Have We Hit The Top?

[UK]

https://www.bloomberg.com/news/articles/2024-08-30/once-in-lifetime-wall-street-rally-raises-soft-landing-stakes?srnd=homepage-europe

 

"Levels of conviction are soaring across assets. In one example, exchange-traded funds tracking government debt, corporate credit and equities have now risen in unison for four straight months. It’s the longest stretch of correlated gains since at least 2007. Up 25% in the past 12 months, the S&P 500 has never climbed this much in the run-up to the first interest-rate cut of an easing cycle, seven decades of data compiled by Ned Davis Research and Bloomberg show."

 

Dammit, my level of conviction is not going up or even staying the same...

[Blake Hampton]

“U.S. households’ stock allocations have steadily inched up this year, according to JPMorgan estimates, and recently accounted for around 42% of their total financial assets. That is the most on record in data going back to 1952.”

 

Source: WSJ - Americans Are Really, Really Bullish on Stocks

 

People at work were recently telling me how it’s a huge mistake to not be completely invested.

Edited September 3 by Blake Hampton

[John Hjorth]

Yes, Blake [ @Blake Hampton ],

 

But isen't it also about 'those americans' also 'all' [<- not all, but generally speaking] are chasing the same stocks and thereby driving them up, leaving places and spaces, - somewhere - , where there is still something to do for people like us?

[Blake Hampton]

7 hours ago, John Hjorth said:

Yes, Blake [ @Blake Hampton ],

 

But isen't it also about 'those americans' also 'all' [<- not all, but generally speaking] are chasing the same stocks and thereby driving them up, leaving places and spaces, - somewhere - , where there is still something to do for people like us?

I’m sure there’s still value, it’s just interesting to me that we’re currently seeing a record amount of money placed in stocks. I think people are certainly better off just buying an index fund and sitting on it forever, but I don’t know how common that behavior is.

[Gregmal]

A couple more of these days and we can start expecting heightened activity on this thread with copious boasts of “knowing the market had gotten pricey” and “the bubble is popping” and how “cash and fixed income are outperforming”…oh I’m so looking forward to it.

[UK]

'I want more, impossible to ignore
Impossible to ignore'

[Cigarbutt]

On 9/2/2024 at 11:32 PM, Blake Hampton said:

“U.S. households’ stock allocations have steadily inched up this year, according to JPMorgan estimates, and recently accounted for around 42% of their total financial assets. That is the most on record in data going back to 1952.”

Source: WSJ - Americans Are Really, Really Bullish on Stocks

People at work were recently telling me how it’s a huge mistake to not be completely invested.

Yes, there is always something to do and those 'sentiment' indicators have poor foresight value, especially short-term, but still this noise may reflect general valuation levels.

-Conceptual aspect

It is often interpreted that these changing allocation parameters directly result from people moving from one asset class to another. In the aggregate, however, this is not reflecting reality. When Blake buys a stock from Joe, Joe exchanges the stock for cash coming from Blake. The rising allocation to stocks reflects, mostly, rising relative valuation levels. The word mostly is used because, for some years now, as a result of net QE (although not money printing really) and as a result of commercial banks holding larger levels of government debt compared to GDP (true money printing), more 'money' is in circulation compared to underlying economic activity. Correcting for this feature, the allocation to stocks and real estate is even higher that the WSJ article suggests.

Anyways, on a net basis, this has been going on for a while and has been inversely correlated to gradually decreasing, overall, personal saving rate.

[Sweet]

On 9/3/2024 at 3:24 PM, Gregmal said:

A couple more of these days and we can start expecting heightened activity on this thread with copious boasts of “knowing the market had gotten pricey” and “the bubble is popping” and how “cash and fixed income are outperforming”…oh I’m so looking forward to it.

Seems to be Nvidia and other CPU / GPU providers that got hit very hard.  Not seeing large widespread drops.  A 10% drop in Nvidia is not a great sign for that sector.  

Edited September 4 by Sweet

[rkbabang]

3 hours ago, Sweet said:

Seems to be Nvidia and other CPU / GPU providers that got hit very hard.  Not seeing large widespread drops.  A 10% drop in Nvidia is not a great sign for that sector.  

Right now Nvidia is up over 6% over the last 30 days.   Yes horrible sign.

[ArminvanBuyout]

3 hours ago, Sweet said:

Seems to be Nvidia and other CPU / GPU providers that got hit very hard.  Not seeing large widespread drops.  A 10% drop in Nvidia is not a great sign for that sector.  

Almost feels like momentum traders piled into the stock mid-Aug anticipating earnings smash, and when it didn't, are just exiting now. 

[Sweet]

1 hour ago, rkbabang said:

Right now Nvidia is up over 6% over the last 30 days.   Yes horrible sign.

Volatility of this kind is not normal for any stock.  One day drops of 10% on little news normally precede other drops.  Time shall tell.

[Sweet]

1 hour ago, ArminvanBuyout said:

Almost feels like momentum traders piled into the stock mid-Aug anticipating earnings smash, and when it didn't, are just exiting now. 

Possibly, who knows.  Had for them when expectations are sky high.  Didn’t they beat?

[Blake Hampton]

22 hours ago, Cigarbutt said:

Yes, there is always something to do and those 'sentiment' indicators have poor foresight value, especially short-term, but still this noise may reflect general valuation levels.

-Conceptual aspect

It is often interpreted that these changing allocation parameters directly result from people moving from one asset class to another. In the aggregate, however, this is not reflecting reality. When Blake buys a stock from Joe, Joe exchanges the stock for cash coming from Blake. The rising allocation to stocks reflects, mostly, rising relative valuation levels. The word mostly is used because, for some years now, as a result of net QE (although not money printing really) and as a result of commercial banks holding larger levels of government debt compared to GDP (true money printing), more 'money' is in circulation compared to underlying economic activity. Correcting for this feature, the allocation to stocks and real estate is even higher that the WSJ article suggests.

Anyways, on a net basis, this has been going on for a while and has been inversely correlated to gradually decreasing, overall, personal saving rate.

 

This is interesting. Why do you think this causes an inverse correlation with the savings rate?

[coffeecaninvestor]

16 hours ago, ArminvanBuyout said:

Almost feels like momentum traders piled into the stock mid-Aug anticipating earnings smash, and when it didn't, are just exiting now. 

Do you know if these 3x leveraged single stock ETFs have any magnified effect on the day to day movements? 

[Cigarbutt]

9 hours ago, Blake Hampton said:

 

This is interesting. Why do you think this causes an inverse correlation with the savings rate?

The topic here then is 

-Is the saving rate going down?

-Is the saving rate inversely correlated to some kind of wealth effect?

-Is there a cause and effect and in which direction?

Look at more recent trends and forget about the covid noise.

-In the years leading to the early 2000 dotcom era, many in my anecdotal crowd were doing well with rising internet stock values and didn't seem to save as much as a result. This seems to match the data at the aggregate level.

-In the years leading to the late 2000 real estate era, many in my anecdotal crowd were doing well with rising real estate values and didn't seem to save as much as a result. This seems to match the data at the aggregate level.

-In the last few years, many in my anecdotal crowd have been doing well with rising real estate and stock values and don't seem to save as much as a result. This seems to match the data at the aggregate level.

Based on the above, i would suggest that rising household net worth above trend has been interpreted by the crowd as a sufficient store of value that, at least partially, replaces the need to save.

[Sweet]

Gotta lol:

 

 

[gfp]

38 minutes ago, Sweet said:

Gotta lol:

 

 

 

"What happens next?"

 

I'll guess!  Is it "rate cuts?"

[Gregmal]

Yea just another chump trying to lie and mislead everyone into paying for his subscription service. Lemme guess, every week we have another datapoint or economic release that could change everything? We re always just one step away from the edge of the cliff? Consensus isn’t actually correct but rather something totally random and conspiracy based is what everyone else is missing? And of course you need his wisdom in order to take advantage of these ever present monumental events via life changing options strategies or day trades?
 

These jokers are all the same.

[Spekulatius]

If you really know macro and the future, you probably don’t talk about it on Twitter or write a substack.

Edited September 5 by Spekulatius

[UK]

 

[TwoCitiesCapital]

On 9/5/2024 at 5:06 PM, Sweet said:

Gotta lol:

 

 

 

For some reason everyone looks at the 2s - 10s. But the founder of the signal uses the 3M and the 3M better reflects the cost of bank funding if you believe that expansions and contractions in credit are what give this its predictive power.

 

We're still VERY inverted on 3M - 10Y - though the Fed had typically followed the 2Y suggesting we may not bet there for long. 

 

I'm still waiting for the reversion of the 3M-10Y via Fed rate cuts which historically has been the signal tough times are ahead for equities. 

[UK]

https://davisfunds.com/funds/nyventure-fund/pm-review

 

Pessimism Never Goes Out of Fashion

Recently our friend and author Shane Parrish shared a striking quote that seems to capture the current mood of our country:

 

“It is a gloomy moment in the history of our country. Not in the lifetime of most men has there been so much grave and deep apprehension; never has the future seemed so incalculable as at this time. The domestic economic situation is in chaos…Prices are so high as to be utterly impossible. The political cauldron seethes and bubbles with uncertainly. Russia hangs, as usual, like a cloud, dark and silent, upon the horizon. It is a solemn moment. Of our troubles, no man can see the end.”

 

What makes this description so striking is that it was written in Harper’s Weekly in 1857.

 

Pessimism, fear and uncertainty are nothing new. And yet we live far better lives today than ever before. For long-term investors, it has always been a mistake to bet against humanity in general and the United States in particular. While it is true that we currently face significant challenges, it is equally true that we are living through a period of enormous global progress. Technology and innovation have contributed enormously to human progress, and with breakthroughs like GenAI, genomics and alternative energy (including compact nuclear reactors) still in their infancy, we see no reason to believe that the record of the last 2,000 years should not continue. At a time when many feel the world has been getting worse, the data tells a different story (see Figures 7 and 8).

[Cigarbutt]

47 minutes ago, UK said:

...

For long-term investors, it has always been a mistake to bet against humanity in general and the United States in particular. 

The likelihood that the author of the text is correct is extremely high. But always is a strong word.

[rkbabang]

2 hours ago, Cigarbutt said:

The likelihood that the author of the text is correct is extremely high. But always is a strong word.

It doesn’t just say “always”, it says “has always”.  There’s a big difference. “Always” implies “has always and will always”, where “has always” is just an observation about the past. And as we’ve all heard, past performance isn’t necessarily indicative of future results.

 

 

[Luke]

First, the diagnosis. In finance and accounting, America has overlearned the lessons of the 1960s through the ’90s. Visionary companies of the time, from Teledyne to Berkshire Hathaway, took the view that the efficient use of corporate capital distinguished good managers from mediocre ones.4 It was undeniable that, at the time, capital was often poorly allocated, and corporate leaders have since made their reputations (and fortunes) by increasing shareholder returns. The drive for the highest possible capital efficiency, however, eventually created bi­zarre incentives. Wall Street’s ideal company became one with no assets and infinitely scalable profits. Great American companies in manufacturing-based, capital-intensive industries, like shipbuilding or steelmaking, were encouraged and finally forced to outsource their manufacturing overseas—not to save on labor costs or improve their output, but simply because outsourcing manufacturing to a foreign third party made their balance sheets look more impressive. If they were unable to offshore, they abandoned product categories altogether, which means the United States entirely lost those industries and capabilities. It is hard to look at Wall Street trends over the past thirty years without drawing the perverse conclusion that the most effective use of capital, in Wall Street’s eyes, is to pour it into financial assets or the valuations of software companies.

 

Some reason for the increasingly high multiple of the SP 500. Question is if this trend reverses a bit with onshoring and anti-China sentiment or if offshoring just slowly changes countries with still chinese manufacturing owners?