Have We Hit The Top?

[Gregmal]

4 minutes ago, dealraker said:

I have to give Andrew Bary credit given he wrote this tongue-in-cheek.  It wasn't just total success vs total collapse, it was jolting beyond imagination what happened slowly but surely almost immediately after this was published.  Buffett vs Welch and Greenberg!

 

 

Is that really framed in your house lol? Savage but beautiful reminder. 

[changegonnacome]

53 minutes ago, mcliu said:

The economists are starting to do whatever they can to justify not raising rates.

This is like the EBITDA version of CPI lol:

 

Yep.....especially economists of the left heading into a presidential cycle.

 

You can call inflation data bullshit...it for sure has flaws....but the reality is the best inflation indicator is do people notice inflation in their daily lives or do they not.....and how much they care about it.

 

The reality is contemporaneous political polling speaks to the inflation problem better than CPI....Core or SuperCore ever could....inflation isnt over when its sit as the the No.1 political issue (above healthcare!!!!) when pollsters speak to voters:

 

[james22]

3 hours ago, Spooky said:

Back during the 2021 craziness a friend of mine of who is an investment banker in the tech industry told me that Buffett and Berkshire were irrelevant. I just look at how everything played out since then and chuckle.

 

If he'd been in Tech for even just several years at that time, he'd have a lot to give back before hurting.

 

5-year returns:

 

VITAX (IT) +113%

BKR +69%

 

Buffett and Berkshire aren't irrelevant, but let's not kid ourselves. 

[TwoCitiesCapital]

57 minutes ago, changegonnacome said:

 

Yep.....especially economists of the left heading into a presidential cycle.

 

You can call inflation data bullshit...it for sure has flaws....but the reality is the best inflation indicator is do people notice inflation in their daily lives or do they not.....and how much they care about it.

 

The reality is contemporaneous political polling speaks to the inflation problem better than CPI....Core or SuperCore ever could....inflation isnt over when its sit as the the No.1 political issue (above healthcare!!!!) when pollsters speak to voters:

 

 

I agree with you, but with nuance. 

 

If you ask someone about inflation, often they'll point to the cost at the pump. 

 

But average price for fuel in the summer of 2008 was $4.11/gallon. Today it's ~$4/gallon. So I ask, what inflation? It's been 15 years! 

 

Same things can be said for food. Some things are more expensive currently - some things are cheaper. I'm regularly seeing beef/chicken at my grocer stickered for 30-50% to get it sold before the sell-by date. 

So yes, prices are more expensive - but if you wait a day or two it's 50% off? What inflation? 

 

CPI is a better way to view average prices overtime than someone's opinion on inflation. But for short-term movements in prices, I agree with you that all that matters are consumers' attitudes and their views on what is likely to happen next with rising prices. 

Edited September 19, 2023 by TwoCitiesCapital

[Spooky]

50 minutes ago, james22 said:

 

If he'd been in Tech for even just several years at that time, he'd have a lot to give back before hurting.

 

5-year returns:

 

VITAX (IT) +113%

BKR +69%

 

Buffett and Berkshire aren't irrelevant, but let's not kid ourselves. 

 

Sure, but if you look at the past three years BRK still outperformed VITAX / VGT and the S&P 500 by a big margin (my quick analysis doesn't include dividends so this will change things a little). And VITAX is 40%+ Apple and Microsoft so performance has been pretty close to the S&P 500. The individual names my friend was pitching totally tanked (looking at 3 year returns what was his biggest holding is down 54% while BRK is up 75%) and there were a tonne of early tech companies / SPACs down 90%+ from the 2021 period. People were not exactly being rational and buying a tech index.

 

Really my point was that when people are counting BRK / Buffett out and market sentiment about the company is very negative it is generally a good time to buy.

 

 

[dealraker]

2 hours ago, Gregmal said:

Is that really framed in your house lol? Savage but beautiful reminder. 

Yep!

[Dinar]

1 hour ago, TwoCitiesCapital said:

 

I agree with you, but with nuance. 

 

If you ask someone about inflation, often they'll point to the cost at the pump. 

 

But average price for fuel in the summer of 2008 was $4.11/gallon. Today it's ~$4/gallon. So I ask, what inflation? It's been 15 years! 

 

Same things can be said for food. Some things are more expensive currently - some things are cheaper. I'm regularly seeing beef/chicken at my grocer stickered for 30-50% to get it sold before the sell-by date. 

So yes, prices are more expensive - but if you wait a day or two it's 50% off? What inflation? 

 

CPI is a better way to view average prices overtime than someone's opinion on inflation. But for short-term movements in prices, I agree with you that all that matters are consumers' attitudes and their views on what is likely to happen next with rising prices. 

You are cherrypicking, and also saying things that are not true.  For instance, in 2004, gas was $1.25 in NJ per gallon and today is it $4 per gallon.  In terms of food, in 1990, the grocery bill for my family of 3 was $350 per month in NYC and we ate very well.  Today, it is closer to $2000 for a family of 5.  I challenge you to spend the same amount of money on food that you did in 2008.   Yogurt that I buy has doubled in price in the last 5 years, tomatoes and chicken as well, fish more than doubled, and the list goes on and on.  

What food products are cheaper today than they were in 2008?

[changegonnacome]

 

1 hour ago, TwoCitiesCapital said:

I agree with you that all that matters are consumers' attitudes and their views on what is likely to happen next with rising prices. 

 

Yep - inflation expectations are still the big thing....they remain anchored through this whole thing which is really a big win in an age where so many have lost faith in institutions.........lots of the recent pay disputes are somewhat about restoring purchasing power back to 2019 levels.....the danger as always broadly is that. (1) consumer inflation expectations move up such that wage disputes start to become about front running future inflation & (2) more importantly for investing that the long end of the curve begins to incorporate higher long run inflation expectations from the bond market and you get the 10yr/30yr moving up.

Edited September 19, 2023 by changegonnacome

[fareastwarriors]

39 minutes ago, Dinar said:

You are cherrypicking, and also saying things that are not true.  For instance, in 2004, gas was $1.25 in NJ per gallon and today is it $4 per gallon.  In terms of food, in 1990, the grocery bill for my family of 3 was $350 per month in NYC and we ate very well.  Today, it is closer to $2000 for a family of 5.  I challenge you to spend the same amount of money on food that you did in 2008.   Yogurt that I buy has doubled in price in the last 5 years, tomatoes and chicken as well, fish more than doubled, and the list goes on and on.  

What food products are cheaper today than they were in 2008?

 

Things are more expensive but some things are still so cheap. Saw chicken drumsticks at Costco for $0.59/lb couple weeks ago.

 

Eggs were on sale $0.99/dozen last week at a supermarket. Stocked up on 6 dozens.

 

 

I still see prices for whole chicken $0.69-0.99/lb at various markets all the time. 

 

Picked up some corn  at 6 per $1 last week. This week is 5 for $1. Few weeks ago, Roma tomatoes were on sale at 0.79/lb. Non-sale price is like $2-3... Bone-in pork shoulder could be had a $1-2 a pound still. My freezer still have a bunch of $4-5/lb Korean style beef short ribs and $2/lb pork ribs.

 

Sure some of these sales may be loss-leaders but there are deals to pick up every week.  I'm in Bay Area, CA so not exactly low cost area.

 

Your $2000 for a family of 5 is a lot but I can see it. NYC can add up fast. 

 

 

 

 

Edited September 19, 2023 by fareastwarriors

[TwoCitiesCapital]

7 minutes ago, fareastwarriors said:

 

Things are more expensive but some things are still so cheap. Saw chicken drumsticks at Costco for $0.59/lb couple weeks ago.

 

Eggs were on sale $0.99/dozen last week at a supermarket. Stocked up on 6 dozens.

 

 

I still see prices for whole chicken $0.69-0.99/lb at various markets all the time. 

 

Picked up some corn  at 6 per $1 last week. This week is 5 for $1. Few weeks ago, Roma tomatoes were on sale at 0.79/lb. Non-sale price is like $2-3... Bone-in pork shoulder could be had a $1-2 a pound still. My freezer still have a bunch of $4-5/lb Korean style beef short ribs and $2/lb pork ribs.

 

Sure some of these sales may be loss-leaders but there are deals to pick up every week.  I'm in Bay Area, CA so not exactly low cost area.

 

Your $2000 for a family of 5 is a lot but I can see it. NYC can add up fast. 

 

 

 

 

 

+1

 

Prices have generally risen. CPI shows that.

But gas gas prices? Have they gone nowhere over 15-years as in my example? Or are they up 6% per annum as per Dinar's?

Home prices? Up significantly in NYC. Not so much in St Louis city.

Food prices? Corn is up significantly from 3 years ago, but down significantly from 1- and 10- years ago. 

 

This is exactly my point - looking at the price at the pump or food costs doesn't tell much of anything about inflation. It tells you a little bit about that specific time/location/commodity, but not any general trend in prices.

 

Relying on how consumers "feel" about these prices, which is primarily what they focus on, would be a terrible policy approach. 

 

Consumers' feelings and expectations matter in the short-term. But for the long term, CPI a much better measure of average changes in prices despite its flaws. 

Edited September 19, 2023 by TwoCitiesCapital

[Gregmal]

Most of the “sticking” inflation is really just pricing power. At the supermarket specifically I always found tracking French fries, canned soup, and junk snack food the most insightful. Base price on brand name fries is $4.79 vs $2.99 pre COVID. But every week there’s a “BIG SALE!” where you can get them for…..$2.99. Frito Lays stuff? $2.99-$3.49 per bag pre COVID. Now? $4.99 normal. But every week they have rolling product that’s 2/$5. It’s all really just a game amongst capitalists. 

[gfp]

But we need the Fed to fix Orange Juice, Olive oil, diesel and OPEC!

[tede02]

I'm wondering when the market is going to get jolted because long yields keep edging up. In-fact, the earnings yield on the S&P500 has dipped below the 10-year treasury. These things can always go longer than you think but the pressure on equities is going to keep building if rates continue to creep up. 

[Spekulatius]

5 minutes ago, tede02 said:

I'm wondering when the market is going to get jolted because long yields keep edging up. In-fact, the earnings yield on the S&P500 has dipped below the 10-year treasury. These things can always go longer than you think but the pressure on equities is going to keep building if rates continue to creep up. 

The higher long yields are an indication of the economy doing better than expected. Looks like we have no problem with 5% interest rates, at least the doom and gloom that was predicted did not happen.

[Viking]

10 minutes ago, Spekulatius said:

The higher long yields are an indication of the economy doing better than expected. Looks like we have no problem with 5% interest rates, at least the doom and gloom that was predicted did not happen.

 

My understanding is the move in bond yields the past month or so is being driven primarily by supply / demand dynamics. Supply is vastly outstripping demand. And I think this is expected to continue the rest of this year. 

 

Higher interest rates. Oil over $90. Something to monitor... Historically speaking, if this lasts for any length of time, it usually starts to create some stress. And I am in Canada, and high interest rates are a completely different animal here - this is like impacting my assessment big time.

Edited September 19, 2023 by Viking

[james22]

2 hours ago, Spooky said:

Sure, but if you look at the past three years BRK still outperformed VITAX / VGT and the S&P 500 by a big margin (my quick analysis doesn't include dividends so this will change things a little).

 

But why would anyone look at only the past three years?

 

2 hours ago, Spooky said:

Really my point was that when people are counting BRK / Buffett out and market sentiment about the company is very negative it is generally a good time to buy.

 

No doubt.

[mcliu]

1 hour ago, TwoCitiesCapital said:

But gas gas prices? Have they gone nowhere over 15-years as in my example? Or are they up 6% per annum as per Dinar's?

I think 15 yr is not a great comparison because fracking really took off in the last 10 years. US went from a nominal player to #1 producer. Prices would be far higher had fracking never happened. Prices are far higher than 2015/2016.

 

22 minutes ago, Spekulatius said:

The higher long yields are an indication of the economy doing better than expected. Looks like we have no problem with 5% interest rates, at least the doom and gloom that was predicted did not happen.

Maybe higher interest rate is actually a stimulus because one person’s interest expense is another person’s interest income.

[Gregmal]

It’s just a funny observation how despite pretty indisputable evidence that stocks tend to have an upward bias, there is almost always this expectation that they should be going down or are “just hanging on” by some magical force that won’t last forever. 

Edited September 19, 2023 by Gregmal

[Spooky]

2 hours ago, james22 said:

But why would anyone look at only the past three years?

 

Because I was talking about investing capital in the frothy markets of 2021. I just using 3 year data as an approximation.

[UK]

https://www.bloomberg.com/news/articles/2023-09-20/only-fund-beating-nasdaq-long-term-is-defying-stock-picking-odds?srnd=premium-europe

 

For active managers, the math is stark. Out of thousands of mutual funds, literally only one beat the Nasdaq 100 over the last five, 10 and 15 years. It did so by boiling down stock picks to about two dozen companies and riding almost all of them to gains.

...

The futility of playing against benchmarks like the Nasdaq 100 was underlined in a report last month by Bloomberg Intelligence, then got a widespread public airing by investor Chamath Palihapitiya, who said indexes provided superior gains “without you having to do any work or diligence.” Turns out intellect and hard work are pretty useless, too, thanks to dynamics that have increasingly come to dominate the active-management debate.

...

“We buy small positions and don’t sell,” Ron Baron, who has been running the fund since its 1992 launch, explained from his office. “The process is to try to find great businesses that have competitive advantage.” Case in point: The fund first invested in Tesla in 2014. By 2020, it was about a third of the portfolio, Bloomberg data show, which finally prompted the team to reluctantly trim its position to assuage concerned clients. It hasn’t bought any additional shares since, but the electric car maker is now 41% of its long positions again. Its second-largest holding is Space Exploration Technologies Corp., a private company also run by Elon Musk. The rest include everything from Charles Schwab Corp. to Marriott Vacations Worldwide Corporation.

[james22]

14 hours ago, Spooky said:

 

Because I was talking about investing capital in the frothy markets of 2021. I just using 3 year data as an approximation.

 

Fair enough.

 

I think most are Tech/Growth or Value investors though.

 

Not many can shift orientation with the environment.

[james22]

On 9/15/2023 at 6:07 PM, james22 said:

 

It's not quite so simple.

 

If you consider the possibility of a one-time jump in equity valuations as investors increasingly recognize stocks aren't much riskier than bonds (followed by bond-like returns), there's risk in missing the move and then being unable to support a historical SWR with what has become an essentially 100% bond portfolio.

 

The addition of retirement accounts and automated contributions was a game-changer for financial markets.

 

https://awealthofcommonsense.com/2023/09/how-individual-retirement-accounts-changed-the-stock-market-forever/

[TwoCitiesCapital]

2 hours ago, james22 said:

 

The addition of retirement accounts and automated contributions was a game-changer for financial markets.

 

https://awealthofcommonsense.com/2023/09/how-individual-retirement-accounts-changed-the-stock-market-forever/

 

I just don't buy that equities aren't riskier. Meta was down 80+% in 2022 exceeding even Bitcoin's peak-to-trough. Disney is trading for prices now that it first traded for 9-years ago. Peloton and Rivian are both down 90+% from their peaks and may never recover. Regional banks that were considered sound one week were insolvent and the equity worthless the next. 

 

These are just a handful of observations  at a time when equities are generally rich - not a "market panic" type valuations. 

 

Bonds don't have this sort of thing happen. 2022 was a bad year for bonds - the worst on record. And yet its still better than most general equity drawdowns. And unlike equities, there places you can be guaranteed to "hide-out" in bonds regardless of what other bonds are doing. 

 

You're not gonna lose much in 1-year treasuries even if rates go from 0-12% over that 1-year.  2008 demonstrated equity correlations go to 1 in a crisis and nearly EVERY equity was sold down dramatically regardless of their business conditions. Look at Google going from $700+/sh down to $250/sh (unadjusted for splits since) despite growing revenues and profits every quarter of that time period. 

 

Equities are way riskier than bonds for anyone that doesn't have a 20-30 year time horizon and way riskier in any given year once considering the likely impact of human emotion and response to even paper losses. 

[Gregmal]

Equities are definitely riskier if you don’t know what you’re doing. There’s accountability 100% of the time. Volatility is a feature not a bug. If someone can’t handle it they should buy bonds or CDs but then they get mediocre returns. 

[Dinar]

1 hour ago, TwoCitiesCapital said:

 

I just don't buy that equities aren't riskier. Meta was down 80+% in 2022 exceeding even Bitcoin's peak-to-trough. Disney is trading for prices now that it first traded for 9-years ago. Peloton and Rivian are both down 90+% from their peaks and may never recover. Regional banks that were considered sound one week were insolvent and the equity worthless the next. 

 

These are just a handful of observations  at a time when equities are generally rich - not a "market panic" type valuations. 

 

Bonds don't have this sort of thing happen. 2022 was a bad year for bonds - the worst on record. And yet its still better than most general equity drawdowns. And unlike equities, there places you can be guaranteed to "hide-out" in bonds regardless of what other bonds are doing. 

 

You're not gonna lose much in 1-year treasuries even if rates go from 0-12% over that 1-year.  2008 demonstrated equity correlations go to 1 in a crisis and nearly EVERY equity was sold down dramatically regardless of their business conditions. Look at Google going from $700+/sh down to $250/sh (unadjusted for splits since) despite growing revenues and profits every quarter of that time period. 

 

Equities are way riskier than bonds for anyone that doesn't have a 20-30 year time horizon and way riskier in any given year once considering the likely impact of human emotion and response to even paper losses. 

You are kidding, right?  30 year treasury issued in 2020-2021 is trading at less than 50 cents on the dollar.