RE:THE ULTIMATE FEEDBACK LOOP & BLACKSWAN COLLAPSEDow down over 1100 yesterday, and now showing down over 400 in the futures for today.
You can literally feel the investing public starting to bece unglued, as most of them have never been through a major downturn before. Bravado turns to questioning. Questioning turns to disillusionment. Disillusionment turns to fear. Fear turns to panic. I would say that we're only at the early stages of Disillusionment turning to fear, leaving a LOT more downside before any capitulation in the market.
The true danger here is measuring by previous downswings. The metrics are just NOT the same, to make any such comparison valid. Again, the BIGGEST change is just the sheer number of people involved in the market, all who will be running for the exit when fear turns to panic. Take the sheer number of redemptions from literally 1000's of Funds, all forced to sell, and you have the makings of a disaster. To use an analogy here, the dot.com exit was the equivalent of thousands of people running for the exit. Fast forward to today, and you will have multi-multi millions of people running for the same size exit.
This will be ugly like we have never seen before. (Well, except for Homestench's Mama).
Starsearcher80 wrote: I've had a theory that is probably about 2 years old now....a theory which has NOT yet played out. It goes like this:
1) The proliferation of EVERYONE in the market now, compared to even 10 years ago, is staggering. This is due to an absolute explosion of Funds, ETF's and the marketing that goes behind them. Then add in the now incredibly easy access to trading apps, RobinHood being the absolute poster child of people who should probably NOT be in the market...but they are. Then add in fractional share purchases. All in, it's an absolute insane powder-keg of EVERYONE involved. Long gone are the days where access to the market was for a priveledged few.
2) Then, looking at the market over the past 13 years (since 2008), the market has been on a tear that is beyond belief. Forget the 7 year cycle. This has been a supercharged supercycle, where EVERYONE won, and where EVERYONE just never lost. There is a whole generation in the market now that just doesn't know what a downside is.
3) Then add in the insanely easy access to money over the past couple of years, due to the one-off pandemic. If the market was already super-charged, this monetary policy juiced the market 10fold again.
All in? We've never been here before. This is new territory for sure.
But here we are, where the cracks are forming. Not little ones...big ones. But the market doesn't turn course easily, and that is not due to the realities not being severe enough...they are. It's the psychology of people in the market. Buy the dips. Hold on. It only goes up.
But finally, I think we're starting to see that psychology change. People are starting to notice the difference. There is fear starting to enter the market, and that fear is a powerful motivator. So what happens when people start to sell from their Funds? They trigger redemtions. And that means forced selling by the Funds....which makes the market go lower, which triggers more selling...which amplifies the selling. All in, there is now EVERY potential for the ultimate feedback loop.
Now add in the Fed going clearly hawkish. And add in insane inflation. And add in the Fed tapering. And add in a major war. And add in major supply chain issues. If that feedback loop wasn't potentially dangerous enough, it now has the potential to cause, I believe, a full on market collapse. That we don't yet have the participation of the masses is shown by the VIX being relatively stable to date. People have been scratching their heads over this, but I think it's just that the masses don't yet see the full weight of the mess to come.
So we'll see what comes. Personally, I wouldn't be surprised at all if there is a complete meltdown in the market. How powerful that is remains to be seen, but all the elements are now there for a true blackswan collapse.