Have We Hit The Top?

[adesigar]

On 8/18/2021 at 5:22 PM, nafregnum said:

Grantham: The history books are pretty clear, there doesn’t have to be a pin. No one can tell you what the pin was in 1929. We’re not even certain in 2000. It’s more like air leaking out of a balloon. You get to a point of maximum confidence, of maximum leverage, maximum debt, and then the air begins to leak. 

 

And I like to say, the bubble doesn’t reach its maximum and then get frightened to death, what happens is the air starts to leak out slowly because tomorrow is a little less optimistic than yesterday. And gradually, people begin to pull back. And the process is very interesting, in that before the end of the great bubbles, and there’s only been a handful, so we can get carried away with over-analysis. 

 

But before the great bubbles ended in 1929, 1972, and in 2000 in the US, the three great events of the 20th century, there was a very strange period in which, on the upside, the super-risk, super-speculative stocks started to underperform. They never do that in between, ever. And then suddenly, it starts. So, you go back to 1928, the JACI Index, the low-price index, and the S&P were up 80% in 1928, and then the S&P was up, say, 40%. That’s what it’s meant to do. 

 

And then in 1929, the S&P went up another 40% before crashing. The low-price index started early in the year to go down. It couldn’t even get the sign right. It had a beta of about two, and started to go down, and the day before the crash it was down over 30%. Nothing like that happens again until 1972. And let me point out that 73/74 is still the biggest decline, adjusted for inflation, since the Great Depression. It was 62% in real terms. 

And in 1972, the last up year, the S&P outperformed the average Big Board stock by 35%, approximately plus and minus 17 points. The average stock was going down steadily all year, and the S&P was going up. Nothing like that happens again until 2000. In 2000, in March, the great TMT bubble starts to peak, and Pet.coms get taken out and shut. 

 

And then in April and May, the junior growth. May/June, the middle growth. June, July, August, the Ciscos. Cisco was the biggest company in the world for eight minutes, I like to say. And the whole TMT block, that was 30% of the market cap, was down about 50% by September. 

The S&P was unchanged. Unchanged. Which meant that the remaining 70% was up 17%. That is an amazing deviation. So, bang, bang, bang. It’s only happened three times. It happened leading into the great air leaking out. And finally in September, the confidence termites, as I like to think of them, reached the broad market, and the entire 70% rolled over like a giant iceberg, and down it went, 50% over two years. 

 

And so, where are we today? Those three deviations, by the way, 1929 was eight months, 1972 was 11 months, and 2000 was six or seven months. And on February 9th, the Russell 2000, which had had a crushingly good year, wiped out way ahead of the S&P from March of 2000 until February 9th, way ahead of the NASDAQ. And the S&P has continued on its merry way, having a nice bull market. 

 

Even after yesterday’s great rally, the Russell 2000 was decently down since February 9th, the NASDAQ is five points ahead of it, and the S&P is ten points ahead. This is getting to be a pretty good down payment. It’s February, March, April, May, June, July. It’s five months. I would say this is tracking quite nicely. 

 

 I have also been monitoring the Russel 2000. It peaked March 15h and seems to keep bouncing off from 2130. If it breaks below that the technical traders might start selling which might cause the market to roll over. 

[fareastwarriors]

2 hours ago, changegonnacome said:

Tesla/Elon's dancing AI 'robot' in a leotard last night & the stock rising today was the top signal for me........when Elon himself has jumped the shark so badly with stock promotion antics that beggar belief its a top signal for me. I mean I wondered if this was a sketch from SNL that didn't make the cut or something it was so ridiculous.

 

If this isnt the canary robot in the coal mine not sure what is:

 

lol...

Oh Elon.

 

[changegonnacome]

Confidence termites…..I like the analogy

 

His bubble popping/deflating template does seem to be playing out…….the fastly’s & their ilk the most egregiously overvalued stocks etc. have indeed been taken out and shot…..to a certain extent……Russell is struggling and I see in my own portfolio (which skews value) a disconnect between the SP500 being up daily but my modestly priced stocks are having daily drawdowns. 
 

I foresee significant long term capital gains selling effects kicking in soon too - I’m certainly sitting on large gains in certain positions where I’m waiting only for the clock to toll midnight to sell. Suspect I’m not alone…..I’ve a hit list of domino positions that will fall over the next couple of months with 90% of them done by the end of October.
 

 

 

Edited August 20, 2021 by changegonnacome

[Spekulatius]

One thing we have seen lately is that the confidence have been eating away from some stock that are more story driven like biotech, SPAC, many more speculative microcaps and fintwit promotes.

 

It is quite interesting actually - there is sone pain in pockets of the market but the indices seem pretty stable.

 

Often, bear markets start on the fringes but perhaps iris just another sector rotation. Stock prices change the narrative, especially if there is no valuation floor to fall back on or the business is crappy.

Edited August 22, 2021 by Spekulatius

[muscleman]

On 8/20/2021 at 1:43 PM, changegonnacome said:

Confidence termites…..I like the analogy

 

His bubble popping/deflating template does seem to be playing out…….the fastly’s & their ilk the most egregiously overvalued stocks etc. have indeed been taken out and shot…..to a certain extent……Russell is struggling and I see in my own portfolio (which skews value) a disconnect between the SP500 being up daily but my modestly priced stocks are having daily drawdowns. 
 

I foresee significant long term capital gains selling effects kicking in soon too - I’m certainly sitting on large gains in certain positions where I’m waiting only for the clock to toll midnight to sell. Suspect I’m not alone…..I’ve a hit list of domino positions that will fall over the next couple of months with 90% of them done by the end of October.
 

 

 

 

What you described can be tracked by breadth indicators. Before the dot com bubble bursted and the 2008 sub prime top started, market breadth started to head south for months while the index kept going up. That is part of the reason that I am projecting a TOP this year as well. It is still unclear if the top is now or later this year but I think playing individual stocks between now and later this year is difficult because the breadth is terrible, and the chances to capture the stocks running up is lower.

 

Just because a stock started to decline doesn't mean it is going to bounce back. Look at EDU, Enron etc. They start to decline for months before the major hit news came out to kill them.

Edited August 23, 2021 by muscleman

[Viking]

I continue to think the key is central bank policy and fiscal policy from governments. And when it changes. And how markets reacts to the change (s). 
 

i do not see anything today that would warrant a change today (from their perspective).
 

Markets will be hyper sensitive to any new news so the Fed speaking at Jackson Hole will be must watch TV. My guess is there will be no new news. Why? The Fed does not want financial markets to crater. And the US economy is facing headwinds from Delta/vaccine hesitancy (paranoia?) and this is slowing growth in the near term; in other words, a growth scare. 
 

Sept/Oct can be ugly months for shareholders… my guess is the Fed also understands the seasonal workings of financial markets. Things are starting to get quite interesting

Edited August 23, 2021 by Viking

[Viking]

Having said the above, i do think a change to Fed policy is likely coming in the next 6 months with timing uncertain (driven by strong economic growth, job gains etc). And if the Fed does nothing in the next 6 months it likely means growth is stalling out. Looks to me like the tail risks are growing so perhaps time to pay a little more attention to macro stuff.

[changegonnacome]

I listened to Grantham - am aware of his permabear reputation but some things he said did/do resonate with me and I made notes from a couple of his recent podcasts & hard to argue with his points - a natural bias has occurred in my portfolio anyway away from the US but certainly his thoughts/points on the US in particular point to choppy waters ahead IMO. My notes below specifically around US valuations... some obvious, some more nuanced that could be PHD thesis in and off themselves:

 

• Historically high PE Ratio on S&P
• S&P Price to Sales ratio highest ever recorded
• Valuations underpinned by record high profit margins as % of GDP (tax cuts / DOJ allowing monopolistic industries to emerge naturally or through M&A AND one time unique SG&A corporate cost saving through globalization that saw China/Eastern Europe labor pools drive down costs & compete away labors leverage over capital in U.S. over the last 30 years). Trend likely to be the opposite over the next 20 years.
• Record valuations underpinned by historically unprecedented high bonds / low interest rates
• Valuations underpinned by ~30 year period of flat inflation as China/Eastern Europe labor capacity was deflationary.....to be reversed as demographic changes in China, Western World, Japan & Korea reduce global workforce & are not replaced by Globalization 'suitable' labor pools in stable countries i.e. Africa etc. Labor's leverage over capital will return driving down profit margins 
• Record Issuances / Capital Raising as a TOP sign - 2020/21 record IPO’s & SPACS
• Extreme/seemingly crazy risk taking - Crypto sh!t coins & NFT’s even blank check companies
• Unprecedented retail participation - ~15 million retail brokerages accounts opened in USA in 20/21
• Financial news becoming THE news (GameStop)
• Investors on margin at record rates
• Accommodative & complacent FED
• Particular Mania / Meme Stocks - GameStop etc.
• a bubble has its own language/ lingo previous nifty fifty - today - HODL, FUD,   , to the moon,  
• Breath decreases in the index while it continues higher.......career risk pushes capital away from the once high flyers that begin to rollover think pets.com in 1999 or Fastly today......and in the end herds managers into names with less career risk that allow them to 'keep dancing' as the boat goes over the cliff read Cisco/Coca-Cola in the 90's.....today maybe some of the FANG names Apple/Microsoft/Alpabet

 

I have reservations on some of the above but just outlining points for others here seen as I'd typed them as i listened.

Edited August 25, 2021 by changegonnacome

[LC]

The simplest response to the title of this thread "THE TOP is coming":

 

When?

 

 

[Gregmal]

Probably next week. Maybe Wednesday. 

[changegonnacome]

I was thinking September 3rd myself……

 

 

[JRM]

the top of what?

[Spekulatius]

14 minutes ago, JRM said:

the top of what?

This one:

[John Hjorth]

@LC, @Gregmal, @changegonnacome,

 

Change gonna come.

[maplevalue]

After Powell's comments at Jackson Hole US10Y real yields at -1.09% (https://www.cnbc.com/quotes/US10YTIP).

 

I may sound like a broken record, but with rates this low there is simply no alternative to stocks. Interest rates may change, but individuals' need to earn a decent return to meet their savings goals do not. Let the bull market continue!

Edited August 27, 2021 by maplevalue

[thepupil]

20 hours ago, maplevalue said:

After Powell's comments at Jackson Hole US10Y real yields at -1.09% (https://www.cnbc.com/quotes/US10YTIP).

 

I may sound like a broken record, but with rates this low there is simply no alternative to stocks. Interest rates may change, but individuals' need to earn a decent return to meet their savings goals do not. Let the bull market continue!

 

TINA, plain and simple.
 

I buy a boatload of index every month in my 401k because I’m 32, only got 10-30 more years of working to to grab as many risk assets as possible.
 

Everyone I know does the same and hasn’t wavered throughout volatility over the past decade. Top 10-20% of America does nothing but buy stocks with $10-$50k+/year in their 401k’s 

 

there were like 3-4 years where I tried to be cute about it and make 2-3% in a stable value fund, probably cost me $100K+…no one’s perfect.

 

Buy, buy, buy.

 

top, schmop. 

 

 

Edited August 28, 2021 by thepupil

[DooDiligence]

 

http://csinvesting.org/wp-content/uploads/2016/02/Nick-Train-The-King-of-Buy-and-Hold.pdf

[Simba]

Relax.

 

Just buy some digital rocks using ETH for $2M, eat some popcorn at AMC and play video games in at Gamestop  

 

2021 Investing in a nutshell .

Edited August 31, 2021 by Simba

[flesh]

Seems to me you don't have to be in the market consistently. If you're willing to go all in on small/mid caps when it tanks and use a small amount of leverage like 1.2/1 margin or the equivalent leaps on large caps you can get great returns. It took me 10 years to learn that. Suits me personally. I noticed most of my returns were centered post dip. If I had more  cash and was more aggressive with it I could do just as well holding lots of cash most of the time. 

 

So, going big in dips is unusual and also holding forever and dollar cost averaging is rare. I think the former is more rare. 

[changegonnacome]

https://www.bloomberg.com/news/articles/2021-09-03/peak-everything-puts-shine-on-equity-market-s-sturdiest-stocks?sref=7zqHEcxJ

 

Rotation into the 'best' companies is one of Grantham's final template steps in a bubble popping - career risk dictates it as an asset managers last defensible choice.......the keep dancing while music plays part of the market cycle according to Grantham .............if he's right expect Microsoft/Adobe et al to get outrageously expensive in the next few months while a fewer and fewer group of stocks support the broad index levels.

 

I of course remain skeptical of these market calls but interesting to possibly see some of this play out..........regardless I stay invested in dirt cheap companies (MSGE / GLV / BIRG / LBTYK / WFC /CLPR) which by any historical measure would be cheap regardless of where the S&P sits.

[TwoCitiesCapital]

1 hour ago, changegonnacome said:

https://www.bloomberg.com/news/articles/2021-09-03/peak-everything-puts-shine-on-equity-market-s-sturdiest-stocks?sref=7zqHEcxJ

 

Rotation into the 'best' companies is one of Grantham's final template steps in a bubble popping - career risk dictates it as an asset managers last defensible choice.......the keep dancing while music plays part of the market cycle according to Grantham .............if he's right expect Microsoft/Adobe et al to get outrageously expensive in the next few months while a fewer and fewer group of stocks support the broad index levels.

 

I of course remain skeptical of these market calls but interesting to possibly see some of this play out..........regardless I stay invested in dirt cheap companies (MSGE / GLV / BIRG / LBTYK / WFC /CLPR) which by any historical measure would be cheap regardless of where the S&P sits.

Is it not possible that has already happened? Last I checked the top 5 companies in the S&P 500 were at like 26% of the entire thing (Facebook, Amazon, Apple Tesla, and Google) which was comparable to the dotcom bubble.

 

If you look at the Russell 1000 growth index, the top 5 are like over 30%.

 

How much further do they need to go for us to consider it a consolidation into the top/best names? 

[changegonnacome]

I agree with you the concentration in names is there already the only caveat would be some of those names havent gone quite yet into "bonkers" territory..............If you adjust for ultra low interest rates today vs. 1999 and think about the narrative that allowed Coca-Cola to get to crazy prices in 1999 with the 10yr T @ 5.75%.

 

The 10yr at 1.3% today.....well it allows for some possibly nose bleed pricing on FANGMA moving forward that can be justified. Will be interesting to watch over the coming months.

[Gregmal]

2 hours ago, changegonnacome said:

https://www.bloomberg.com/news/articles/2021-09-03/peak-everything-puts-shine-on-equity-market-s-sturdiest-stocks?sref=7zqHEcxJ

 

Rotation into the 'best' companies is one of Grantham's final template steps in a bubble popping - career risk dictates it as an asset managers last defensible choice.......the keep dancing while music plays part of the market cycle according to Grantham .............if he's right expect Microsoft/Adobe et al to get outrageously expensive in the next few months while a fewer and fewer group of stocks support the broad index levels.

 

I of course remain skeptical of these market calls but interesting to possibly see some of this play out..........regardless I stay invested in dirt cheap companies (MSGE / GLV / BIRG / LBTYK / WFC /CLPR) which by any historical measure would be cheap regardless of where the S&P sits.

 Yea I think you've got the right idea. My entire investing life there have been people saying stocks are expensive and theres been people claiming they cant find anything to buy. Never in my life have I not been able to find something worth buying. Just gotta look and too many people are lazy or just too cheap to be well suited for stocks. Last month there were repeated concerns about "the top" and you had people selling stuff like MSGE and CLPR at straight dumb valuations LOL. You need those people to make a market I guess. But as far as "the top", and what it means?....top, schmop...yawn. 

[Spekulatius]

On 8/20/2021 at 6:38 PM, Spekulatius said:

One thing we have seen lately is that the confidence have been eating away from some stock that are more story driven like biotech, SPAC, many more speculative microcaps and fintwit promotes.

 

It is quite interesting actually - there is sone pain in pockets of the market but the indices seem pretty stable.

 

Often, bear markets start on the fringes but perhaps iris just another sector rotation. Stock prices change the narrative, especially if there is no valuation floor to fall back on or the business is crappy.

Looks like stuff ( biotech etc) that you almost couldn’t give away a few weeks ago now went on roll and is up ~20-30% all of a sudden. I sold off most of my risk on stocks in my IRA’s today, which probably means they keep on moving. Go figure….

[spartansaver]

2 hours ago, Gregmal said:

 Yea I think you've got the right idea. My entire investing life there have been people saying stocks are expensive and theres been people claiming they cant find anything to buy. Never in my life have I not been able to find something worth buying. Just gotta look and too many people are lazy or just too cheap to be well suited for stocks. Last month there were repeated concerns about "the top" and you had people selling stuff like MSGE and CLPR at straight dumb valuations LOL. You need those people to make a market I guess. But as far as "the top", and what it means?....top, schmop...yawn. 

How long is your investing life?