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  • #91
    Originally posted by Lordosis View Post
    I am not sure at all if I am correct in this way of thinking but I imagine the stock market like this:
    The red line is the actual value of all the companies. Mostly steady increase over time. Slight blip with Covid but probably not that dramatic. At least not yet.

    The green line is market value that swings up and down and is mostly emotion and fluff.

    This is why I think that the market is only sometimes correlated with real events.


    This is a working hypothesis. Please help me understand and add.
    Or tear down and restart if needed.
    Yep, JL Collins Beer and Foam analogy. The total value is a big mug of beer. You did not see it poured. Some of the mug is beer, some is foam. Hard to tell how much of each is contributing to the total volume of that mug. The Beer is the "real" value of the underlying companies, the foam is the fluff / noise / nonsense, at least that was my "simple" interpretation of his teaching.
    Personally I am in it for the beer!

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    • #92
      Originally posted by Tangler View Post

      Yep, JL Collins Beer and Foam analogy. The total value is a big mug of beer. You did not see it poured. Some of the mug is beer, some is foam. Hard to tell how much of each is contributing to the total volume of that mug. The Beer is the "real" value of the underlying companies, the foam is the fluff / noise / nonsense, at least that was my "simple" interpretation of his teaching.
      Personally I am in it for the beer!
      Yeah obviously I did not come up with this myself. It is just the bit of information that sticks with me the best. I read so many different people I guess I forgot that this was JLC. Well that makes me happier then because he is one of the better in my book.

      Comment


      • #93
        Warren Buffett often likes to reiterate a Benjamin Graham (paraphrased) quote, "In the short term, the stock market is a voting machine, but in the long run, it is a weighing machine."

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        • #94
          Originally posted by Lordosis View Post

          Yeah obviously I did not come up with this myself. It is just the bit of information that sticks with me the best. I read so many different people I guess I forgot that this was JLC. Well that makes me happier then because he is one of the better in my book.
          I like your graph! He did not say it with a graph, and your red line is a nice visual! Give yourself some credit, I think you expanded on good old JL's Beer and foam!

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          • #95
            The Mr. Market/true value vs. market value anthromorphism/heuristic is one which is popular and seemingly easy to understand.

            If you are an indexer and believer in EMH then you should be value agnostic and place no credence in these.

            The Graham quote about the market being a voting machine in ST/long term weighing machine, is actually a conundrum in value investing. How long is long term ? How do you know you weren’t just wrong about it ?

            I think markets are complex and there is no easy way of thinking about them. To give an example after writing 2 brilliant books, Graham advocated hard core value investing. Strangely though he invested in scale in Geico, which turned out to be a momentum stock, and it went up 500 fold and accounted for 95%+ of his lifetime profits. Later in life he wrote that a lot of what he thought about investing may have been mistaken and he focussed on a golden formula of sorts. He generally espoused belief in EMH later in life.

            From Ben Graham:
            “…a highly unusual departure for the conservative managers, who normally diversified widely and seldom invested more than 5% or so in any one holding...
            …Ironically enough, the aggregate of profits accruing from this single investment decision far exceeded the sum of all the others realized through 20 years of wide-ranging operations in the partners’ specialized fields, involving much investigation, endless pondering, and countless individual decisions....
            …one lucky break, or one supremely shrewd decision – can we tell them apart? – may count for more than a lifetime of journeyman efforts.“

            https://www8.gsb.columbia.edu/sites/...les/DOC002.pdf

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            • #96
              Originally posted by Tangler View Post

              I don't know. I cannot figure it out. My life pretty much sucks compared to what it was 2 months ago. I mean, I am not dead, heck, not even sick, but my job has radically changed and become much more dangerous, I live isolated in my basement and my hospital is hurting badly from lack of elective cases. So......while I am doing intubations / lines on covid patient's I am doing it at lower pay (no overtime or bonuses etc. ) and I am one of the lucky ones (some furloughed or fired) and we are getting more and more busy. I am not eating out. I am not buying anything not essential and survival mode is the theme of my life.

              The grocery store has become super annoying (crazy people ) and the restaurants I love are closed. Anyway, no one I talk to seems super optimistic. I am not sure if it is because I am in healthcare, but restaurants, bars, hair salons, all entertainment industry providers, nursing homes, hospitals, construction workers, schools, day care workers, etc. Economic dumpster fire. No one is living normal life now in my area.
              I just do not know how this cannot tank it.
              It just has to drop.
              But..............I am often wrong. Maybe we have seen the bottom, but I do NOT believe it! Has to drop!
              It's pretty frustrating watching the market at times. I have no idea.
              My strategy is just to have a plan and predefined levels where I think there is value I want to buy in that market.
              If SP500 is bouncing back into overvalued, then it's not going to be something I can deploy cash to.
              But there are other interesting valuation areas that might develop into something investable for me.
              I think I have about 3 good investments left in me. SP500 at 2800 today, is not going to make it into that, so I just don't worry about it.

              Comment


              • #97
                Originally posted by Zaphod View Post
                Fed announced and released, right before claims number lol, their new facilities to lend/buy high yield and something to do with main street. Its just more ammo and more signaling by the fed that they arent going to just let people go under due to this if there is anything they can do. Which is amazing and good, but disconnects the market from the numbers you'll see on the econ front. Again, thats probably good?

                It doesnt help anyone if all these businesses go under and we get a self reinforcing move lower, credits impaired, stocks lower, etc...its self fulfilling and also disconnected from reality and happens in other recessions. Maybe if the fed can prevent that we can get prices that reflect reality and not liquidity and covenant related issues. There will be some distortion, but I'd err to that side rather than massive and prolonged unemployment.

                This move decreases likelihood of a lower market, but that still could happen of course. It also incrementally just gives investors more confidence, which also helps markets. We're a ways a way from any hard econ data, and wont see full q2 until after July starts. It will be a bit before anything pops up to move the market. The virus case loads should start to go down this week as well.

                For technical folks, that was a 50% retrace of the recent bottom, so par for the course and in the exact expected range per those types. We shall see what happens now.
                idk, the other side of that argument is that this is just part of the normal market mechanism (boom, bust).
                This is probably the main reason the fed is accused of serial bubble blowing.
                Besides the ethical/philosophical issues of intervening in the market (for better or worse), a few questions come up:
                1. Is their unlimited QE enough : in the GFC, they were just fighting bad subprime mortgage debt, this time, they are having to bail out basically all HY (credit cards, auto loans, junk corporate bonds), investment grade corporate debt, mortgage debt, municipal debt, and fund the entirety of the federal deficit (maybe 25% GDP this year with the stimulus and automatic stabilisers)
                2. Is it good for stocks - the market seems to assume the closed loop will form between banks, investors and the fed - where the liquidity fuels asset prices.
                3. Will it prevent a recession - related to 2, if 2. is successful, it tends to sap the real effect of liquidity actually getting into the real economy. What would be amazing is if the liquidity fueled further share buybacks because they were considered the least risky out of the alternatives.

                I tend to think that although the liquidity effect will have a temporary effect on asset prices, they will gravitate towards where they would have gone. It would be amazing if a bear market did end with a PE in the mid 20's. In that case, valuation would no longer matter. Which is possible.

                Some other interesting questions:
                1. The inflation effect - assumed to be deflationary but recent CPI figures do not indicate that the deflationary effect is marked. The GFC was mainly a financial crisis and the measures to facilitate the plumbing were arguaby warranted. This is more akin to a natural disaster and flushing the plumbing system at full bore may not be what is required. A natural disaster in fact has an inflationary effect, so withdrawing 6T in QE maybe more difficult than injecting it. Mike Ashton makes an interesting argument that last time was different in that it was a banking crisis and today, we are at all time lows for interest rates and all time lows for M2 velocity, so it is very possible that the QE will have the inflationary effect that it didn't after the GFC. Moreover, the fed made a mistake of offering IOER (interest on excess reserves) and this time is incentivating banks to make loans. He argues that the banking system is working as intended. It's what was different last time. With extraordinary liquidity, massive fiscal spending, there could well be medium term inflation.
                2. The long term costs - if they do fix the long end of the curve with limitless QE and enact monetary suppression (despite moderate medium term inflation), then the losers will be retirees or anyone that relies on bond income. If instead unwind QE at a capital loss then society foots the bill. In terms of the deficit spending, we will be footing the bill later or future generations.

                I tend to think none of this creates extra long term GDP. If anything, the QE extension after 2012 encouraged more corporate buybacks and suboptimal capital allocation decisions, but we were lucky that it didn't matter because the productivity benefit of technological innovation was orders of magnitude greater than that last cycle. I tend to think the fed put is not a healthy thing. They seem to have to do more and more each time and emergency measures become standard operating tools.

                Comment


                • #98
                  Mike Ashton's interesting ideas:
                  Inflation:
                  https://mikeashton.wordpress.com/202...was-different/

                  China theory (not sure if I agree).
                  https://mikeashton.wordpress.com/202...bout-covid-19/

                  He wrote a funny, irreverent book on the Greenspan era :
                  https://www.amazon.com/Maestro-My-**.../dp/0979354277

                  Comment


                  • #99
                    Ok, I think it is going to drop. Seems like last week was eye of hurricane. I am on Covid call and this illness is awful. These people are doing .......well not great. This thing still has a Tyson like uppercut and an Anderson Silvia like knee to the chin left for my world. I don’t see how we are not seeing a dead feline bounce . No one wants to spend. Everything is closed, and it looks more and more like a marathon instead of a sprint. So, I think this summer is going to be tough. I heard an overly naive doc say, “by mid May the warm weather.........” have you seen the cases in New Orleans and Miami? It is like 90 degrees there. No, this is going to suck for at least a few months and we need a test for immunity or it could last for a year.

                    Comment


                    • i don't think people realize the economic effect of this disruption. Let's look at China since they are the first in the crisis. Beijing and Shanghai's traffic is down 80% on the weekend. China reopened to recreate jobs to produce goods but there is no one to sell to. they are building inventory for no purpose and that is how you go bankrupt. There is a relief rally from central bank stimulus. Government is going to do everything to stabilize the market. Soon, they might even buy stocks. but they cannot save them all. Bailouts cannot be given to all. Just look at this small population here, who are supposed to be high earners and financially responsible. Who among here is excited to go to concerts, go to trips, dine in restaurants, buy a car? 17 million applied for unemployment in the last 3 weeks. This will be a generational change. Most of the population is in survival mode. Banks will hold cash (JP Morgan just said they will not provide mortgage if your credit score is <700 and 20% down. People will hoard cash. Many will start tapping from their retirement funds. It's just reality. Proceed with caution.

                      Comment


                      • Originally posted by DEE F View Post
                        Who among here is excited to go to concerts, go to trips, dine in restaurants, buy a car?.
                        I am, but I am in an area where the virus is not (yet) circulating too widely. And the summer camping trip I am considering is a far cry from the international vacation I had to cancel.

                        How to begin reviving the economy, and how quickly, is the big unanswered question. We can't stay in this lockdown mode forever, but if we start reopening things too quickly COVID-19 is going to come roaring back. Economic recovery is going to be a high-wire act for sure!

                        Comment


                        • It seems like it's anybody's guess at this point. I did do a lot of equity buying over the past few weeks, not because I'm certain we've hit a bottom but because I had too much sitting in 0% interest savings accounts before this. It's hard to be 100% sure that we haven't already hit a bottom with all the money that's being poured into the financial system. On the other hand, I wouldn't be too surprised if the S&P 500 breaks below 1500 at some point.

                          Comment


                          • So we're right at the 20% mark and midway between high/low -- dead cat bounce or stabilized until -- wave 2?

                            My guess this week will show relative weakness from q1 reports and that'll burst the calm and trend downwards pressure. But continuing past the peak in major hotspots. If Detroit/miami/New orleans don't reflect a peak, that will be pretty bad for a May 1 easing--need two solid weeks of lowering to even talk about easing.

                            Comment


                            • I predicted DOW 15K just prior to the 2019 market melt-up. So far we went as low as 18.5. The lower this bear cycle goes the better for long term returns assuming plenty of dry gunpowder for the bottom and over the following years. I believe a second comparable wave of COVID may push us towards Great Depression territory. If not it is conceivable that we already bottomed out (with some retracement) if COVID settles down sooner rather than later, mitigating the deaths, deficit, contraction, unemployment, bankruptcies, foreclosures, supply chain disruption, etc. Unfortunately a second wave would exacerbate all this.

                              Comment


                              • Originally posted by EntrepreneurMD View Post
                                I predicted DOW 15K just prior to the 2019 market melt-up. So far we went as low as 18.5. The lower this bear cycle goes the better for long term returns assuming plenty of dry gunpowder for the bottom and over the following years. I believe a second comparable wave of COVID may push us towards Great Depression territory. If not it is conceivable that we already bottomed out (with some retracement) if COVID settles down sooner rather than later, mitigating the deaths, deficit, contraction, unemployment, bankruptcies, foreclosures, supply chain disruption, etc. Unfortunately a second wave would exacerbate all this.
                                Translation: it may go lower OR it may not. Groundbreaking stuff.

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