Have We Hit The Top?

[changegonnacome]

I know they say TWO times crazy is still crazy…..but Tesla at $1tn is already two times crazy  ……feels like there isnt the collective optimism/craziness left to get it to $2tn……….

[Gregmal]

Yea I think you can be careless shorting the junk here. Top is in. Ive been putting on ITM puts with 12-24 months duration on some. Like $25 PLTR puts with 24 expiration, stuff like that. You have a skew where finally it seems it makes sense to be short because the momentum has shifted. I think simply maintaining current share price on stuff like ZM or TDOC is wishful thinking. Seems somewhat asymmetric in a non asymmetric way if that contradiction makes sense. One of the greatest fallacies in the market is that "its down 50%" means its a bargain. Could easily see some of those go down 90% from the top. Or completely bust. 

 

I'm also exploring triple A tranche type shorts more so as big crash hedges. Like higher quality Nasdaq 100 stuff. But the problem I see is that the FANGS are just really good companies and dont rely on debt at all. So the "inflation" argument doesnt really apply nearly as much as it does to these cash burning debt/capital market reliant turds. If AMZN or AAPL aint worth 40x then why is COST or WM? Thats an interesting question Im grappling with. I DO think 30-40x is OK for best of breed businesses because the world is going to be looking for places to put worthless cash and with the X-ing out of many crapcos, there will be even fewer legitimate options. 

[Viking]

1 hour ago, changegonnacome said:

Starting to feel like Jeremy Grantham’s early 2021 warnings and into the summer are coming to pass……….the Microsoft’s and Apple’s haven’t been taken out the back and shot yet but I can hear the click clacking of the soldiers feet.

 

I’m so tempted to sell some naked 2024 calls on Tesla at a $2trn valuation…the believers still seem to be buying them up….Elon being Man of the Year feels like the top of Musk-Mania

At the other extreme we have Cathy… 

 

Despite the big plunge, Cathie Wood sees her plan returning 40% annually in the next 5 years — here are Ark Invest’s latest buys
- https://ca.movies.yahoo.com/despite-big-plunge-cathie-wood-173500607.html

 

Quote of the day:

“When we go through a period like this, of course we are going through soul-searching, saying, ‘Are we missing something?’” Wood told Bloomberg last week.

Edited December 17, 2021 by Viking

[changegonnacome]

 

9 minutes ago, Viking said:

Cathie Wood sees her plan returning 40% annually in the next 5 years

Saw that.…….Cathie has shown something which I think confirms her to be exactly what many had thought her to be ……..which is simply a lucky manager with the right strategy at the right time….….the lack of humility to go on TV and spout projected 40% annual returns for the next five years as a result of your fund being down nearly 50% is bonkers…….all this while the market is kicking your funds ass around……it felt like the emperor has no clothes moment and a desperate plea to the apes to send her more cash. Didnt sit well with me……and CNBC just let her say this crap uninterrupted. Unreal.

[backtothebeach]

1 hour ago, changegonnacome said:

I’m so tempted to sell some naked 2024 calls on Tesla at a $2trn valuation…the believers still seem to be buying them up….Elon being Man of the Year feels like the top of Musk-Mania

Maybe. On the other hand 2 years are a long time, you'd be betting against a cult, and EV adoption might hit an inflection point (S curve) in 2023.

 

You could also do a ratio spread, buying the Jan 2024 $2000 call and selling two $2475 calls (the highest strike available), at a credit of roughly $70.

 

The advantage: Techniqually you are now short the $2950 strike call, which doesn't even exist yet, and only start losing money with TSLA above $3020 at expiration. Also, if TSLA ends up close to the short strikes you actually have a max profit of $545.

 

The disadvantage: The structure as a spread pretty much prevents you from closing it out early at a good profit, it is only closer to expiration that the risk graph takes shape. And 1.5 to 2 years is quite a long wait.

 

[Gregmal]

I don’t like being short anything more than 6 months out. Not even puts on shit I want to own at strikes I like. Respect the fact that short term the future is somewhat easy to predict but  the long you agree to be on the hook for something the greater the odds are a black swan can bite you in the ass.

[changegonnacome]

48 minutes ago, Gregmal said:

I don’t like being short anything more than 6 months out. Not even puts on shit I want to own at strikes I like. Respect the fact that short term the future is somewhat easy to predict but  the long you agree to be on the hook for something the greater the odds are a black swan can bite you in the ass.

 

Yep for real - and good reminder to me (all)….way more shit can happen than you can even imagine might happen…..its possible to spot a trend which has a few months life in it & ride it for a while, say for example the unraveling of nosebleed bonkers pricing on bananas securities where the future priced in required imagination beyond the realms of reality….….but beyond that its the deep blue sea & the devil 

[Cigarbutt]

12 hours ago, wabuffo said:

These are flawed metrics b/c the US Treasury was also running down its TGA balance from a starting level of $1.7t to just $79b today.

Hi wabuffo,

The idea is not to turn this topic into an ego thing and it's not clear if there's any use for 'real' investments but the money stuff, like it happens at times, has become quite interesting.

i guess the dilemma is related to how much weight one wants to allocate to 'reserves management' vs Treasury 'working capital management' for the TGA.

Here's a tampered with graph, eliminating the noise (IMO) from movements in the TGA account since the negative trade balance issue related to microbial disease:

Such huge movements in reserves were simply unimaginable just a few years ago and it's expected that technical issues happen during implementation. When the US Treasury issued Liberty Bonds in 1917-9, the amounts issued were unprecedented and there were timing issues (amounts raised in advance for future expenditures). There were significant concerns with liquidity issues in the system and the Treasury (Fed was an infant then) didn't want to drain all this cash and to have the cash wait "on the sidelines", sort of. The TGA didn't exist then but they figured out a technical way with commercial banks to attenuate the scarcity of cash effect by using commercial bank accounts that would temporarily create money and smooth the accrual issue. Of course, then, the key were not the technical issues but the ability to change the name of the Liberty Bonds, that became the Victory Bonds. Winners write the history books. 

Anyways, i think (FWIW) that, in early 2020, there was still huge room for excess reserves build-up in the system (in Japan excess reserves are now more than 100% GDP) but the Fed's decision to not renew the SLR rule relaxation for commercial banks as of March 31st 2021, resulted in a pretty much dollar for dollar movement from the TGA to the overnight reverse repo facility. From this perspective, it would have been possible to simply allow banks to pile up more risk-free securities on their balance sheets. 

The ON reverse repo facility was 'created' in 2013 and was supposed to be temporary. There is nothing more permanent than a Fed temporary tool.

-----

And yes the above may be flawed. Today, i tested the outside Christmas light setup and looked like:

Happy holidays!

[glider3834]

2 hours ago, Viking said:

At the other extreme we have Cathy… 

 

Despite the big plunge, Cathie Wood sees her plan returning 40% annually in the next 5 years — here are Ark Invest’s latest buys
- https://ca.movies.yahoo.com/despite-big-plunge-cathie-wood-173500607.html

 

Quote of the day:

“When we go through a period like this, of course we are going through soul-searching, saying, ‘Are we missing something?’” Wood told Bloomberg last week.

 

The fund flows picture doesn't look great up to November  https://www.etf.com/sections/features-and-news/ark-funds-leaking-assets

 

 

I checked & over the last month the same ETFs are down between 14-22%.

 

What will net fund flows look like for December?

 

 

 

[DooDiligence]

 

[Broeb22]

20 hours ago, changegonnacome said:

 

Saw that.…….Cathie has shown something which I think confirms her to be exactly what many had thought her to be ……..which is simply a lucky manager with the right strategy at the right time….….the lack of humility to go on TV and spout projected 40% annual returns for the next five years as a result of your fund being down nearly 50% is bonkers…….all this while the market is kicking your funds ass around……it felt like the emperor has no clothes moment and a desperate plea to the apes to send her more cash. Didnt sit well with me……and CNBC just let her say this crap uninterrupted. Unreal.

In fairness to Cathie, there's a lot of managers out there talking in their letters about how their stocks are at 50% of value (which I realize is different implied IRR than 40%) or something similar. She's just talking her book and I know a lot of managers would probably react similarly if several names in their book were down big. Instead of throwing in the towel, they would double down. And all of that doesn't matter one way or the other. Being right does, and I have my doubts about Cathie but what she's doing is not surprising. She's just being human IMHO. 

[Gregmal]

^very good and valid points. I would chip in that the difference is that those arrogant "value" managers KNOW that theyre right and that Cathy is wrong! LOL. Despite the fact that she's probably both made more money than they have, grown from the ground up a bigger business than they have, and also probably still, produced better returns. The finance world is full of arrogance little clipboard and excel warriors. Which goes back to your final point...being on the right side of the trade is all that matters. 

[changegonnacome]

13 hours ago, Broeb22 said:

In fairness to Cathie, there's a lot of managers out there talking in their letters about how their stocks are at 50% of value (which I realize is different implied IRR than 40%) or something similar. She's just talking her book and I know a lot of managers would probably react similarly if several names in their book were down big. Instead of throwing in the towel, they would double down. And all of that doesn't matter one way or the other. Being right does, and I have my doubts about Cathie but what she's doing is not surprising. She's just being human IMHO. 

yeah difference here vs. fund manager letters you referenced…..is Cathie has a publicly available ETF…two clicks away for the gullible…..an ETF who’s core constituency is novice retail investors….here comments and presentation of future 40%!! CAGR on CNBC, for those who care to watch it, would be what I’d expect to see at a Boca Raton investment conference where it’s free to attend but you pay to present….if you catch my drift.

[Xerxes]

I heard a wiseman say on Bloomberg Radio that S&P500, all it is, it's a tracker on Fed's balance sheet.

[ValueArb]

On 12/17/2021 at 2:50 PM, Broeb22 said:

In fairness to Cathie, there's a lot of managers out there talking in their letters about how their stocks are at 50% of value (which I realize is different implied IRR than 40%) or something similar. She's just talking her book and I know a lot of managers would probably react similarly if several names in their book were down big. Instead of throwing in the towel, they would double down. And all of that doesn't matter one way or the other. Being right does, and I have my doubts about Cathie but what she's doing is not surprising. She's just being human IMHO. 

 

One of the things I've heard recently that zero growth stocks trading at 10-15 PE actually should have a fair value of around a 25 PE. Maybe that's a product of a near zero risk free rate, but if that's similar to what the 50% of value managers are saying I just think low interest rates have made them delusional.

[Dinar]

1 hour ago, ValueArb said:

 

One of the things I've heard recently that zero growth stocks trading at 10-15 PE actually should have a fair value of around a 25 PE. Maybe that's a product of a near zero risk free rate, but if that's similar to what the 50% of value managers are saying I just think low interest rates have made them delusional.

Why?  If real estate deserves to rate a 4% cap rate which is 25x multiple, why not companies with growth = inflation?

[Spekulatius]

8 minutes ago, Dinar said:

Why?  If real estate deserves to rate a 4% cap rate which is 25x multiple, why not companies with growth = inflation?

Look at the expected lifespan of a business vs a house on a decent location.

[Gregmal]

^thats why we're getting 2 caps in a neighborhood near you soon! j/k maybe, maybe not. wouldnt be shocked though. 

[LearningMachine]

There was a time not too long ago you could buy real estate at 10+ caps in some areas.  That was the perfect time to buy it!

 

There was a time not many years before then when real estate was also trading at 4 cap in some areas.

 

I just went through Toll Brothers and DR Horton's transcripts to confirm builders are on track to increase their output by about 20+% per year.  That should bring new homes under construction to 2M next year that I was expecting.  See https://fred.stlouisfed.org/series/HOUST.  

 

Listening to builders, this time they are already hitting record build outputs, and sharing how people are actually putting orders hand-over-fist for different geographies and areas outside cities, unlike last time when there was a limit to how much people wanted to move out.  So, I think this time we might actually end up building lot more excess supply. Need to hit 2M first!

 

 

Edited December 22, 2021 by LearningMachine

[ValueArb]

On 12/21/2021 at 6:22 PM, Dinar said:

Why?  If real estate deserves to rate a 4% cap rate which is 25x multiple, why not companies with growth = inflation?

 

If you can finance real estate with a 3.5% mortgage for 30 years, 4% is probably an ok cap rate. 

 

But I can't finance my stock purchases with 30 year no-recourse loans. Would be awesome if one could. In the mean-time I need to ride out bad markets.

[Dinar]

2 hours ago, ValueArb said:

 

If you can finance real estate with a 3.5% mortgage for 30 years, 4% is probably an ok cap rate. 

 

But I can't finance my stock purchases with 30 year no-recourse loans. Would be awesome if one could. In the mean-time I need to ride out bad markets.

I do not believe that you can finance commercial real estate at a 3.5% 30 year mortgage rate, even multifamily.  Yes, for oneself one can get a mortgage for a house at 3.5%, but not for a $100MM building as far as I know.   You also have liquidity issues and jurisdictional risks with bricks that are much bigger than with shares.   To each his own.  

[thepupil]

1 hour ago, Dinar said:

I do not believe that you can finance commercial real estate at a 3.5% 30 year mortgage rate, even multifamily.  Yes, for oneself one can get a mortgage for a house at 3.5%, but not for a $100MM building as far as I know.   You also have liquidity issues and jurisdictional risks with bricks that are much bigger than with shares.   To each his own.  

Ginnie Mae we’ll do a 40 yr amortization construction loan that converts to permanent, tough to get, but I used to fund them (as well as 80-90%LTV 30-35 yr permanent loans on big buildings… like $50mm loans)…also do senior housing and nursing homes homes 

 

look up 223f and 223a7 221d4 loans ginnie Mae hud 

 

https://www.mandtrealtycapital.com/FHA/HUD_Multifamily/fha_multifamily.html

 

 

Edited December 24, 2021 by thepupil

[Dinar]

2 hours ago, thepupil said:

Ginnie Mae we’ll do a 40 yr amortization construction loan that converts to permanent, tough to get, but I used to fund them (as well as 80-90%LTV 30-35 yr permanent loans on big buildings… like $50mm loans)…also do senior housing and nursing homes homes 

 

look up 223f and 223a7 221d4 loans ginnie Mae hud 

 

https://www.mandtrealtycapital.com/FHA/HUD_Multifamily/fha_multifamily.html

 

 

Thank you very much, will do.

[muscleman]

20 hours ago, thepupil said:

Ginnie Mae we’ll do a 40 yr amortization construction loan that converts to permanent, tough to get, but I used to fund them (as well as 80-90%LTV 30-35 yr permanent loans on big buildings… like $50mm loans)…also do senior housing and nursing homes homes 

 

look up 223f and 223a7 221d4 loans ginnie Mae hud 

 

https://www.mandtrealtycapital.com/FHA/HUD_Multifamily/fha_multifamily.html

 

 

 

I talked to a CBRE lender who does Fannie and Freddie commercial and he said they do 30 yr fixed but the rate is like 4.5%. The 10 year fixed loan, 30 yr amortization loan has the rate of 3.75. It must be paid back or refinanced after 10 years. 

Are you saying that Ginnie Mae can do 40 yr fixed for 3.5%?

Edited December 24, 2021 by muscleman

[thepupil]

You’ll have to get a quote from a mtg banker. I suspect smaller loans would be 4ish% and big ones below 4%