How low can we go?

[EntrepreneurMD]

Translation: it may go lower OR it may not. Groundbreaking stuff.

Wrong. It can go lower and still have bottomed out. Thus either way, I predict it to go lower. Careful on your translation, can hurt your finances. Tim and Lordosis don't seem to get the markets either, you're in good company. Too simplistic, wanting someone to tell you exactly what COVID will do. It doesn't work that way. You need adaptive skills, not be paralyzed without a crystal ball. That's how I accomplished magnitude, time and direction of the last major move. I didn't hear any of you say last year that what happened to the stock market in 2020 was coming. Stick with Tim at 101, course 102 is way too complicated for you at this time. You can remain herded followers, or you can learn to become leaders with foresight. Open a business, you'll develop the skills out of necessity.

[Jack_Sparrow]

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.

I agree with this prediction, but nobody really knows. Its hard to see them easing restrictions when people are still out there sick.Just takes one sick guy on the NYC subway to start the process all over again. Also even if they pull back restriction, Id still think your only going to have 40-50% participation going to restraunts, buying things IMO so no market reset.

In reference to your Q1 results, I think we are going to see a huge emergence of the have and have nots.
Winners being - Amazon, MSFT, Kroger, Tech/online businesses, etc. limited or even increased revenues from Covid. Where as Cruise lines, airlines, entertainment, oil, I can see them continuing to move even lower over next few months. Even banks are going to suffer IMO. My portfolio is typically 50% ETF, 50% actively managed stocks, but if there has ever been a time to pick winners and loser before Q1, I think now would be a good time to venture away from the typical S&P 500 ETF/DOW ETFs.

[StarTrekDoc]

yeah - service/entertainment is going to take awhile to recover -- like 2021 or later. vs banking and manufacturing probably do okay. 3M and staples like dow chem will do well. Wonder how Mars company sales are doing with all this.

[Tangler]

I had been up most of the night on my last post. More thoughts: Yes, after a nap and a run, a beer and a cup of coffee, I think It will go down more. My conviction is NOT rock solid. I know it is a WAG but I think everyone's input, combined with how scary and nasty this virus is, and how disruptive the only "treatment" = social distancing is to our economy I think we are in for a mess. I totally want social distancing until we get some breakthroughs, but It is going to hurt folks financially. It will not be free and I don't see how the Fed can bail out everyone (just like adequate PPE, people & small businesses fall through the cracks). The situation is Dynamic however and the hope part of my brain relies on seeing how the whole world is really all working toward solutions. It is very unusual. When has the whole world worked to find answers to the same few questions?
Questions like: How can we test for immunity rapidly and reliably? How can we treat this? How do we protect the most vulnerable? (vaccine, prevention, therapeutics)? How can we help the businesses and people who cannot work and support themselves now? What can we do to prevent a financial crisis / great depression?
When has everyone been focused on common goals? Ever?
But.........my pessimism........watching the a-line blood look black as I slide in a wire thinking: "Venous?" NOPE, that is arterial despite 100% and lots of peep.......and my spending zero on food outside my house (a favorite.....gosh I love food.....man I miss the indian buffet down the street for lunch on a post call day! My wife misses the fancy stuff.)

Also, I see a hospital with people either working like crazy to help covid patients or sitting around wondering if they will have a paycheck due to NO = zero elective cases.
Also, everyone is scared to death = factor Z = how productive are people really right now? How hard is it to do undistracted deep work and get into a state of flow? I am doing a little better with this, but this thing is scary and sad and invisible = scary.

Ok, sorry to ramble: here is my bottom line: I predict it will go down more. For a few more months at least. BUT, that prediction is not made with any significant level of confidence and the realization that I could be TOTALLY wrong.

[Dont_know_mind]

I tend to think you need 2 events for a serious bear market. In 2000-2002 it was the Dotcom bubble bursting in 2000 followed by 9/11.

I tend to think for a serious bear market to eventuate here would require a major secondary effect taking negative effect in a year or so. This could be an unappreciated result of the pandemic or something completely different that knocks out the dip buyers here. In 2008-9 there were 2 or 3 of these episodes.

It just makes it very exhausting to watch and maybe why few buy at the bottom.

One thing I object to is the fed buying junk bond ETF’s. I think that is going too far. There is a reason why they are called junk bonds and having junk bonds backed by the Fed is a bit disturbing.

This article is a good rant I read today on it:
The Fed Has Gone Too Far

https://seekingalpha.com/article/4337398

In the comments section some gems :

“It’s not the taxpayer that's directly fronting this, it's those who keep cash as a store of wealth. Since the middle class keeps most of their savings in cash and it's the wealthy that own most of the assets the Fed is printing money to bail out, the Fed's actions distill down to taxing the middle class to bail out the rich. An incredibly regressive, invisible tax on the middle class and particularly the retired portion of the middle class (i.e., those with a high proportion of their savings in low risk assets and limited outside income).

The Fed has been doing this for decades, but in a relatively slow way such that the counterintuitive impact of this isn't readily apparent. It really can only be seen by zooming out and witnessing the growing wealth and income inequality over this long period of Fed "activism".

If they actually get the printed money to where it should always have gone - i.e., the middle class, then we should expect to see inflation. If the system delivers more of the same and it mostly goes to the wealthy and connected, then probably no inflation; but doing it this big and this sudden will likely squeeze those who simply can't be squeezed any more, open people's eyes and could result in a political sea change, even ultimately a revolution.”

“The Fed's actions largely reward those companies which have failed to prepare for the unexpected. There should be a massive shakeout in an event like this, clearing out the deadwood so the stronger trees can grow to the sky. Instead, poor financial management and negligent corporate governance are rewarded with a free pass and a pile of new capital, all on someone else's dime.

In response to "How are people not irate?", I would posit that most people are ignorant of basic economic principles and/or simply don't care. And besides...the cheap/free money from ZIRP and easy lending standards have left the average consumer every bit as addicted to and reliant on debt as the average corporation. Most folks will see nothing wrong with piling government money into debt (and even equity) markets when they are standing with hands outstretched to wait for the little bit of government assistance which is headed their way to help with two big car payments, outrageous credit card bills and large rent/mortgage payments.

I'd really love to just feel angry over all of this. Instead, I feel like a bit of a fool for running my small business in a lean and fiscally conservative manner, and keeping enough cash in the bank to make payroll for 4 months with zero revenue. There is no reward for prudence and responsibility.

It's a frightening message that Powell and the Fed are sending to the business community, and to the country at large. "Too big to fail" is a thing of the past, and merely having a pulse is qualification for a bailout/rescue.

Wow. Just wow.”

”"Too big to fail" / "Too big to jail" is why we're having this discussion, it was the original moral hazard we created and now, amazingly, even supposedly fiscal conservatives (Tea Party types), seem to be in a trance and going along with these Trillion dollar bailouts.”

“...Under these circumstances, any asset price less than infinity can be justified.”

[Zaphod]

You have to let moves play out and not get your short, medium, and long term outlooks and their effects on the market mixed up. Short term we're optimistic that we've peaked (doesnt have to be correct just what it is), medium term there havent been any economic numbers/earnings yet to digest but theyre coming, long term these prices are optimistic to say the least as you could have got this several months ago with no pandemic in the future.

Theres a lot of liquidity and some of that will make its way to asset prices, less volume there is the easier it moves the markets.

Good luck balancing all that out to say whether or not the market goes somewhere short term. Only thing I think is that momentum is on relief in general, people want to believe. I dont think values are compelling long or short, but easiest is to grind around this area slowly up. Vol is contracting, making things safer. Catalysts and undeniable realities are still in the future for now.

[Tim]

One might consider what and why the Fed was created. The tools of the Fed are actually very limited. How they use those tools is greatly misunderstood. Their mandate is economic growth and moderate inflation, period. They have actually succeeded, recessions and depressions have been reduced in depth and duration. That has been a huge boost. They DON’T set fiscal policy.
What can the Fed do for an individual or any entity? The Fed will target economic ills to minimize damage and increase recovery. The message was pronounced and clear. This MF is so big, Fed is all in.
So many good questions, so many poor answers.
Weighing The Week Ahead: So Many Good Questions, So Many Poor Answers

https://seekingalpha.com/article/4337065-weighing-week-ahead-many-good-questions-many-poor-answers

[Antares]

One might consider what and why the Fed was created. The tools of the Fed are actually very limited. How they use those tools is greatly misunderstood. Their mandate is economic growth and moderate inflation, period. They have actually succeeded, recessions and depressions have been reduced in depth and duration. That has been a huge boost. They DON’T set fiscal policy.
What can the Fed do for an individual or any entity? The Fed will target economic ills to minimize damage and increase recovery. The message was pronounced and clear. This MF is so big, Fed is all in.
So many good questions, so many poor answers.
Weighing The Week Ahead: So Many Good Questions, So Many Poor Answers

https://seekingalpha.com/article/4337065-weighing-week-ahead-many-good-questions-many-poor-answers

Good article, Tim. I’m convinced that no one knows which way this is going. Which is always the case, but even more so here.

[Antares]

these prices are optimistic to say the least as you could have got this several months ago with no pandemic in the future.

That is actually quite funny, and shows the irrationality of this situation. Obviously things are less rosy than they were at the end of August when the S and P 500 was last at this price. Hard to wrap your head around that. I mean, what?

[Dont_know_mind]

One thing is rosier and that is that rates are lower and the fed injected a lot of capital market liquidity.

I guess it depends on whether or not that outweighs everything else. One thing that is not funny is how long people can sustain 0% return on their fixed income before they move to risk assets again. I would guess this is not very long unless they are still quite fearful.

[StateOfMyHead]

One thing that is not funny is how long people can sustain 0% return on their fixed income before they move to risk assets again. I would guess this is not very long unless they are still quite fearful.

Which would support my guess that we will see the bottom drop out when the rosy glasses finally come off.

[EntrepreneurMD]

One thing is rosier and that is that rates are lower and the fed injected a lot of capital market liquidity.

I guess it depends on whether or not that outweighs everything else. One thing that is not funny is how long people can sustain 0% return on their fixed income before they move to risk assets again. I would guess this is not very long unless they are still quite fearful.

0 is better than negative. Risk assets by definition can mean negative returns, at least for a given period. Depends if people perceive that risk to be high or low. That's how I perceived DOW 29K versus my 3% CD's when others called cash equivalents a drag.

If people remain fearful, the treasuries will likely push us into negative saving account rate to further push people toward risk assets. Especially if high yield savings accounts go prehistoric. Accelerating deflation coming? Printing a whole lot of paper money (figuratively, it's all created electronically these days). Alternative to risk assets and negative bank account rates not a good scenario - cash under the bed. No buying means you don't counter the deflation of printed money with the inflationary force of spending.

[DEE F]

fed bought $1M of assets per second for the first 2 weeks. Yet, everybody believes market is efficient.
EntrepreneurMD I saw your posts on limiting debt to only 5 years, would you consider that right now since they are all inflating it away by printing so much money?

[EntrepreneurMD]

fed bought $1M of assets per second for the first 2 weeks. Yet, everybody believes market is efficient.
EntrepreneurMD I saw your posts on limiting debt to only 5 years, would you consider that right now since they are all inflating it away by printing so much money?

My only current debt is essentially a fraction of what I paid for the building just 3 years ago, I already have the funds for payoff in the next 2-3 months when my 3% CD's mature. It's under $500K (13% of total project cost). Most debt was paid off pre-COVID as I did better than expected. Paying it off or not at this point is going to have very small impact as it is a relatively negligible percentage of net worth. Not really comfortable investing instead in any investment (market or other) in a recession that has just started. To everything there is a season. There will be plenty of safer times in the future to invest post existential threat. I need wealth preservation at this point not necessarily accepting risk for return. My gut feeling is that deleveraging is the thing for me to do in this environment, above looking for risk assets as a matter of personal choice potentially not the better financial choice if things go well.

Frankly it was a nearly $4M project payoff within 3 years. If everything stabilizes and we're looking at a new bull market I probably would have on problem raising the like in the next 3 years for the early years of a bull run. I may have had another $3M if I had not prepaid (for possible investment purpose), but going into the coming year or two with that much debt and a threat to the business is a hard pill for me to swallow. How low can we do - a heck of a lot lower. Will we is more the question and nobody knows AKA current uncertainty.

I've been all about short term low interest rate leverage, but I'm obsessively averse to any debt beyond 5 years, probably to my detriment...oh well.

You're clearly well versed. What are you doing? Paying down any existing debt? Do you stomach market injections now? Looking at alternative investments in low rate environment? Feel free to disagree. Don't know if what I'm doing is the right or wrong move anyway. Lordosis s and Tim think I'm off my rocker. Lithium wants me on lithium I think.

[Tim]

Payback period is a very basic capital budgeting tool. What did you use as your weighted average cost of cost of capital? You don’t need Finance 101 at all!

https://en.wikipedia.org/wiki/Payback_period

Feel free to upload the original project analysis. It would support the original investment.