A Fall Fall for the Market

[scagnt83]

So who thinks we are about to see a drop in the market this Fall or early Winter?

Fall and early Winter have seen some of the largest point drops in market history. We have a cyclical bull run that seems to have lost its steam. US market capitalization is 120%ish of GDP. Europe is basically flat for the year. China just saw a large correction. Greece is still going on. And then we have the Fed rate decision next month.

So does the correction happen this year? Or do we have volatile stagnation from now to next Fall?

 

[Justin Bilyj]

The biggest change in the markets is China. The IMF just came out and said it can't join the SDR bucket until next year which means they can keep amassing gold at very low pushed down prices. China is spending half a trillion to keep the market afloat (their plunge team), their devaluation will cause other EM's to also cut their rate to be competitive (poor Japan). This will prop the dollar up so much that Yellen and the FED will have to raise rates, crumbling our house of cards.
The picture is of all countries free falling even the dollar, but the rush to the dollar is making it look like the dollar is relatively doing good compared to everyone when in fact our so called recovery is one popsicle stick away from utter melt down (bonds, s&p, etf liquidity etc.).
Which of the bubbles in America will the next QE4 be ignited upon? Student Lending? Auto-Loans? Municipal bonds? How bout Pension systems? Add to that a rate hike....good luck!

 

[scagnt83]

Damn. China took a huge hit today of 8.5%. Europe is down about 4%. Futures are down, the 10 year is up. Without some type of reassurance from the Fed, I have a feeling that we are looking at a reset all the way back to Oct 2014 (S&P at 1890 points).

Say goodbye to any chance of a rate hike this year. Yellen's masters would string her up in the town square if she did at this point. Only thing that would create a chance is if we had a really strong bounce back up.

 

[Justin Bilyj]

Now you have Suzie Orman calling for no rate hike....a rate hike and a normal monetary policy is what is needed. The longer they delay, the longer it will hurt. You cannot print your way to prosperity no matter what the talking clowns on the tv say or the paid economists in the mags...

 

[scagnt83]

5% drop to start the day out....

 

[Stephen]

Say goodbye to any chance of a rate hike this year. Yellen's masters would string her up in the town square if she did at this point. Only thing that would create a chance is if we had a really strong bounce back up.

My thoughts exactly. I looked at my phone Friday and thought, "Welp, there goes the September rate hike".

 

[scagnt83]

Now you have Suzie Orman calling for no rate hike....a rate hike and a normal monetary policy is what is needed. The longer they delay, the longer it will hurt. You cannot print your way to prosperity no matter what the talking clowns on the tv say or the paid economists in the mags...

I agree. The Fed missed their chance over the summer. We had decent reports coming out and things were relaxed. Traders were on vaca and it wouldnt have been a huge deal. Now they are screwed... if they raise rates next month then the market will likely correct even more... since they didnt raise rates over the summer, they have no room to drop rates now that the correction has hit... QE4 is about the only thing they could do, which would be seen as a move of desperation.

 

[Justin Bilyj]

The FED is boxed in right now. EVEN if they raised rates (.25) during the summer, it woulda tanked the economy (like it was doing good, the debt has been frozen for months...).
If they raise rates, they might as well announce QE4 around the corner.

From Tyler Durden at Zerohedge:

"Clearly what this market needs is more bailouts: $14 trillion in central bank liquidity injections was insufficient"

Now they are talking about halting the market (like China did)
How Much Lower Does The S&P Have To Drop For The Entire Market To Be Shut Down | Zero Hedge

And check out Emini Liquidity...nonexistent
The black line is today...

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If yesterday's liquidity was bad enough to precipitate the biggest wholesale market flash crash, including the historic, first-ever "limit down" triggers for all major index futures, then be very careful what you do today because as of this moment E-mini liquidity is even worse than it was yesterday, not to mention at any other point in the past month, at this time of the day.

http://www.zerohedge.com/news/2015-08-25/nyse-invokes-rule-48-second-day-row-ahead-market-open

Precisely 24 hours ago, in an attempt to pre-empt the panic-selling open, the NYSE invoked the little used Rule 48, which was to be expected: the Nasdaq 100 has just tumbled limit down and the S&P and DJIA would follow shortly. Today, however, it is unclear just why the NYSE decided to once again invoke Rule 48 as futures are set to open about 3-4% higher,

this only happens in normal markets not rigged up...

 

[nylife11023]

The market hit is great short-term news for the IUL and the indexed annuity industry as there is a good possibility that there are a huge number of contracts out there that the carriers won't have to pay a penny of interest on (beyond a floor rate which is sometimes computed and paid at maturity based on if total return is less than the X percent guarantee.)

Everyone with a IUL or IA has basically given their carrier an interest free loan this year.

On the plus side, in terms of real dollars, holders of these products didn't lose a penny, which is a good thing, obviously.

In the long run, not paying out interest is bad for carriers because people won't invest in the the products in the future. Casinos, no matter how large or small have to send 'winners' out the door every now and then in order to bring in more players.

"In gambling the many must lose in order that the few may win."
-George Bernard Shaw

 

[DHK]

Someone doesn't understand how indexed products work.

Just because a product returns 0% doesn't mean it didn't earn anything.

Huh?

Let's assume that you have a fixed indexed annuity. Instead of putting the money in the fixed account, you decide to put it into the 1-year point-to-point S&P 500 segment.

You give up the fixed interest you could've earned in order to have the possibility of a higher rate. But if the underlying segment doesn't perform, it doesn't credit negative interest.

Let's assume the interest you give up is 3%. What the insurance company does, is take that 'risk free' interest rate, and subtract it from the balance... but it's a liability on the company's books, not to the client.

100% - 3% = 97% remaining. That 3% is now a liability on the company's books... a liability that the policyholder doesn't see (unless they surrender their contract early and MVA apply).

Regardless of how the segment performs, the remaining 97% WILL earn 3%, because that's what it's guaranteed to do. Why is it guaranteed to earn 3%? Because the asset is held in the general account of the insurer.

But is it an "interest free loan"? No. Where did that 3% go? That went to purchase the underlying options for the given segment.

https://www.youtube.com/watch?v=WTGZv-GxvZU


Now, are those in fixed insurance products geared for a greater comeback than those who were at market risk? You bet!

As an example,
If you lost 30% of your value from $100,000 ($70,000 remaining), and the market returns 10%, then you'll have $77,000.

If you did NOT lose 30% of your $100,000, and the market returns 10%, but you are subject to a cap of 5%, then you'll have $105,000.

With indexing, it's not as much about the % return, as it is about the preservation of the asset along with a higher possible interest credit per year.