Have We Hit The Top?

[Gregmal]

I’ll preface this by saying that I probably trade just as much as anyone, so I appreciate all datapoints, but when I step back and put the following into perspective, I find it really amusing how much focus the average investor has(or doesn’t have).

 

Since 2018 we’ve gone from ….sell everything the fed is tapering(wrong call) to OMG next Great Depression(wrong), to OMG the economy is too good! 
 

At a certain point it’s just like STFU and focus on investing longer term LOL

[TwoCitiesCapital]

5 hours ago, Gamecock-YT said:

 

 

Iraq invasion of Kuwait

 

Dotcom bubble bursting

 

"Bear market declared" / GFC

 

Interesting...thanks for the chart.

 

Druckenmiller has expressed a confluence of rising USD, rising rates, and rising oil prices tends to signal earnings recessions. 

Edited January 20, 2022 by TwoCitiesCapital

[Guest]

https://news.yahoo.com/jeremy-grantham-doubles-down-crash-161247192.html

 

 

Hopefully he's right. I'd love me some 50% drops.

 

For reference:

 

https://www.cnbc.com/2010/10/27/heres-that-report-from-jeremy-grantham-that-everyone-is-talking-about-today.html

 

Ooooops. I guess he was right about bonds though.

Edited January 20, 2022 by stahleyp

[Gregmal]

I love how Grantham arrives at his S&P value by using a trend line LOL. Guy never has anything new to say and what he says is always from the same script. 

[Viking]

7 hours ago, Gregmal said:

I’ll preface this by saying that I probably trade just as much as anyone, so I appreciate all datapoints, but when I step back and put the following into perspective, I find it really amusing how much focus the average investor has(or doesn’t have).

 

Since 2018 we’ve gone from ….sell everything the fed is tapering(wrong call) to OMG next Great Depression(wrong), to OMG the economy is too good! 
 

At a certain point it’s just like STFU and focus on investing longer term LOL

For people who have a rational framework and follow it and some experience… lots will be able to get through drawdowns like we are seeing right now. However, for the other 75% of the market (Cathy Wood disciples, momentum crowd, new money retail investor, index investor) it looks to me like there is more pain to come (and maybe lots more). Netflix cracked today; now down 40% from its highs. My guess is we will see all of big tech/Tesla roll over before we can start to talk about actually hitting a market bottom. Tesla is still at $1,000… Seriously?
 

The Nasdaq was trading at 9,800 in Feb of 2020 (pre-covid) and today it closed at 14,100. Do people think it has corrected? It is still up 40% from its pre-pandemic high (when it wasn’t exactly cheap)… doesn’t look like much of a correction to me.
 

This is all happening because the Fed talking about tightening. Liquidity is the key. This has been the driver of financial markets for 10 years. When the Fed pumps money into the system you buy stocks. When the Fed takes money out of the system you better have some cash on hand. Also, the Fed is STILL PUMPING MONEY INTO THE SYSTEM… It hasn’t even started removing liquidity/tightening. Think about that for a minute… Wait until they actually start raising interest rates and running off their balance sheet. What we have seen in financial markets the past 3 weeks is just foreplay… the real action is coming in the months ahead.

 

And that is because the market is used to throwing a tantrum resulting in the Fed IMMEDIATELY reversing course (from tightening to easing). But the market has not figured out that the Fed ‘put’ is gone. When financial markets figure this out that is when things will get ugly/interesting. Like when we were kids and we discovered one one day that Santa Claus was not real (sorry to break the news to those of you who did not know this already…). Inflation data is going to be terrible the next couple of months (look at the price of everything including oil) - like continuing to rip at 7% ugly. The Fed is so screwed - watch Jay Powell squirm in his seat next week trying to keep financial markets and inflation hawks happy at the same time.

 

When i ran a financial literacy club when my kids were in high school i started out the investing unit by showing the kids a picture of a person puking over a toilet… Most people are NOT buy and hold because they are not emotionally able to handle big sell offs in the market (of 20% or more). 

Edited January 20, 2022 by Viking

[Gregmal]

Ya I agree on Nasdaq for sure. Was talking with a few folks today. Old COBF friend Cardboard loaded up on Jan 28 expiration $500 Netflix puts and just made a fortune. But the other point was how AMZN might be the trophy elephant. Why? It’s the last stock anyone is talking or thinking about shorting. And it’s growth is behind it, EPS lacking, and yea there’s also a possibility some of this monopoly stuff starts coming home to roost. It’s not a great absolute short, and I no longer short for the sole intention of making money but rather to hedge, but between that and AAPL I think a half intelligent gent can easily get some crash/correction protection in size and cheap. 

[TwoCitiesCapital]

25 minutes ago, Viking said:

For people who have a rational framework and follow it and some experience… lots will be able to get through drawdowns like we are seeing right now. However, for the other 75% of the market (Cathy Wood disciples, momentum crowd, new money retail investor, index investor) it looks to me like there is more pain to come (and maybe lots more). Netflix cracked today; now down 40% from its highs. My guess is we will see all of big tech/Tesla roll over before we can start to talk about actually hitting a market bottom. Tesla is still at $1,000… Seriously?
 

The Nasdaq was trading at 9,800 in Feb of 2020 (pre-covid) and today it closed at 14,100. Do people think it has corrected? It is still up 40% from its pre-pandemic high (when it wasn’t exactly cheap)… doesn’t look like much of a correction to me.
 

This is all happening because the Fed is tightening. Liquidity is the key. This has been the driver of financial markets for 10 years. When the Fed pumps money into the system you buy stocks. When the Fed takes money out of the system you better have some cash on hand. Also, the Fed is STILL PUMPING MONEY INTO THE SYSTEM… It hasn’t even started removing liquidity/tightening. Think about that for a minute… Wait until they actually start raising interest rates and running off their balance sheet. What we have seen in financial markets the past 3 weeks is just foreplay… the real action is coming in the months ahead.

 

And that is because the market is used to throwing a tantrum resulting in the Fed IMMEDIATELY reversing course (from tightening to easing). But the market has not figured out that the Fed ‘put’ is gone. When financial markets figure this out that is when things will get ugly/interesting. Like when we were kids and we discovered one one day that Santa Claus was not real (sorry to break the news to those of you who did not know this already…). Inflation data is going to be terrible the next couple of months (look at the price of everything including oil) - like continuing to rip at 7% ugly. The Fed is so screwed - watch Jay Powell squirm in his seat next week trying to keep financial markets and inflation hawks happy at the same time.

 

When i ran a financial literacy club when my kids were in high school i started out the investing unit by showing the kids a picture of a person puking over a toilet… Most people are NOT buy and hold because they are not emotionally able to handle big sell offs in the market (of 20% or more). 

 

I don't necessarily disagree with you long term, but intermediate term shows stock market has historically risen AFTER rate hikes. 

 

We hiked for the first time in 2015 and then held. We hiked all throughout 2016/2017 and we're running down balance sheet. Ultimately the choppiness of 2018 resulted in a pause, but not new stimulus, and stocks went on to make highs again in 2019. 

 

I tend to agree that in 2019 the yield curve was signaling economic fragility and that the Fed had overdone it, but that was nearly 4 full years post the first rate hike. If the crash is occurring today, it's due to the nose bleed valuations and inflation and not some perceived 0.25% rate hike in March and 2 others thereafter. 

 

13 minutes ago, Gregmal said:

Ya I agree on Nasdaq for sure. Was talking with a few folks today. Old COBF friend Cardboard loaded up on Jan 28 expiration $500 Netflix puts and just made a fortune. But the other point was how AMZN might be the trophy elephant. Why? It’s the last stock anyone is talking or thinking about shorting. And it’s growth is behind it, EPS lacking, and yea there’s also a possibility some of this monopoly stuff starts coming home to roost. It’s not a great absolute short, and I no longer short for the sole intention of making money but rather to hedge, but between that and AAPL I think a half intelligent gent can easily get some crash/correction protection in size and cheap. 

 

Will let you know. Have been short Apple via some puts for a minute and just rolled new ones a few weeks back to a $175 strike. Have others at a $160 strike from 2-3 months back. They all expire in April so we'll see where this goes. 

Edited January 20, 2022 by TwoCitiesCapital

[Simba]

I think volatility stays elevated, as there are way too many risks over the next 6-12 months (interest rates, inflation, covid).  

 

I personally am long but I am very glad the stock market is letting some air out. 

 

Amazing how a lot of names have grown revenue since 2020, and are cheaper in share price (and multiple) than 2020. 

 

Looking forward to the next several years of investing, there should be some real alpha opportunities.

 

Glad the only way to make money is not buying ARKK, that retail mania is finally popping, that buying profitless Shitco's at 100x P/S is not a way to wealth, and have to thank the market for doing what it does best.  

 

 

 

 

 

Edited January 21, 2022 by Simba

[Xerxes]

5 hours ago, Viking said:

This is all happening because the Fed talking about tightening. Liquidity is the key. This has been the driver of financial markets for 10 years. When the Fed pumps money into the system you buy stocks. When the Fed takes money out of the system you better have some cash on hand. Also, the Fed is STILL PUMPING MONEY INTO THE SYSTEM… It hasn’t even started removing liquidity/tightening. Think about that for a minute… Wait until they actually start raising interest rates and running off their balance sheet. What we have seen in financial markets the past 3 weeks is just foreplay… the real action is coming in the months ahead.

 

I see air coming out of the market kind of helping Fed in taking liquidity out and a net positive thing. Would one prefer a market foreplay where it irrationally melts-up in the face of tightening cycle? overall i agree that after 40 years of bull market in bonds, the "breaking point" has always moved lower in time.

 

What is weird is  the CAD;USD FX rate. Typically when it hits the fan, US dollar shoots up to 1.35 and as high as 1.4. Today it is sitting at 1.25, might be the petro-dollar aspect of Canadian dollar giving it strength. dont know

 

One thing for sure for the indices to move, Apple needs to be toppled way down from its $3 trillion crown.

 

 

[Gregmal]

8 minutes ago, Xerxes said:

 

I see air coming out of the market kind of helping Fed in taking liquidity out and a net positive thing. Would one prefer a market foreplay where it irrationally melts-up in the face of tightening cycle? overall i agree that after 40 years of bull market in bonds, the "breaking point" has always moved lower in time.

 

What is weird is  the CAD;USD FX rate. Typically when it hits the fan, US dollar shoots up to 1.35 and as high as 1.4. Today it is sitting at 1.25, might be the petro-dollar aspect of Canadian dollar giving it strength. dont know

 

One thing for sure for the indices to move, Apple needs to be toppled way down from its $3 trillion crown.

 

 

I think the false aspect of @Viking post above is with respect to “all this is happening because the Fed is talking”….  what is “all this”? The Fed s been talking about rate hikes for almost a year and last year the market did 25%. We ve pulled back like 3-4% to start the year and are like 10% off even on the overvalued Nasdaq.
 

In a certain day and time this was really just something markets did. I remember the flash crash in 2010 maybe, when stuff like ACN went to a penny or something nuts. Dow lost 1000 points mid day FOR NO REASON! Everyone tried to make up a reason for it but really it was just markets doing market things and algos going berserk. Now I feel like folks spent way too much time trying to “survive” what was once just considered a standard pullback or correction.
 

It, in terms of a market or whatever, seems to be acting like a market can act from time to time. The last Fed meeting and notes were all pretty much orchestrated and laid out a plan that’s been known for months. Tech has been blowing up since February of 2021. That was the start of the bubble deflating. It actually I thinking started with the vaccine announcement if you followed stocks like ZM and PTON…they never saw those highs again. But it’s not like anything new has been happening really. 
 

I would just caution ascribing too much to the narrative of the week which is currently “it’s the Fed”. A pullback can just be a pullback. Corrections happen. Tech garbage that was getting destroyed is still getting destroyed and excessive valuation is being questioned. This is a good opportunity to pick up stuff getting dumped over fear of “the stock might go down tomorrow”. Maybe another leg down happens but I don’t see anything fundamentally having changed. I do feel like we ve conditioned a generation of investors to run for the hills at the first sign of turbulence. I should start getting everyone their “i survived the 10% crash of January 22” shirts though. Would be nice gifts.

[Paarslaars]

I'm curious what the political influence will be here when Russia invades Ukraine.. typically something like this impacts markets everywhere.

[thowed]

7 hours ago, Gregmal said:

I think the false aspect of @Viking post above is with respect to “all this is happening because the Fed is talking”….  what is “all this”? The Fed s been talking about rate hikes for almost a year and last year the market did 25%. We ve pulled back like 3-4% to start the year and are like 10% off even on the overvalued Nasdaq.
 

In a certain day and time this was really just something markets did. I remember the flash crash in 2010 maybe, when stuff like ACN went to a penny or something nuts. Dow lost 1000 points mid day FOR NO REASON! Everyone tried to make up a reason for it but really it was just markets doing market things and algos going berserk. Now I feel like folks spent way too much time trying to “survive” what was once just considered a standard pullback or correction.
 

It, in terms of a market or whatever, seems to be acting like a market can act from time to time. The last Fed meeting and notes were all pretty much orchestrated and laid out a plan that’s been known for months. Tech has been blowing up since February of 2021. That was the start of the bubble deflating. It actually I thinking started with the vaccine announcement if you followed stocks like ZM and PTON…they never saw those highs again. But it’s not like anything new has been happening really. 
 

I would just caution ascribing too much to the narrative of the week which is currently “it’s the Fed”. A pullback can just be a pullback. Corrections happen. Tech garbage that was getting destroyed is still getting destroyed and excessive valuation is being questioned. This is a good opportunity to pick up stuff getting dumped over fear of “the stock might go down tomorrow”. Maybe another leg down happens but I don’t see anything fundamentally having changed. I do feel like we ve conditioned a generation of investors to run for the hills at the first sign of turbulence. I should start getting everyone their “i survived the 10% crash of January 22” shirts though. Would be nice gifts.

 

Yep.  Our memories are short.... some time last year, I ended up reading some posts from Jan/Feb 2009 - it was really educational - people scooping stuff up when they were dead cheap, and then seeing the price plummet further.  That was proper fear in the market, and frankly I hope we never see it again (though it's bound to happen eventually).

[Guest]

1 hour ago, thowed said:

 

That was proper fear in the market, and frankly I hope we never see it again (though it's bound to happen eventually).

 

 

Do not speak such evils. Proper fear is a good thing. 

[Xerxes]

9 hours ago, Gregmal said:

I think the false aspect of @Viking post above is with respect to “all this is happening because the Fed is talking”….  what is “all this”? The Fed s been talking about rate hikes for almost a year and last year the market did 25%. We ve pulled back like 3-4% to start the year and are like 10% off even on the overvalued Nasdaq.
 

In a certain day and time this was really just something markets did. I remember the flash crash in 2010 maybe, when stuff like ACN went to a penny or something nuts. Dow lost 1000 points mid day FOR NO REASON! Everyone tried to make up a reason for it but really it was just markets doing market things and algos going berserk. Now I feel like folks spent way too much time trying to “survive” what was once just considered a standard pullback or correction.
 

It, in terms of a market or whatever, seems to be acting like a market can act from time to time. The last Fed meeting and notes were all pretty much orchestrated and laid out a plan that’s been known for months. Tech has been blowing up since February of 2021. That was the start of the bubble deflating. It actually I thinking started with the vaccine announcement if you followed stocks like ZM and PTON…they never saw those highs again. But it’s not like anything new has been happening really. 
 

I would just caution ascribing too much to the narrative of the week which is currently “it’s the Fed”. A pullback can just be a pullback. Corrections happen. Tech garbage that was getting destroyed is still getting destroyed and excessive valuation is being questioned. This is a good opportunity to pick up stuff getting dumped over fear of “the stock might go down tomorrow”. Maybe another leg down happens but I don’t see anything fundamentally having changed. I do feel like we ve conditioned a generation of investors to run for the hills at the first sign of turbulence. I should start getting everyone their “i survived the 10% crash of January 22” shirts though. Would be nice gifts.

 

Gregmal,

 

The fear is that Fed cannot raise rate too much every time the economy is coming out of a downturn, before that rate increase engineers the next recession (leaving yet less ammunition to fight the next downturn). There clearly is a trend.

 

The Bitcoin and the Katie Wood crowd are not having a great day these days, but they believe this (above) (and so do I to a certain extent). Who knows how much of todays inflation is monetary related and how much is supply chain. If there are over 100 ships at the Port of Los Angeles jammed waiting to be unloaded, that is not going to get solved by Fed raising rate, but rather will need time. Once that unravels itself slowly, what is left is monetary inflation. And the view is that technology-driven deflationary forces in the medium/long term will overwhelm the inflationary forces, as they did in the 2010s.

 

Case in point, late 2018 and the pivot that Fed did on Christmas Eve (or around there) with markets were buckling up.

 

Yet there is another macro point of view (that is counter to what i said above) that I find interesting as to why the long term interest rate will permanently live on a higher plateau for many decades:

 

- The duplication of supply chain, un-doing of Just in Time, building up buffer inventories, will all take time & capital. This is happening at a global scale.

- Electrification and the green tidal wave will take time and capital that was not there 20 years ago.

- Contrast these two points with how little capital/Capex technology companies needed in the past 20 years, which contributed to the glut of capital and low interest rate.

- A steady supply of capital has been the baby boomers that have had their peak salary in the past decades, that will continue to wane, as they become a taker of capital rather than a source of capital.

 

[Gregmal]

If rates go on a multi decade run higher theres definitely a playbook for that. The main thing though is that I think its important to keep perspective and not run for cover over the prospects of a fear inspired correction but to remain positioned for the long haul. I still really dont see anything that has gotten whacked that didnt deserve to. The big Xmas 2018 selloff was a whopping 3 week correction LOL. And the following year the SPY did like 30%. The Thanksgiving variant panic sell off, one whole week. So I try to just keep in mind that its important not to make more of something than necessary.

[SharperDingaan]

Just to throw in some perspective ...

 

We have been in a financial 'emergency' ever since 2006/Lehman. 15 years of consecutive constant and aggressive CB manipulation to stave off global depression. CB's have done a great job, but the market has little memory of anything but CB bailout. Market discontinuity 

 

CB's are raising rates, and many plan to be aggressive - multiple successive hikes of 25-50bp over a shorter time frame. The market will throw a fit every hike, and throw a real fit should a subsequent  melt-up be met with a 50bp hike  The reality is that CB's need to snuff out aggressive inflation, and get more people back into the workforce. Raise rates 100bp, to raise your floating rate monthly mortgage payment, and you/your family are going back to work. Good news for everyone.

 

Omicron is peaking in Canada, and not far from peak in most other places - Ontario will have lifted all restrictions by Mar-31. It's pretty evident the economy is expected to snap back hard, and pretty soon - however, the market prefers to deny. Opportunity   https://covid-19.ontario.ca/public-health-measures

 

So what?

 

Any kind of FI instrument is going to be a lot cheaper, and pretty soon. If you're pretty sure the monthly/quarterly payment is reliable, yields should rise in a big way 

 

Lot of money is about to panic, and overwhelm the normal money flows - gotta love a buffalo jump 

 

We're coming into an environment of extreme change, not much different to what the robber barons experienced in their time. Back then there was the JP Morgan, Carnegie, etc. Today? they are merely a benchmark for a young and enterprising lad, with healthy dabs of ambition!  

 

SD

[thowed]

3 hours ago, stahleyp said:

 

 

Do not speak such evils. Proper fear is a good thing. 

Ha Ha - yes, well as long as I've been organised & have cash.

[Viking]

Well the S&P is now down 10% from highs so we have officially entered correction territory. Russell is down 20% so that index has entered bear market territory. Everything is getting hit now. Weak PMI numbers are just throwing gasoline in the fire. 
 

Netflix is now $365. Netflix was trading at these levels back in May 2018! Forget about pre-pandemic levels…

 

And Tesla is at $890. Down 25%. And was trading at $45 in Nov 2019…

 

Perhaps we need to change the title of this post to: The Bottom is Coming…

 

 

Edited January 24, 2022 by Viking

[Gregmal]

Still lots of crap trading at crazy multiples and to be honest, the quality stuff is still hardly cheap. Non tech though, getting juicy. Blackstone told us all we needed to know this morning. And if they didn’t, Kohls did.

[Gregmal]

Case in point though is DIS. I love Disney. Started building a position recently after selling out late 2019. It’s world class in every regard. But cheap? LOL where’s “cheap” on Disney? $75? You generally don’t get Disney’s or Costco’s cheap. Maybe, maybe once a decade. So buy small and often and otherwise just roll with it. Apples another’s one. Took off about 20% of my puts total, but cheap? Ha!

[spartansaver]

13 minutes ago, Viking said:

Well the S&P is now down 10% from highs so we have officially entered correction territory. Russell is down 20% so that index has entered bear market territory. Everything is getting hit now. Weak PMI numbers are just throwing gasoline in the fire. 
 

Netflix is now $365. Netflix was trading at these levels back in May 2018! Forget about pre-pandemic levels…

 

And Tesla is at $890. Down 25%. And was trading at $45 in Nov 2019…

 

Perhaps we need to change the title of this post to: The Bottom is Coming…

 

 

I'm loving watching some of the crap out there getting hit. I definitely have a fair amount of shitcos at any price schadenfreude going on. 

[Parsad]

On 1/21/2022 at 6:56 AM, Gregmal said:

If rates go on a multi decade run higher theres definitely a playbook for that. The main thing though is that I think its important to keep perspective and not run for cover over the prospects of a fear inspired correction but to remain positioned for the long haul. I still really dont see anything that has gotten whacked that didnt deserve to. The big Xmas 2018 selloff was a whopping 3 week correction LOL. And the following year the SPY did like 30%. The Thanksgiving variant panic sell off, one whole week. So I try to just keep in mind that its important not to make more of something than necessary.

 

That's always the sentiment when things begin going downhill. 

 

I do remember the fear in investors eyes the last three times the markets corrected dramatically...2000-2002, 2008-2009, 2020...and few actually have the balls to make it through without it hitting them hard mentally.  All three times I remember only a handful of us feeling like it was Christmas, but most investors were shell-shocked!

 

We don't have the archives from those first two periods, as this site took over in late 2009, but what you would see is alot of the "focus on the long-term", "markets being markets" talk was out the window.  Why?  Because as we know, losses always affect investors more than gains, and rational behavior disappears.  

 

I encourage you to keep a long-term view as Greg suggests.  Reality suggests few can.  Cheers!

[Gregmal]

3 minutes ago, Parsad said:

 

That's always the sentiment when things begin going downhill. 

 

I do remember the fear in investors eyes the last three times the markets corrected dramatically...2000-2002, 2008-2009, 2020...and few actually have the balls to make it through without it hitting them hard mentally.  All three times I remember only a handful of us feeling like it was Christmas, but most investors were shell-shocked!

 

We don't have the archives from those three periods, as this site took over in late 2009, but what you would see is alot of the "focus on the long-term", "markets being markets" talk was out the window.  Why?  Because as we know, losses always affect investors more than gains, and rational behavior disappears.  

 

I encourage you to keep a long-term view as Greg suggests.  Reality suggests few can.  Cheers!

The February, March and April 2020 portion of the COVID thread was super enlightening. 
 

Another thing to ponder is this….if your temperament changes that wildly with fluctuations, are you really investing? Again I have a trading portfolio and an investment portfolio. The trading one protects the core investing portfolio. So at times I am definitely short term oriented. But for core investments…you shouldn’t really be worrying about the short term noise. Just make sure you’re comfortable with what you own. And that the noise isn’t fundamentally related to what you own!  I picked up a few MSGS today. Panic selling in stocks has what??? to do with sports teams?

[LearningMachine]

1 minute ago, Gregmal said:

The February, March and April 2020 portion of the COVID thread was super enlightening. 
 

Another thing to ponder is this….if your temperament changes that wildly with fluctuations, are you really investing? Again I have a trading portfolio and an investment portfolio. The trading one protects the core investing portfolio. So at times I am definitely short term oriented. But for core investments…you shouldn’t really be worrying about the short term noise. Just make sure you’re comfortable with what you own. And that the noise isn’t fundamentally related to what you own!  I picked up a few MSGS today. Panic selling in stocks has what??? to do with sports teams?

 

@Gregmal, I hear you that MSGS will probably hold its value long term, and do well in inflation also. 

 

That said, if we are gonna hit a bottom, we might get the chance to pick up things that will double in the next 1-3 years. Is MSGS one of those?

[maplevalue]

Whenever I get nervous I just look at this chart.

 

Sure the Fed tightening is helping inspire a selloff, but at the end of the day stocks still look good relative to the alternatives out there.

 

https://www.yardeni.com/pub/valuationfed.pdf