re: There are some major issues lurking in the US financial markets

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Go through his post history. He's... interesting

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I found a picture of him on his Facebook page.....

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It’s not timingthe market as much as it is waiting for fair value.

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Agreed. That’s not being “a great market timer” which implies trying to buy at the price bottom.

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I mean, if we cannot handle one quarter of one percentage point increase, or even a full percentage point if you assume rate hikes continue next year, then what does that say about the weakness of the economy in general?

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Yeah, I'm with you, as are a lot of people. As a small counter-point, it was the balance sheet runoff--more than expectations about the schedule for 2019 interest rate hikes--that tanked the market yesterday.

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I for one am elated this is finally happening because the CNBC-style permabull narrative is not sustainable.

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I'm more cautiously excited about having an opportunity to make money, beat the market, and build a good performance record. I try to drown out the background noise and accept it as a necessary part of a larger systemic phenomenon.

That being said, I do think it's important to believe that the world will be better off if this process occurs sooner rather than later. And I certainly do.

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Hopefully Tesla does not survive as an added bonus.

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I can't stand Elon Musk either, but really, it's Deutsche Bank that I most want to go under this time around.

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Are you insinuating that the head of one of the largest companies on the market manipulates the markets? I’m pretty sure the SEC and FBI would have something to say about that

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This is nonsense. They have nothing important to say about it. Token fines compared to how much money they are making on the manipulation. Banks are getting in trouble for spoofing the markets, including JPM having a fall guy last month. Everyone knows there is a ton of manipulation in the markets.

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they would 100% hammer his arse

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Like they did the bankers the world over after they nearly crashed the world. No, they actually gave trillions of dollars to those bankers. Iceland prosecuted some though. So maybe if he did it to Iceland.

IDK why you are sticking up for buffett, he is a pos anyways.

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1800 SPX target on this first big leg by Spring is exactly what I think too, Doc

It just boggles my mind how people don't want to trade what they see right in front of them and instead want to catch a falling knife while hoping.

Makes no sense. But cognitive dissonance and recency bias are strong habits to break for some.

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If we are in a major bubble like in 2007, and it’s so obvious, then I think one way to test this is to use the historical returns of the peak and the bottom of a known bubble.

For example, if we use the historical returns from the S&P 500’s inception to the bottom in 2007, which as a likely extreme overcorrection, then we will get an especially conservative estimate of growth. Over those 60+ years, the S&P 500 had an 5.26% annual price increase, with a 3.55% dividend yield, and a total annual return 9%.

Now if we use this conservative estimates, and use the peak of the last known and extreme bubble (10//11/07), we can get a raw estimate of a bubble price at any point in time, since it just essentially moves the bubble (as if it never burst) to any point on a time continuum.

Now since that peak the price has increased by 5.16%, slightly less than the 5.26% above; however, the total annual return is only 7.33% as the dividend yield has decreased to 2.07% compared go the 3.52% above, since stock buybacks have become more common and used in lieu of a dividend.

So because of the lower dividend, and the use of buybacks, the price would be expected to increase more rapidly, so to adjust for this the expected annual price increase would be 6.79% to maintain the 9% expected return.

So with a 6.79% annual increase from the 1576.1 price at the the peak of the last bubble on 10/11/07, the price would be at 3289 today, and about 3,400 in middle spring.

In fact, when it’s hit it’s peak of 2940.9 on 09/21, the expected bubble price would have been 3235, 10% higher than the peak.

So using this conservative estimate of growth, and using a known and extreme bubble and crash, one that was so extreme that it’s a primary focus of Taleb’s Black Swan Theory. And the recent peak is well below the projected peak from that bubble, making a Black Swan crash even less likely.

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Like they did the bankers the world over after they nearly crashed the world.

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O come on. The crash was a result of systematic failures and/or greed by a bunch of parties including banks, crediting agencies, the government, the real estate profession as a whole, and many of the home buyers and sellers themselves. A lot of regular people benefited from the bubble too, and they reinforced the bubble as well.

And many people who suffered did nothing to deserve that, specifically those who were just buying and selling their homes for their intended purpose (live in them). That being said, many people only have themselves to blame, because of their own greed. The banks may have lent it, but they didn’t make people take on more debt and become over-leveraged even before the crash.

The banks in general may have reinforced the problems and greed, but those that really exacerbated it, aren’t really around anymore.

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IDK why you are sticking up for buffett, he is a pos anyways.

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Well I don’t really know what you’re basing that on, but let’s be honest, most of us aren’t really any better than the people everyone likes to demonize. So the hypocritical demonization, and lack of self-awareness, definitely doesn’t help that.

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Not sure where you are getting this from?

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Just type "powell autopilot" into Google and read some of the articles linked to in the first page of search results. I'm guessing that they'll all pretty much give you the same story--i.e., it was Powell's comments on quantitative tightening that moved markets more than the Fed's language about expecting 2 more rate hikes in 2019.

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Are you saying the market was unaware of some facet of the unwind?

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No. I am saying (and pretty much everybody else in the financial world is saying too) that the market expected Powell to indicate the need to be more "data dependent" in determining the appropriate pathway of action for quantitative tightening next year. He didn't.

He noted that core inflation would need to show up for the Fed to follow through on the 2 expected rate hikes in 2019; but when it came to QT, his comments seemed to suggest that the Fed would stick to the originally planned schedule regardless of market fluctuations for asset prices. It almost seemed stubborn--like Germany violating Belgium's neutrality in 1914 because the railway schedules had already been set. It was not at all what the market was expecting.

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So using this conservative estimate of growth

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Assuming 6.8% annual growth off a pre-crash peak in the midst of 10 years of absolutely terrible economic performance is not a conservative estimate at all.

But just playing by your own logic here...

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In fact, when it’s hit it’s peak of 2940.9 on 09/21, the expected bubble price would have been 3235, 10% higher than the peak.

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You seem to be arguing that there's no problem, because to get a 2007-style "extreme bubble", we would have needed (according to your growth estimates) to be at 3235 on 9/21/2018. But even assuming that's the case, doesn't that then imply that a 2009-style trough should occur at around 1367? If so, is that now somehow less likely to occur because the 9/21/2018 peak was only at 2940.9? Why?

Finally, the bearish case has absolutely nothing to do with expecting a Black Swan event. It's based on things like price/sales, the Buffett indicator, the corporate profit margin cycle, etc., and supported by a wealth of empirical evidence.

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The market clearly reacted sharply to his specific comments about the schedule for unwinding the balance sheet. It was a clear and empirical event. This has nothing to do with whether the consensus of experts happens to be right or wrong. The market did expect him to say something else, whether you like it or not.

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It’s not clear at all.

I pulled up a S&P 500 chart with 5 minute increments. Powell made the comment at 2:42 PM.

From 2:35 to 2:40, before he made the comment, it dropped 1.09%. And that represented at drop of 1.85% in the 45 minutes after the peak.

From 2:40 to 2:45, the interval when he made his comment, it increased by 0.35%. Then over the next 45 minutes, it dropped 1.22% and remained pretty constant from there.

So in the 45 minutes before his comment, it dropped 1.8%, and in the 45 minutes after his comments it dropped 1.22%.

And I even searched MarketWatch’s corespondent who was live tweeting the event and he didn’t even note that comment in real time. In fact, only couple fandom people did.

But a little after 3:30, after the drops had stopped, some pundits must have mentioned the balance sheet and all of a sudden everybody was convinced it was the reason.

I wouldn’t be surprised if they have people look for the sharpest decline during the conference, and then find something that they can use to as the cause. But apparently they don’t have people smart enough to look at the decline that began a few minutes before it.

In other words, they seem to be making it up after the fact so they can make it seem like they knew it in real time. But apparently they don’t want people to realize that even though it was no surprise, and even though they’re expertise didn’t seem to be good enough to publically predict this ahead of time as they were focusing on the rates instead, they have it all figured out after the fact.