Have We Hit The Top?

[mattee2264]

Agree that inflation is redistributive. But I think the real implication for markets is that we've left behind Alice in Wonderland macroeconomics whereby deficits don't matter and can be funded by money printing and ZIRP and QE can be deployed every time the stock market has a correction. 

 

What never gets mentioned is one of the biggest drivers of inflation is the US government running trillion dollar deficits. There is no inclination towards fiscal restraint in the USA and the so called debt deal basically just froze fiscal spending at pandemic "emergency" spending levels. And if you have over a trillion dollar deficit at full employment then automatic stabilisers mean that your deficit will get even bigger if unemployment rises because income tax receipts fall and unemployment benefit pay outs rise. 

So the Fed is fighting a losing battle and neutral rates won't cut it when they also need to offset the impact of irresponsible fiscal policy. 

 

And as I said this all makes for a situation where interest rates will probably have to remain above 5% for some time. This isn't the end of the world but it will have an impact on market valuations. 

 

Also Societe Generale in a recent report showed that all the YTD gains in the stock market can be explained by AI (i.e. fantastic 7 catching a bid with AI mania exploding).

For the rest of the market macro does matter.

 

And this is a bit of a repeat of summer of 2020 as Big Tech are viewed as the safe haven rather than US Treasuries or even traditional defensives (incidentally a lot of consumer staple stocks are selling off!) so a bad economy will only help Big Tech's momentum. So the market could well continue to head higher even if we do head into recession. Longer term though there probably will be a valuation reset especially when people realize that AI isn't really going to move the needle much for trillion dollar companies and we've seen the way that markets punish its darlings when they fail to meet impossibly high expectations. 

 

And it is difficult to imagine a dynamic fast growing economy emerging from the recession. The massive debt loads are going to weigh the economy down for the foreseeable future. AI will take a long time to have a major benefit to productivity. Climate change initiatives are going to inevitably mean sacrificing some economic growth to achieve climate change targets. Geopolitical tensions are going to continue to encourage de-globalisation. And without ZIRP it is no longer possible to disguise lacklustre growth through financial engineering and using leverage to try and juice returns. 

 

So short term who knows and the path of least resistance is probably higher. But it is difficult to imagine great returns over the next decade from today's starting point. 

 

 

[gfp]

Tell me more about this 5.15% mortgage you just got?  Location, terms, length?

 

Also, bell peppers on a cheeseburger???  

[Spooky]

18 hours ago, Gregmal said:

Yea totally. I used macro for nothing other than to potentially plan to seize opportunities. Never much else. Being prepared is 90% of the battle. Its probably the only reason I held APTS to deal close(outside of taxes) which is something I never do. Or was as aggressively using PSTH as a placeholder. Its how I established buy points and shopping lists for stuff I liked in some cases, 12-15 months before they reached those prices. Just gotta have a plan. And a backup. And a backup backup. If you need more than that, everyone is usually fucked and it  doesnt matter LOL.

 

This. I just want to make sure I have a bucket if it starts raining gold.

[Gregmal]

Another thing I find so puzzling is how obsessed so many are with fake, made up terminology like “bear market” or “bull market” and can’t bring themselves to invest unless they "figure out" which one they think we are currently in….

 

CNBC today…”investors believe we are in a new bull market”….Same time…”bear market rally will be short lived in July”….

 

So stupid backing oneself into a fabricated corner investing wise based on lazy terminology. 
 

Anyway….how dem bears doing?

 

Edited June 30, 2023 by Gregmal

[Intelligent_Investor]

The striking down of the student loan forgiveness should help somewhat with inflation. Less money in people's pockets = less spending

[brobro777]

Whew thank goodness I didn't short MSFT

[james22]

2 hours ago, Spooky said:

 

This. I just want to make sure I have a bucket if it starts raining gold.

 

Overrated, I think.

 

I held a lot of cash all thru the 2010s. All so I could buy in 2020 at prices I could have bought mid-decade.

 

Every decade is different, of course, but have to recognize the opportunity cost can easily equal the opportunity.

[Spooky]

51 minutes ago, james22 said:

 

Overrated, I think.

 

I held a lot of cash all thru the 2010s. All so I could buy in 2020 at prices I could have bought mid-decade.

 

Every decade is different, of course, but have to recognize the opportunity cost can easily equal the opportunity.

 

I tend to agree, I'm 90% invested in equities for the long term with about 10% cash looking to find a home. I just want to structure things in a way where I'm antifragile so I would benefit from a big market panic if there is one. My latest thinking is to set up a line of credit that will remain undrawn that I could use if there is another market meltdown.

[Gamecock-YT]

2 hours ago, Intelligent_Investor said:

The striking down of the student loan forgiveness should help somewhat with inflation. Less money in people's pockets = less spending

 

Sorry honey I spent this month's student loan bill on zero dated options. 

[gfp]

2 hours ago, Intelligent_Investor said:

The striking down of the student loan forgiveness should help somewhat with inflation. Less money in people's pockets = less spending

 

The practical effect is pretty small though.  Maybe around $2 Billion a month.  The administration implemented expanded income-based repayment "help" that reduces the disinflationary impact of today's ruling.  Every little bit helps though!

https://www.ed.gov/news/press-releases/new-proposed-regulations-would-transform-income-driven-repayment-cutting-undergraduate-loan-payments-half-and-preventing-unpaid-interest-accumulation

[james22]

2 hours ago, Spooky said:

antifragile

 

BRK

[mattee2264]

Nasdaq best first half in four decades. 

 

Irrespective of what you think about the economy betting against the market means betting against Big Tech and that may have worked last year but this year it is a way to lose your shirt. 

[dealraker]

On 6/27/2023 at 5:54 PM, Parsad said:

 

I don't know about Q3 Greg, but there are pressures on the system.  Name me one period where interest rates moved by 5% and some sort of issue did not arise within financial institutions, the economy or consumers.  You have dramatic moves in rates and outlier events will occur.  We saw BAC lose $98B of liquidity in a couple of weeks...we saw a couple of very large regional banks go under...we've seen failures in tens of crypto brokers/institutions.  And rates have not quite peaked yet...we can expect at least one or more raises.

 

I can't time these things, but I know when to start being wary of what could happen.  Thus I remain partly invested and partly sitting in cash until an opportunity presents itself.  175% return since March 2020 to my total portfolio should keep me in good stead even if I have to wait a year or two for that next big idea.  

 

For the most part, I ignore macroeconomics, but as Sam Mitchell told me right before the GFC, "sometimes you just can't completely ignore macroeconomics."  The risk free rate in Canada and the U.S. is now close to or at 5% from less than 1%...yet markets are up and the average P/E is around 18-19.  Markets have baked in that interest rates will peak and come down over the next 12 months.  But I can't see how institutions don't have to mark down loans on their books or CRE asset values.  Consumers while still spending, are stretched and resorting to credit cards and LOC's.  Jobs are plentiful, but budgets are still being stretched.

 

I'd also like to reiterate that I'm not trying to time the market...I'm trying to preserve capital until good, cheap ideas present themselves...it could be now even as things are peaking, or it could be in the depths of a recession.  I'm just finding few ideas right now, and that usually means something has to give not far in the future.  Cheers! 

You are probably good enough Parsad to preserve capital until cheap ideas present, it seems you have a lot of patience and make very solid choices of when/what to do.  My experience in life, and I'm only going on the long term of who I know that has all the money, is that few - actually nobody I know - do/does this successfully.  My view from reading what you've done for years now is that it works for you.

 

I'm probably one of the, if not the, most concentrated investor on this board.  But it came by time, not choices...except choosing not to sell.  It has done almost but not quite 15% for so long now, that's decades, that I'm in a state of near shock.  Of course it won't last and of course down the line I'm probably looking at far lower returns.

 

But it does slam-down the idea that buy and hold is indexing, it simply is buy and hold and either skill or randomness takes hold and runs.  Owning a bunch of stocks too is not indexing as many suggest because that's where I am.

 

As the wisest people have said, "things are variable."  That's a clear as it gets in real life.  

 

But the thing that stands on its rear legs and growls at me endlessly is that I know and am in contact with a lot of wealthy people, all of whom haven't sold their stuff through time.  They sustain the viscious cyles of valuation and never seem to much even discuss them.  They aren't overly political, the grievance game or blame thing isn't their model.

 

 

 

 

[Sweet]

I don’t know if 5% increase in rates breaks anything more but I am sure that a 5% risk free rate brings down valuations.

 

I don’t get the doomers though, always calling tops and predicting the next recession.

 

[gfp]

T-Sec at my favorite local po-boy joint yesterday.  Now that she has seen the $25 oyster poboy price tag first hand she has vowed to take action on this runaway inflation.  Enough is enough

[John Hjorth]

@gfp,

 

Damn good humor! If I had a like button to press, I'd press on it! 

[UK]

https://www.wsj.com/articles/grantham-warns-ai-boom-wont-prevent-market-bubble-from-bursting-fd7f5a98

 

That enthusiasm is strong enough to propel the broader stock market over the next couple of quarters, Grantham says, but ultimately it won’t prevent the bubble from bursting. GMO predicts that, after that happens, value will eventually set the market’s trajectory again. 

[Spekulatius]

20 hours ago, gfp said:

T-Sec at my favorite local po-boy joint yesterday.  Now that she has seen the $25 oyster poboy price tag first hand she has vowed to take action on this runaway inflation.  Enough is enough

 

Lots to unpack here, besides the $8 wiener . The voluptuous gal on the left looks like Monica Levinski and then there is the secret service guy in the back sitting by himself and trying to look suspiciously unsuspicious.

[Spooky]

9 hours ago, UK said:

That enthusiasm is strong enough to propel the broader stock market over the next couple of quarters, Grantham says, but ultimately it won’t prevent the bubble from bursting. GMO predicts that, after that happens, value will eventually set the market’s trajectory again. 

 

Still talking about his super bubble eh?

[Gregmal]

7 minutes ago, Spooky said:

 

Still talking about his super bubble eh?

Lol even if you follow these threads, it’s very easy to see how these things become all consuming and even rational folks end up taking what started as a short term thesis and letting it live on for years. 

[UK]

6 hours ago, Spooky said:

 

Still talking about his super bubble eh?

 

From the same article: 

 

Grantham, the co-founder of the Boston-based money manager Grantham Mayo Van Otterloo, has been warning of signs of froth in the stock market since at least 2015.

 

GMO’s flagship Benchmark-Free Allocation Fund is up 4.5% this year, trailing the broader market. Since its 2003 inception, the fund’s annualized total return is 6.3%, compared with 9.9% for the S&P 500, according to FactSet data going back to Aug. 25, 2003.

 

[james22]

The Big Short by Michael Lewis has lost investors more money than the last 3 bear markets combined.

 

https://awealthofcommonsense.com/2023/07/contrarians-are-usually-wrong/

[Gregmal]

6 minutes ago, james22 said:

The Big Short by Michael Lewis has lost investors more money than the last 3 bear markets combined.

 

https://awealthofcommonsense.com/2023/07/contrarians-are-usually-wrong/

Lol yup. People continuously play this game and it’s dumb. They try to oversimplify a complex and evolving market with junk like “future returns will likely be poor”, “gee just follow the Fed”, “recession is just around the corner”, etc, etc. All predicated on hindsight. Just like with the Fed and it’s pitiful inflation journey, those that constantly stare at the rear view mirror often miss what’s ahead of them. Even when it’s obvious.
 

For one, I’m sad we no longer hear people boasting about their iBonds, huge cash positions, and tremendous savviness slinging inverse ETFs on a weekly basis….

[fareastwarriors]

22 minutes ago, Gregmal said:

Lol yup. People continuously play this game and it’s dumb. They try to oversimplify a complex and evolving market with junk like “future returns will likely be poor”, “gee just follow the Fed”, “recession is just around the corner”, etc, etc. All predicated on hindsight. Just like with the Fed and it’s pitiful inflation journey, those that constantly stare at the rear view mirror often miss what’s ahead of them. Even when it’s obvious.
 

For one, I’m sad we no longer hear people boasting about their iBonds, huge cash positions, and tremendous savviness slinging inverse ETFs on a weekly basis….

 

i tell ppl i'm always long and strong. 

 

[Parsad]

https://finance.yahoo.com/news/us-2yr-10yr-yield-curve-122657298.html

 

https://finance.yahoo.com/news/explainer-u-yield-curve-hits-182731416.html

 

Cheers!