Have We Hit The Top?

[fareastwarriors]

 

On 3/16/2022 at 12:19 PM, boilermaker75 said:

 

OK, thanks, but I have known individuals who have done that.

Yes, I know it well. I came from finance world. The letters after are longer than many people's names.

 

On 3/16/2022 at 12:33 PM, boilermaker75 said:

 

Thanks, I am not familiar with Fintwit but I will look into it.

 

Twitter is fun and very informative if you choose who you follow wisely. 

Edited April 12, 2022 by fareastwarriors

[Spekulatius]

I guess we havn't see the top yet. Tech is having a monster rally today. Mr Market running around like a headless chicken. Love it.

[Gregmal]

Well that’s what happens when everyone gets scared and sells their stocks for exaggerated, often media narrative inspired reasons. 

[TwoCitiesCapital]

1 hour ago, Spekulatius said:

I guess we havn't see the top yet. Tech is having a monster rally today. Mr Market running around like a headless chicken. Love it.

 

It looks like I may have been wrong about their being too much pessimism for the top to have been the top when the thread was started. 

 

I can see us popping a bit from these oversold conditions. And sentiment is just through the floor making for a good contrarian entry. But with yield curves inverting and oil spiking, I'm concerned that an economic slowdown will occur faster than a new ATH. 

 

Added on the sell-off, but will be pretty quick to take those gains. 

 

[Spekulatius]

8 minutes ago, TwoCitiesCapital said:

 

It looks like I may have been wrong about their being too much pessimism for the top to have been the top when the thread was started. 

 

I can see us popping a bit from these oversold conditions. And sentiment is just through the floor making for a good contrarian entry. But with yield curves inverting and oil spiking, I'm concerned that an economic slowdown will occur faster than a new ATH. 

 

Added on the sell-off, but will be pretty quick to take those gains. 

 

I am taking already some on stocks that had muddied earnings like $STNE. I agree that yield curves and high inflation are not good things. I have no idea about the future and quite frankly , I think it’s pretty hard to make Macro predictions and even when you are right, it does not necessarily mean being right about the stock market.

 

[TwoCitiesCapital]

35 minutes ago, Spekulatius said:

I am taking already some on stocks that had muddied earnings like $STNE. I agree that yield curves and high inflation are not good things. I have no idea about the future and quite frankly , I think it’s pretty hard to make Macro predictions and even when you are right, it does not necessarily mean being right about the stock market.

 

 

Well, the trouble is you have to be right twice. You have to know when to sell AND when to rebuy.

 

I'd say while covid was a wildcard, a recession in 2020 was fairly predictable after everything we saw in 2019. Covid was just the match - the tinder was in place. 

 

But I never rebought in a big way. Scooped up some high yield bonds, added to Fairfax, added to Exor, doubled down on my mortgage REITs and etc, but was still sitting on a ton of cash for that to have been the bottom. 

 

Seems that way again. Tinder is in place. Match and timing are unknowns. Will probably have a recession and a fairly sizable pullback in equity markets over the next 12-18 months. But will -35% be the bottom? Or will it be 50-60%? Will it be one month pullback or a two year grind? How do you structure the re-entry around these unknowns? 

 

Still working through that myself. 

Edited March 18, 2022 by TwoCitiesCapital

[Simba]

My "FinTwit" sentiment was extremely negative last week - was clear there was pure fear in the markets (and naturally a bottom ensured). 

 

That being said inflation and interest rates are 2 big unknowns, and it does seem like a stock-picker's market this year.

 

If you choose tech your wrecked, if you choose value, your doing great. 

 

And if inflation stays high, what impact does this have under the hood? 

 

How much longer does the value regime hold? 

 

Berkshire Hathaway outperforming the market - remember last year how ARKK bros were making fun of Warren Buffet 

 

How cycles change, how sentiment changes. Amazing. Can't make this shit up.

 

[Spekulatius]

19 minutes ago, Simba said:

My "FinTwit" sentiment was extremely negative last week - was clear there was pure fear in the markets (and naturally a bottom ensured). 

 

That being said inflation and interest rates are 2 big unknowns, and it does seem like a stock-picker's market this year.

 

If you choose tech your wrecked, if you choose value, your doing great. 

 

And if inflation stays high, what impact does this have under the hood? 

 

How much longer does the value regime hold? 

 

Berkshire Hathaway outperforming the market - remember last year how ARKK bros were making fun of Warren Buffet 

 

How cycles change, how sentiment changes. Amazing. Can't make this shit up.

 

US Tech has done a monster move last week, similar to what we have seen with Chinese tech/growth. I have no clue if this lasts, but if you can get some of these turns even approximately right, you can make a lot of dough.

 

Its not really a stock pickers market either, it’s more like a market for those who can guess sentiment and market turns right. The specific stock you pick doesn’t really matter all that much, it’s being in the right factor trade or market segment at the right time.

 

This is what you see in bear market rallies often.

Edited March 19, 2022 by Spekulatius

[tede02]

I'm wondering if we're going to see a repeat of Q4 2018 at some point in the rate hike cycle. Although, a lot of stuff has already been washing out.

 

Separately, I personally expect a significant economic slowdown between the combination of inflation eating away at disposable income, rising interest rates and waning demand on big-ticket items that were pulled forward during the first 18 months of the pandemic. Basically all the forces that have propelled asset prices and the economy are turning the opposite way. It just looks liked a difficult set-up for the economy and market. 

 

[mattee2264]

I get the feeling we are in a sideways market rather than a bear market. So a lot of volatility and risk on/risk off trading based on the newsflow and changing sentiment.  

 

The S&P 500 is still heavily weighted towards quality growth which should hold up reasonably well if the economy slows down especially as that should stop interest rates rising high enough to cause significant multiple compression. As we've seen coming out of the GFC a weak economy (and therefore low interest rates) is a positive for secular growers. Also they have pricing power so they can continue to grow EPS in nominal terms which will help offset any modest multiple compression in response to rising interest rates.  The one question mark in my mind is to what extent pandemic earnings are sustainable and how markets will react when future growth is a lot less impressive than that achieved in the past. 

 

Also I think that while inflation is not transitory it will ease significantly as the effects of the fiscal stimulus wear off and supply chain issues start to ease and people return to work. 

 

 

[Paarslaars]

Been thinking more on this one.

 

Yesterday I had my regular indoor football match. Usually the conversations after the game are about women, sports, kids, cars, houses, etc... Yesterday everyone only had one topic: investing. Mainly discussing ETF's..

While I think it's good they are finally putting their capital to good use with ETF's, it also gives me a feeling that there is still plenty of "dumb money" around to prop up the market. They all started by investing 10-20% of their savings, so there is more room.

 

And yes I call them "dumb money" because they all started investing based on a popular dutch podcast from a guy who "has been doing great since he started investing mid 2020". 

 

 

[Lazarus]

Do retail investors actually move the market in any way? Retail investors are only about 10-15% of the market and are slower to respond to news, etc. 

[Simba]

11 hours ago, Paarslaars said:

Been thinking more on this one.

 

Yesterday I had my regular indoor football match. Usually the conversations after the game are about women, sports, kids, cars, houses, etc... Yesterday everyone only had one topic: investing. Mainly discussing ETF's..

While I think it's good they are finally putting their capital to good use with ETF's, it also gives me a feeling that there is still plenty of "dumb money" around to prop up the market. They all started by investing 10-20% of their savings, so there is more room.

 

And yes I call them "dumb money" because they all started investing based on a popular dutch podcast from a guy who "has been doing great since he started investing mid 2020". 

 

 

 

Interesting anectode. It seems like overall market sentiment has indeed shifted from the glory days of 2020 WSB peak 

 

[TwoCitiesCapital]

7 hours ago, Lazarus said:

Do retail investors actually move the market in any way? Retail investors are only about 10-15% of the market and are slower to respond to news, etc. 

 

Seeing as prices are set at the margin - any incremental increase/decrease in flows is important. 

 

Particularly in times of euphoria or panic when liquidity is nil. 

[Spekulatius]

13 hours ago, TwoCitiesCapital said:

 

Seeing as prices are set at the margin - any incremental increase/decrease in flows is important. 

 

Particularly in times of euphoria or panic when liquidity is nil. 

If you think retail doesn't matter just look at how stocks are trading right after they announce a stock split (TSLA, AMZN, GOOG, SHOP) are recent examples.

[Lazarus]

Why do you necessarily attribute market reaction to splits to retail investors? 

[Gregmal]

People constantly need to attribute what are generally meaningless market movements, to something. Makes them feel better. 
 

This is not to say it’s impossible to detect these things; but I’d say that applies to individual stocks more than broader markets. You can tell when there’s a big seller in a semi illiquid stock quite easily. Discerning why the QQQ moves is typically a waste of time. 

[Spekulatius]

1 hour ago, Lazarus said:

Why do you necessarily attribute market reaction to splits to retail investors? 

I think it is retail and probably traders as well trying to latch on retail trends and scalp them. There are certainly institutional traders in meme stocks for example.

 

The narrative explanations behind market moves are mostly meaningless. You often see headlines in CNBC for example that market is down because of XX and in reality the market is already green again.

Edited April 12, 2022 by Spekulatius

[Spekulatius]

Oh boy 11.2% producer price increase after 8.5% increase for CPI:

https://www.cnbc.com/2022/04/13/producer-price-index-march-2022-.html

[TwoCitiesCapital]

7 hours ago, Spekulatius said:

Oh boy 11.2% producer price increase after 8.5% increase for CPI:

https://www.cnbc.com/2022/04/13/producer-price-index-march-2022-.html

 

I think I mentioned it earlier in the thread, but the fact that PPI keeps outpacing CPI by a significant margin should concern anyone buying equities as that signals margin contraction. 

 

High inflation tends to lead to low P/Es and here we're seeing that those earnings may not even safe if margins do contract. 

 

A receding tide is going to lower most boats. 

 

 

[Spekulatius]

18 hours ago, TwoCitiesCapital said:

 

I think I mentioned it earlier in the thread, but the fact that PPI keeps outpacing CPI by a significant margin should concern anyone buying equities as that signals margin contraction. 

 

High inflation tends to lead to low P/Es and here we're seeing that those earnings may not even safe if margins do contract. 

 

A receding tide is going to lower most boats. 

 

 

Yes, the gap between CPI and PPI seems to imply margin erosion. Some of it can be compensated with productivity gains and salaries (an important input cost) growing slower than inflation, but overall it does not point to great pricing power.

Edited April 14, 2022 by Spekulatius

[mattee2264]

Historically high inflation does seem to lead to low P/E ratios and the relationship seems to be mostly due to rising interest rates which affect discount rates.

 

So presumably investors are not adjusting their discount rates because they believe that 

a) interest rates are not going to rise that much and will eventually be lowered again

b) inflation is indeed temporary and is close to peaking and will fade away within the next year or two

 

But when the inflation genie gets out of the bottle it does tend to be difficult to get back in and the Fed will probably be forced to tighten significantly to put a lid on inflation expectations and maintain any sense of credibility as they can no longer seem to lull people into a false sense of security by claiming it is transitory. And with all the debt in the economy rising interest rates do present a risk to financial stability which you'd expect to be reflected in lower P/E ratios. 

 

As for earnings most forward earnings estimates for the S&P 500 are over $200 a share. I would also question how real and sustainable these earnings are. 

 

a)  not all companies in the S&P 500 have sufficient pricing power to offset the impact of inflation on margins

b)  Big Tech obviously do have pricing power but a lot of their customers do not which might mean cuts in online advertizing budgets, economizing on cloud storage etc. 

c) The composition of spending will change with more allocated to food/energy/services and less to consumer goods/entertainment/technology which will hit revenues 

d) higher interest rates will have some impact on interest costs and therefore earnings

e) Even if the US economy holds up better than expected a lot of S&P 500 earnings come from overseas and overseas there hasn't been the same level of generous fiscal stimulus and there is more exposure to the war due to energy dependence on Russia and reliance on food from the Ukraine etc. 

 

And I am sure I am missing other factors as well

 

But seems quite obvious that lower P/E ratios and lower earnings create a very large downside risk. And the Fed put is unlikely to be as reliable

 

 

 

 

 

[Castanza]

Curious how everyone is positioned currently? What’s your cash stack looking like? 
 

Largest are RTX, MSFT, VZ, ATCO, MSGS, AIV, PCYO, INTC 

 

CLPR, PSTH (3%), T, BAC, APTS (5% sold out), TPL, GOOG, JOE, BABA, GRBK, NTDOY, ESRT, a few index funds and a bunch of other 1% shit

 

13% cash not including PSTH 

Edited April 14, 2022 by Castanza

[Gregmal]

Biggest positions are AIV, FRPH, JOE, MSG(both), PCYO, HTL, DIS, ALCO. Lots of cash subs including large APTS and PSTH positions. Some smaller stuff and a bunch of options plays. Small basket of tech like Tencent, RBLX, Z, UBER, CPNG and Nintendo. Neg-ah-tive cash as always; hovering around 1.6x but still looking at Mr. Market like "come at me bro". 

[Castanza]

1 hour ago, Gregmal said:

Biggest positions are AIV, FRPH, JOE, MSG(both), PCYO, HTL, DIS, ALCO. Lots of cash subs including large APTS and PSTH positions. Some smaller stuff and a bunch of options plays. Small basket of tech like Tencent, RBLX, Z, UBER, CPNG and Nintendo. Neg-ah-tive cash as always; hovering around 1.6x but still looking at Mr. Market like "come at me bro". 

Haha atta boy! I don’t have the conviction to lever up and every time I get fully invested there seems to be a fire sale and I end up taking a smaller bite of the pie than I was hoping for.