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OrphanWilde comments on Open Thread, January 4-10, 2016 - Less Wrong Discussion

5 Post author: polymathwannabe 04 January 2016 01:06PM

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Comment author: OrphanWilde 15 January 2016 04:44:23PM 0 points [-]

So (if I'm understanding your analogy right) you expect that any drop in the market will almost certainly lead to a huge crash?

Any given spark -could- set it off, which is not the same as any given spark definitely setting it off.

From the 17th to the 25th of August last year, the S&P 500 dropped by about 11%. This led to ... about a month of generally depressed prices, followed by a month-long rise up to their previous levels. That doesn't sound to me like an economy filled with open barrels of gasoline.

If the stock market were responding appropriately to the conditions, then there wouldn't be the equivalent of open barrels of gasoline all over the place. The issue is more structural than that: Interest rates and limited investment opportunities have driven money into the markets, driving prices up, and then keeping them artificially high. Some of this pressure has been relieved by amassing inventory, but that's reached its stopping point, which is starting to cause international trade to falter.

Comment author: gjm 15 January 2016 04:55:12PM 1 point [-]

If Pr(crash|drop) is not quite large, then Pr(smallish decline|any decline) should be reasonably big. Each observation of a drop without a crash is (some) evidence against the antecedent.

If the stock market were responding appropriately to the conditions

It sounds as if you think I was assuming that it is or should be, and I'm not sure why. Could you explain?

Comment author: OrphanWilde 15 January 2016 06:25:21PM 0 points [-]

If Pr(crash|drop) is not quite large, then Pr(smallish decline|any decline) should be reasonably big. Each observation of a drop without a crash is (some) evidence against the antecedent.

Each time you strike a match without blowing up might be evidence that you're not in a building full of gasoline, but if you see the gasoline, the match-striking evidence doesn't weigh nearly as heavily.

I was slightly more specific in another question chain about what I meant by slump, and a 10% drop isn't quite what I had in mind (neither is today's slump, which could rally again), which was more along the lines of a recession.

To clarify my prediction: I expect at least a recession. Given a recession, I expect a depression. If we don't get a recession (which would surprise me somewhat), the absence of a depression won't surprise me, but if we do get a recession, the absence of a depression will surprise me a lot.

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