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Old 23rd February 2020, 01:36 PM   #1
The Atheist
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Black Swan Event Under Way

I have it on record in the covid thread, but this is about money and the impact covid will have on the global economy.

Oxford Economics suggest a hit to global economy of 1.2 trillion dollars, which I think is light.

While most people won't be too sick with it, some will, and even if 10% of workforces require 3-4 weeks off sick, that is going to have a massive effect on the world's supply chain. Most importantly, it's likely to all happen at once - it won't ripple through like 'flu, everyone will get it very quickly.

Some companies will be forced to close doors for extended periods, loan defaults will skyrocket, and the sharmarkets will tumble once the size of the impact becomes known.

On Friday, I recommended to several businesspeople I know that they should invest in TVIX - a hedge fund against global downturns. The shares were $38 at Friday lunchtime, and they've opened today at $49. I know two took my advice and threw five grand in on Friday.

They've made a grand over the weekend, with lots more to come.

I can see TVIX going well into the hundreds of dollars range if the pandemic goes the way it looks certain to.

Investment advice: buy TVIX now.

Disclaimer - I am not a financial adviser.
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Old 23rd February 2020, 02:20 PM   #2
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Yes I know this is in economics, but I’m yet to be convinced this will be a global disaster. There have been 1000 cases outside mainline China, half on that cruise ship in Japan. A couple of passengers died, but given the age profile of passengers, it’s always likely a couple would die anyway.

Meanwhile active quarantines will limit spread and work is progressing on a vaccine. SARS had little economic impact. My prediction is that this will be the same.
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Old 23rd February 2020, 02:51 PM   #3
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Most people get it. Have a few days off work and that is that. Not the end of the world. Might even produce a few economic benefits by killing off heaps of non productive people, ie old or unhealthy people.

Quarantine measures to contain it will fail. The most it will do is delay the spread. And worson the impact on those that try to contain it.
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Old 23rd February 2020, 02:53 PM   #4
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Originally Posted by lionking View Post
Yes I know this is in economics, but I’m yet to be convinced this will be a global disaster. There have been 1000 cases outside mainline China, half on that cruise ship in Japan. A couple of passengers died, but given the age profile of passengers, it’s always likely a couple would die anyway.

Meanwhile active quarantines will limit spread and work is progressing on a vaccine. SARS had little economic impact. My prediction is that this will be the same.
Vaccine is 18 months away at the earliest.

You're not going to lose money not betting on it, though.

I think the quarantines are too little, too late, mainly due to the very long time between exposure and symptoms coming out.

We'll know for sure where it's headed in the next two weeks, but anyone looking to bet on it needs to get in now, because if it does hit hard and the impact is enormous, the prices will be up over $200.

I'm looking at as a good $5k bet. Downside is fairly small, because there's not a lot of reason for markets to go up right now, and upside is huge, because a $200 price is a $40k profit on five grand.
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Old 24th February 2020, 01:39 AM   #5
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I had no idea what TVIX is and so did a little bit of Googling.

The return over the last few days really does seem to be impressive and The Atheist could be absolutely right. Then again if you'd bought a year ago, you'd have lost 85% of your investment.

It seems like a highly speculative instrument so I guess you should only invest in it if you can afford to lose most of your investment. It also seems to be very volatile, so timing your exit may be crucial. The 20% return over the last few days could be the tip of the iceberg and investors should hold. Then again the price dipped a little on Friday so maybe people should have got out already.
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Old 24th February 2020, 11:07 AM   #6
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You might want to look at today's price, mate - it's at $63-76 as I type.

That's more than 50% in 24 hours.
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Old 24th February 2020, 11:29 AM   #7
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The argument against a global downturn is that the big economies have effectively unlimited room to raise money and shelter their economies, given the low interest rates.
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Old 24th February 2020, 11:34 AM   #8
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The containment walls are breached and the stock market is down >3%.

It's a no brainer. But when the thing blows over, I'll be betting on a quick recovery.
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Old 24th February 2020, 12:26 PM   #9
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Originally Posted by Skeptic Ginger View Post
The containment walls are breached and the stock market is down >3%.

It's a no brainer. But when the thing blows over, I'll be betting on a quick recovery.
I think the US markets are more spooked about a potential Sanders nomination than anything else. Corporations might have to pay taxes

ETA: safer bets are putting your money in things like muni bonds, where I have most of my money at the moment.

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Old 24th February 2020, 12:35 PM   #10
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Originally Posted by The Great Zaganza View Post
The argument against a global downturn is that the big economies have effectively unlimited room to raise money and shelter their economies, given the low interest rates.
Providing liquidity and central bank buying of illiquid, depressed financial assets works when the cause is not structural but behavioral and central banks can alter behavior. When there are shortages liquidity injection is a pretty poor tool and arguably counterproductive. Shortages make for price increases and/or price controls/rationing. Liquidity injection just exacerbates things.

Historically low interest rates, and larger extant debt just make this whole thing worse because restructuring debt on a large scale would be the only out. This can't be inflated away as in the 70's.
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Old 24th February 2020, 01:04 PM   #11
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Originally Posted by marting View Post
Providing liquidity and central bank buying of illiquid, depressed financial assets works when the cause is not structural but behavioral and central banks can alter behavior. When there are shortages liquidity injection is a pretty poor tool and arguably counterproductive. Shortages make for price increases and/or price controls/rationing. Liquidity injection just exacerbates things.

Historically low interest rates, and larger extant debt just make this whole thing worse because restructuring debt on a large scale would be the only out. This can't be inflated away as in the 70's.
Nicely put - and better said than I would have.

The options for central governments right now are the same as interest rates: close to zero.
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Old 24th February 2020, 01:30 PM   #12
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Originally Posted by Skeptic Ginger View Post
The containment walls are breached and the stock market is down >3%.

It's a no brainer. But when the thing blows over, I'll be betting on a quick recovery.
I wouldn't, actually.

As marting noted, the number of options are few & far between, and the damage caused could take years to repair.

Even if 0.1% of healthy people die from it - and the numbers are showing much higher than that right now - that's one person in every thousand. 0.1% fewer doctors, nurses, engineers & scientists. (and probably a lot higher since many people in those trades are already at or past normal retiring age)

The world is absurdly short of technical skills already, and any reduction in numbers of that scale is going to hurt, and hurt a lot.

I stick by my analysis that if it gets out of control it will be much worse than the entirely artificial GFC.
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TVIX has dropped a little, to $60. I still say buy.
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Old 24th February 2020, 02:55 PM   #13
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When an investment vehicle has lost 90% of its value in a year, that's the best time to buy. Taking tips like this is why I don't have an ETrade account anymore - too much temptation to do something stupid.

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Old 24th February 2020, 03:16 PM   #14
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Originally Posted by The Great Zaganza View Post
The argument against a global downturn is that the big economies have effectively unlimited room to raise money and shelter their economies, given the low interest rates.
That sort of ignores that economics are often driven by emotion, not facts.
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Old 24th February 2020, 03:34 PM   #15
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Dow down 1000 points, over 3%.

TVIX up to $64.

Still buy!

The sell has only just started.
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Old 24th February 2020, 03:43 PM   #16
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Originally Posted by carlitos View Post
When an investment vehicle has lost 90% of its value in a year, that's the best time to buy. Taking tips like this is why I don't have an ETrade account anymore - too much temptation to do something stupid.
TVIX is for very short term bets on volatility. Use is short term volatility hedging. It's not an investment in any normal sense as it is designed to drop over time. 10%/month more or less.
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Old 24th February 2020, 04:08 PM   #17
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I should start a hedge fund. I could lose 10% of your money in a month, easy.
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Old 24th February 2020, 04:24 PM   #18
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Originally Posted by marting View Post
TVIX is for very short term bets on volatility. Use is short term volatility hedging. It's not an investment in any normal sense as it is designed to drop over time. 10%/month more or less.
Right on the money again - I hope you got in on it. My fault for using the word "invest" in the OP.

I'll be amazed if the sharemarkets don't take a bigger hit tomorrow. As far as I can tell, pretty well everywhere finished on their low for the day, so not inspiring for opening next day.

Another round of bad news - which will surely happen in the next day or two - and they'll really start to tank. I'm sticking by 10% absolute minimum once it's established as a pandemic, and I can't see that not happening now.
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Old 24th February 2020, 04:33 PM   #19
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Any honest stockbroker will tell you how often the market is driven by fear, rational or not.
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Old 24th February 2020, 04:47 PM   #20
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Originally Posted by The Atheist View Post
Dow down 1000 points, over 3%.

TVIX up to $64.

Still buy!

The sell has only just started.
Great. So how do you know when to sell your TVIX? If it goes up that fast I suspect it drops pretty quick, too.
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Old 24th February 2020, 05:39 PM   #21
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Originally Posted by Bob001 View Post
Great. So how do you know when to sell your TVIX? If it goes up that fast I suspect it drops pretty quick, too.
Set a goal and stick to it. I've recommend the following:

When you've doubled your money, sell half and the rest are free.

When they've tripled, sell half of what's left and you're in large profit regardless.

Hold the remaining 25% until it's 5 times the starting price, or if it looks like going down. Then get out and hope the bloody disease doesn't kill you before you can spend it!
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Old 24th February 2020, 06:14 PM   #22
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Originally Posted by dudalb View Post
Any honest stockbroker will tell you how often the market is driven by fear, rational or not.
What’s that idea again? It’s not what you think it is worth, it’s what you think others will think it is worth?
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Old 24th February 2020, 07:53 PM   #23
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Originally Posted by angrysoba View Post
What’s that idea again? It’s not what you think it is worth, it’s what you think others will think it is worth?
A lot of the time, yes, but in panics it driven by pure fear...unload it now before it will bring in even less.
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Old 24th February 2020, 08:39 PM   #24
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The stock market is so weird. So, the coronavirus could very well cause lots and lots of companies to have a bad quarter, or even two bad quarters.

And so stocks fall. My biggest individual stock was NVidia. Down 7% today. Ouch.

That isn't the way stocks are supposed to work. Companies' long term prospects are barely touched by events like the coronavirus. Of course, a few companies will do quite well in the short run, and others very badly, and most companies somewhat badly as supply chains get disrupted, but in the long term, it really shouldn't affect corporate profits, even if it causes an actual recession, which could happen. If a relatively small number of factories close due to quarantines, that disrupts supplies to other factories, which close due to lack of parts/materials, which causes overall wages to drop due to the layoffs, which causes lower demand. It could be bad.

However, this too shall pass. It will eventually be contained. Who knows? Perhaps millions will die, but billions will live. When people are no longer afraid to come out of their houses, they'll want to buy stuff. NVidia will still sell graphics cards and the chips that will be used for self driving cars.

Oh well, we might be in for a buying opportunity. About 15% of my retirement fund was in cash ash of this morning. Tonight, slightly higher than that. Maybe soon an even higher percentage. If stocks actually plummet, I'll buy.
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Old 24th February 2020, 11:00 PM   #25
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Originally Posted by dudalb View Post
A lot of the time, yes, but in panics it driven by pure fear...unload it now before it will bring in even less.
It still applies. Unload it now, when people think it is worth X, rather than later, when people think is is worth X- n
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Old 24th February 2020, 11:05 PM   #26
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Originally Posted by rjh01 View Post
Most people get it. Have a few days off work and that is that. Not the end of the world. Might even produce a few economic benefits by killing off heaps of non productive people, ie old or unhealthy people.

Quarantine measures to contain it will fail. The most it will do is delay the spread. And worson the impact on those that try to contain it.
Maybe we shouldn’t just be relying on a pandemic to take care of this problem.
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Old 25th February 2020, 12:12 AM   #27
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Originally Posted by Meadmaker View Post
That isn't the way stocks are supposed to work. Companies' long term prospects are barely touched by events like the coronavirus.
A major factor is the fact that markets are over valued by an enormous amount right now.
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Old 25th February 2020, 08:22 AM   #28
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Originally Posted by Bob001 View Post
Great. So how do you know when to sell your TVIX? If it goes up that fast I suspect it drops pretty quick, too.
They actually re balance it periodically. If you bought into TVIX when it first launched you'd have less than a penny on the dollar. Its typically a bad idea to even hold it overnight. It actually traded at around "2 billion" in 2011.
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Old 25th February 2020, 08:23 AM   #29
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Originally Posted by Meadmaker View Post
The stock market is so weird. So, the coronavirus could very well cause lots and lots of companies to have a bad quarter, or even two bad quarters.

And so stocks fall. My biggest individual stock was NVidia. Down 7% today. Ouch.

That isn't the way stocks are supposed to work. Companies' long term prospects are barely touched by events like the coronavirus. Of course, a few companies will do quite well in the short run, and others very badly, and most companies somewhat badly as supply chains get disrupted, but in the long term, it really shouldn't affect corporate profits, even if it causes an actual recession, which could happen. If a relatively small number of factories close due to quarantines, that disrupts supplies to other factories, which close due to lack of parts/materials, which causes overall wages to drop due to the layoffs, which causes lower demand. It could be bad.

However, this too shall pass. It will eventually be contained. Who knows? Perhaps millions will die, but billions will live. When people are no longer afraid to come out of their houses, they'll want to buy stuff. NVidia will still sell graphics cards and the chips that will be used for self driving cars.

Oh well, we might be in for a buying opportunity. About 15% of my retirement fund was in cash ash of this morning. Tonight, slightly higher than that. Maybe soon an even higher percentage. If stocks actually plummet, I'll buy.
It actually could affect corporate profits, especially for corps that have part of their supply chain in Asia. Nvidia most certainly does.
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Old 25th February 2020, 08:25 AM   #30
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My business and others that I trade with are being hurt by slow or cancelled deliveries from China, so it’s not a completely theoretical exercise.
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Old 25th February 2020, 08:40 AM   #31
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Originally Posted by The Atheist View Post
On Friday, I recommended to several businesspeople I know that they should invest in TVIX - a hedge fund against global downturns. The shares were $38 at Friday lunchtime, and they've opened today at $49. I know two took my advice and threw five grand in on Friday.

They've made a grand over the weekend, with lots more to come.
Did they already sell and realize those gains? Or are you going to let them know when to get out?
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Old 25th February 2020, 09:27 AM   #32
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Originally Posted by sir drinks-a-lot View Post
Did they already sell and realize those gains? Or are you going to let them know when to get out?
Holding right now. Price $67 with more to come.
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Old 25th February 2020, 09:54 AM   #33
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Originally Posted by sir drinks-a-lot View Post
Did they already sell and realize those gains? Or are you going to let them know when to get out?
To be fair, The Atheist described an exit approach:

Originally Posted by The Atheist View Post
Set a goal and stick to it. I've recommend the following:

When you've doubled your money, sell half and the rest are free.

When they've tripled, sell half of what's left and you're in large profit regardless.

Hold the remaining 25% until it's 5 times the starting price, or if it looks like going down. Then get out and hope the bloody disease doesn't kill you before you can spend it!
As soon as the price hits $76 (perhaps a bit higher to cover fees and the buy/sell spread) then they should sell half their holding to ensure that anything else is pure profit.

Last edited by The Don; 25th February 2020 at 09:56 AM.
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Old 25th February 2020, 10:04 AM   #34
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Originally Posted by The Don View Post
As soon as the price hits $76 (perhaps a bit higher to cover fees and the buy/sell spread) then they should sell half their holding to ensure that anything else is pure profit.
That's the advice I've given.

I reckon it hits that level no later than Friday - cash out before the weekend.
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Old 25th February 2020, 10:05 AM   #35
marting
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Originally Posted by The Atheist View Post
A major factor is the fact that markets are over valued by an enormous amount right now.
That's my belief as well. We are (were?) in an historically long bull market driven by central markets injecting liquidity via lowering interest rates. This has caused various distortions. Companies have issued debt to buy back shares. A sometimes rational decision but one that increases leverage hence risk. Perception of the risk was minimized because long term govt. debt rates also have ramped downward and they are a kind of proxy for interest rates years in the future. And they are a good proxy. Usually.

Then along comes something that shuts down much of the production of "the World's Manufacturer." This will produce interesting effects as various shortages become apparent and resulting interdependencies emerge.

This is not something that is going to look better in a month and I think even then there will be a lot of wishful thinking.
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Old 25th February 2020, 10:20 AM   #36
The Atheist
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Originally Posted by marting View Post
That's my belief as well. We are (were?) in an historically long bull market driven by central markets injecting liquidity via lowering interest rates.
Yeah, who would have thought that paying people to borrow money would lead them to load up on shares in a bull market.

It's all a bit Weimar, except the shares have gone up and not the dollar down.

This could change that thinking if it turns into a rout, and I think that's a distinct possibility.

Originally Posted by marting View Post
This is not something that is going to look better in a month and I think even then there will be a lot of wishful thinking.
The question is how countries manage the outbreaks.

Just due to the sheer volume of cases likely, I think they have to take extreme measures or health services will break down completely. People keep banking on a lot of mild cases, but the ratio of severe cases says that an enormous number of people will get bloody sick.

Iran's infected Minister, Iraj Haririchi, is definitely as crook as a parrot, and he doesn't look very old. I can't see his age easily, but I'd put him about 50.

Unchecked, the virus will strike fast and wide, as being shown in SK, Italy & Iran. The sickest cases are needing weeks in intensive care. Let's say two weeks on average.

In USA, if even 40% of people get it over the course of three months, you'd have a requirement for 16 million intensive care beds during that period, or over 2 1/2 million at any give time during the outbreak.

How many intensive care beds in USA? About 100,000, apparently.

Good luck with that, and America's probably got a better ratio than most countries.
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Old 25th February 2020, 10:51 AM   #37
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Originally Posted by lobosrul5 View Post
It actually could affect corporate profits, especially for corps that have part of their supply chain in Asia. Nvidia most certainly does.
It certainly will....in the short term.


Oh, well. Stocks are far more volatile than they ought to be, and each investor or trader has to try and make sense of things on one way or another.
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Old 25th February 2020, 10:59 AM   #38
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Originally Posted by The Atheist View Post
A major factor is the fact that markets are over valued by an enormous amount right now.
By what measure? Yields are not incredibly low. P/e is not incredibly high. Exception:. A handful of stocks, the fangs stocks, hold an absurdly large portion of the. Stock market right now, but to be fair, they also hold an absurdly large share of the world's commerce.

I agree about the interest rate thing, and a rise could trigger stock declines, but that's not really coronavirus related. I think.
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Old 25th February 2020, 11:55 AM   #39
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Originally Posted by Meadmaker View Post
P/e is not incredibly high.
Not incredibly high, but 50% above long term average is far too high.

https://www.multpl.com/s-p-500-pe-ratio/table/by-year
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Old 25th February 2020, 12:04 PM   #40
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Dow down another 600, 2.5%, along with what appears to be every board everywhere & TVIX up to $73.

I'd say my job is done.

https://bluethumb.com.au/svetlana-co...-svetlana-cook
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