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Did we just here a bell?


longlake95
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A friend was in a local TD branch in our town yesterday, apparently people in the line were yelling at tellers to call their ( the people in the line) investment advisors, to get all of their investments sold. Sounds like, the maximum point of pessimism.

 

 

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That's good data, and I agree that a bell rung say it is now finally time to start buying.

 

However, I wouldn't be too confident in saying today or yesterday or Monday will be the bottom. The problem is that the assessments of the risks for most people are likely still not completely in line with reality.

 

Here's one possible progression:

 

1. On average people have been underestimating the risks for the next four months

2. On average people are probably about to be accurate in their assessments of the risks for the next four months

3. Any day people will start to overestimate the risks for the next four months, followed by relief that things didn't turn out so bad

4. At which point they will start to realize that we probably won't be completely done with SARS 2.0 for fifteen months.

 

Even if you accept that narrative as fact, I would say it will be hard to anticipate the point at which most people hit those inflection points and what their response will be. Plus there will be a random element thrown in all this.

 

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There is no way we are at the bottom.  The ripple effects of all the cancellations are only starting this week.  Earnings warnings will come next.  Millions of events are being cancelled.  Big money making events. 

 

I have been buying and have had some “higher”  priced fills, but the bulk of my bids look like this: (just a few examples)

CDN Last Close    my  Bid

Ry.    79                  50

Bam.  65.              53

 

US:   

Hd.    190.          140

Fb.      154.          110

Goog. 1115.          900

Costco. 280.        230

 

These bids are for small numbers of shares each and cover 15 or so companies.  When these get filled I will reset new bids lower.  I have them set to March 20.  I am removing as much emotion from the decision process as I can.  Even slow, I was so wound up yesterday that I had trouble sleeping.  But that’s the business I chose.

 

A little context. I am more than fully invested in great companies, all of which I would buy more.  So, I don’t need to rush this, and really don’t care all that much if I get fills.  I have bids on the best multinationals in the world that I have had as targets  for years. 

 

Out of context:  Dead bounce bounce today?

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Besides cancellations we really haven't had 'bad' news. Political leaders becoming ill, retailer or restaurant going under, food and hospitality industry raising hell

 

Wife's friend was on hold for 3.5 hours trying to cancel their stay in Hawaii. I don't think they are the only ones...

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We're still @ like 16x trailing earnings. When has a bear market and a recession EVER ended @ 16x earnings? And those earnings haven't even really been revised down yet.

 

S&P 2000 and the announcement of the recession will be the time to start buying. Each rally is a selling opportunity until then.

 

Also, for what it's worth, I also work w/ retail investment clients. For the most part, they're doing as they should and staying the course and some are even adding. The "buy-the-dip" mentality has not been sufficiently punished for this to be the end of the selling.

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16X at 0.9% on the 10 yr... that might be cheapish, considering the market for the past 100 years has averaged 16x but with a 6% 10 yr.

 

Yes, but I've hammered on and on again about how low interest rates do NOT support high multiples b/c they also imply low growth.

 

Just like Europe and Japan weren't trading @ 20x earnings even with lower rates. But people were allowed to conveniently ignore that b/c U.S. stocks kept rising and we had to find a way to justify it. Every bubble has a grain of truth - me thinks the "low interest rates = higher equity multiples" will be the main contributor to this one.

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Also, for what it's worth, I also work w/ retail investment clients. For the most part, they're doing as they should and staying the course and some are even adding. The "buy-the-dip" mentality has not been sufficiently punished for this to be the end of the selling.

 

This is good information. thanks.

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We're still @ like 16x trailing earnings. When has a bear market and a recession EVER ended @ 16x earnings? And those earnings haven't even really been revised down yet.

 

S&P 2000 and the announcement of the recession will be the time to start buying. Each rally is a selling opportunity until then.

 

Also, for what it's worth, I also work w/ retail investment clients. For the most part, they're doing as they should and staying the course and some are even adding. The "buy-the-dip" mentality has not been sufficiently punished for this to be the end of the selling.

 

Exactly - this began with elevated multiples, which in conjunction with a recession doesn't seem like it would end in just a ~25% decline.

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16X at 0.9% on the 10 yr... that might be cheapish, considering the market for the past 100 years has averaged 16x but with a 6% 10 yr.

 

Yes, but I've hammered on and on again about how low interest rates do NOT support high multiples b/c they also imply low growth.

 

Just like Europe and Japan weren't trading @ 20x earnings even with lower rates. But people were allowed to conveniently ignore that b/c U.S. stocks kept rising and we had to find a way to justify it. Every bubble has a grain of truth - me thinks the "low interest rates = higher equity multiples" will be the main contributor to this one.

 

Japan has traded above P/E 20 for a very long time:

 

https://www.ceicdata.com/en/indicator/japan/pe-ratio

 

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I would draw a distinction between high quality, growing, going-concern businesses, such as Google for example, which I think is reasonably priced, having corrected down from levels where one could start to get nervous and a bunch of other lower quality assets (banks, real estate, chemicals, energy, midstream, travel) etc. where we have seen far greater declines and are seeing the beginnings of a potential credit opportunity and or highly levered recovery play (if one is more bullish)

 

I think a lot of the "this ain't close to the bottom" crowd is looking at the first type. Google is trading where it was in October 2019, and well above the Christmas eve 2018 lows, which was a more clear opportunity.

 

For the other shittier stuff, I am not saying it's the bottom either, but I'm saying that a more material de-rating / unwind has occuured than is implied by the broad market indices. As one example, the Alerian index is down over 50%

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16X at 0.9% on the 10 yr... that might be cheapish, considering the market for the past 100 years has averaged 16x but with a 6% 10 yr.

 

Yes, but I've hammered on and on again about how low interest rates do NOT support high multiples b/c they also imply low growth.

 

Just like Europe and Japan weren't trading @ 20x earnings even with lower rates. But people were allowed to conveniently ignore that b/c U.S. stocks kept rising and we had to find a way to justify it. Every bubble has a grain of truth - me thinks the "low interest rates = higher equity multiples" will be the main contributor to this one.

 

Japan has traded above P/E 20 for a very long time:

 

https://www.ceicdata.com/en/indicator/japan/pe-ratio

 

Thanks for pointing this out. Going to have to research the discrepancies. It's been awhile since I looked, but had previously seen data that Japanese companies traded cheap to earnings (like 12x) and even cheaper compared to assets.

 

Will need to dig in to determine the differences in how this is being measured to respond.

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It's agonizing trying to balance buying what looks very attractive against keeping dry powder. I've been nibbling on a few things I already own. On one hand, feel like I've been too aggressive adding. On the other, if this is the bottom, I'll regret not having bought way more. It's very difficult.

 

Separately, I work with retail clients and no one is selling which leads me to ask, who is? Are the machines selling? Perhaps all the buyers just disappeared which has caused the huge blow out on bid/asks.

 

 

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It's agonizing trying to balance buying what looks very attractive against keeping dry powder. I've been nibbling on a few things I already own. On one hand, feel like I've been too aggressive adding. On the other, if this is the bottom, I'll regret not having bought way more. It's very difficult.

 

I think a lot of people are having the same problem.

 

One potential solution, estimate the level at which you'd start buying hand-over-fist, on margin. Is it SP500 at 2000? 1800? Then you can create a curve from here to that terminal point and invest a portion of your dry powder along that curve.

 

 

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How does low interest rates imply low growth?

If you have time to waste and don't mind circular arguments, you can think about cause and effect and directionality of cause.

Somebody looked at correlations and interest rates (real or expected) tend to correlate with growth.

https://seekingalpha.com/article/4169837-what-is-relationship-interest-rates-growth-and-inflation

There's been some "progress" since the article was published.

 

That's unlikely to be useful for stock picking but you may realize that the widening disconnect between lower growth rates and personal "wealth" has been correlated to lower discount rates used.

It's interesting because once (if?) rates go negative, your financial calculator will keep producing error messages and somebody may suggest: "Anybody herd a bell?"

I read Uccmal's post above and realized (again) how irrelevant my entry points are and I'll just go back to sleep.

 

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not saying its the bottom, i have no idea, but remember market bottom before the real economy does

 

Lol the real economy has barely registered the impact outside of travel.  3 weeks is barely enough time to think about a reorg, put aside the uncertainty on whether it's a good idea, how much to cut, etc.  We're about to see a lot worse when the movement of people stops. 

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Yes, but I've hammered on and on again about how low interest rates do NOT support high multiples b/c they also imply low growth.

 

 

Don't inflation expectations drive interest rates down?  Don't inflation expectations also drive P/E for the markets?

 

P/E of 15x == 6.67% earnings yield

P/E of 20x == 5% earnings yield

 

So if future inflation expectations are (hypothetically) 167 basis points lower, then isn't a 15x multiple the same as a 20x multiple in real terms?

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haha, i understand, as we all know market is forward looking, it obviously has price in something, you can argue its hasn't price in a recession or what the levels of recession will be, no one knows. many stocks are down over 50%.

 

the point of this is, market bottom before the actual economy, you can be hearing bad news from the economy while the market goes up.

 

i have no idea

 

not saying its the bottom, i have no idea, but remember market bottom before the real economy does

 

Lol the real economy has barely registered the impact outside of travel.  3 weeks is barely enough time to think about a reorg, put aside the uncertainty on whether it's a good idea, how much to cut, etc.  We're about to see a lot worse when the movement of people stops.

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