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Old Lessons Regarding Markets

Tyler Durden's picture




 

Via EconomicNoise.com,

In our day-to-day world, old lessons regarding markets are easily forgotten. Nowhere is this observation more true than in the stock market where people expect stocks to always rise.

Wall Street is dominated by optimistic youth know little about real economics or history. They succeed via optimism, by convincing others that markets always go up. When markets decline, it is always a buying opportunity.  That is all they have experienced. The first decade of this century saw two market corrections where the S&P 500 Index dropped more than 50% from its highs. Most investors were told to hang on. In retrospect that was good advice. In another sense it was not.

 

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The economy is a mess. The Federal Reserve now only influences one variable — the pricing of financial assets. Arguably, for the last fifteen years financial asset pricing has been the only positive in the economic sphere. An entire generation of financial advisors and stock brokers has never seen a true bear market. Indeed, they have never seen a non-manipulated market.

They never learned the old lessons because they never lived through such times. What are some of the old lessons? Here are a few:

  • P/E multiples drop under 10.
  • Dividends increase to 5 or 6% (only because stock prices fall).
  • There are no bad stocks in a bull market.
  • There are no good stocks in a bear market.
  • Don’t chase yield too soon.
  • All market collapses start with “dips” perceived as buying opportunities.
  • Even the impossible has a 20% probability.

Several months back, I called TIAA-CREF to switch all my funds into their safest short-term interest funds. The young man explained to me that I would be getting virtually nothing on my money. When I completely agreed, he asked then why I was making this move. I explained that markets were very overvalued and I expected a serious correction. When he asked how much, I answered: “At least a 50% correction.” He was polite but rather incredulous, believing that to be impossible. I explained that such a correction happened twice in the first decade of this new century. He did not seem to know even this recent history.

This young man has not learned old lessons. Only by studying history and market valuations could he know how overpriced markets now appear. I think he may soon learn experientially, a very expensive way of learning but one rarely forgotten. A couple of generations of Americans grew up with the experience and fear of the Great Depression. Recent generations barely know about this period. For them, life is different. No need to save. Live for the present. If you don’t earn enough, use debt to satisfy your wants. The government will always take care of us!

Welcome to the present where old lessons regarding markets are going to be re-learned and likely scar another couple of generations.

 

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Tue, 09/08/2015 - 11:26 | 6522560 Bearwagon
Bearwagon's picture

Market? What market?!

Tue, 09/08/2015 - 11:55 | 6522661 KnuckleDragger-X
KnuckleDragger-X's picture

Markets have existed since the beginning of civilization and they either go up or down for many reasons. But every damned time the 'smart' people come along and insisted they can do better, and it works... for awhile. Unfortunately they eventually bend the market up so bad it collapses. People give all kinds of excuses for all the civilizations that have disintegrated, but it it all really comes down to, is they destroyed the markets and debased their currency until nothing was left. So far the Roman Empire are the champs for self-destruction,, but we are catching up fast.....

Tue, 09/08/2015 - 11:27 | 6522564 arbwhore
arbwhore's picture

Aside from calling today's situation a "market", there are plenty of bad stocks in bull markets and good stocks in bear markets.

Tue, 09/08/2015 - 11:29 | 6522568 Dr. Engali
Dr. Engali's picture

There is a los of truth is what he has to say. Just about every piece I read today seems to pretend like 2001 and 2008 never happened. It's almost like the system wants you to forget or something.....

Tue, 09/08/2015 - 11:57 | 6522666 KnuckleDragger-X
KnuckleDragger-X's picture

That was those...other...people who fucked up and we are sooo much smarter......

Tue, 09/08/2015 - 12:01 | 6522678 Bearwagon
Bearwagon's picture

Yesterday is history, tomorrow is a mystery, today is a gift ...

Tue, 09/08/2015 - 11:33 | 6522576 jakesdad
jakesdad's picture

I had the same conversation w/our "person" a few wks ago.  we got the standard "fundamentals are good, liftoff's already priced in", yadda, yadda.  I pulled up a 20 yr s&p graph on my mac, pointed to 00, 08 & today and said:  "that was a bubble, that was a bubble but this isn't a bubble?"  glot close to a $m out of harms way just two days before all the fun startted.  wish I could say I'm a genius but I actually feel pretty stupid for having cut it that close...

Tue, 09/08/2015 - 11:42 | 6522581 JustObserving
JustObserving's picture

A new multispectrum war is being waged by the US against Russia and China.  No one knows how it will turn  out.  But volatility will skyrocket until the war subsides.

There will be cyberattacks and trading may be shut down as it was in Russia today.  More importantly, water and power networks may be attacked.

We live in interesting times.

Washington’s Financial Currency War on China: The Eclipsing of the US Dollar by the Yuan

The Chinese are in the process of displacing the monopoly of the US dollar. They are dropping their US Treasury bonds, stockpiling gold reserves, and opening regional distribution banks for their own national currency. This will give them easier access to capital markets and insulate them from financial manipulation by Washington and Wall Street.

http://www.globalresearch.ca/washingtons-financialcurrency-war-on-china-...

Tue, 09/08/2015 - 11:37 | 6522592 q99x2
q99x2's picture

Gold +$3 and 80 cent. Whoopie.

Tue, 09/08/2015 - 11:52 | 6522649 Baa baa
Baa baa's picture

Meh...Early onset Alzheimers to the manipulators.

Tue, 09/08/2015 - 15:39 | 6522930 Urban Redneck
Urban Redneck's picture

Alzheimers is endemic to certain relatively inbred populations.  Then again, the entire human race is mindbogglingly inbred (in a perverse testament to Al Bartlett).  Every person alive today is the biological product of copulations between over 1,000,000,000,000,000,000,000,000 people over the past 80 generations (since about the time of Christ) .  If we weren't all Hatfields and McCoys then the population of earth in year 0 would have had to have been 500,000,000,000,000,000,000,000 (instead of a measly 200,000,000) just to allow for unrelated great ^ 77 grand parents, and that's with all of humanity being one large, but not inbred family.

Tue, 09/08/2015 - 11:39 | 6522596 SillySalesmanQu...
SillySalesmanQuestion's picture

Zero interest money, negative interest money, QE, and FED puts. Like a Viagra induced hard-on, looking for something to plunge into....
That's all these boy-traders know.
"So you're on a roll...enjoy it while it lasts, they always end."

Tue, 09/08/2015 - 11:39 | 6522597 DontWorry
DontWorry's picture

The young man iat TIAA/ CREFs right! Where else is the world going to put their money? In bonds? In gold? In the bank? Preposterous! The worlds money will flow to the US stock market. So don't worry! Listen to the investment professionals, not some fringe bloggers who have lost fortunes the last 7 years.

Tue, 09/08/2015 - 11:41 | 6522599 Temporalist
Tue, 09/08/2015 - 11:41 | 6522611 cougar_w
cougar_w's picture

We are off the edge of the map now. Old lessons are no more useful than an outdated map of places we have already been.

Stop thinking. Start paying attention. Learn the new rules and fight the new war or perish taking the old lessons to the grave.

Tue, 09/08/2015 - 13:25 | 6522962 Bastiat
Bastiat's picture

Sounds good but . . .what rules?

Tue, 09/08/2015 - 11:43 | 6522622 aliki
aliki's picture

2 questions:

1. why is beckie quick's arm on the bar like she is trying to pick him up?

2. why is her arm flab being allowed?

Tue, 09/08/2015 - 11:48 | 6522633 aliki
aliki's picture

look at that ... she took it down

Tue, 09/08/2015 - 11:50 | 6522642 khnum
khnum's picture

300 points up on no news or no fundamentals,usd-jpy manipulations,miraculous futures manifestations,3,30 ramps,intentional manipulation by information leaks,glitches,pre-opening price setting when futures cant be fucked with or just shut the damn thing down,hft glitches and much more and Im supposed to think old school rules of thumb matter a fucking iota-I dont think so

Tue, 09/08/2015 - 12:09 | 6522703 fainzilberg
fainzilberg's picture

this time the feds of the world will burn everything before letting the market fall

Tue, 09/08/2015 - 12:23 | 6522754 Arthur Schopenhauer
Tue, 09/08/2015 - 12:29 | 6522771 fowlerja
fowlerja's picture

Today's market analysis...full steam ahead..damn the torpedos..

Tue, 09/08/2015 - 13:05 | 6522900 DOGGONE
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