Whenever a significant trend change occurs in equity markets, the immediate response from most quarters is a mix of confusion and often futile attempts to rationalize the occurrence.

This is true regardless of whether the trend change is in your portfolio’s favor or against it. A heady mix of wishful thinking and fear get trotted out with various degrees of success, provisionally being accepted as pearls of wisdom before events disprove the thesis and lead to its discarding.

Financiers on Wall Street attempting to describe the day to day action oft resemble the parable of the six blind men describing the elephant.

Changes in market action send all scurrying back to the comfort of their discipline; each describes what they “see” in relationship to their school of thought:

• The Fundamentalist sees the market in terms of earnings and perhaps guidance;
• Technicians sees trend line breaks and H&S patterns.
• All of the Macro guys see global economic activity, including recession in Europe and slowing in Asia.
• Value Investors sees stocks as relatively cheap, with moderate P/Es and dividend yields.
• Monetarists cannot see anything but Fed intervention and currency action.
• Behavioralists watch the VIX, Put/Call ratio, percentage of stocks over their 200 day moving average, amongst other indicia of fear an d panic.
• Political economists cannot see past taxes and the fiscal cliff.
• The analysts who prefer a fusion of schools of thought runs into the possibility of information overload and false signals.

While each manages to describe a small portion of what is going on, they do so with only limited success. Regardless of your preferred school of thought, you should realize that any single discipline cannot pull together a grand vision of what is going on. Hence, during market turmoil, we see confusion compounding the volatilty.

The Minsky moment — following a long period of prosperity and increasing values of investments, which has encouraged increasing amounts of speculation, often using borrowed money — is not merely an economic phenomena. Prosperity leads to complacency, leading players to take more risks in order to achieve greater results. The subsequent dislocations that occur are all but inevitable.

We have had a 100% rally off of the March 2009 lows, driven by many factors. By my reckoning, that should have been a 70% or so move, in light of the 57% collapse that preceded it. As the more organic elements (psychology, valuation, mean reversion) began to fade, the artificial factors of the Fed (QE, ZIRP) kicked in. The 37% or so those helped to drive also now appear to be fading.

We have had a low volatility rise from October 2011 til recently.
Mr. Market’s Minsky Moment may be upon us . . .



Category: Markets

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

36 Responses to “What’s Going On?”

  1. [...] "Whenever a significant trend change occurs in equity markets, the immediate response from most quarters is a mix of confusion and often futile attempts to rationalize the occurrence."  (TBP) [...]

  2. stonedwino says:

    What’s going on? The Market has been TOTALLY disconnected from the economic reality. Historically that has not been the case. Why? In my view it is because the market has become the playground for Wall Street, their HFT and the wealthy – the vast majority of Americans no longer have “skin” in the game when it comes to the markets. Most Americans and retail investors are gone man…the vast majority of us have some 401K or IRA money left, but otherwise we are out for the foreseeable future.

    The wealthy have so much money they don’t know what to do with that they really have little choice but to “play the casino”…What’s going on? maybe the music stopped – no what? you pay the price for the total disconnect and the fact that the vast majority of Americans have little to no interest in what happens to “the markets”. When the vast majority of people don’t give a shit, you’ve got a serious problem, no more “suckers” to buy…

  3. ironman says:

    Nice listing of the schools of thought – it’s just what we figured – we’re unclassifiable!

  4. stonedwino says:

    all that and demographic trends….

  5. Mr.Tuxedo says:

    Could in be that the run up since 2009 was based on a self fulfilling principle?
    A positive prophecy, i.e., strongly held belief or delusion (that post bank bailout, the world governments had our back via policies of low rates stimulation, debt deferral and select forgiveness) was declared as truth when it was actually false.
    Its effect may have caused market participants to over participate on the basis of limitless global growth, while muddling through by either China or U.S. taking the lead in ares when needed, while Europe and Japan and austerity laden countries mend, so that ultimately the once-false prophecy that risk was not as great as it seemed became as fact.
    Decades of federal government tinkering may about to be witnessing a new paradigm and “Hawthorne Effect”.

  6. dustbowl daze says:

    All I know is I used to make better investment choices before I started listening to pundits and reading blogs. It is best if most of us try to limit the number of people we listen to and maybe pick a couple favorites who teach us something on the macro level.


    BR: Hence the post, The Price of Paying Attention

  7. eurostoxx says:

    Barry I like your thoughts and there does seem to be a bit of a “whats going on” feeling in the market place, especially for US stocks. And I do think we are near the end of the cyclical bull that began in spring 2009 but I have a few issues

    1) I am not so sure stocks are or the rally was so over extended. If you look at earnings growth and P/E’s they are reasonable. But then again so were stocks in 2007
    2) This recent sell off has been worse in the US than for other countries, that is after the US has been outperforming for the past 18 months or so.

    Other macro indicators like credit and FX (up until 2 days ago ) have been pretty muted on this move. I think we get a touch of 1320-1300 on SPX, then a relief rally to 1400, where the real test is made. IMHO

  8. JimInMissoula says:

    This is a great post – apropos of the name of this blog. It’s why I enjoy coming here – you don’t waste my time flogging a single explanation for everything.

  9. call me ahab says:

    I wonder if the market had its heart set on a Romney tax cut bonanza- and now smelling the whiff of reality

  10. catman says:

    I for one have been selling America and buying Europe. From fiscal cliff to sovereign crisis. Sell high, buy low.

  11. DeDude says:

    I wonder how much of the current selling comes from people who fear that unless they take their capital gains right now, it will end up being taxed at a higher rate. Then when they see that capital gain slipping in a down market, it could cause a panic sale.

  12. MotownMichael says:

    Love the song by Marvin Gaye, being where I am from. I think we are dealing with the usual spin cycle 24hr media who has not figured out how to deal a) the results of the election b)what the outcome of the Fiscal Cliff will be.

    My personal belief is that unlike the last debt ceiling deal, Republicans in Congress no longer have a gun to the head of the country, and will begrudgingly cave in. Once the dust settles form this (Yes kiddies we’ll have to pay more in taxes) there will be a significant rally to correct this period of volatility.

    Actually, I am somewhat optimistic about the US economy, in spite of a slowdown in Europe. The Chinese will stimulate, as it is easier for them to do this than deal with social unrest as long as they have the cash. For the US: Manufacturing and exports are not bad, the auto industry is doing quite well (Yes those bailout did work), and housing has bottomed out, and will start a slow rebound, starting some construction. And we have a domestic energy boom, that won’t lower fuel cost, but will again slow down the momentum of rising prices, keeping inflation in check. Our fiscal debt situation won’t be solved, but it will stop hemorrhaging. Personally, I’d love to see an infrastructure stimulus, we’re in bad shape in this country in this area, and I’d take a bit more in taxes/debt, as the long term benefits of good infrastructure can not be understated.

    Its not great, but considering where we came from in 2008-2009 I’ll take it.

  13. PeterR says:


    The American Red Cross has a matching grant in effect now for Sandy donations.

    The damage is unreal, like a war zone.

  14. danm says:

    Every time I try to convince myself that the market can keep on soaring and that things can improve, I remember that it took a few decades to generate the trillions that created the corruption and dislocations that generated the crisis.

    However, it only took a few months to reprint those same trillions to prop up the multi-decade creation. If corruption happened in slow motion while people had time to think, imagine the level of decadence since 2008.

    In my mind, a crisis is a sure thing. The timing of it is my only question.

  15. Vaulty McNut says:

    Agree with DeDude. Seeing selling in front of cap gains increase from company stock to businesses themselves.

  16. mburkett says:

    It all ultimately comes down to earnings and estimates are steadily being trimmed.

  17. 4whatitsworth says:

    I suppose I am a political economist at the moment because I can’t yet see past the new policies that are being put in place.

    I am still digesting the Obama speech but here is what I heard:

    ->If you make over 250K your tax rates are going up. (Sell your capital gains now)

    -:If you pay any taxes at all I like the idea of limiting your deductions that will help raise revenue we need. (In other words middle class your taxes are going up)

    ->We will look at the discretionary budget for reductions (Discretionary budget is 50 defense so if you work in the defense industry get ready for layoffs)

    -> I joked with a friend that Obama also said if you are poor and needy inflation is going up and don’t expect much help from the government we have our own problems (He did not say this but there is a good chance that this will be a reality)

    My view is risk off until the political fog clears. I hear more and more that we (the investors) lost the election so get over it and that is what we need to do. Now we just need to listen to the leadership agenda and take the appropriate action.

  18. VennData says:

    The entire “rally” since March 2009 was in anticipation of Obama losing a second term. Now he will take over, call it a coup, call it a dictatorship, but the Gimmie-mores who voted for him are in charge, American is finished. I’m moving to Boca Raton, or where ever Trunp’s going.

    – Jack Welch

  19. VennData says:

    I’d like to be on Trump’s show. Though I’d fire the bottom ten percent every week.

    – Jack Welch

  20. [...] The prospect for a real turning point in the market.  (Big Picture) [...]

  21. SecondLook says:


    If you pay any taxes at all I like the idea of limiting your deductions that will help raise revenue we need. (In other words middle class your taxes are going up)

    Not quite, at least according to the data crunched by the Tax Policy Center. A $50,000 cap on itemized deductions would raise $749 billion over the next decade, with 96.2% coming from the top 20%, 79.9% from the top 1%.

    Middle-class households rarely, if ever, list itemized deductions on their 1040 in excess of $50,000 – and what is extraordinary, if you think about it, how huge the the potential revenue is with that cap.

  22. CANDollar says:

    Are we setting up for SP500 at 1000 (27% down)?

    BR is I understand from a Bloomberg podcast, presently 35% exposed to the market.

  23. 4whatitsworth says:

    @second look, yup this proposed new tool of limiting deductions will be a great way to easily extract additional revenue from anyone who does itemize their deductions. That said the people who itemize deductions are folks like me who have employees, banking relationships, and capital investments. I grew up very poor and have done well by working extremely hard and putting my free cash flow in place of appreciation. In my upward crawl I have created many jobs and helped others to prosper our employees have been able to buy their first house and take care of their family and some have gone on to start their own businesses. In the process I have provided the job training that our government institutions have not I have also provided the health care that people need. Now it appears that I have a target on my back and “can really do more” because the government has squandered an opportunity to get the economy going and now needs my help. Anyone that thinks that this environment is going to encourage job creation and economic growth is in my view greatly mistaken but we shall see.

  24. 4whatitsworth says:

    @second look one other thing when I started our business there were many years where I made less than 50K but itemized my deductions. I would think that there are many who have small businesses with one or two employees that do this today. We started with lets tax the top 1% then lets tax the top 2% now it looks like we are on to lets tax the top 20%. I think you will find that the bar will continue to fall until it hits nearly everyone of 50% of Americans that pay tax now. This is a very slippery and treacherous slope. Now legalizing pot is not such a bad idea I hear it calms you down and helps you through situations like this.

  25. drewburn says:

    I would say that individual investors are NOT complacent. They are downright shellshocked. Perhaps they have become less important than institutions, but I’ve a couple hundred people in our 401k funds that have been going for bonds or guaranteed funds (GICs) hard. Only the young-ish remain with any significant equity exposure. And I mean any! We have a nifty “owned” commercial real estate fund that’s had most of my money for 13 years and is very easy to game, but that is the exception for 401k assets.

    Perhaps the next decline is the one that flushes out everyone, but I suspect among the unwashed masses, they are already mostly flushed!

  26. DeDude says:

    @4whatitsworth; If you cannot avoid taxes on expenses for “employees, banking relationships and capital investments” when personal income tax itemized deductions are capped at 50K, then you need a whole new set of financial advisers.

  27. Frilton Miedman says:

    4whatitsworth Says:
    November 15th, 2012 at 2:59 pm
    ” …. . Anyone that thinks that this environment is going to encourage job creation and economic growth is in my view greatly mistaken but we shall see.”


    I too worked my fingers to the bone to get where I am.

    It occurred to me after seeing the Gilchrist “I built that” commercials, belittling Obama.

    Then learned Gilchrist derives his business off government contracts, he’d have nothing but for my tax dollars.

    Apparently He really didn’t “build that”.

    If I have to accept a limit of $50K in deductions, I will, especially mindful that most Americans make less than $50K per year.

    Here’s why -

    Every Doctor, Nurse, Med tech or research scientist I have as a client, I know healthcare is nearly 50% subsidized by the government….half their salary is attributed government, in turn they hire me.

    Every Store manager or owner I have as a client, SNAP has subsidized their revenues by as much as 15%.

    Every engineer, technician, machinist or scientist I have as a client who works in defense, I have their business because government pays their salary.

    I can bitch and moan till the cows come home about how “self sufficient” I am, but if you do business here in America, think again, think about how many salaries have paid your own salary.

    This is equivalent to the 2009 cries of “get big government hands off my medicare!”.

    Most people are oblivious as to just how deeply government spending has benefited them, many who have benefited seem to think they had no help, that they owe nothing in return.

    Peterfly comes to mind, able to benefit from our fair system after immigrating here, he runs scary ads about the evils of”Socialism” when it’s time he reciprocate.

  28. 4whatitsworth says:

    Dedude, yes there are complicated strategies that reduce taxes and we get a nice break on state income taxes I assume this will continue. I end up having a large CPA bill every year and my CPA shows me his shelf of the current tax code it’s literally feet long and he tells me what he saved me and how hard he works and I believe him he looks exhausted at the end of tax season. Now I am not saying I pay to much in income tax now (I do play plenty however) and I suppose this creates a job for my CPA but Gheez can’t we make this thing simpler. Also frankly I would not mind paying a little more in taxes if my money were to go to a good cause like rebuilding Americas infrastructure or fixing our embarrassing educational system instead it goes making retirement and benefit programs better for federal employees, new regulatory bodies, and hand outs. I have the same benefits including retirement program as my employees unfortunately our political leaders can’t say that same thing.

    Here is my problem with the current political situation for 12 years we have been accelerating government spending and now that we have all noticed that there is a problem Obama has decided that it is a revenue problem and wants to raise taxes on the 50% of people who work and invest to pay for the bloated government and for the 50% of people who don’t work. Has anyone heard a word from Obama’s mouth about spending cuts or along the lines of “the government can do a lot more good with a lot less”?

  29. 873450 says:

    4whatitsworth Says:
    “Obama has decided that it is a revenue problem and wants to raise taxes on the 50% of people who work and invest to pay for the bloated government and for the 50% of people who don’t work.”

    That’s what a POTUS candidate paying 13% tax on $24 million investment income claimed.

    The electorate didn’t agree with him.


    Obama generated votes giving away undeserved “free stuff” – things like birth control for promiscuous single women and potential citizenship for Americans born in the U.S. (who can’t vote) whose parents are undocumented immigrants (who can’t vote).

  30. 4whatitsworth says:

    873450, I end up paying around 30% income tax (with the ability to depreciate business investments) . In addition to this our share of payroll taxes is substantial. If I add that in I am sure it would push me well over 50%. Also I pay property taxes and sales tax that would probably push me in to the 55-60%% category depending on my personnel spending. This year my tax rate will be lower because I removed most of my capital from taxable accounts in the market. I also considered selling my business which would have been catastrophic for our employees.

    Regarding the social issues I completely agree with you the government should stay out of them as much as possible. They should also provide needy women with health services including abortion and contraception. The problem as I see it is that being overly concerned with social issues is not what we need if we all want to continue to enjoy being the leaders of the world.

    Now I know our employees worked for their tax dollars and that should not count. I wonder what type of return they will ultimately get for their hard work. It looks to me like if they work really hard and make something of themselves that means testing will prevent them from seeing much from their taxed work. I wonder what they woud say if I told them “well you did not make this yourself”.

  31. DeDude says:


    I am with you on the making things simple and lowering your CPA bill. Reducing the deductions to max 50K would make things a lot simpler. After your CPA has hit that 50K target he does not need to waste any more time looking. The problem with simplification is that the reason things get complicated is to counter some original problem where someone got hurt or had unfair benefits. When you “uncomplicate” things, those original problems come back. Last time we made things “simpler” in the banking sector it ended up costing the rest of society trillions just in lost economic potential.

    I don’t think that there has been a single government and legislature in the past 30 years that did not have the genuine goal (and put in efforts) to reduce waste, fraud and bad regulations. I fully support those efforts and hope they will continue, although they will not do much to solve the real problems of this country.

    Government spending on social security and Medicare is supposed to increase when the population age. That is why we have trust funds for those entities. The other half of government spending is military and discretionary. Yes military spending has been absurdly accelerated in the past 12 years and should be cut severely. But discretionary spending has decreased as a % of the economy with the exception of a cyclical bump from the increased social cost associated with the financial crisis.

    The reason Obama has decided that we also have a revenue problem (and want a few dollars in extra taxes for every 10 in reduced spending) is that we DO have a revenue problem. Taxes as a % of GDP took a big dive with the Bush tax-cuts for the wealthy and it has never recovered. The federal government is taking in lot less in taxes as a % of the economy than it used to do – and the way to fix that is to increase revenues – not to institute a bunch of faux “savings” that shift responsibilities and costs from the federal government to the state and local level.

  32. 4whatitsworth says:

    @DeDude, you make a good point and my CPA is the type guy that could create a lot more value doing something else. Lower my rates cap my deductions and the savings that we would have by not having a big CPA bill and the ridiculous record keeping could be passed on the government that is clearly a win win. One of the reasons that we have been successful is that we continue to reduce our overhead it is amazing what you can do with technology B-T-W you hardly need any G&A people these days.

    Now to your point that Elected officials have a “genuine goal (and put in efforts) to reduce waste, fraud and bad regulations” They may say this however the results of the governments actions clearly show that this is not the case. Example the GSA is a waste, Medicare is riddled with Fraud and today we have many more regulations (especially tax regulations) than we did 30 years ago.

    Regarding taxes as a % of GDP it is true that the intake is historically low it is also true that spending as a % of GDP is historically high, shame on Bush and Obama for that! I also agree that Defense spending is ridiculous I actually call it “White Welfare”.

    All this said show me 10 dollars in real cuts to $1 in real revenue increases and I am in. However I doubt we will see anything like that. My bet is that we get some hokey deal that does not mean much and we will continue to see government pay and benefits exceed that of the private sector while they threaten everything we use mail, public parks, tooilets , roads, social security in the name of revenue shortfalls and will continue with all their programs.

    Here is some government data that I find interesting.
    The department of Homeland security has 200,000 employees
    The USDA has 100,000 employees
    The department of energy has 16,000 employess
    The GSA has 12,500 employees

  33. Frilton Miedman says:

    4what, the fact that you’re paying 30% while bank CEO’s making 8 figures pay in the low teens speaks volumes of the influence of money in D.C.

    The hardest hit income tax levels are between $100K and $250K.

    Anyone with enough money to bribe the right people on K st is automatically labelled “job creator” while those who actually create jobs, but cannot afford the lobbyist are insignificant, despite accounting for the bulk of actual jobs created.

  34. bocon007 says:

    I thought it was all the “uncertainty” holding the economy back?

  35. [...] The prospect for a real turning point in the market.  (Big Picture) [...]

  36. [...] “Mr. Market’s Minsky Moment may be upon us” | Barry Ritholtz (The Big Picture) “We have had a 100% rally off of the March 2009 lows, driven by many factors. By my reckoning, that should have been a 70% or so move, in light of the 57% collapse that preceded it. As the more organic elements (psychology/valuation/mean reversion) began to fade, the artificial factors of the Fed (QE/ZIRP) kicked in. The 37% or so those helped that drive also now appear to be fading.” #Bearish [...]