Dow has worst start in history. Has The Crash of 2016 Now Begun? What Can & Should Be Done?

[ErikJ]

Dow has worst beginning in US history. Looks like Thom might have been right. 3 yrs ago.

[Warpy]

1. Don't panic

The worst reason to make any decision, especially a financial one, is panic.

My guess is that tomorrow will tell the tale. BBC reports that China has disconnected the circuit breaker for tomorrow, so their market will either enter free fall all day or will begin to rally by close of trading as bargain hunters surface. If the former happens, expect the Dow to follow suit. If the latter happens, losses in the US markets will be lower than today.

Stock market busts aren't bad if you can afford to ride them out. The problem with the average 401K is that once the paper price goes below a certain level, management fees eat up the rest and the poor employee is left with nothing. Again. It's why they're a shitty way to try to fund retirement. But y'all knew that.

Indexed funds can provide some protection, since they rise and fall with the market and don't have micromanagers earning big fees. T-bills and CDs are still reasonably safe, but they're paying very little. At least your money will still be there.

The problem with any crash is that no one knows what to do about it until it's all over and we count up what everybody has left. While a few pigs at the top get enough advance warning to protect themselves, the rest of us won't. We're on our own out here.

[ErikJ]

2. If its a deflation like in 1930's, cash will be king.

which are basically Treasury bills right? Deflation causes prices of everything to plummet and making everything cheaper. But it'd be wise to keep your money out of the big 6 banks.

It will be interesting to see what happens in China tonite. I predict a small rally.

[Warpy]

4. I hope you're correct

Whatever happens, it will be ugly for a while. While their circuit breaker is off for tomorrow, ours is still on, so the damage will be limited.

I don't foresee a big 1930s type bust until the derivatives casino collapses. There is no way to predict that one.

[elmac]

11. the Shanghai Composite Index is up about 1%

so maybe a little calm before the storm. With high corporate debt, modern debt-deflation, as opposed to 29' DD caused by falling commodity prices, encompasses falling asset prices, debt repayment difficulties, a reluctance to lend, a financial crisis, the impact on the banks, and the inter-dependency of the financial system.

[ErikJ]

13. Commodity prices are falling now though too. Look at oil.

And the crash of 29 had a real estate bubble that popped like in 2008. And anybody could get a loan to buy stocks as everybody thot it would never stop going up. 8 yrs of Republican econ policies was the ultimate cause. Just like 2008. Very low taxes on the rich and deregulation of the banks.
Hoover stupidly didnt do enough to stop the shrinking money supply and hardly any govt spending. He did raise taxes on the rich though his last summer in 1932 to 65% but he still didint spend enough to stimulate the economy. FDR' New Deal did though, saving the economy.

[Zoftig1]

9. Crash

Your analysis leaves out a crucial factor : shorting the Market. The mega brokers with inside information actually make money on a downturn in stock prices. While this seems counter-intuitive (how can they make money when everything is going down?) it is a feature of our modern world.

[Warpy]

10. I addressed that

[chervilant]

3. Add to all of this,

the fact that the big banks are renewing their CDO crap that tanked the economy in 2008, and we cannot avoid some kind of economic crisis this year.

[ErikJ]

5. I think the derivatives are based on car and student loans

this time. Which is not quite as bad as liar loans like last time. But there is still a huge risk and is why its wise to keep money out of the big 6 "too big to fail" banks.

[chervilant]

8. I recommend you watch

"The Big Short," if you have not already done so. Also, I was in mortgage lending with the worst of the worst, and I resigned after my manager stopped negotiating rates for me because I wouldn't market sub-primes (for which they were paying us vastly larger commissions than our commissions for conventional loans). My district manager was dismissive about my manager's frustration over the sub-primes. "We're not making our money on those loans," said he, "We're bundling them and selling them as CDOs, making 50 mil a day."

I doubt that they've cleaned up a lot of those toxic CDOs, and one has to wonder exactly how they've managed to connive to keep the primary investors (China, Germany, Japan, et al.) from calling their markers on those crap bonds.

[comradebillyboy]

6. The market goes up the market goes down

Don't invest in high risk vehicles like derivatives and ride out the cycle.

[ErikJ]

12. That's how Buffet does it.

He very carefully inspects the company then invests for the long term. When the market is crashing he doesnt sell he buys more cheap.
He stays out of derivatives etc even tech stocks. His strength iis he's not greedy so believes in long slow growth. He lives like a middle class person but owns $50 billion on paper.

[emulatorloo]

7. Chinese tech issues.