How low can we go?

[JBME]

Jeez I am awful at this timing thing. I Bet on the beginning of April being a bump and a drop. That hurt.
Then held until last week until I gave up. Looking like this is going to hurt also.

I think I called the bottom and top pretty darn close but the wrong way.

why didn't you tell us so we could all do the exact opposite?

[Lordosis]

why didn't you tell us so we could all do the exact opposite?

I did!

[JBME]

I need to better pay attention so I can act on your very sound advice and reverse-crystal ball thinking!

[Tim]

I need to better pay attention so I can act on your very sound advice and reverse-crystal ball thinking!

And make a poll: State your recommendation specifically about one month in advance please.

[StateOfMyHead]

Read a brief article speculating that what we are seeing is FMO, seems reasonable to me. I can't accept the market is going to continue to rally with the financial mess we are facing.

[Dont_know_mind]

Read a brief article speculating that what we are seeing is FMO, seems reasonable to me. I can't accept the market is going to continue to rally with the financial mess we are facing.

“Today, we remain unequivocally bullish on equities for the long run. This is somewhat of a change during the past week or so. As with Professor Siegel, we do not expect markets to come anywhere close to retesting the March 23 lows. While it is now much more difficult to call near-term direction than at the top in February and in dollar-cost averaging near the bottom on March 23, we’ve never been more bullish on the long term, “Staying Focused on the Long Term,” as we fully expect moral hazard advice (indexing) to not only continue to be supported via bailouts and stimulus, but actually be rewarded, a key lesson following any financial crisis.”

I hate to say it, but I agree with this. It happened after 1997, 2009, 2012 and I suspect now. Is it right, heck no. But I find myself at the verge of my usual mistake and this time I’m not making that mistake. It would be just my luck for it to actually different this time when I’m doing the opposite of what I did in the past.

https://www.valuentum.com/articles/never-been-more-bullish-even-as-buffett-dumps-airlines

[Dont_know_mind]

I was thinking about it today and this reminds me of a more severe but shorter version of the Asian financial crisis in 1997. At that stage the fed pumped liquidity into the system and then there the most awful equity bubble in 1999.

I am pretty terrified that something like that could happen. So much so that I allocated the rest of my cash to index ETF’s this week. So I am now fully allocated back into risk assets. If things correct I may employ some leverage if great valuations emerge. I might be wrong in this strategy.

With the amount of stimulus and cash on the sidelines, I started getting very worried as a cash holder. My greatest fear is the cash wave moving en mass back into risk and getting bad FOMO and capitulating/buying right at the peak.

This happened to me in 1997, 2009 and 2012. It’s just terrible as a prudent value conscious investor but you get massively punished for being prudent. After the third time this happened I woke up and thought twice is a coincidence but 3 times, maybe there is a pattern here ??? If it’s one thing I learnt, it’s to capitulate early if I realise I’m going to.

I keep wondering if I’ve missed something or am making a strategic error here.

[Zaphod]

They clipped the left tail (or so it seems temporarily) with stimulus and other programs. Unfortunately at these levels (fall of 2019 with no existential threat on the horizon), they have also clipped the right tail. Nothing is close to good value as far as indices are concerned and there are a lot of headwinds. Further out you are the less it matters and buying into a choppy flat market is actually great.

While it doesnt seem there is a lot of reason for extended upside, a bubble and fomo is always possible and does seem to be building. Could be in a range for a while.

[JBME]

well there you go. 15% unemployment rate (never mind that candidate trump said the "real" unemployment rate was 50% when the BLS said it was 10%, so I guess then today it's really 55%) and the markets cheer the news and indicies up 1%. makes total sense. unemployment rate 50% higher than the worst time of the great recession and the market says "awesome news!"

[Dont_know_mind]

They clipped the left tail (or so it seems temporarily) with stimulus and other programs. Unfortunately at these levels (fall of 2019 with no existential threat on the horizon), they have also clipped the right tail. Nothing is close to good value as far as indices are concerned and there are a lot of headwinds. Further out you are the less it matters and buying into a choppy flat market is actually great.

While it doesnt seem there is a lot of reason for extended upside, a bubble and fomo is always possible and does seem to be building. Could be in a range for a while.

That’s an interesting perspective. You could be right.
I tend to think people will hoard cash, then realise at 0-0.1% deposit rates vs 2% dividend yields, there is a major incentive to deploy it (TINA) unless a lot of fear remains.

If you replace long term discount rates on risk assets from 4% to 2% then valuation ceilings are much higher.

The reduction in rates in my view is an accelerant. But the flammable material is the fed put. To me they have given out a signal that there is a free put option and they have also provided the liquidity to leverage the risk spread. Which is happening and I would be surprised if it doesn’t get quite overdone.

I wouldn’t leverage any long position but I am also not standing in the way of this by holding cash.

I tend to think SP500 ATH’s by year end. Maybe I am misreading it, but this appears to me to be the ideal culture material for a tech bubble.

[Zaphod]

That’s an interesting perspective. You could be right.
I tend to think people will hoard cash, then realise at 0-0.1% deposit rates vs 2% dividend yields, there is a major incentive to deploy it (TINA) unless a lot of fear remains.

If you replace long term discount rates on risk assets from 4% to 2% then valuation ceilings are much higher.

The reduction in rates in my view is an accelerant. But the flammable material is the fed put. To me they have given out a signal that there is a free put option and they have also provided the liquidity to leverage the risk spread. Which is happening and I would be surprised if it doesn’t get quite overdone.

I wouldn’t leverage any long position but I am also not standing in the way of this by holding cash.

I tend to think SP500 ATH’s by year end. Maybe I am misreading it, but this appears to me to be the ideal culture material for a tech bubble.

I think general assessments of the barriers are absolutely correct. No one wants to be sitting in cash too long with 0% interest and a bona fide fed put much higher than anticipated that is willing to burn money at the drop of a tick.

Where we could falter is if the economy doesnt turn out to hit this V shaped recovery, which is nearly impossible given the size of pain its been dealt. Valuations are currently at all time highs given earnings (normal in a bear but not normal for market to be near aths at same time). If US comes back to 90-95% of prior for 2-3 qtrs (fall/winter coming, covid comeback), I cant see these prices holding (obviously dont mean nothing) and thats definitely a cheery outlook. The rest of the world is in the same position at the same time. That will also come back on us (30-40% intl earnings), then supply chain issues, increased tensions, etc...How on earth is EPS not crushed. Valuations will eventually (you'd have to think unless 2000 melt up in play, possible) come down a bit.

otoh, we open up and magically CoV goes away and we rocket past aths.

[ENT Doc]

well there you go. 15% unemployment rate (never mind that candidate trump said the "real" unemployment rate was 50% when the BLS said it was 10%, so I guess then today it's really 55%) and the markets cheer the news and indicies up 1%. makes total sense. unemployment rate 50% higher than the worst time of the great recession and the market says "awesome news!"

The market already priced in worse news. And expects a faster rebound than the great recession.

[burritos]

WTH? Every time I get ready to make my biweekly contribution the market is all green. Hopefully my new "buy on Monday" strategy is going will have better luck.

[Zaphod]

The market already priced in worse news. And expects a faster rebound than the great recession.

We are at September 2019 levels, I dont think momentary dips count as pricing things in. Not enough transactions or time to establish it as a price.

Think the recovery will be slower than they think, hopefully faster than GFC.

[Tim]

The market already priced in worse news. And expects a faster rebound than the great recession.

The earnings forecasts in Factset have been been updated from March 23 (no surprise).
“However, as time has passed analysts have had the opportunity to assess the COVID-19 potential damage to the S&P 500's earnings. Current estimates call for earnings to drop 19% for 2020, followed by a 27% increase for 2021, and finally an additional 13% increase for 2022.”

Basically, recovery has shifted to 2021 consensus earnings, rather earnings taking a slow road to recovery. Clear as fog! The market seems to believe it. Overpriced, but earnings will grow into it? Make up your own story.