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The end of Boom & Bust


thowed
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https://www.bloomberg.com/news/articles/2020-01-22/bridgewater-co-cio-bob-prince-says-boom-bust-cycle-is-over

 

Oh good lord, we know how this story ends... 

 

And I thought Bridgewater are supposed to be the smart guys!

 

I heard this on the radio and made a note to follow up. I mean, Australia seems to be doing it so why not US? He did say we are importing deflation so as long as you don't import too much of it or too little, things will stay as is. Maybe, this time is different  :).

 

On a more serious note, I'm having hard time identifying excesses. Everyone around me (and I get the concept of selection bias) is cautious and is sitting in 60/40 portfolios and this includes newcomers to the market, old timers, and those who bought and lost houses in 2007. Market climbs the wall of worry.

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Guest cherzeca

https://www.bloomberg.com/news/articles/2020-01-22/bridgewater-co-cio-bob-prince-says-boom-bust-cycle-is-over

 

Oh good lord, we know how this story ends... 

 

And I thought Bridgewater are supposed to be the smart guys!

 

I heard this on the radio and made a note to follow up. I mean, Australia seems to be doing it so why not US? He did say we are importing deflation so as long as you don't import too much of it or too little, things will stay as is. Maybe, this time is different  :).

 

On a more serious note, I'm having hard time identifying excesses. Everyone around me (and I get the concept of selection bias) is cautious and is sitting in 60/40 portfolios and this includes newcomers to the market, old timers, and those who bought and lost houses in 2007. Market climbs the wall of worry.

 

biggest wall this year is getting past impeachment and the potus election [note, this is not a political comment].

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https://www.bloomberg.com/news/articles/2020-01-22/bridgewater-co-cio-bob-prince-says-boom-bust-cycle-is-over

 

Oh good lord, we know how this story ends... 

 

And I thought Bridgewater are supposed to be the smart guys!

 

I heard this on the radio and made a note to follow up. I mean, Australia seems to be doing it so why not US? He did say we are importing deflation so as long as you don't import too much of it or too little, things will stay as is. Maybe, this time is different  :).

 

On a more serious note, I'm having hard time identifying excesses. Everyone around me (and I get the concept of selection bias) is cautious and is sitting in 60/40 portfolios and this includes newcomers to the market, old timers, and those who bought and lost houses in 2007. Market climbs the wall of worry.

 

The excess is in risk free rates which also inflates other assets. Like how US stocks can be at the highest EV/EBITDA ever while technically having shrinking earnings.

 

And I don't see the same cautiousness working with retail clients in finance. I don't see exuberance either, but I do see things like clients not wanting to de-risk due to tax costs or think that 7-8% a year after fees for a 65/35 portfolio is "low" which obviously defies the long-term average for equity returns and fixed income returns.

 

People outside of finance-heads equates the stock market to the economy and to them it's booming. It's only the investment professionals who seem to be on the cautious side of things.

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https://www.bloomberg.com/news/articles/2020-01-22/bridgewater-co-cio-bob-prince-says-boom-bust-cycle-is-over

 

Oh good lord, we know how this story ends... 

 

And I thought Bridgewater are supposed to be the smart guys!

 

I heard this on the radio and made a note to follow up. I mean, Australia seems to be doing it so why not US? He did say we are importing deflation so as long as you don't import too much of it or too little, things will stay as is. Maybe, this time is different  :).

 

On a more serious note, I'm having hard time identifying excesses. Everyone around me (and I get the concept of selection bias) is cautious and is sitting in 60/40 portfolios and this includes newcomers to the market, old timers, and those who bought and lost houses in 2007. Market climbs the wall of worry.

 

1) For starters, housing in Silly Con valley is more expensive than it was in 2007. That applies to other west coast areas as well.

 

2) startup boom may collapse. Lots of froth apparently getting funding. Collapse will impact real estate, could computing, software revenues and housing (see 1)

 

3) Increased leverage of public companies - nothing too concerning, but will definitely reduce the flexibility  in a recession for higher leveraged companies

4) Private equity bubble (hard to quantify, but based on the multiples being paid, there could be problems if credit dries up a little)

5) lower or negative interest rates - if those come to pass, they will destroy the financial system like cancer.

6) political change or geopolitical events (Markets assume that Trump wins, but is this a sure thing. Democratic candidate isn’t picked yet and could be negative for the market too). Iran or North Korea going rogue and forcing our hand.

 

A recession could be occurring not because of one it factor, but because a garden variety of factors  all nudge things into one direction (as they impact each other). Example of those garden variety recession were 2001/2002 and 1990/91.

 

Just a few ideas of what can happen. If everyone expects sunshine even just a regular shower will get everyone running for cover.

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The newest entrant to the S&P 500 at a P/E of 100 and a P/S of 25 is the SAAS company Paycom.

 

Shopify, Tesla and Workday got left out despite having much bigger market caps.

 

I think Paycom has GAAP profits while the other one don’t. It’s a nice and well run company, but the multiple is very rich, as you correctly pointed out.

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One weekend risk is Italy (the regional elections).

 

The European media has consistently downplayed anything that goes against European integration. That is why the Brexit vote in June 2016 turned out to be a "surprise."

 

It is possible the current government could avoid elections until 2023 because Salvini is sure to win a general election. I read somewhere that only 11% of Salvini voters think it would be wrong to leave the Euro.

 

https://www.bloomberg.com/news/articles/2020-01-22/bridgewater-co-cio-bob-prince-says-boom-bust-cycle-is-over

 

Oh good lord, we know how this story ends... 

 

And I thought Bridgewater are supposed to be the smart guys!

 

I heard this on the radio and made a note to follow up. I mean, Australia seems to be doing it so why not US? He did say we are importing deflation so as long as you don't import too much of it or too little, things will stay as is. Maybe, this time is different  :).

 

On a more serious note, I'm having hard time identifying excesses. Everyone around me (and I get the concept of selection bias) is cautious and is sitting in 60/40 portfolios and this includes newcomers to the market, old timers, and those who bought and lost houses in 2007. Market climbs the wall of worry.

 

1) For starters, housing in Silly Con valley is more expensive than it was in 2007. That applies to other west coast areas as well.

 

2) startup boom may collapse. Lots of froth apparently getting funding. Collapse will impact real estate, could computing, software revenues and housing (see 1)

 

3) Increased leverage of public companies - nothing too concerning, but will definitely reduce the flexibility  in a recession for higher leveraged companies

4) Private equity bubble (hard to quantify, but based on the multiples being paid, there could be problems if credit dries up a little)

5) lower or negative interest rates - if those come to pass, they will destroy the financial system like cancer.

6) political change or geopolitical events (Markets assume that Trump wins, but is this a sure thing. Democratic candidate isn’t picked yet and could be negative for the market too). Iran or North Korea going rogue and forcing our hand.

 

A recession could be occurring not because of one it factor, but because a garden variety of factors  all nudge things into one direction (as they impact each other). Example of those garden variety recession were 2001/2002 and 1990/91.

 

Just a few ideas of what can happen. If everyone expects sunshine even just a regular shower will get everyone running for cover.

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Shopify has climbed 60% in the last 53 trading days.

 

P/S of 37 with gross margin of 55%.

 

Revenue growth has slowed from 75% in 2017 to 44% in the latest quarter.

 

The newest entrant to the S&P 500 at a P/E of 100 and a P/S of 25 is the SAAS company Paycom.

 

Shopify, Tesla and Workday got left out despite having much bigger market caps.

 

I think Paycom has GAAP profits while the other one don’t. It’s a nice and well run company, but the multiple is very rich, as you correctly pointed out.

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