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Is this rally for real?


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Is the current rally for real or is it another opportunity to set up new shorts? What do you folks believe. What's the catalyst which could take the S&P 500 above the 2100-2200 level?

 

There is literally no way to answer this. I mean, other than just making things up.

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Is the current rally for real or is it another opportunity to set up new shorts? What do you folks believe. What's the catalyst which could take the S&P 500 above the 2100-2200 level?

 

There is literally no way to answer this. I mean, other than just making things up.

 

Oh, this rally is very real and is going to last for awhile... until it is over. 

 

The catalyst is obviously you guys choosing a buffoon to lead the GOP into an election. 

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Is the current rally for real or is it another opportunity to set up new shorts? What do you folks believe. What's the catalyst which could take the S&P 500 above the 2100-2200 level?

 

There is literally no way to answer this. I mean, other than just making things up.

 

Well, a whole Wall Street exists to provide answers to such questions.

 

You may think they are making things up.

 

But don't they provide a service to meet market demand? As they do so, they work hard, look up and down for clues, go back in history to draw similarities (Ray Dalio says 1937 ahead).

 

Because people clearly really very much want to know what the future will be and where the markets are tomorrow.

 

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Is the current rally for real or is it another opportunity to set up new shorts? What do you folks believe. What's the catalyst which could take the S&P 500 above the 2100-2200 level?

 

Is this question for real? Is it really on the Corner of Berkshire and Fairfax Board?

 

Seriously though. I don't think you are asking the right group of people.

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There are members of the board who have previously written about buying put options, therefore asking this group of esteemed value investors. Except in energy, metals & mining sectors, it's very difficult to find value. Everything is way overpriced due to continued efforts by central bankers of the world to support equity markets. Profit margins have peaked, earnings growth rate is coming down, and even GDP is slowing down. The only one big source of demand for equities continues to be the corporate buybacks. While it's a fools game to forecast a recession and even difficult to recognize one while you are it, US is perhaps getting closer to the next recession. Economists are talking about banning cash ($100 bill in US). There is not an insignificant probability of NIRP coming to US in the distant future which could could kill the banks earnings power. What is it that would take us out of our current malaise!

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You would be a fool to predict timelines, but here is where I think we're at.

 

When compared to the past, the S&P 500 is almost certainly expensive. The problem is that today is not the past. We've had interest rates at historic lows for 7 years, that has driven money out of fixed income into equity, pushing returns down, giving us stock market yields of about 5%, as opposed to the traditional 7-8%. How long can this go on? Who knows. However, it will not go on forever. At some point however, inflation is going to pick up, and when that point comes, it will be the next best buying point investors have. Why? Because there is now trillions of Dollars worth of money out there that is invested in low yielding fixed income with long maturities. There will be a bloodbath when investors rush to the exit doors, and I suspect that across the capital structure, you are going to see a massive amount of forced selling. The bad news is that if the Japanese experience was to be re-produced here, we could be dead of old age by the time this happens.

 

As for what to do today? Well if you think the US is expensive, then look at other markets. Hint - you do not have far at all to look to find one that is cheaper.

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Except in energy, metals & mining sectors, it's very difficult to find value. Everything is way overpriced due to continued efforts by central bankers of the world to support equity markets.

 

I don't agree.  You take what the market gives you, and I think there is plenty (for me) that is cheap outside of the energy, metals, and mining sectors.  Keep in mind that, for the most part, I also don't attempt to play with the big boys...I am mostly looking at sub-$250 million market cap stuff that fits into a couple of broad themes that I think will play out over the next decade.   

 

On a more general level, the world seems pretty screwed up right now ....Europe is messed up economically and politically, the Middle East is messed up economically and politically, China is busy building new sandboxes in the South China sea that are armed to the brim with missiles, radar, and planes, we have a bunch of clowns running for the Republican nomination, energy prices are in the toilet (good and bad), we have central banks blindly wandering into uncharted waters with ZIRP/NIRP, the list goes on.  To be quite honest, all of the above makes me happy, because absent World War III, it would seem that things can only get better.  And in the meantime, I am sure I will keep uncovering individual companies that are cheap with a bright future.         

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To be quite honest, all of the above makes me happy, because absent World War III, it would seem that things can only get better. 

 

I agree with you, but don't dismiss WW3 as a possibility. I don't think we have ever been closer since the end of of the previous world war. (This doesn't affect my investment decisions at all though).

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All rallies are real.  The market goes up.  Then at some point the market goes down and that is also real.  Then at some point the market goes back up and it is real again.  There are sometimes minutes, hours, days, weeks, or years in between these real events.

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To be quite honest, all of the above makes me happy, because absent World War III, it would seem that things can only get better. 

 

I agree with you, but don't dismiss WW3 as a possibility. I don't think we have ever been closer since the end of of the previous world war. (This doesn't affect my investment decisions at all though).

 

shhughes1116's comment makes me glad I read CoBF, because it gives me ideas I never thought of or heard of.......that "things can only get better"?????? huh? Who agrees with that kind of statement?  Like I say it is too new for me to absorb right now. The general news theme is that if things are really messed up (which I am not saying I agree with) then the economy will blow up as a result and we are in for a lot more pain.

 

shhuges want to turn that idea on its head......

 

 

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Except in energy, metals & mining sectors, it's very difficult to find value. Everything is way overpriced due to continued efforts by central bankers of the world to support equity markets.

 

I don't agree.  You take what the market gives you, and I think there is plenty (for me) that is cheap outside of the energy, metals, and mining sectors.  Keep in mind that, for the most part, I also don't attempt to play with the big boys...I am mostly looking at sub-$250 million market cap stuff that fits into a couple of broad themes that I think will play out over the next decade.   

 

On a more general level, the world seems pretty screwed up right now ....Europe is messed up economically and politically, the Middle East is messed up economically and politically, China is busy building new sandboxes in the South China sea that are armed to the brim with missiles, radar, and planes, we have a bunch of clowns running for the Republican nomination, energy prices are in the toilet (good and bad), we have central banks blindly wandering into uncharted waters with ZIRP/NIRP, the list goes on.  To be quite honest, all of the above makes me happy, because absent World War III, it would seem that things can only get better.  And in the meantime, I am sure I will keep uncovering individual companies that are cheap with a bright future.       

 

I agree with you globally which is why I'm heavily invested in Europe, minerals/metals, emerging markets, oil, etc.

 

 

 

I just struggle with the idea that markets are currently "pessimistic" for the U.S. when we're still at elevated multiples on elevated margins at record low interest rates with incredibly low inflation. Especially when you compare these valuations, profitability, and inflation to elsewhere in the world.

 

Now you have the Federal Reserve working to tighten liquidity, eliminate the record low interest rates, spur higher inflation, and drive wage growth through tightening the labor market, it seems like you have a few of those items that are going to create headwinds going forward.

 

To me, it seems like this was a Goldilocks market for the U.S. where everything was just right and things can only really get worse...

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For what its worth....according to jim rogers...100% chance of usa recession on the way.

 

You can't be serious.

 

+1

 

I was thinking we should probably start a topic called "fake gurus". There are so many pretenders in investing that the innocent should be warned and kept a safe distance from them.

 

Jim Rogers should be on the list of fake gurus.

 

This is not to say he didn't make money before - he did, mostly a few decades ago from commodities. He was also right in being bullish on commodities 10-plus years ago, although I doubt he warned people about the subsequent collapse in commodities later on.

 

The issue is he constantly makes sensational claims, without providing data and analysis to substantiate them. He does not disclose what he does with his money and how he has done. To my best knowledge he's now a promoter of himself and probably makes money from appearances, rather than managing money.

 

Maybe he truly believes in the 100% odds of the US being in recession in 12 months. I somehow doubt it. He's been around long enough and wrong enough that he knows he can't prediction such things with such precision.

 

If so, he is being disingenuous and can hurt people.

 

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It's interesting that Barron's had the same question this weekend:

 

Is the Recovery Real, or Just a Bear-Market Rally?

http://www.barrons.com/articles/is-the-recovery-real-or-just-a-bear-market-rally-1457157521?mod=BOL_hp_we_columns

"The leadership of the beaten-down stocks suggests to Louise that this is most likely a pleasant interlude otherwise known as a bear-market rally. Their bounces suggest some extreme bargain hunting, as well as covering of short-sale bets. Meanwhile, the ongoing strength in defensive stocks, such as consumer staples and utilities, many of which sport fancy, above-market price/earnings ratios, implies that investors are still bracing for more pain ahead."

 

I think a few questions to ask are:

1)Has oil bottomed? With the Cushing storage approaching its full capacity, could that lead to another leg down in the oil prices?

 

2) Even if the oil were to rally to around $50, will that prevent the bankruptcies in the overleveraged energy names? For instance, a recent Bloomberg story mentioned that "Blackstone Group LP’s credit unit, which has 20 dealmakers dedicated to energy, hasn’t found much to do during the commodities price rout -- just yet. “We haven’t yet found a lot of opportunity,” Bennett Goodman, the head of Blackstone’s GSO Capital Partners, said Thursday at a conference in New York.

“No doubt there’s going to be tons and tons of opportunity,” Goodman said. “There’s another $200 billion coming in a theater near us sometime soon,” he said, referring to the energy producers whose credit is being monitored for possible downgrade by rating companies...........Oil’s 68 percent decline since its June 2014 peak has left dealmakers divided over when exactly to step in with debt or equity investments. Blackstone’s GSO has stayed on the sidelines because of uncertainty about whether producers can repay loans while continuing to fund their businesses long enough for oil prices to recover, said Goodman, who co-founded GSO and joined New York-based Blackstone when it acquired the firm in 2008."

 

3) If we believe that default rates are going to pick up even further and with recovery rates being historically low, wouldn't the malaise in credit spread to the equities market?

 

4) One could argue that OK, things are bad but the equity markets would be saved by even further more aggressive policies by central bankers of the world. The question to ask is if the central bankers are reaching their limit and whether investors are losing their confidence in central bankers now.

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Nobody knows if this is a bear market rally or not because nobody can know the future. You can argue all day long and will still not know the prices in the future.

So its all about probability and risk/return. Assuming that

 

a) the chances are 50/50

b) that a bear market rally will not exceed the ATH

c) that a bear market rally will bring lower prices than the current low.

 

Going short or flat you risk 6% (from 2000 to the ATH) while getting 10% or more upside (if the S&P500 moves below 1800). Thats a good trade. Everything else is just noise.

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