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Motion Sickness
Justin Fox on our new era of volatility:
Here’s a look at some different time periods and the number of days the
S&P 500 has moved up or down more than 5% during the trading day:
* 1950-2000: 27 days
* 2000-2006: 7 days
* Jan. 1-Sept. 30, 2008: 20 days
* Since Oct. 1, 2008: 22 days
I don’t think I’ve seen anyone even seriously attempt to explain why
this would happen. Stock market crashes are, obviously, not
unprecedented. But never before have they entailed this kind of wild,
up-and-down day-to-day swinging. What’s different now?
high liquidity = low volatility
low liquidity = high volatility
Re “What’s different now?”
————
You took a spoiled little rich boy –who had all the advantages of a
wealthy upbringing — and sent him to Harvard Business School even though
he had mediocre grades as an undergrad.
By middle age, he turned out to be an alcoholic and a bankrupt
businessman. So you let rich men bail him out, put him in the White
House as designated puppet, and you gave him the national credit card.
What the fuck did you think would happen? Al Gore warned you in 2000 but
you wouldn’t listen. Remember that “fuzzy math”?
PS Oh — and this spoiled little rich boy had an older brother named Neil
who buttfucked you to the tune of $1 Billion in the 1988 Savings and
Loan Scandal.
A successful scam because you elected George W and Neil’s father to the
Presidency in 1988 — because George H waited until 2 weeks AFTER the
election to tell you about something called Savings and Loan.
Prior to the election, of course, you were focused on whether Democrat
Gary Hart was fucking Donna Rice, how and how often. Because the safety
of the republic depended on resolution of that issue.
1. Brock Says:
December 3rd, 2008
What were the swings like 1929-1930?
2. Freddie Says:
December 3rd, 2008 a
I wonder what happened in 2007?
3. James Gary Says:
December 3rd, 2008
What were the swings like 1929-1930?
That was still the small-combo/Dixeland era, and there wasn’t much swing
to speak of. Swing didn’t really take off until the “big bands” of the
1930s.
I’m always glad to be of help.
4. Jasper
Says:
December 3rd, 2008
What’s different now?
The invention — and by now the ubiquity — of the internet?
5. Dan Kervick Says:
December 3rd, 2008
Hmmm….seems like maybe you have large numbers of investors now who have
no idea how much anything is actually worth, but are just playing the
game and going with the general flow.
6. Bradford Daly Says:
December 3rd, 2008
Could these swings possibly be at least partially due to the
exponentially increasing speed with which news is disseminated?
7. Toady Says:
December 3rd, 2008
Ubiquity of equity investment dilutes the expertise and professionalism
of the investor class.
Basically, the majority of people investing money in the stock market
don’t know what they’re doing, viewing equity investment as something
like near-term gambling.
8. allbet sareoff
Says:
December 3rd, 2008
What’s happened now — i.e., since Oct. 1 — is that investors have an
antidepressant-resistant case of heebie jeebies. They panic at bad news,
then go bargain-hunting after a steep fall in prices, and repeat the
cycle. On the bright side, brokers must be raking in the bucks.
9. asl S ays:
December 3rd, 2008
who have no idea how much anything is actually worth
That’s my vote. The lack of securities transparency on banks books (some
aren’t even on the books). Lack of transparency on Fed actions. They
have assets on their balance sheet that they refuse to say who sold
them. The changing policies of current Treasury/Fed declarations and
actions. New Administration speculation. All that means people guess on
a day-to-day basis.
10. Don Williams Says:
December 3rd, 2008 at 12:28
Re “What’s different now?”
————
You took a spoiled little rich boy –who had all the advantages of a
wealthy upbringing — and sent him to Harvard Business School even though
he had mediocre grades as an undergrad.
By middle age, he turned out to be an alcoholic and a bankrupt
businessman. So you let rich men bail him out, put him in the White
House as designated puppet, and you gave him the national credit card.
What the fuck did you think would happen? Al Gore warned you in 2000 but
you wouldn’t listen. Remember that “fuzzy math”?
PS Oh — and this spoiled little rich boy had an older brother named Neil
who buttfucked you to the tune of $1 Billion in the 1988 Savings and
Loan Scandal.
A successful scam because you elected George W and Neil’s father to the
Presidency in 1988 — because George H waited until 2 weeks AFTER the
election to tell you about something called Savings and Loan.
Prior to the election, of course, you were focused on whether Democrat
Gary Hart was fucking Donna Rice, how and how often. Because the safety
of the republic depended on resolution of that issue.
11. asl Says:
December 3rd, 2008 at 12:32
I’ll retract my explanation and go with Don’s. I’d forgotten about Donna
Rice.
12. uncle noel Says:
December 3rd, 2008 at 12:34
I recently read that the swings in the 30’s were similar to today’s
(through 37!). Related topic: http://www.dailykos.com/storyonly/2008/12/2/102214/940/743/668445
13. spaz
 Says:
December 3rd, 2008 at 12:37
No time to find the citation, but I saw an options blog recently that
mentioned that index variance - sorry, volatility - went high after 1929
and stayed high for a decade. Don’t know about the 5% mark, but it
sounds like a very similar pattern.
14. matvey Says:
December 3rd, 2008 Saving the Big 3 for You and Me...
A Message From Michael Moore
by Michael Moore
Friends,
I drive an American car. It's a Chrysler. That's not an endorsement.
It's more like a cry for pity. And now for a decades-old story, retold
ad infinitum by tens of millions of Americans, a third of whom have had
to desert their country to simply find a damn way to get to work in
something that won't break down:
My Chrysler is four years old. I bought it because of its smooth and
comfortable ride. Daimler-Benz owned the company then and had the good
grace to place the Chrysler chassis on a Mercedes axle and, man, was
that a sweet ride!
When it would start.
More than a dozen times in these years, the car has simply died.
Batteries have been replaced, but that wasn't the problem. My dad drives
the same model. His car has died many times, too. Just won't start, for
no reason at all.
A few weeks ago, I took my Chrysler in to the Chrysler dealer here in
northern Michigan -- and the latest fixes cost me $1,400. The next day,
the vehicle wouldn't start. When I got it going, the brake warning light
came on. And on and on.
You might assume from this that I couldn't give a rat's ass about these
miserably inept crapmobile makers down the road in Detroit city. But I
do care. I care about the millions whose lives and livelihoods depend on
these car companies. I care about the security and defense of this
country because the world is running out of oil -- and when it runs out,
the calamity and collapse that will take place will make the current
recession/depression look like a Tommy Tune musical.
And I care about what happens with the Big 3 because they are more
responsible than almost anyone for the destruction of our fragile
atmosphere and the daily melting of our polar ice caps.
Congress must save the industrial infrastructure that these companies
control and the jobs they create. And it must save the world from the
internal combustion engine. This great, vast manufacturing network can
redeem itself by building mass transit and electric/hybrid cars, and the
kind of transportation we need for the 21st century.
And Congress must do all this by NOT giving GM, Ford and Chrysler the
$34 billion they are asking for in "loans" (a few days ago they only
wanted $25 billion; that's how stupid they are -- they don't even know
how much they really need to make this month's payroll. If you or I
tried to get a loan from the bank this way, not only would we be thrown
out on our ear, the bank would place us on some sort of credit rating
blacklist).
Two weeks ago, the CEOs of the Big 3 were tarred and feathered before a
Congressional committee who sneered at them in a way far different than
when the heads of the financial industry showed up two months earlier.
At that time, the politicians tripped over each other in their swoon for
Wall Street and its Ponzi schemers who had concocted Byzantine ways to
bet other people's money on unregulated credit default swaps, known in
the common vernacular as unicorns and fairies.
But the Detroit boys were from the Midwest, the Rust (yuk!) Belt, where
they made real things that consumers needed and could touch and buy, and
that continually recycled money into the economy (shocking!), produced
unions that created the middle class, and fixed my teeth for free when I
was ten.
For all of that, the auto heads had to sit there in November and be
ridiculed about how they traveled to D.C. Yes, they flew on their
corporate jets, just like the bankers and Wall Street thieves did in
October. But, hey, THAT was OK! They're the Masters of the Universe!
Nothing but the best chariots for Big Finance as they set about to loot
our nation's treasury.
Of course, the auto magnates used be the Masters who ruled the world.
They were the pulsating hub that all other industries -- steel, oil,
cement contractors -- served. Fifty-five years ago, the president of GM
sat on that same Capitol Hill and bluntly told Congress, what's good for
General Motors is good for the country. Because, you see, in their
minds, GM WAS the country.
What a long, sad fall from grace we witnessed on November 19th when the
three blind mice had their knuckles slapped and then were sent back home
to write an essay called, "Why You Should Give Me Billions of Dollars of
Free Cash." They were also asked if they would work for a dollar a year.
Take that! What a big, brave Congress they are! Requesting indentured
servitude from (still) three of the most powerful men in the world. This
from a spineless body that won't dare stand up to a disgraced president
nor turn down a single funding request for a war that neither they nor
the American public support. Amazing.
Let me just state the obvious: Every single dollar Congress gives these
three companies will be flushed right down the toilet. There is nothing
the management teams of the Big 3 are going to do to convince people to
go out during a recession and buy their big, gas-guzzling, inferior
products. Just forget it. And, as sure as I am that the Ford
family-owned Detroit Lions are not going to the Super Bowl -- ever -- I
can guarantee you, after they burn through this $34 billion, they'll be
back for another $34 billion next summer.
So what to do? Members of Congress, here's what I propose:
1. Transporting Americans is and should be one of the most important
functions our government must address. And because we are facing a
massive economic, energy and environmental crisis, the new president and
Congress must do what Franklin Roosevelt did when he was faced with a
crisis (and ordered the auto industry to stop building cars and instead
build tanks and planes): The Big 3 are, from this point forward, to
build only cars that are not primarily dependent on oil and, more
importantly to build trains, buses, subways and light rail (a
corresponding public works project across the country will build the
rail lines and tracks). This will not only save jobs, but create
millions of new ones.
2. You could buy ALL the common shares of stock in General Motors for
less than $3 billion. Why should we give GM $18 billion or $25 billion
or anything? Take the money and buy the company! (You're going to demand
collateral anyway if you give them the "loan," and because we know they
will default on that loan, you're going to own the company in the end as
it is. So why wait? Just buy them out now.)
3. None of us want government officials running a car company, but there
are some very smart transportation geniuses who could be hired to do
this. We need a Marshall Plan to switch us off oil-dependent vehicles
and get us into the 21st century.
This proposal is not radical or rocket science. It just takes one of the
smartest people ever to run for the presidency to pull it off. What I'm
proposing has worked before. The national rail system was in shambles in
the '70s. The government took it over. A decade later it was turning a
profit, so the government returned it to private/public hands, and got a
couple billion dollars put back in the treasury.
This proposal will save our industrial infrastructure -- and millions of
jobs. More importantly, it will create millions more. It literally could
pull us out of this recession.
In contrast, yesterday General Motors presented its restructuring
proposal to Congress. They promised, if Congress gave them $18 billion
now, they would, in turn, eliminate around 20,000 jobs. You read that
right. We give them billions so they can throw more Americans out of
work. That's been their Big Idea for the last 30 years -- layoff
thousands in order to protect profits. But no one ever stopped to ask
this question: If you throw everyone out of work, who's going to have
the money to go out and buy a car?
These idiots don't deserve a dime. Fire all of them, and take over the
industry for the good of the workers, the country and the planet.
What's good for General Motors IS good for the country. Once the country
is calling the shots.
Yours,
Michael Moore
More traders acting on more information without a filter to effectively
talk them out of bad decisions (a broker). If I had active control of my
portfolio instead of my broker, I likely would have modified my
positions in some of the stocks I own like Exxon and the shell formerly
known as Citigroup. But since I’d have to look up his name and number
from my last statement, I’ve stood pat, which is probably the best
strategy going forward since it’s pretty much impossible to game a
market that doesn’t have rules anymore.
15. duBois S ays:
December 3rd, 2008 at 12:40
The lack of transparency in financial accounts, the lack of
accountability in the bailouts, the participation in the bailouts of
people who will benefit, and the calculated use of the media by people
in power to influence the markets.
We’re a nation of sheep and we’re being fleeced.
16. Thomas Allen Says:
December 3rd, 2008 at 12:42
What Toady said.
E-Trade alone added almost 300,000 new retail trading accounts in 2007,
and I believe they were in decline even then. How many millions of
amateurs do we have out there with itchy buy/sell trigger fingers?
17. Justin Fox Says:
December 3rd, 2008 at 12:45
Barbara Kiviat wrote that brilliant post by the way, not me.
18. bjk Says:
December 3rd, 2008 at 12:47
high liquidity = low volatility
low liquidity = high volatility
19. Nylund
Says:
December 3rd, 2008 at 12:50
Heteroskedasticity is a great word and entirely appropriate for this
topic.
20. David Says:
December 3rd, 2008 at 12:52
Volatility throughout the 1929-1931 period was virtually the same as
today. Ignoring this period because it wasn’t “postwar” is what got us
into the mess in the first place (”housing has never gone down
nationally in the postwar period!”). Basically the market’s behaving
exactly as it should after a major bank failure.
21. mark Says:
December 3rd, 2008 at 12:53
I imagine that people are trying to recoup big losses by taking small
profits at the margin, over and over.
22. Stav Says:
December 3rd, 2008 at 12:54
Dan Kerviak has it right. Here is what I wrote my clients earlier this
summer: Neither I, nor anyone else alive today knows exactly how and
when this economy and these markets will straighten themselves out. That
leads to days of unfathomable pessimism followed by days of uncontrolled
euphoria. I suggest we follow the lead of the smartest investors through
history who have basically stuck with their strategy, showed determined
discipline and have taken advantage of disruptions to add quality
positions to their investments.
23. kafka
Says:
December 3rd, 2008 didnt want to reply during market hours with my FA
rant, thread rules and all. i am very optimistic about my future. my
biggest concern is our countries debt and spending habits and the
overally economy of the next X number of years when this house of cards
comes tumbling down. who knows, perhaps we are just too big to be
allowed to fail. i just dont know. what i do know is we have too much
debt, spend too much and the bulk of americans are in the same boat.
folks out here in arizona where housing prices soared the past few years
have re-fied 2-4 times on average and pulled every last cent possible
from their houses and in true american spirt, spent it. while that was
great for the economy the past few years, what happens in the coming
years? in my opinion we will have to work off the excess and pay down
debt. the economy isnt going anywhere in that environment.
where things could get stinky is if inflation is NOT controlled. if
inflation keeps going up, interest rates will have no choice but to
follow further dampening the economy. not to mention the 70% of folks
that took out adjustable rate mortgages despite interest rates being at
multi decade lows. they will continue to get higher and higher payments
and foreclosures will soar. if things get bad enough we could be looking
at the equivalent of the S&L mess from the 80's (???)
thats my view and why i am bearish until 2010-2013 ish (gg). if it all
pans out i will be buying a ton of real estate in 4-7 years and kick
back and enjoy the ride up for the following 20
“What’s different now?”
My guesses:
*Record amounts of leverage
*Clusterfucked financial system
*Program trading, “shadow” trading = huge buy/sell orders
*Willy nilly Fed/Treasury interventions
*Lack of transparency (SIVs, etc.)
*”Herd behavior” by big insiders
*PPT ?
And for laughs, here’s a great quote from the “Maestro”:
“Not only have individual financial institutions become less vulnerable
to shocks from underlying risk factors, but also the financial system as
a whole has become more resilient.”
–Greenspan 2004
24. matt Says:
December 3rd, 2008 at 1:05
The internet. Information moves much faster and reaches a higher
percentage of investors more quickly than in the past. Also the trading
itself can be done much faster.
25. matt Says:
December 3rd, 2008 at 1:08
Also a lot of trading is done by computers which buy or sell when stocks
reach a certain value or change by a certain amount. This leads to a lot
of feedback loops which drive prices way up or way down.
26. kforceone Says:
December 3rd, 2008 at 1:14
Random Variation is the short answer. Different crowd, different
derivatives, different outlook, different environs.
Either way, I like it. I day trade so this is literally like Christmas
everyday. I heard a wonk say that this daily volatility would continue
until at least February. That was music to my ears.
k1
27. Barbar Says:
December 3rd, 2008 at 1:20
Oh yeah, the internet was invented in 1999 and really became popular in
October 2008. And the internet was also around in 1930 when the market
was swinging like crazy. I’m so smart!
28. the
 idler
Says:
December 3rd, 2008 at 1:24
Try reading Mandelbrot and Taleb.
29. Jack Says:
December 3rd, 2008 at 1:26
No one knows what’s happening, and so they’re looking to the next guy to
get some guidance. Since no one knows what’s happening, it only takes a
few people to start panicking and going wild (either selling or buying)
and everybody else, who is looking to see what other people are doing,
start following suit. Once a precedent has been set and panic has ensued
a few times, people start to think it is the norm and act wildly when
before they would be calmer.
Of course, it is very limiting, short term thinking that is driving
these actions, but, hey, it’s stock traders we’re talking about, so what
do you expect?
30. EL Says:
December 3rd, 2008 at 1:28
My turn to guess: Few investors and lots of traders. WHEEE!
31. alan Says:
December 3rd, 2008 at 1:38
people have been told to “keep their money where it is.” So when they
see a big drop, they decide that on the next big upswing they will get
out, and that is exactly what is happenning. Last week, record single
week up, then this week everyone figures I am going to cut my losses,
huge drop on monday after a weekend to think it over. if this week ends
up bad, monday next week will be a “recovery”. I think that only the
really rich and investment firms can afford (ie. have enough money for
enough time) to stay in this market long enough to get back above even,
and everyone else is waiting for a buyer ata losing price the seller can
swallow.
By the way, on many terrible days in 1929, there were simply NO BUYERS
to even set a price on many stocks, as everyone was getting margin calls
and being forced to sell.
32. Said
 Shirazi
Says:
December 3rd, 2008 at 1:44
As comments #23 and #25 point out, the most likely culprit for increased
market volatility is the huge amount of “program” or electronic trading.
33. Ben Ross Says:
December 3rd, 2008
The idler gives good advice.
In physics, there’s what’s known as the fluctuation-dissipation theorem.
The first example of this theorem was discovered by Einstein in 1905.
One of the consequences of this theorem is that unstable systems — those
liable to large irreversible moves — have bigger random fluctuations.
34. Rob Mac Says:
December 3rd, 2008 It is Your Economy .. yours, mine, our
family, friends and neighbors--EVERYONE, to some degree, so we should be
aware of the mechanisms that make the markets tick. We live in a new era
where geo-politics, weather and just about anything you can think of is
tied to our economy. Like it or not, we are globally tied at the hip and
In this new era, electronics and the advent of the internet sees wll see
to it that information moves at the speed of light (soon). This board
was created to follow markets, cycles, trends and indicator. I enjoy
troving for information that the MSM fails to report and allow us to see
things from all aspects and is left to us to make sound decisions..
Politics, humor and the like are also welcome here as long as the
neighborhood remains civil. This board is basically an info board, but
all are welcome to post ... I really have only one rule and that is if
you should post, please, play nice!
I’d be willing to bet that the vast majority of volume of trades is
institutional investors and fund managers. Individuals trading
individual stocks probably account for a very small percentage of trades
on any given day. No, I don’t have a source for this. I’m going with my
gut.
35. jb
 Says:
December 3rd, 2008 at 2:47
I would think it would be obvious, especially to you all. We’ve shifted
from an economy based on profit and loss, to an economy based on
management-by-elite (Paulson, Bernake, etc).
Instead of worrying about whether companies are healthy or not,
investors worry about what Paulson or Bernake says in their latest
pronouncement, about who will be saved by government, and who will be
left to die.
Investors scrutinize the words of our economic overlords, and attempt to
seek trends and generalizations that indicate which sectors of the
economy will be nationalized, which will be taxed and which will be
bailed (based on the perceived political pull of the lobbyists hired by
the sector’s CEOs, and the rough polling of the american people)
Welcome to the age of Pull! Where it no longer matters how good you are
at what you do, or how much effort you put into your company. The only
thing that matters today is how much leverage you have with the US
Congress.
36. eric k Says:
December 3rd, 2008 at 2:48
Don,
Wasn’t Donna Rice 1984? 1988 was Willie Horton and Dukakis looking silly
in a tank.
37. SC
 Henrich
Says:
December 3rd, 2008 at 3:05
One of the drivers is the increased use of leveraged ETF’s, namely the
ultra longs and shorts who seek out double inverse performance, as well
triple ultras just recently introduced. They use swaps and, as a result,
one is able to initiate large market swings with relatively little
amount of money…As more and more investors are weary of investing in
individual stocks, these ultras have become increasingly become the
trading vehicle of choice.
38. EcoNerd Says:
December 3rd, 2008 at 4:20
There’s an idea gaining steam in the scientific literature that
ecological systems exhibit increased variance when they are close to a
tipping point (related technical terms include thresholds, regime
shifts, and state transitions) that separates two different equilibria
or trajectories. These alternative states are each self-reinforcing, so
the idea is that near these tipping points the systems is simultaneously
being pulled by two different attractors. Given the similar
interconnectedness etc. that exists in ECOlogical and ECOnomic systems
(from the greek oikos=home), there’s every reason to believe that
similar dynamics might be at play here. Not particularly encouraging
regarding our near-term economic prospects.
39. Don Williams Says:
December 3rd, 2008 at 5:06
Re eric k’s comment “Wasn’t Donna Rice 1984? 1988 was Willie Horton and
Dukakis looking silly in a tank.”
———–
Nah, Donna Rice was in 1988. Remember the yacht “Monkey Business”? –see
http://en.wikipedia.org/wiki/Gary_Hart#1988_presidential_campaign_and_the_Donna_Rice_affair
Dukakis took over after Gary Hart had to drop out — and promptly threw
the election to George H Bush with a stupid shit stunt in a tank. See
http://en.wikipedia.org/wiki/Image:Michael_Dukakis_in_tank.jpg
Of course, the Democrats also utterly FAILED in their job of oversight —
so that after he was elected, George H Bush informed us that he did know
who Gary Hart was screwing –but he was about to sodomized the taxpayers
to the tune of $300 Billion to fix something called the “Savings and
Loan Scandal”.
Note that the Savings and Loan fuckup had occurred on Reagan and George
H’s watch but George H somehow forgot to tell us about it during the
campaign. The Democrats and News Media , of course, didn’t have a clue.
At least, that’s their story and they’re sticking to it.
40. MAX
 HATS
Says:
December 3rd, 2008 at 7:29
Uncertainty about the validity of information.
Peter Lynch, Beating the Market our new era of volatility
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