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futes 1.24.13



Yesterday, we discussed the likelihood of an equity correction versus the end of the bull market. Today, futures are deep in the red, looking like another 1 percent sell-off or worse awaits us. European stocks are down 1 percent or more, with the IBEX off more than 2 percent. In Asia, it is a 2 percent whackage, although China has (so far) managed to hold on to small gains.

Perhaps on this philosophical Friday, it might be a good time to wonder aloud as to the causes of this change in fortunes. Why the sudden shift, from excess bullishness and exuberant expectations of more double-digit gains, to a recognition that perhaps the party won’t go on forever? You humans seem to desperately search for a simple narrative that explains complex events of unknown causation. An explanatory need not be accurate, only understandable and comforting. This is inherent in a species that has a rich tradition of storytelling. The narrative trumps data almost all of the time. The price action and misbehaviors of markets are certainly no different.

Hence, a correction is not simply the random meanderings of a complex system comprised of the buying and selling activities of millions of participants, but rather must have been caused by stocks that were too pricey, or earnings that have not lived up to expectations, or the development of big trouble in China. The problem with these rationalizations is that all of these things were well understood by markets — and have been for some time. None are surprises, and none reflect information that is new or was especially unknown previously.

Continues here

Category: Markets, Philosophy

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.

15 Responses to “Look Out Below, Follow Through Edition”

  1. mugabe says:

    Barry, any explanation for this or any price action falls prey to constructing a narrative, the dangers of which you’ve warned against repeatedly. The bottom line is, plan your trade (on whatever time frame), and trade your plan. In my case, this means exiting a third of the position at 50 day, 100 day and 200 day simple moving average respectively.

  2. Willy2 says:

    Never looked at the japanese yen ?

    • Willy2 says:

      My indicators saw this coming !!!! Several credit spreads were already putting in bearish divergencies.

  3. Concerned Neighbour says:

    BR, we are now down only 2-3% from all-time highs. Granted, that’s very close to the largest decline we’ve seen in over a year – yes, it’s that ridiculous – but I would hardly call it significant at this point.

    Here is how we will know if the central bank “temporary” (read: half a decade) asset market stimulus is starting to wear off: the “markets” will take some time – weeks, months – to digest these losses, rather than push on to new highs in the next millisecond.

  4. [...] Look out below, follow through edition (The Big Picture). When the market tumbles, the desperate “search for a simple narrative that explains complex events of unknown causation” begins. Nice. [...]

  5. cfischer says:

    I agree, pricey stocks, earnings and china concerns are not new. Maybe the extreme bullishness just got to the point where there were few left to buy..

  6. wisegrowth says:

    I posted a response on Angry Bear…

    Basically, we could have known for years where the business cycle would end. I have the equations for it. Yet more, knowing where the business cycle ends would be the ultimate transparency for capitalism… a good thing.

  7. BenGraham says:

    This must be a travel day for you, BR. It’s ALL your fault, clearly. ;-)

  8. 4whatitsworth says:

    It’s not like this is a surprise. Markets don’t move in a straight line. The fundamentals are strange, Inflation is low and moving lower, employment growth is slowing, all while the Fed is stopping QE. At this same time consumer spending and economic growth are expanding. These are economic realities. Now put this together with socialist policies and a dysfunctional government (who the hell knows what we are going to hear in the state of the union next week) and clearly something will have to give.

    My assessment is that so far QE and innovations in energy have insulated us from very poor government policies. My question at the moment is how much has the rest of the world managed to decouple itself from the B.S. in the United States unfortunately we won’t know that for about three years but right now it looks like we will know. The good news is that Janet Yellen is bright and hopefully will know how to navigate this.

  9. WFTA says:

    Two days of this has cost me a lot of money. I’ve found out the real reason:

    We had the Greater Houston Demolition Derby this morning. Great fun.
    Have a swell weekend.

  10. Angryman1 says:

    classic dump and pump. Some decent economic data is coming imo. China is in for a long, slow deleveraging. There are benefits for slower growth there.

    Bring the suckers in.

  11. boveri says:

    A couple of reasons besides China PMI would include overbought and couldn’t break the range on the upside since 12/31. Market is now overbought and could rally now or a better low would be if a touch is made at 1780 to close that old gap.