2008 again?

[TheMotorcycleBoy]

Secular bulls are strong uptrends persisting for up to a couple of decades, where the cyclical bull phases comprising them have much greater magnitude than the occasional cyclical bears. Hence the 'quantum' comment.

Whereas, secular bear markets are periods of sideways ranging price action where the cyclical bull and bear markets of which they comprise are of comparable magnitude to each other (because of the depth of the cyclical bears), hence the lack of overall progression, ie. the broad ranging.

NB note that this current (US S&P500) secular bull market only commenced in H1 2013, ie. ~5 1/2 years ago, when the previous secular bear's range was decisively exceeded, so my 'guess' would be that it has a dozen or so years to go yet; the cyclical bear market now underway appears comparable to the 1987 "crash" that temporarily interrupted the 1982-1999 secular bull market: somewhat 'scary' at the time, but in relatively short time it was just a blip in the historic charts.

Thanks Tikunetih,

I'm clear on the terms now, and whilst I had an inkling that that's what you meant, the formal online dictionary definition of secular seemed to only allude to religious matters, rather than an underlying quantative trend.

Of course, this chart stuff is all bo!!ox, and any insight that charts provide into the psychology of market participants is merely coincidental, so pay no attention.

I guess you meant "bullocks", didn't you? Sorry....crap joke...

Anyway so according to this divine chart, we had ourselves a secular bull born 2016ish, whose run could well give us all another 12-14 years of fun?

Matt

[odysseus2000]

As a newbie, i.e. I have not been involved in private investing long enough to experience full bull/bear cycles etc.

But, hopefully, I ain't stupid so I want to run a theory past you lot.

Surely, if there is an equity sell out, and I mean a big sell out, don't the sellers of the equity need some where vaguely tempting to place their money instead?

Do we actually have such places today in the UK?

Apparently (and I'm just stating what I've recently read etc.) "the smart money flees to quality", and often this is UK gilts. But yields on them are pathetically low (1.3% ish?), as are any kind of saving account rates. O.k. perhaps the clever money buggers off abroad.....what now? The £ is very weak and so presumably buying US/European assets in pricey, and so surely the people potentially selling up their UK equity, have precious few options.

So how can today's scenario possibly map to previous ones, where presumably more attractive alternatives existed.

Just my newbie take on things - opinions, comment welcome!!

Matt

You are thinking early 20th century.

Since then we have had computers and derivatives.

Depending upon the structure of the investment there are many ways in which a portfolio could be managed.

e.g. a UK focused fund might have a core holding of blue chips and a series of traders whose jobs may include such things as providing protection via hedges in say options, other folk may be purely there to day trade equities and equity derivatives, or if the fund allows it, currencies and derivatives etc etc.

Although if you look at the the index you will see substantial price falls in the last quarter, particularly if a US based fund, but its likely that the trading desks of these funds have produced substantial profits shorting the market, either by borrowing stock or by various derivatives.

Trading desks are there to make money whether the market goes up or down, they often struggle the most when the market is flat.

Thinking about selling generating large piles of cash is not entirely wrong, but the mechanics are often more complicated and it may be that there is no selling of core holdings or there might be substantial selling if the fund managers have a potential better home for the the money of if they want to lock in gains.

All of this is very competitive and if a fund manager, traders etc does not perform he or she will expect to get fired with some companies like Goldman routinely firing 10%-ish of their staff every year no matter how well the overall business is doing.

If your good in the markets then a career in trading/investing can be very rewarding, if your not or you have a bad year it is a very unforgiving environment.

Most private investors are still wedded to techniques that were developed in the pre-derivative world where long term buy and hold was the only practical tactic. Over long periods such folk generally do well, but to make substantial money over much shorter terms requires in my humble opinion a very different set of tactics and is substantially more difficult with most folk who try failing. Even the folk who get professional training often struggle and leave to do something else.

If all of this stuff was easy lots of folk would do it, but it isn't and I don't encourage anyone to try, but for some people it is the perfect way to make money.

Regards,

[TheMotorcycleBoy]

You are thinking early 20th century.

Since then we have had computers and derivatives.

Depending upon the structure of the investment there are many ways in which a portfolio could be managed.

Hi Odysseus,

Apologies, I think you missed my main question, although it was perhaps poorly set out, and possibly posted to an entirely inappropriate thread.

Stated more clearly: is it really likely that we will see, anytime soon, a big and protracted equity sell out like 2002 or 2008 in the UK's current investment environment?

My point was that for equity investors to "sell out of equities", surely their money must have suitable alternative places to go, else it may as well stay in equity.

Now, in the UK, it seems that folk have v. limited options:

1. only about 1.3% yield on gilts
2. only about 1.5% on a cash account, (without serious strings attached)
3. very weak pound making foreign investment unattractive

(IOW, I was not criticising your plans on shorting/day-trading)

Matt

[Itsallaguess]

My point was that for equity investors to "sell out of equities", surely their money must have suitable alternative places to go, else it may as well stay in equity.

Now, in the UK, it seems that folk have v. limited options:

1. only about 1.3% yield on gilts
2. only about 1.5% on a cash account, (without serious strings attached)
3. very weak pound making foreign investment unattractive

You're making the mistake of thinking that any 'alternative investment' (and this is a general comment, so not just aimed at a particular choice of 'equity investment' initially...) *must* be attractive on the upside.

It doesn't have to be - it simply has to be *more* attractive than the potential *downside* of staying in the investment that you're currently involved with....

Cheers,

Itsallaguess

[TheMotorcycleBoy]

My point was that for equity investors to "sell out of equities", surely their money must have suitable alternative places to go, else it may as well stay in equity.

Now, in the UK, it seems that folk have v. limited options:

1. only about 1.3% yield on gilts
2. only about 1.5% on a cash account, (without serious strings attached)
3. very weak pound making foreign investment unattractive

You're making the mistake of thinking that any 'alternative investment' (and this is a general comment, so not just aimed at a particular choice of 'equity investment' initially...) *must* be attractive on the upside.

It doesn't have to be - it simply has to be *more* attractive than the potential *downside* of staying in the investment that you're currently involved with....

Cheers,

Itsallaguess

Thanks pal,

I guess that's part of reason why gilts are currently yielding so low, i.e. because a reasonable chunk of equity has fled there already.

Whilst I do appreciate what you've said, the other day I was comparing very rough measures of how much the S&P500 and the FTSE 100 have fallen in the last couple of months. It seemed like the S&P had fallen a fair bit more that the FTSE. Given that apparently the economy is doing alright in the US, and we have the woes of Brexit panic here, I (naively) concluded that the reason that the S&P have fallen sharper was because they have more attractive alternatives i.e. higher TB yields and a strong $ to buy foreign assets with.

Matt

[OhNoNotimAgain]

You are thinking early 20th century.

Since then we have had computers and derivatives.

Depending upon the structure of the investment there are many ways in which a portfolio could be managed.

e.g. a UK focused fund might have a core holding of blue chips and a series of traders whose jobs may include such things as providing protection via hedges in say options, other folk may be purely there to day trade equities and equity derivatives, or if the fund allows it, currencies and derivatives etc etc.

Although if you look at the the index you will see substantial price falls in the last quarter, particularly if a US based fund, but its likely that the trading desks of these funds have produced substantial profits shorting the market, either by borrowing stock or by various derivatives.

Trading desks are there to make money whether the market goes up or down, they often struggle the most when the market is flat.

Thinking about selling generating large piles of cash is not entirely wrong, but the mechanics are often more complicated and it may be that there is no selling of core holdings or there might be substantial selling if the fund managers have a potential better home for the the money of if they want to lock in gains.

All of this is very competitive and if a fund manager, traders etc does not perform he or she will expect to get fired with some companies like Goldman routinely firing 10%-ish of their staff every year no matter how well the overall business is doing.

If your good in the markets then a career in trading/investing can be very rewarding, if your not or you have a bad year it is a very unforgiving environment.

Most private investors are still wedded to techniques that were developed in the pre-derivative world where long term buy and hold was the only practical tactic. Over long periods such folk generally do well, but to make substantial money over much shorter terms requires in my humble opinion a very different set of tactics and is substantially more difficult with most folk who try failing. Even the folk who get professional training often struggle and leave to do something else.

If all of this stuff was easy lots of folk would do it, but it isn't and I don't encourage anyone to try, but for some people it is the perfect way to make money.

Regards,

Hedge funds do all of this and yet still, on average, underperform passive funds.

This whole segment of financial activitiy is paid not to understand compound interest. It is easy to make more money than all these active traders simply by staying fully invested and doing nothing. The problem is that that there is a whole industry devoted to getting people to do something.

The fact that some people can make money is irrelevant, a lot of them are liars

http://www.checkfundmanager.com/wall_of_shame.html

some got lucky, and some, a few, are probably quite smart. But don't expect to copy those few, even if you know who they are, and make money.

[absolutezero]

I too am getting a distinctly unpleasant feeling that something bad is around the corner.

My suspicion is it's all related to debt.
Or more the fact that sufficient debt has not been cleared while interest rates were low. The smart people and companies were shovelling the extra cash* into clearing as much debt as possible while rates were at record lows. The dumb money either carried on as normal or took on more debt.
'Woohoo. Cheap money! I'll have some of that!'

* I say 'extra cash' but really mean keeping their repayments the same as before the rate cuts rather than cutting them as the rate had dropped.

So not a million miles away from last time around, but that was more mortgage based rather than general 'debt'.

There isn't exactly the scope to cut interest rates this time round - unless we get into negative nominal AND real rates and that's a whole new ball game with far reaching consequences.

Also, and not going to develop this much further, I think the EU budget deficit thing with France and Italy is going to cause some bother. France is being 'allowed' by the EU to have a higher deficit than EU rules allow 'temporarily' but Italy isn't allowed a smaller deficit. Probably because France is France and Italy isn't France.
I can see this kicking off.

Personally, I'm mostly in cash but still have a good chunk of shares.
I'm doing my regular top ups and new buys from reinvested dividends but I'm not putting any new money in.
Tempted to diversify with a bit of gold but that gets a bit Apocalypse Now and I'll end up making a hat out of tin foil.
I suspect it'll get worse from here before it gets better.

[odysseus2000]

You are thinking early 20th century.

Since then we have had computers and derivatives.

Depending upon the structure of the investment there are many ways in which a portfolio could be managed.

Hi Odysseus,

Apologies, I think you missed my main question, although it was perhaps poorly set out, and possibly posted to an entirely inappropriate thread.

Stated more clearly: is it really likely that we will see, anytime soon, a big and protracted equity sell out like 2002 or 2008 in the UK's current investment environment?

My point was that for equity investors to "sell out of equities", surely their money must have suitable alternative places to go, else it may as well stay in equity.

Now, in the UK, it seems that folk have v. limited options:

1. only about 1.3% yield on gilts
2. only about 1.5% on a cash account, (without serious strings attached)
3. very weak pound making foreign investment unattractive

(IOW, I was not criticising your plans on shorting/day-trading)

Matt

Hi Matt,

To have a bear market you do not need to have the big investment funds sell their equities, often they don't as they need the dividend income to fund their investors: Pensioners etc.

What you need to have a bear market is to have no one wanting to buy equities, preferring something else with new funds & maybe tweaking what they hold. The media are currently focused on the falls in equity prices & if you are a long only investor this is painful, but the managed funds are not long only, they all manage their equity & bond exposure with derivatives. As I mentioned since October traders have made large amounts of money, selling the market short by borrowing equities and/or with derivatives like options.

The idea that a market crash like 2008 is caused by all the big funds selling all their equity exposure and going into cash is not correct. Sure they will sell some, but that is only part of their calculus.

Most of what goes on completely bypasses the vast majority of retail investor & the more bulletin boards & books you read that are geared to the retail investor the more you will be confused by the market.

Institutions & sophisticated investors long ago abandoned buy & hold as their main investment tactic as they created the derivatives industry which is designed to reduce risk.

You will always find folk saying that the modern financial industry is a complete failure & that most hedge funds fall behind the S&P & there is some truth in this, but when you consider how there were no significant pension providers failing in 2008 or that one does not see vast marches by pensioners whose pensions have been destroyed is an indication that the financial service industry works at some level that is better than it ever has before should give you some reason to question these wild claims.

Investment/trading is a sophisticated & complex business that goes far beyond what most retail investors ever consider. If you want to understand it you will need to do a lot of studying & be prepared to unlearn a lot of what you have been told &, at least in my case, become so sick of the stupid stuff put out by most of the media that you will no longer be able to stomach the TV & radio news which are so decoupled from reality to make them a danger to rational thought.

I don't advise anyone to mess with the markets as they are difficult & operate in counter intuitive ways, but if you choose to it can become a profitable focus or one that can ruin you. There tend to be a lot of the latter, not so many of the former.

Regards,

[TheMotorcycleBoy]

I too am getting a distinctly unpleasant feeling that something bad is around the corner.

My suspicion is it's all related to debt.
Or more the fact that sufficient debt has not been cleared while interest rates were low. The smart people and companies were shovelling the extra cash* into clearing as much debt as possible while rates were at record lows. The dumb money either carried on as normal or took on more debt.
'Woohoo. Cheap money! I'll have some of that!'

Yes.

I think (if the bad thing you mention happens), it will be due to the large debt taken on Stateside (especially) in LBOs to fund M&As etc.

In fact I believe that in certain cases a lot of the LBO debt is/has been securitised, in a similar fashion as to how mortgage debt was packaged into CDOs and CDO2s etc. a decade ago.

Matt

[GoSeigen]

My point was that for equity investors to "sell out of equities", surely their money must have suitable alternative places to go, else it may as well stay in equity.

I guess that's part of reason why gilts are currently yielding so low, i.e. because a reasonable chunk of equity has fled there already.

Matt

Matt,

You would do very well to avoid completely this concept of "equity sell-offs" or "selling out" or "equity fleeing somewhere else". They are all flawed as a way of understanding what is happening in the markets. In reality, money does not flee anywhere and no market ever sells off.

There is always the same amount of money and the same number of equities in issue, it is only their price which changes. In other words, when a market crashes exactly the same amount of securities exist before and after the crash, it is just that a few of the holders have changed AND crucially, the remaining holders are happy to hold with a lower valuation attached to their securities. What happens in effect is that the aggregate equity allocation of all holders' portfolios falls.

Another way of seeing the fallacy is to note that whenever there is a "sell-off" there is simultaneously a buy-up -- where every share sold is also bought albeit at the new, lower valuation.

If you recall way back when you arrived at these boards you studied bond valuation. I would urge you to go back to those lessons and remember that the value of a bond is its yield: when investors don't like the bond so much they demand a higher yield -- the price falls. It's exactly the same with shares. During a crash, there is no "sell-off" of shares: what happens is that all holders and potential buyers raise their yield requirement and thus lower the price of the shares they hold or want to hold. Similarly sellers accept the higher yield and sell at the lower prices.

If you can think like this it will transform the way you view and understand markets.

Good luck.

GS

[TheMotorcycleBoy]

Thanks GS!

Matt,

You would do very well to avoid completely this concept of "equity sell-offs" or "selling out" or "equity fleeing somewhere else". They are all flawed as a way of understanding what is happening in the markets. In reality, money does not flee anywhere and no market ever sells off.

Ok. Yes, I kind of knew, it was a bit of an over-simplification.

I guess that some of the movements are related to "volumes" i.e. the % of equity securities actually traded on a given day, is usually pretty low (compared to the total size of the holdings), and hence as you state above the vast swathes of money don't change location quite as markedly as some (media etc.) may suggest.

There is always the same amount of money and the same number of equities in issue, it is only their price which changes. In other words, when a market crashes exactly the same amount of securities exist before and after the crash, it is just that a few of the holders have changed AND crucially, the remaining holders are happy to hold with a lower valuation attached to their securities. What happens in effect is that the aggregate equity allocation of all holders' portfolios falls.

Another way of seeing the fallacy is to note that whenever there is a "sell-off" there is simultaneously a buy-up -- where every share sold is also bought albeit at the new, lower valuation.

Yes - I see what you mean.

If you recall way back when you arrived at these boards you studied bond valuation. I would urge you to go back to those lessons and remember that the value of a bond is its yield: when investors don't like the bond so much they demand a higher yield -- the price falls. It's exactly the same with shares. During a crash, there is no "sell-off" of shares: what happens is that all holders and potential buyers raise their yield requirement and thus lower the price of the shares they hold or want to hold. Similarly sellers accept the higher yield and sell at the lower prices.

Thanks again. I believe we have been trying to apply this ourselves of late: by topping up several of our equities and adding some new ones (which previously we'd considered were too pricey) in the recent dip in market prices.

If you can think like this it will transform the way you view and understand markets.

Yup - I'm trying! I think that Mel just thinks I've gone mad, mind you......

Matt

[Dod101]

Basically all you need to know is what tikunetih's chart shows; that we have been in a secular bull market since 1925. That is why equities are generally the place to be and why LTBH works, given a long enough time scale. Not to say that there will not be scares along the way, but it seems to show that more immediately, any sell offs in the near future are likely to be short lived. Obviously this gives plenty of scope for traders if they have the time, patience and skill. I may have the time and patience but not the skill so do not try, and mostly just keep invested but try to see stock specific problems and avoid them.

Dod

[TUK020]

Secular bulls are strong uptrends persisting for up to a couple of decades, where the cyclical bull phases comprising them have much greater magnitude than the occasional cyclical bears. Hence the 'quantum' comment.

The danger in this chart is that it is misleading in a very key aspect. It is not inflation adjusted.

If you look at the green bar between 1980 -2000 decades, and the red bar for 2000-2010 decade, a significant portion of the delta is accounted for by the difference in inflation expectations for those periods.

[GoSeigen]

Basically all you need to know is what tikunetih's chart shows; that we have been in a secular bull market since 1925.

"We"??

tikunetih's chart shows the US markets only, and shows nominal growth, not real, and no adjustment for quadrupling of human population. Dod's conclusion may be right, but I doubt the evidence is as simple and clear cut as his "all you need to know..." implies! Perhaps the feat could be repeated this century if population quadruples again and the US remains at 25% of world GDP...


GS

[Dod101]

I accept GS's comment about these being nominal results rather than adjusted for inflation and thought about that when I wrote what I did. Nevertheless, although there have been very painful periods, the general thrust has been upwards, so as at least to keep pace with the cost of living.

It is an argument for staying invested almost through thick and thin but there are times when it would be sensible to sell, if you can get your timing right. For most of us though that means selling too late, because once a trend becomes obvious...........

Dod

[TheMotorcycleBoy]

I have to admit that the Y-axis on tikunetih graph did fox me a little. It looks logarithmic too.

[tjh290633]

I have to admit that the Y-axis on tikunetih graph did fox me a little. It looks logarithmic too.

It is, that's why it is basically a straight line with excursions above and below the line. It's what log-linear graphs are for.

TJH

[tikunetih]

Bizarre comments above.

Firstly, that's not "my" chart. I merely found it after a 10s Google search, but it seemed to capture the basic essence of secular cycles so I posted it rather than spend a ton of time typing... Some hope!

The danger in this chart is that it is misleading in a very key aspect. It is not inflation adjusted.

If you look at the green bar between 1980 -2000 decades, and the red bar for 2000-2010 decade, a significant portion of the delta is accounted for by the difference in inflation expectations for those periods.

Secondly, it's not "misleading in a very key aspect" by not being adjusted for inflation - give over! Where's anyone claiming it was a real-terms chart? Talk about a straw man.

But "hallelujah" on spotting that inflation can be a factor in driving secular cycles.

[tikunetih]

and shows nominal growth, not real, and no adjustment for quadrupling of human population.

"What have the Romans ever done for us?"

That's it: if it hadn't been for massive inflation, massive population growth and massive economic growth over the past century, equity markets would likely still be priced roughly at the level they were a century ago.

But back in the actual world of compounding inflation, (population), and economic growth, they're not. And so that's why we (I) invest in things that ride that wave.

[TUK020]

Secondly, it's not "misleading in a very key aspect" by not being adjusted for inflation - give over! Where's anyone claiming it was a real-terms chart? Talk about a straw man.
.

I was intending to imply that anyone was attempting to mislead. Apologies if it came across that way. I meant that it was visually misleading, in that it would be easy to draw erroneous conclusions from a casual glance.