nearly a quarter of the most senior posts are not filled, including those in
charge of embassy security and counterterrorism."

~~~
michaelchisari
The key difference is that the Obama administration was working on staffing
the state department (a difficult task to be sure), whereas it's become clear
that the Trump administration and Rex Tillerson are doing the opposite,
focusing on cuts and issuing a hiring freeze instead.

Tillerson has also proposed a 31 per cent cut to the department’s budget and
an 8 per cent staff cut.

So the context you provide requires it's own context.

All of which does not speak to the volatile situation of the commander-in-
chief of the most powerful military in the world making improvised foreign
policy declarations over twitter.

[https://www.nytimes.com/2017/10/17/magazine/rex-tillerson-
an...](https://www.nytimes.com/2017/10/17/magazine/rex-tillerson-and-the-
unraveling-of-the-state-department.html)

------
ryanackley
Purely anecdotal but in my experience of the two big recessions I've lived
through, it's not the predictions of imminent doom you should worry about.
It's the slew of articles that predict "no end in sight" that seem to come
right at the peak. It's likely a coincidental observation on my part but
maybe, just maybe it's the heavy hitters seeing a slow down trying to pump
confidence back into the markets.

~~~
thisisit
I guess what has changed is the amount of news and media people can have
access to nowadays. In good old days, dissenting opinions were pushed into the
inner folds of a magazine and all "no end in sight" news on the front page,
because everything was about delivering good news and optimism. Nowadays
articles exist as a website link ie there is not really a frontpage of sorts
and then being negative sells a lot.

Though it will be interesting to put together what the print edition of
newspapers are predicting - boom or bust?

~~~
ch4s3
Out of curiosity, if you don't mind sharing, roughly how old are you? Or
rather when do you mean "old days"? I'm in my early 30's and my earliest
memories of the news were Bush Sr. breaking his no tax pledge, which was
covered negatively, even though it was sensible, and the shit mess in Iraq.

~~~
thisisit
I am also in my early 30s ;)

I used to read print edition newspapers everyday till 2008/10.

Let me clarify what I mean by negativity. Newspapers were (are?) about popular
opinion. So, when the markets were doing great, you get all caps, huge typeset
about the new highs markets were making. Anyone who questioned that was
relegated to inside pages.

Same was true when market tanked. All caps, huge typeset words about "blood in
the street" or "Black x day". Anyone who disagreed and said - time to buy
stocks was relegated to inside pages.

They were about reflecting or shaping popular opinion. Same was true for Bush
Sr and his tax pledge.

Nowadays, I can link to a some blog which says this is a high and market will
crash soon. In which case, the metric of waiting for "to the moon" article
might no longer hold true.

------
s_m_t
Ignore the professional LARPers, paid trolls, political party propaganda
outlets, and social media junkies and everything seems pretty normal.

~~~
dogruck
Yes, it's far too easy to get caught up in the hysteria of media, internet
comments and tweet storms.

Not to say the market won't revert.

But it feels hysterical to declare that "everything is crazy."

For comparison, we had hurricanes, presidential scandals, yada yada in the
late 1990s.

~~~
dfabulich
> _For comparison, we had hurricanes, presidential scandals, yada yada in the
> late 1990s._

Well, yes, and then we had a recession right after the late 90s. Is your
comparison supposed to be reassuring?

~~~
dogruck
As I said in my comment, the market might revert.

Do you think that in Bill Clinton's second term "everything was crazy?"

~~~
dfabulich
Yes. Everything was crazy during the dotcom boom.

(I mean, maybe not _everything_ , but not _everything_ is crazy now.)

------
crabasa
There's no single reason that can explain the march up, but it's worth noting
the meteoric rise of index funds, which now account for over $4T under
management [1]. There's just a massive amount of money looking for returns
that exceed the almost 0% interest rates that exist today.

[1] [http://www.businessinsider.com/index-fund-assets-under-
manag...](http://www.businessinsider.com/index-fund-assets-under-
management-2016-1)

~~~
legitster
Maybe we'll finally find the argument against index funds: when the majority
of market power is essentially in auto-pilot, it can't steer out of a crash.

It's crazy to think that we can look at the market and opine over the _lack_
of animal spirits.

~~~
ThrustVectoring
Index funds are going to expand until they're a big enough segment of the
market that they're worth trying to exploit through predatory strategies. Eg:
getting a long position in a stock and taking action to get it included in an
index and forcing index funds to buy into your position. Or the opposite -
short position and de-listing a stock. Or more complicatedly, manipulating
your public float in order to squeeze market-cap indexers.

The last one needs explanation. Suppose indexers think they should own 10% of
your company. Issue stock, and "sell" that stock in a self-dealing manner at
current market prices. Indexers now should buy stock, since your company is
bigger on paper (more shares outstanding at the same price). In the degenerate
case, >90% of the stock isn't actually available for sale on the public
markets, and the indexers have to buy literally more shares than they can buy.

Note that this pattern of strategies happens organically. Whenever there's a
population filled with agents that pay costs to enforce rules, there's a
superior local strategy of free-riding on their rule enforcement, since
defectors cannot operate in a enforcer-heavy environment. This also is what'll
cause a drop in index funds - wide-scale losses due to fraud and prices
temporarily disconnected from fundamentals.

~~~
princeb
> indexers think they should own 10% of your company

i like to believe indexers are not that easily fooled.

broad market indexers (think 2-5k stocks like the russell) normally use an
approximation portfolio that holds significantly fewer assets in order to
minimize transaction cost. the correlation between a 500-asset portfolio and a
5000-asset portfolio is something like 98%, maybe more. a lot of replication
portfolios don't even bother with the underlying nowadays, they just load up
on cash settled equity swaps with the dealers and let them deal with the
basis.

and narrow market indexers track indices that won't bother including
corporates with tiny floats.

------
ThrustVectoring
To be completely fair, the risk of nuclear war shouldn't be priced into the US
equity markets. If a catastrophic nuclear war happens, the only way selling
stocks can help you is by excessive short-term spending on frivolous luxuries.
The risk/reward profile simply doesn't make sense for even a significant risk
to substantially alter investor behavior.

~~~
Boothroid
Are you assuming the market is rational?

~~~
ThrustVectoring
Nope. The market is adaptive, though. Every time someone sells on a piece of
news that "should" be ignored, it trains the rest of the market to "buy the
dip".

------
castratikron
_For Vanguard Group Inc., whose trillions of dollars in low-cost and index-
tracking funds are both credited and blamed for the current market
mood—because so many retail investors have decided just to buy a diversified
fund and forget about it—the new mindset is a sign of a job well done._

I had wondered if they would bring this up. It's my understanding that an
unprecedented percent of the market is plain old passive index funds.

~~~
Clubber
Most of the time, it's the best way to invest. Fund managers are so wealthy,
often not because they make great picks, but they use manipulative tactics to
get people to invest with them. Most of them can't beat the market.

~~~
jryan49
What happens when everyone is in an index fund though? The efficient market
hypothesis goes right out the window in that case. I can imagine a crash
happening because of that maybe. It feels the same with the last thing that
caused the crash. Everything thought house flipping was "easy money" so
everyone did it. The second everyone does it, it's not valuable anymore.

~~~
nostrademons
When everyone is in an index fund, the market becomes less efficient and
several profitable opportunities are overlooked (and conversely, failing
companies take longer to be recognized as failing). That means bigger returns
for active investors who are both confident and _right_. Eventually the market
equilibrates as people start realizing certain active investors are
consistently beating the market and shift cash from index funds into their
funds.

It's unlikely to result in a crash, though, rather a period of sustained
underperformance and a few people getting fantastically wealthy. You could
argue that the tech-billionaire phenomena is the primary capital markets
example of this: there's a widespread _belief_ that founding a new business is
foolhardy and you're better off working for an established company, so people
who buck this belief _and are right_ end up making a lot of money off it,
which draws a lot of people away from employment and into entrepreneurship,
which drives down average returns to entrepreneurship as most of the new
startups wash out and fail to beat the market.

~~~
AstralStorm
Well, it can be foolhardy depending on how much you gamble and how competitive
and with how high barriers of entry the market you want to compete in is. Also
how local.

Real economics are never quite as easy as a single equation. A more proper
model would be similar to weather modelling.

------
chrismealy
What else are rich people going to do with their money? Buy bonds at 1%?

~~~
ac29
Its hard to find a bond fund that has averaged that low over a medium
timeframe (5-10 years). Hell, my government-insured checking account has payed
2% for years.

------
throwawaythrow1
I think this is likely due to some kind of skewed market internally and
probably that many countries hold US assets and debts that are being
engineered in to a position of a new normal (or baseline). Real growth in the
US is falling over time has been falling at least since the mid 80s. What irks
me, is that with increased TSA, border, immigration, political, weather and
gun control problems is why the US attracts anyone at all, or even foreign
money. I have a hunch that by painting a positive picture in the media and
misreporting or under reporting real situations leads to a perception that the
US is a great place when looked at externally

------
Abishek_Muthian
I'm more worried about the lack of incentive for the 1% to maintain global
stability if the markets doesn't react proportionally to the geopolitical
issues.

~~~
QAPereo
Global stability is just a localized illusion enjoyed by nuclear powers and
their allies.

------
minikites
>“Is the risk priced into the market appropriate to what the real risk is?”
says Winer, the firm’s director of equities. “To me, it isn’t. People have
grown more complacent and certainly more speculative, and it’s a little bit
frightening.”

I think this is it. We're collectively ignoring a lot of risk (remember "No
one defaults on their mortgage!") and it's going to bite us eventually.

------
RyanShook
This bull market, like all those before it will end. However, timing the
market is impossible and a fools errand. Unless you’re close to retiring
you’re better off riding it out. Here’s to hoping the market let’s us down
easy this time...

------
stolk
And why wouldn't the stock market go up?

Companies are growing their revenues, and are making healthy profits.

A good chunk of those profits are paid out as dividends. If dividend yield is
much higher than those tiny interest rates, why wouldn't you borrow money,
invest, and enjoy dividends? It's the rational thing to do, and hence, demand
for stock is up, stock price is up. But as long as the corporations keep
distributing, it makes sense.

------
mempko
The crash will come when the federal deficit is reduced. Trump and his right
hand man Paul Ryan are working on that now... While the tax cuts would help
increase the deficit, they are taking it away by cutting spending.

------
genzoman
i told a friend the other day, if the US really is at the precipice of nuclear
war with Best Korera and i can get gas for 2.25, maybe the world isn't is such
bad shape after all.

------
uoaei
When you have an economy whose volume is 99% speculation, its function becomes
a self-fulfilling prophecy up until the point where real resources that feed
and house people start drying up.

Further, the US government can literally inject money at will into the market.
That is what is happening when you have interest rates less than or equal to
0. They're saying "we don't really need money back until it starts helping you
make money from the various levels of abstraction (options, futures, etc.)
that enable literal money creation."

------
hellofunk
Is it possible the Fed is buying into the market to keep it up?

~~~
hellofunk
I'm getting downvoted but am genuinely curious if that is a possibility.

~~~
kbob
The Fed's actions are public and lots of people carefully scrutinize them.

------
kaputsmack
Because markets are rigged.

Money is being printed by banks and it is being moved around the world so no
one notices in national audits.

China is printing money, US banks are printing money.

World debt is bigger than world economies, the US owes more than it produces,
banks are free to simply borrow and speculate more and more.

Only the average citizens keep adding and subtracting money. Banks do not
worry about money, they can print as much as they need, either by borrowing or
by moving vapor money around the world to mask the true origin.

The world financial system is rigged. Money does not matter higher up, they
are simply inventing value out of ether. 99,99% of the world works day in and
out to support this rigged system.

~~~
opsiprogram
How do you feel about bitcoin then? This is happening in plain view... you
don't need to assign motives and mix in nation states, bitcoin is the most
obvious example of pure speculation and literally is printed money with no
attachment to fiat....

~~~
colordrops
Seems a bit Orwellian to suggest that bitcoin is money printed from thin air.
Yes, bitcoin was instantiated at some point, but at that point it had pretty
much zero value. It has a fixed rate of issuance which will eventually end,
and no one can change that. It is the opposite of fiat in that respect.

~~~
hughw
Actually, developers _can_ change the limited issuance. Some group of
developers, and their interested backers, will probably hard fork in 2024 and
change the protocol to permit more to be mined. There will be inevitable
"that's not Bitcoin" debates, but there will be a chain with old and new
bitcoins on it for a little while anyway.

~~~
colordrops
That's theoretical at the moment, and it's probably unlikely that it would win
out as all the current holders of bitcoin would lose value. Even if it did
though, it would be based on market consensus rather than a secret meeting
room.

