Have We Hit The Top?

[Spekulatius]

20 minutes ago, frommi said:

I am 70% sure that short term interest rates have peaked (for the next 2-3 years), because that is the probability for a recession in the next 12 months right now according to my indicators. And you see it already in the inflation data, its coming down m/m. I am pretty sure some time in the future the deflation ghosts will come back and the FED will cut interest rates in panic. The bond market is telling that (yield curve) and its hard to believe the bond market is wrong, because it rarely is.

Well Stagflation is a scenario where we get a recession and interests don’t go down. A spike in energy prices for example could push inflation up again for example. Also, the  bond market has been massively wrong for a while, it didn’t predict a 5% increase in rates in 12 month either.

 

Unexpected stuff can happen, not saying it will.

[mattee2264]

Their "two more rate hikes for the year" forward guidance assumes no recession (their 2023 GDP estimate is 1.1% revised upwards from 0.3% in March). So Powell is definitely expecting a "soft landing" scenario and all his forward guidance has to be interpreted on that basis.

 

[gfp]

https://truflation.com

 

Hitting 2.34% this morning.

 

insert Mission Accomplished meme here

[Gregmal]

11 minutes ago, gfp said:

https://truflation.com

 

Hitting 2.34% this morning.

 

insert Mission Accomplished meme here

Yea. Wait til we start reporting June/July/August. Like I said a year ago...3s are a certainty and we may even go negative. The consensus amongst everyone else was 5.....any wonders the market rallied?

[changegonnacome]

Yep its a very strange time in terms of the divergence between the stock market, the bond market & the Fed

 

(1) SPY7 is saying blue skies forever - Apple has added, this year alone, a trillion in mkt cap at the same time both its REVENUE & EPS have been going DOWN. SPY7 is by most measures expensive- don't even start with NVDA

(2) SPY493 is saying things are ok to pretty good & priced normally as if we are early to mid-economic cycle & one should expect some high probability earnings growth over the short to medium term

(3) the Bond market - is forecasting cuts and a recession & not a mild one soon....earnings for equities you'd imagine should be hit here.....so quite a large divergence here between (1), (2) stocks and (3) bonds

(4) the Fed (which of course has the poorest forecasting ability) - says higher for longer, two more raises, one in July, maybe another in Sept and nothing bad happening to the economy really until 2024 when they might modestly cut

[dealraker]

35 minutes ago, changegonnacome said:

Yep its a very strange time in terms of the divergence between the stock market, the bond market & the Fed

 

(1) SPY7 is saying blue skies forever - Apple has added, this year alone, a trillion in mkt cap at the same time both its REVENUE & EPS have been going DOWN. SPY7 is by most measures expensive- don't even start with NVDA

(2) SPY493 is saying things are ok to pretty good & priced normally as if we are early to mid-economic cycle & one should expect some high probability earnings growth over the short to medium term

(3) the Bond market - is forecasting cuts and a recession & not a mild one soon....earnings for equities you'd imagine should be hit here.....so quite a large divergence here between (1), (2) stocks and (3) bonds

(4) the Fed (which of course has the poorest forecasting ability) - says higher for longer, two more raises, one in July, maybe another in Sept and nothing bad happening to the economy really until 2024 when they might modestly cut

During this time of truly unprescendented freakishly terrible economic malaize old damn dealraker was holding his nose, emmitting his cod liver oil scrunch face, screaming-pouting...even close to the level of the Disney grievance... (think silly please)...

 

...and buying a pretty significant amount of BN.

 

After all the barking I've been doing you'd think that'd be the last straw.  But along the way I've learned a lot about myself and that is: I don't know what the fuck I am doing.  But it seems to work.

 

 

[james22]

5 hours ago, Viking said:

I played a lot of sports when i was younger. Not the most talented; still loved it. Over time got pretty good. Great physical and mental workouts. Strong relationships built over time. Continuous improvement. The competition was great. Lots of peaks and a few valleys. And it always felt great when your team won; especially the important games.
 

i love investing for many of the same reasons. Except with investing you are competing with the best. And the rewards, if you are good at it can be life changing - and not just for you but your entire family.

 

I have friends who have chosen to step away from investing in recent years. I am not there yet. I still love the game/competition too much - and, for an old guy, the pay is still pretty good. 

 

But unlike sports, investing doesn't reward talent and hard work. 

 

And your competition is an index fund.

 

Investing is like gambling - except you've the option of taking the house's side.

 

I can't give it up myself, but I don't kid myself I'm getting paid.

[TwoCitiesCapital]

5 hours ago, mattee2264 said:

Some interesting comments from Powell's presser. Of course he is data dependent so if inflation falls off a cliff and we fall into recession this may all change. But certainly indicates rates will stay higher for longer. 

I wonder that once markets start to believe this they might assign lower PE multiples to stocks. 

 

“It will be appropriate to cut rates at such time as inflation is coming down really significantly. And we’re talking about a couple of years out.“

"I think, as anyone can see, not a single person on the committee wrote down a rate cut this year -- nor do I think it is at all likely to be appropriate if you think about it."

"Inflation has not really moved down. It has not reacted much to our existing rate hikes. We’re going to have to keep at it.”

"There's just not a lot of progress in core inflation."

"We want to see it moving down decisively."

"Risks for inflation are still to the upside."

 

He's been higher for longer than I expected, but there is absolutely a limit to his ability to do that. I expect, like history, they'll follow the 2-year yield - but maybe with a larger lag than historically. 

 

The 2-year is significantly off it's May lows, but still a good ways off it's March highs as well which is what is giving them the flexibility to pause. If it craters again, I expect you'll see rate cuts much sooner than the Fed is currently anticipating just like the dot plot changed dramatically on 2021/2022 as inflation accelerated to 6-9%. 

 

50 minutes ago, changegonnacome said:

Yep its a very strange time in terms of the divergence between the stock market, the bond market & the Fed

 

(1) SPY7 is saying blue skies forever - Apple has added, this year alone, a trillion in mkt cap at the same time both its REVENUE & EPS have been going DOWN. SPY7 is by most measures expensive- don't even start with NVDA

(2) SPY493 is saying things are ok to pretty good & priced normally as if we are early to mid-economic cycle & one should expect some high probability earnings growth over the short to medium term

(3) the Bond market - is forecasting cuts and a recession & not a mild one soon....earnings for equities you'd imagine should be hit here.....so quite a large divergence here between (1), (2) stocks and (3) bonds

(4) the Fed (which of course has the poorest forecasting ability) - says higher for longer, two more raises, one in July, maybe another in Sept and nothing bad happening to the economy really until 2024 when they might modestly cut

 

+1 

 

It's not always the case, but I'd generally have a lot more faith in the bond market. It's a larger market with traditionally more sophisticated players who buy to hold to maturity so are forced to take the long view. 

[Gregmal]

Is the last 25 or 50 bps of hikes really the catalyst to "send the markets off a cliff"? Even if theres 2 more, the biggest slug of this is behind us. We are also closer to when the Fed itself is indicating they intend to cut rates. Basically, this is following a very similar thematic arc to COVID. The further we get into it the more certain folks bring up their doomsday intensity, but at the same time, the story is better known, worst parts behind us, and light begins to shine at the end of the tunnel which is why the markets never retouch the original lows and general continue making higher ones. Its very hard to fool the broader markets twice with the same story. Each time, like with all the covid variant bs selloffs, less and less people fall for it. So, you can be Wiley Coyote, or the Roadrunner....you choose. 

[changegonnacome]

4 minutes ago, TwoCitiesCapital said:

It's a larger market with traditionally more sophisticated players who buy to hold to maturity so are forced to take the long view. 

 

Yeah in this instance I side with bond guys  - I once heard it described that the equity market is like a frat house.......and the bond market is like a faculty department.

 

The recent retail mania -APE/AMC/BBY etc. plus degenerate institutional leverage at Archegos/Tigers cubs etc. sure has a frat house/ frontal lobe impairment feel to it.

[changegonnacome]

1 hour ago, Gregmal said:

Is the last 25 or 50 bps of hikes really the catalyst to "send the markets off a cliff"?

 

Unemployment/economy goes off cliff first......markets follow earnings.....earnings follow the economy/unemployment.

 

I mean the theoretical question goes something like this. Is there a level of Fed funds in which the economy becomes impaired from a growth, spending & unemployment perspective. The answer is of course YES.

 

Is the next 25bps or 50bps of hikes going to do that......I've no idea......but does each incremental 25bps rise have a higher probability of achieving the above than the previous 25bps. Yeah for sure it has - at a certain point if you increase the dosage you kill the patient.

 

I'm a simple guy - I ask myself broadly - are those around me this time next year gonna be able to expand their purchasing power relative to today or is their purchasing capacity on a probability weighted basis likely to contract? Summed up those folks around me are the economy. Every macro measure , that feeds down into micro purchasing power expansion that I can think of is pointing to a diminution of purchasing power YoY into 2024 for the median individual/household.

 

So three sources of funds/spending in any economy as I've said before - wages, credit & fiscal fueled deficit spending/transfers:

 

Wages:

- EoY 2023 salary negotiations it appears with the macro backdrop detorioting....will fail to secure CPI like raises.......purchasing power via wages will on avg then very likely contract YoY in this MOST important of categories. This is to say nothing about unemployment moving up from 3.4% to 4.x%.....for these unfortunate folks purchasing power will contract by ~85%......never mind the 2% for folks who secure a 2% raise in a 4% inflation economy.

 

Credit:

- Cash out refis are/were a great source of incremental YoY purchasing power expansion.....cash out refis are closed...you dont cash out refi a 3% mortgage into a 7% one on a house that's dropped nominal 5% in value since your last refi.

- Credit (personal/auto) is a great source of expanding ones purchasing power.....but the yield curve is deeply inverted & so the incentive for banks to expand their customers purchasing power via incremental credit is not there. Credit is contracting. Loan officers surveys are showing this. Even when credit is available consumers are balking at the rates and deferring purchases most readily seen in autos. Deferred and/or trade down purchases are the oxygen of recessions.

 

Fiscal:

- recent debt ceiling negotiations let you know what the Republican playbook is here until the new president is sworn in in 2025....they are intent on shrinking or at least constraining fiscal spending growth wherever they can....student loan repayments restarted, unspent COVID funds pulled back to treasury....the Republicans control the House.....all spending bills originate in the house....expanding federal fiscal spend 18 months out from a Presidential election aids the incumbent.....if Biden had control of the House we would be seeing $1trn spending bills but he doesn't.....the Republican's for the good of the country or for the good of the GOP are attempting to kneecap fiscal spend at the Federal level for the next 18 months. So Uncle Sam is not going to expand anyways purchasing power YoY either.

 

Anyway let me know if anyone can figure out how Joe Sixpack is gonna have more purchasing power in June 2025 than he has today? Genuinely curious through which mechanism (wages/credit/fiscal) the median individual next year will be in better shape from a purchasing power perspective than he/she is today. I just don't see it and I can't figure out a pathway to expanding per capita purchasing power growth. Let me know if you have any ideas* - genuinely - cause the avg consumer in my mind is kinda cornered right now when you overlay my framework (but maybe my framework is flawed).

 

* one bright spot actually is that Biden/Democrats slightly spiked the football back in 2021 with the IRA & BBB bills.....these fiscal spending programs ramp up into the general election in 2024....need to do some work to see how meaningfully they'll likely contribute.

Edited June 15, 2023 by changegonnacome

[Gregmal]

So basically we are back to regular old run of the mill recession guessing?

[changegonnacome]

Just now, Gregmal said:

So basically we are back to regular old run of the mill recession guessing?

 

You didn't answer my question - where are the Greg's out there getting more purchasing power from in the next 12 months? Answers on a postcard 

[Gregmal]

5 minutes ago, changegonnacome said:

 

You didn't answer my question - where are the Greg's out there getting more purchasing power from in the next 12 months? Answers on a postcard 

In what context and why does it matter? You keep harping on these super granular, almost irrelevant nuanced things and being surprised the bigger picture stuff is responsible for the market ripping? Can I envision a scenario where the regular old, mostly blue collar worker has more purchasing power in 2025? 100%. Most costs keeping moderating and coming down and these jobs are still good and in demand. And again, if they dont...quantify it? If they lose 3% of purchasing power thats blowing up the market? Its the same as "theyre gonna raise twice more"...like ok.. cool. How do you make money from that. I dont care about spending time on things that arent able to be monetized via an investment or a trade. So far, this sort of micro focus, has yielded nothing. 

Edited June 15, 2023 by Gregmal

[Gregmal]

Remember, the original goalposts where in Q4 2021. The consumer was putting Xmas trees on their credit cards apparently. Then it was Q1 22 when stimmies stopped. Then it was summer 22 because of savings being depleted and rate hikes. Then "back half of 22" cuz apparently we still believed all that but were waiting for credit cards to be maxed out. Then "definitely Q1 23". Then q2/3 2023. Now "back half of 23"....Keep at it though. 

[changegonnacome]

2 minutes ago, Gregmal said:

In what context and why does it matter?

 

If you're asking me why it matters whether the avg US household is either expanding or contracting its real consumption YoY & how that might pertain to company earnings and by extension quoted stock prices....I'll just point you back to my post before the last one where I've answered that.

[Gregmal]

Just now, changegonnacome said:

 

If you're asking me why it matters whether the avg US household is either expanding or contracting its real consumption YoY & how that might pertain to company earnings and by extension quoted stock prices....I'll just point you back to my post before the last one where I've answered that.

Yes. What is the magnitude of your prediction on anything with an investable thesis? Quantify, any of it? Because so much of the forecasting for the past almost 3 years now, has been 1) based on predictions that were entirely wrong, 2) based on predictions that came true but the market didnt give a shit about. Thats not how one makes money in the market.

 

So what is it?

[changegonnacome]

7 minutes ago, Gregmal said:

Keep at it though. 

 

I will  .My bearish tilt & following the facts have served my portfolio performance well this past 18 months...with a bullish/aggressive track record prior to that to quel that perma-bull labeling............broken clocks are right twice a day.....I don't discount I'm a broke clock....the bull clock, what's the stat the mkt goes up 78% of the time........lets see if I can change my tune to a bullish one again on US equities when the facts change & its advantageous to do so....the framework for that is the exact same as what I articulated above but in reverse....yield curve un-inverts - credit expands, CPI drops below wage increases - such that Sixpack's purchasing power expands and a Republican controlled senate,house & WH starts mailing out newly minted cheques to bribe voters & set themselves up for the Midterms........and I'm sitting at 112.5% gross exposure (or more).

[Gregmal]

All Im pointing out is that I became a significantly better investor and certainly better at making money in the market once I started giving weight to what variables the market tends to care about. A decade ago it was nonstop talk from all these bearish assholes who now lie and say they called the bull market, about "money printing bubbles"....Shit I never would have bought Costco if I continued giving credibility to the people that whinnied about "its expensive"....I am NOT saying the market is always super efficient, its not, but generally is. I am not saying ignore everything. But I am saying that when the market doesnt react the way you expect it to, to the catalyst variables your thesis is banking on...at some point you need to discount those variables and eventually, probably just throw them out entirely. Remove "expensive" from Costcos investment profile and its 100% a no brainer investment and has been for ages. So? If the market hasn't cared about this metric, adapt and start making money, or continuing caring about something that isnt an important variable....its a choice and about flexibility and adapting mental framework. 

[dealraker]

33 minutes ago, changegonnacome said:

 

I will  .My bearish tilt & following the facts have served my portfolio performance well this past 18 months...with a bullish/aggressive track record prior to that to quel that perma-bull labeling............broken clocks are right twice a day.....I don't discount I'm a broke clock....the bull clock, what's the stat the mkt goes up 78% of the time........lets see if I can change my tune to a bullish one again on US equities when the facts change & its advantageous to do so....the framework for that is the exact same as what I articulated above but in reverse....yield curve un-inverts - credit expands, CPI drops below wage increases - such that Sixpack's purchasing power expands and a Republican controlled senate,house & WH starts mailing out newly minted cheques to bribe voters & set themselves up for the Midterms........and I'm sitting at 112.5% gross exposure (or more).

change you've been a stopped clock for a long time.  Eventually the hands will get to you!  

 

 

[mattee2264]

Monetary policy operates with a long and variable lag (usually estimated at around 2 years) and we only started hiking at the beginning of 2022. While we are still receiving the benefit of $1TR fiscal deficits so it is not surprising that fiscal policy is dominating monetary policy and the economy is still holding up. 

 

But the degree of GLOBAL monetary tightening is significant and when its full effects are felt there is certainly a risk that it will push the global economy into recession which will result in an accompanying fall in corporate earnings which is a negative for markets. 

 

The bulls may eventually get the pivot they are hoping for but it will only happen when there is a hard landing at which point the benefit from lower interest rates will be overwhelmed by falling earnings. 

 

And this happens in every recessionary bear market. It begins with the Fed tightening and then the Fed pivots and some time afterwards the market bottoms and then shortly after that the economy starts to recover. 

 

Of course it is never be by design and it is notable that the Fed's projections assume a soft landing. They are political so do not want to be seen as knowingly pushing the economy into recession. But I am sure privately they know the risk is there and feel the risk is necessary to regain credibility.

 

 

[Spooky]

16 hours ago, james22 said:

 

1. It's very, very hard to accept you can't beat the market if you're intelligent and work hard. 

 

2. It's fantastically entertaining.

 

Ugh... I struggle with this myself. My rational brain tells me just to buy the S&P 500 and forget it. But the investing game is just too much fun. 

 

[rohitc99]

3 minutes ago, Spooky said:

 

Ugh... I struggle with this myself. My rational brain tells me just to buy the S&P 500 and forget it. But the investing game is just too much fun. 

 

do both ? percentage split can vary based how much fun you want to have 

[Spooky]

1 minute ago, rohitc99 said:

do both ? percentage split can vary based how much fun you want to have 

 

Ya this is where I ended up - I have simplified my portfolio significantly and have a big chunk of VOO and VIOO in my retirement account. The rest of my portfolio is pretty bomb proof with big positions in BRK and CSU. I could go to sleep for 10 years and feel comfortable with what I hold. I have been trying to check the market less and less and focus on doing something in the real world like start a business... try to find some other avenues to create wealth outside of the markets while my money compounds.

 

[gfp]

Liberty (remember them?  They used to post here back in the day) posted this graphic on twitter that I thought was a pretty good illustration of why Buffett and other successful investors like to stay in the market all the time.  Hard to argue with this graphic ->