Nice blog. Part of the issue is none of us has a crystal ball. Some history from my perspective. I was a managing partner of a hedge fund before I retired. We fully accepted the EMH and CAPM for pricing assets simply because all the info about an asset was impounded in the price. Our returns reflected an average correlation coefficient of 1 with the market returns over a ten year time horizon. an alpha of zero. Our risk adjusted returns were consistent with both leveraged and unleveraged market betas. When people asked for my market opinion, I said, "I don't know." It seems, at the margin, expectations change with new information arriving in the market. The intensity of which often yields significantly heavy tails.
Let's look at a different thing that can roil markets-emotion. Hard to quantify or predict. When I was on the trading floor we would just chalk it up to "more sellers than buyers". But, let's look at two events and compare and contrast them. First, August/September 2008. The market started falling out of bed but what was the catalyst? Not mortgage crisis yet. No, polls finally flipped and Obama was the clear leader over McCain. The market didn't know or trust Obama as a person yet. So, it started to fall out of bed on fear. There were also small war like skirmishes across the globe, one conveniently involving Russia (https://en.wikipedia.org/wiki/Portal:Current_events/August_2008). Inflation rate ticks up to 5.6% in the US. Hurricane events destroyed confidence in the Bush Presidency......Now, 2024. Who is President of the US? It is not Joe Biden who has dementia. Inflation isn't gone. Jobless claims are going higher. Polls switched so Harris is slightly beating Trump and the market doesn't trust Harris. There is a skirmish involving Russia, and it looks like Iran wants to attack Israel. Maybe some earnings leaked but they haven't been stellar ex post facto. Warren Buffett sold 50% of his Apple holdings and went to cash. What would the rational emotion be if you were holding stock? I don't think it is to buy with both hands. Sell Mortimer, Sell.
All major turns coincide with the change in money flows, the volume and velocity of money. The turns reflect a change in American Yale Professor Irving Fisher's truistic "equation of exchange". The recent downturn stems from a deceleration in N_gDp brought on by a drop in long-term money flows, the proxy for inflation. Short-term money flows, the proxy for R-gDp, have been up since 2023. That's why the 2nd qtr's R-gDp was recorded at 2.8%
Both the Nov. 2002 and March 2009 markets bottomed with the reversal of long-term money flows. Same goes for the 1982 and 1974 bottoms. The 1984 bottom coincided with the bottom in short-term money flows, etc., etc.
The recent uptick in the unemployment rate is understood as a turning point, triggering a sudden drop in the stock market since people wanted to sell before it's too late. In contrast, the slope of the yield curve has been an unreliable predictor of a recession for the last two years or so.
Question: when exactly did the yield curve produce a false positive in the past few years? The brief re-inversion in 2022 did not technically lead to a recession, but only just short of the standard definition, and did coincide with a market crash. The yield curve has not re-inverted since, so no false positive.
Not much good has happened since 2008...it is a GIANT FRUAD of rescuing the richest and importing illegals to DESTROY THE POOR!
Let not forget more than a decade of virtual ZERO interest TO ENSURE billions of wall street bonuses for Investment firm who now do little investment beyond money spinning frauds! Concentration of wealth is a record. Housing has double, tripled or more. Wages..not so much so!
Democrats now believe they will be the FIRST people in history to USE inflation to wash away debt....as they balloon Federal DEBT to $40Trillion plus about $150,000 A PERSON!
Private Equity buys companies to STRIP every asset including pensions then pays a carried interest tax rate 1/2 a normal person does Don't forget billions in renewable taxcredits make billions in profits DISAPPEAR.
Take a drive to upstate NY or across the country and see FAILED towns with unpainted houses as Democrats GIVE AWAY billions to illegals, FAILED colleges students, and outrageous medical costs!
ALL major Investment firms on Wall Street should have been LIQUIDATED in 2008. Instead we PRINTED $10 Trillion over at the FED to BUY UP every piece of garbage they produced(they kept the bonuses) CRASH...this time a REAL crash will find where the excesses are! The US has more federal debt per capita than Japan! I What is true inflation...you know with housing, food, energy, cars and the OTHER stuff of life?
running up $150,000 of Federal Debt per person is INSANE!
They lavishing Illegals and foreign countries with billions vie deficit spending INSANE
Rewarding college students for TERRIBLE degrees from woke colleges with $100's of Billion of student loan forgiveness is INSANE! Colleges now are $100,000 a year...for english, gender studies, etc majors who WILL NEVER MAKE $100,000?
People really want to label this a crash; well perhaps so due to the unexpected suddenness of the event. Anyone who follows markets would have to have seen that at some point a nice sell off would take place. For 3 months prior stocks traded at elevated levels in a tight range of ten percent and likelihood of drawdowns based on CEO discussions of outlooks clearly suggested that further upward movements of stocks not likely to be the case and a sell off, would take place.
As you have noted, no one can predict an exact date, but one can see what is going on and sense that sooner than latter market would see a sell off. That is why a good strategy to have employed would have been to buy out of the money puts on high flyers, and or a broad based ETF S&P index.
Utility with Habits seems to work here! when the market goes down a little then everybody that used to consume high afraid more that others (with power utility) since have this habit
It means that the Treasury ought to be issuing a NGDP secutity or several of different tenors so as to get a better market expectations of NGDP growth than share prices.
The last two republican presidential terms have ended in economic disasters. Clinton had a surplus and balanced the budget, Bush spent like it was going out of style, Trump spent Twice as much as Biden. I'm sick of the old narrative that republican are better on the economy. It's just not true. Biggest lie in politics. Trickle down never worked. The Republicans seems to spend into oblivion, then dems are left to clean up the mess and be the adults.
The market needs churn. If you're young, you want recessions to happen periodically so that you can grab quality stocks in companies at a discounted price point. But at the same time, as for now, it seems like a certain political affiliations would love to see the market crash instead of a "soft landing". But hey, when an orange god king trains his followers to hate America while constantly relaying how much he hates this country its no wonder they have the outlook they do.
Nice blog. Part of the issue is none of us has a crystal ball. Some history from my perspective. I was a managing partner of a hedge fund before I retired. We fully accepted the EMH and CAPM for pricing assets simply because all the info about an asset was impounded in the price. Our returns reflected an average correlation coefficient of 1 with the market returns over a ten year time horizon. an alpha of zero. Our risk adjusted returns were consistent with both leveraged and unleveraged market betas. When people asked for my market opinion, I said, "I don't know." It seems, at the margin, expectations change with new information arriving in the market. The intensity of which often yields significantly heavy tails.
Etf's. Buy a total market index and hold that bitch forever. You'll beat out every "expert" out there.
Let's look at a different thing that can roil markets-emotion. Hard to quantify or predict. When I was on the trading floor we would just chalk it up to "more sellers than buyers". But, let's look at two events and compare and contrast them. First, August/September 2008. The market started falling out of bed but what was the catalyst? Not mortgage crisis yet. No, polls finally flipped and Obama was the clear leader over McCain. The market didn't know or trust Obama as a person yet. So, it started to fall out of bed on fear. There were also small war like skirmishes across the globe, one conveniently involving Russia (https://en.wikipedia.org/wiki/Portal:Current_events/August_2008). Inflation rate ticks up to 5.6% in the US. Hurricane events destroyed confidence in the Bush Presidency......Now, 2024. Who is President of the US? It is not Joe Biden who has dementia. Inflation isn't gone. Jobless claims are going higher. Polls switched so Harris is slightly beating Trump and the market doesn't trust Harris. There is a skirmish involving Russia, and it looks like Iran wants to attack Israel. Maybe some earnings leaked but they haven't been stellar ex post facto. Warren Buffett sold 50% of his Apple holdings and went to cash. What would the rational emotion be if you were holding stock? I don't think it is to buy with both hands. Sell Mortimer, Sell.
All major turns coincide with the change in money flows, the volume and velocity of money. The turns reflect a change in American Yale Professor Irving Fisher's truistic "equation of exchange". The recent downturn stems from a deceleration in N_gDp brought on by a drop in long-term money flows, the proxy for inflation. Short-term money flows, the proxy for R-gDp, have been up since 2023. That's why the 2nd qtr's R-gDp was recorded at 2.8%
afterthought:
This is what I posted 7/14/24 right before the peak on 7/17/24
"If my #s are right, that is the distributed lag effect of money flows are mathematical constants, then N-gDp plunges after this month - July"
Both the Nov. 2002 and March 2009 markets bottomed with the reversal of long-term money flows. Same goes for the 1982 and 1974 bottoms. The 1984 bottom coincided with the bottom in short-term money flows, etc., etc.
Looking good Billy Ray! Feeling good Louis!
How about the following? The market is looking for an indicator whether a recession is coming and turning points in the unemployment rate have been a reliable predictor: https://www.frbsf.org/research-and-insights/publications/economic-letter/2022/12/recession-prediction-on-clock/
The recent uptick in the unemployment rate is understood as a turning point, triggering a sudden drop in the stock market since people wanted to sell before it's too late. In contrast, the slope of the yield curve has been an unreliable predictor of a recession for the last two years or so.
Question: when exactly did the yield curve produce a false positive in the past few years? The brief re-inversion in 2022 did not technically lead to a recession, but only just short of the standard definition, and did coincide with a market crash. The yield curve has not re-inverted since, so no false positive.
Thoroughly enjoyed this post!
Not much good has happened since 2008...it is a GIANT FRUAD of rescuing the richest and importing illegals to DESTROY THE POOR!
Let not forget more than a decade of virtual ZERO interest TO ENSURE billions of wall street bonuses for Investment firm who now do little investment beyond money spinning frauds! Concentration of wealth is a record. Housing has double, tripled or more. Wages..not so much so!
Democrats now believe they will be the FIRST people in history to USE inflation to wash away debt....as they balloon Federal DEBT to $40Trillion plus about $150,000 A PERSON!
Private Equity buys companies to STRIP every asset including pensions then pays a carried interest tax rate 1/2 a normal person does Don't forget billions in renewable taxcredits make billions in profits DISAPPEAR.
Take a drive to upstate NY or across the country and see FAILED towns with unpainted houses as Democrats GIVE AWAY billions to illegals, FAILED colleges students, and outrageous medical costs!
ALL major Investment firms on Wall Street should have been LIQUIDATED in 2008. Instead we PRINTED $10 Trillion over at the FED to BUY UP every piece of garbage they produced(they kept the bonuses) CRASH...this time a REAL crash will find where the excesses are! The US has more federal debt per capita than Japan! I What is true inflation...you know with housing, food, energy, cars and the OTHER stuff of life?
The random CAPS really DRIVES home your POINT and makes you look like a SANE PERSON.
when talking do you emphasize...or just drone on in monotone?
running up $150,000 of Federal Debt per person is INSANE!
They lavishing Illegals and foreign countries with billions vie deficit spending INSANE
Rewarding college students for TERRIBLE degrees from woke colleges with $100's of Billion of student loan forgiveness is INSANE! Colleges now are $100,000 a year...for english, gender studies, etc majors who WILL NEVER MAKE $100,000?
You have any idea how we get out of that?
Classic faux news bs 🤣
Classic Cochrane, and that's a good thing.
might index funds play a role is lower market fluidity/correction? always wondered about the systemic effects of index funds being much of the market.
PS. I liked Taleb's line about penny pinchers
"eating like birds, while going to the bathroom like elephants"
Jason Furman, much to his discredit, ignores the other half of the equation - fiscal policy.
People really want to label this a crash; well perhaps so due to the unexpected suddenness of the event. Anyone who follows markets would have to have seen that at some point a nice sell off would take place. For 3 months prior stocks traded at elevated levels in a tight range of ten percent and likelihood of drawdowns based on CEO discussions of outlooks clearly suggested that further upward movements of stocks not likely to be the case and a sell off, would take place.
As you have noted, no one can predict an exact date, but one can see what is going on and sense that sooner than latter market would see a sell off. That is why a good strategy to have employed would have been to buy out of the money puts on high flyers, and or a broad based ETF S&P index.
Utility with Habits seems to work here! when the market goes down a little then everybody that used to consume high afraid more that others (with power utility) since have this habit
It means that the Treasury ought to be issuing a NGDP secutity or several of different tenors so as to get a better market expectations of NGDP growth than share prices.
Then read the book "Why does the stock market go up" by Brian Feroldi.
The last two republican presidential terms have ended in economic disasters. Clinton had a surplus and balanced the budget, Bush spent like it was going out of style, Trump spent Twice as much as Biden. I'm sick of the old narrative that republican are better on the economy. It's just not true. Biggest lie in politics. Trickle down never worked. The Republicans seems to spend into oblivion, then dems are left to clean up the mess and be the adults.
The market needs churn. If you're young, you want recessions to happen periodically so that you can grab quality stocks in companies at a discounted price point. But at the same time, as for now, it seems like a certain political affiliations would love to see the market crash instead of a "soft landing". But hey, when an orange god king trains his followers to hate America while constantly relaying how much he hates this country its no wonder they have the outlook they do.