Have We Hit The Top?

[Saluki]

I thought about selling META in my retirement account before the big swoon, based on valuation, but I just let it sit there. I bought a few shares when it got ridiculously cheap, but nothing to write home about.  I'm starting to look at the valuation again and think it might be worth it to sell some META because it seems that the last bit of good news (Twitter clone) is already priced in. ~40x earnings and still spending money on the metaverse? It's moat is incredible, but there are a lot of bargains out there, especially in the unloved things that are the polar opposite of ESG (my gun stock moved up but, energy , shipping and cigarettes still look like bargains).  Hmmm.

 

As far as "the top" goes: the index is cap weighted and the stuff that is on fire like NVIDIA and AAPL are looking fully priced. If everything goes smoothly, they will probably keep doing better, but after experiencing a pandemic, a war in Ukraine, an attempt to steal an election in the US, is smooth sailing the thing we should be betting on?  

[Intelligent_Investor]

20 hours ago, brobro777 said:

 

Oh yea I wouldn't be surprised if these big cap tech companies continue to grind higher. Why not 40X? 

 

But over the long term like a decade.... One guy I've been reading for years has an interesting thought experiment - will AAPL bonds maturing in 2033 with yield of 4.35% produce higher returns than the AAPL stock in the coming decade? https://divestor.com/?p=11763. Maybe! 

 

 

They won't, AAPL FCF growth is like 6-7%, at a 3% FCF yield you are still looking at high single digit % return for AAPL

[UK]

Maybe this is also very timely for today:

 

https://www.bloomberg.com/opinion/articles/2023-07-06/central-banks-should-stop-hammering-the-economy-into-recession?srnd=premium-europe

 

Time again to move to something like the last year regime of worrying of higher for longer rates / braking of something / possibilities of large mistakes by central banks? 

 

[changegonnacome]

On 7/6/2023 at 11:46 AM, UK said:

Time again to move to something like the last year regime of worrying of higher for longer rates / braking of something / possibilities of large mistakes by central banks? 

 

Yep its my base case for later this year.

 

And look at the backdrop.........mortgages firmly back above 7%

 

The 10yr & 30yr treasures are back above 4%

 

There is no such thing as an immaculate disinflation (in a slow productivity growth economy running at 3.6% unemployment)........where company earnings & then labor market don't get run over such that nominal spending growth gets moderated sufficiently......and conditions exist then to take us back to 2% inflation sustainably.

 

Now that journey has taken a little longer than many expected but make no mistake about it.....we haven't got off the 'hike + recession' disinflation end of traditional business cycle highway here......traffic has just been worse than we expected....so our ETA got pushed out.....but our final destination remains the same.

 

I expect next week to see headline CPI drop down to something in the mid-3%'s........its kind of the last easy win CPI dropping all by itself MoM move such that if you wish to believe inflation goes away by itself and is 'done.....I suggest you enjoy these last couple of weeks........cause really what you have then is headline converging with SuperCore.......which really is the oft mentioned transitory inflation rolling off......and what I've referred to as Made in America domestic inflation remaining.....this is the sticky underbelly inflation driven by nominal wage growth feeding into spending growth exceeding productivity growth.....the math of which is only solved by falls in nominal spending which ordinarily occurs in the context of labor market turbulence which follows corporates suffering from their own turbulence .........I expect one last delusionary news cycle where you get Tom Lee, Jeremy Segal et al coming on CNBC and saying that Fed is off its rocker....inflation is coming down....or you get the Truflation.com looneys doing a screen-grab of some proprietary blackbox model that tells you what you want to hear......from a website setup for traffic/clicks and linked to a bunch of crypto people.

 

If you ask me what the optimal outcome is here....an actually realistic landing which isnt soft but isnt terrible either.....is that you'd really like the headline inflation progress we've seen up until now but which is running out of steam to pass the baton on to actual falls in supercore.....as I've explained supercore is only falling meaningfully in response to initially poorer corporate earnings which then precipitates some significant labor market weakness......ideally ideally....you would like to see this labor market weakness become a cultural meme by no later than Q4 2023.....such that it becomes the backdrop for so many 2024 pay negotiations.....done properly and with some luck we might exit 2023 with unemployment heading towards the mid-4's.......a moderate Christmas spending season....and a consumer, with modest pay increases in Q1 2024, really pulling in the spending horns into the new year........and so we'll get genuine contemporaneous MoM progress on headline & supercore...which are about to become kind of the same thing........done right this time next year....the Fed will begin to show rate cuts into H2 2024.....and the spring housing selling season will be by folks with 6-7% mortgages but where they have a high degree of confidence that re-fi time is just around the corner.

Edited July 7, 2023 by changegonnacome

[dealraker]

If you have little cash you'll be posting up stuff that proves (correctly) that about one investor in 100 gets it right going in and out of business (that's the stock market) at the right times.  If you are 50% cash then of course you know the game well, there's probably a few million fear articles out there each week and tons of dudes making hay selling their wares of fear.  Find 'em and post 'em online...you can feel the fear and elevated pulse rates of those reading the sellers who know very well what sells.

 

And then...oh my lord...there are the Charlie's of the world (that's me) that really don't give a shit about any of it.  And we are this way because we've fucked up trying to be something we aren't (business traders) too many times.  Thus we just gave up playing musical chairs and decided to be in business at all times.

 

Life is great...if you can stand it.  

[changegonnacome]

https://advantage.factset.com/hubfs/Website/Resources Section/Research Desk/Earnings Insight/EarningsInsight_070723.pdf

 

Quote

 

Earnings Decline:

 

For Q2 2023, the estimated earnings decline for the S&P 500 is -7.2%. If -7.2% is the actual decline for the quarter, it will mark the largest earnings decline reported by the index since Q2 2020 (-31.6%).

 

 

[Gregmal]

24 minutes ago, changegonnacome said:

https://advantage.factset.com/hubfs/Website/Resources Section/Research Desk/Earnings Insight/EarningsInsight_070723.pdf

 

 

So what’s your point? We had people calling for substantial double digit declines last year. Are you thinking that you are the only market participant with this data and on to the next “Big Short”? Or is the market perhaps aware of this and looking past it? What’s the angle and actionable trade here?

[changegonnacome]

10 hours ago, Gregmal said:

substantial double digit declines last year.

 

Well this is a double digit decline......7.2% + ~5% inflation = -12% real fall

 

But your right the peak to trough ~24% fall in earnings that accompanies a traditional recession is still to play out

 

10 hours ago, Gregmal said:

What’s the angle and actionable trade here?

 

Earnings going down while SPY goes up = bear market rally

 

The fundamental are disimproving & we still have an inflation problem. How you trade that is up to you.

 

This chart below tells the story about the recent rally of the October lows:

 

Price diverging from earnings.......now you could argue that somehow the market is looking through those earnings.....but if you overlay the inflaiton problem.....they are looking through with way too much optimism....kind of like inflation is done (without unemployment/GDP contraction) delusion

[John Hjorth]

15 hours ago, dealraker said:

If you have little cash you'll be posting up stuff that proves (correctly) that about one investor in 100 gets it right going in and out of business (that's the stock market) at the right times.  If you are 50% cash then of course you know the game well, there's probably a few million fear articles out there each week and tons of dudes making hay selling their wares of fear.  Find 'em and post 'em online...you can feel the fear and elevated pulse rates of those reading the sellers who know very well what sells.

 

And then...oh my lord...there are the Charlie's of the world (that's me) that really don't give a shit about any of it.  And we are this way because we've fucked up trying to be something we aren't (business traders) too many times.  Thus we just gave up playing musical chairs and decided to be in business at all times.

 

Life is great...if you can stand it.  

 

Add to that a priori low expectations, and you have a recipe for good life, if one combines it with living below or at your means. None of us need to be the next Warren Buffett to do good.

 

- - - o 0 o - - -

 

Perhaps one day, I'll tell the story about *F* here on CoBF [*F* will stay anonymous, unless he may chose to register here on CoBF.]

[UK]

Some interesting info on market sentiment:

 

https://www.bloomberg.com/news/articles/2023-07-07/force-firing-up-the-stock-market-cools-off-with-shorts-conceding?srnd=premium-europe#xj4y7vzkg

 

“At the index level we went from deeply bearish sentiment in the fall to the other extreme right now especially in tech. I don’t think it’s fair to say that’s true for every sector,”

[Haryana]

Fear & Greed Index

What emotion is driving the market now?

https://www.cnn.com/markets/fear-and-greed

 

 

[changegonnacome]

3 hours ago, Haryana said:

Fear & Greed Index

What emotion is driving the market now?

https://www.cnn.com/markets/fear-and-greed

 

 

 

Looks like I've got to get my TSLA puts out again into the EoY...........its funny H2 2023.......has the possibility of being H2 2022 re-run all over again.......its a pity in a sense that the Fed didnt capitalize on the negative sentiment back then and push the envelope on a weakening economy, weakening markets (financial conditions) such that supercore actually budged.......they had the wind at their backs so to speak.....doom and gloom was seeping into the culture meme.......but nope they kind of slow walked the hikes down to 25bps...sounded a little doveish......and let the idea forment that cuts were coming.....Powell really should have jawboned a bit more but he didnt.....and here we are in f-ing July 2023 15 months into this doing more god damn hikes and supercore hasnt budged an inch, unemployment hasnt budged an inch and SPY is at 4400 (having been at 3500 already)!!!.......if your gonna pull a band-aid off......Grandma Change says pull it off quick and in one go and get it done.......this Fed is peeling the band aid in slow motion....in fact they are kind of starting and stopping.

 

Last month's pause....will go down as the "pointless pause".

Edited July 9, 2023 by changegonnacome

[brobro777]

Boy it sure feels like OTM put options on indexes could pay off well

 

 

[mattee2264]

https://www.wsj.com/articles/it-isnt-just-boomers-lots-of-older-americans-are-stock-obsessed-ca069e1a?mod=hp_lead_pos8

 

1/5 of over 85s are fully invested in stocks! 

 

 

 

[gfp]

10 minutes ago, mattee2264 said:

https://www.wsj.com/articles/it-isnt-just-boomers-lots-of-older-americans-are-stock-obsessed-ca069e1a?mod=hp_lead_pos8

 

1/5 of over 85s are fully invested in stocks! 

 

 

 

 

Yeah I don't blame them.  I heard Warren Buffett was in his 90's and hadn't diversified out of stocks at all!  Seriously though, have people who are 77-86 years old in 90+% equity portfolios too.

 

Imagine you own Berkshire and you are old and rich.  You aren't going to spend even close to what you have.  Why would you sell and pay tax just to reinvest the after-tax proceeds in something else at that age?

[mattee2264]

I was wondering if anyone has considered the impact of a falling US dollar on the market.

 

I assume some boost to EPS given that a good amount of S&P 500 revenues are earned in foreign currencies and also inflation will give a further boost to nominal earnings. 

 

So perhaps a combination of 5% inflation and a falling US dollar along with the continued AI hype and crowding into Big Tech could be an offset to the negative headwinds from a deteriorating economy and higher interest rates. 

[Gregmal]

Anyone got a good stick a fork in it meme? This was only June. Wait til July and August prints come in. Once we start seeing the moderation in housing which started last August...still wondering why we rallied? 

[rohitc99]

1 hour ago, Gregmal said:

Anyone got a good stick a fork in it meme? This was only June. Wait til July and August prints come in. Once we start seeing the moderation in housing which started last August...still wondering why we rallied? 

you are proving to be right on inflation  and before that covid's impact on the market. thats 2 for 2 , please keep going 

[changegonnacome]

 

38 minutes ago, Gregmal said:

Anyone got a good stick a fork in it meme?

 

Problem remains SuperCore and the chart below the first chart: 

 

 

However I'm not one to ignore facts - and SuperCore showed a slight encouraging but way too early to celebrate moderation. I hope it continues. I think as everyone knows here inflation disgusts me

 

The problem remains @Gregmal that while we should celebrate headline inflation coming down....celebrating the rolling off of transitory covid supply chain inflation is no victory at all.....its like trying to take credit for the sun coming up every morning.....the non-transitory element of inflation (made in america inflation/supercore) when it comes and perhaps this is the beginning of it starting to come down is actually a manifestation of underlying domestic economic weakness.......planned economic weakness by the Fed.

 

As i've said in earlier posts......with the thesis delayed........the early stages of inflationary cycles are good for corporates (price pushing)......the fight & progress against inflation is disastrous for them.... ....I hope this MoM progress on SuperCore continues (I'm all for it for reasons you know) but if its real and sustained you will see real and sustained headwinds on corporate earnings (we already have in kind of muted  but less dramatic way (minus ~12% real drop in SPY earnings is not a nothing burger already).....disinflation, margin compression, earnings weakness & rising unemployment are sisters that travel together.

 

Disinflation is to celebrated......I despise inflation........to think its a boom for stocks broadly.....is a rookie mistake......true domestic disinflation foreshadows, foretells and correlates with broad economic weakness.....disinflation is economic weakness & economic weakness is not good for earnings.

 

When true sustained & relentless real progress on supercore comes......SPY/QQQ won't be rallying in response.....it will be squealing in pain....perhaps this is the start. Let's see.

[Gregmal]

2 minutes ago, rohitc99 said:

you are proving to be right on inflation  and before that covid's impact on the market. thats 2 for 2 , please keep going 

Will try lol.

[Gmthebeau]

I am showing a Demark 13 sell signal printing on SPY today, for anyone interested in that.

[mattee2264]

Peak inflation was 9.1% CPI in June 2022 and closely coincided with the market bottom and devastating losses for Big Tech. 

 

Since then inflation has more or less fallen in a straight line to the current reading of 3.1% CPI. And aside from some jitters in the autumn there has been a V shaped recovery especially for Big Tech who bore the brunt of the market decline as a response to the inflation shock. 

 

So no surprise really that investors are very bullish. Inflation back to the 20 year pre-GFC average. Economy still at full employment and yet to fall into recession. No contagion from the regional banking crisis. Add AI to the mix and it is easy to look through any near term softness in corporate earnings. 

 

The question is what next?

 

Will the economy overshoot and fall into recession?

Will something break that the Fed is less equipped to fix?

Has inflation bottomed (and it would be typical for peak inflation to mark the cyclical low and trough inflation to mark the cyclical high) and could it start to rise even as the economy continues to slow down?

Will corporate earnings over the next few quarters disappoint more than expected? 

 

 

 

 

[Gregmal]

Once upon a time there was discussion about margins at Pepsi....

 

Operating profit grew 76% and operating margin improved 6.1 percentage points.

 

https://investors.pepsico.com/docs/default-source/investors/q2-2023/q2-2023-form-10q_nm3t7xov1rohgaf2.pdf

 

 

Obviously a company of this size is near impossible to pinpoint everything involved in the causes, however its clear 2022 was a year of one off hurdles not just with inflation related costs but also the war. Its also interesting how in the headline releases, a lot of these companies purposely dont seem to mention margins much at all....would indeed be a bad look to show pricing power improving margins. Nonetheless we wonder how margins could possibly expand after 2022....answer was? Very simple.

[dealraker]

21 hours ago, changegonnacome said:

 

 

Problem remains SuperCore and the chart below the first chart: 

 

 

However I'm not one to ignore facts - and SuperCore showed a slight encouraging but way too early to celebrate moderation. I hope it continues. I think as everyone knows here inflation disgusts me

 

The problem remains @Gregmal that while we should celebrate headline inflation coming down....celebrating the rolling off of transitory covid supply chain inflation is no victory at all.....its like trying to take credit for the sun coming up every morning.....the non-transitory element of inflation (made in america inflation/supercore) when it comes and perhaps this is the beginning of it starting to come down is actually a manifestation of underlying domestic economic weakness.......planned economic weakness by the Fed.

 

As i've said in earlier posts......with the thesis delayed........the early stages of inflationary cycles are good for corporates (price pushing)......the fight & progress against inflation is disastrous for them.... ....I hope this MoM progress on SuperCore continues (I'm all for it for reasons you know) but if its real and sustained you will see real and sustained headwinds on corporate earnings (we already have in kind of muted  but less dramatic way (minus ~12% real drop in SPY earnings is not a nothing burger already).....disinflation, margin compression, earnings weakness & rising unemployment are sisters that travel together.

 

Disinflation is to celebrated......I despise inflation........to think its a boom for stocks broadly.....is a rookie mistake......true domestic disinflation foreshadows, foretells and correlates with broad economic weakness.....disinflation is economic weakness & economic weakness is not good for earnings.

 

When true sustained & relentless real progress on supercore comes......SPY/QQQ won't be rallying in response.....it will be squealing in pain....perhaps this is the start. Let's see.

In finance - the insatiable and endless need to be aware of all things at all times making sure not to experience hardship of any size or duration is without a doubt the definition of ongoing rookie thinking.  In the long run I have watched many do this, the result is often that there is temporary satisfaction that some negative experience was avoided.

 

Yet none doing this, at last from my watch, are the ones with the stuff hoped for in the long run.  Writing well to me is almost always counter to investing well, again from what I've seen.  Buffett sought help to write decently, countless hopefuls try to emulate - and the oddballs outpouring like the latest popular guy Bloomstran do get popular.  But as usual he can't invest well, but does a fantastic job confusing those reading his letters looking for actual investment returns.

[Gregmal]

11 minutes ago, dealraker said:

In finance - the insatiable and endless need to be aware of all things at all times making sure not to experience hardship of any size or duration is without a doubt the definition of ongoing rookie thinking.  In the long run I have watched many do this, the result is often that there is temporary satisfaction that some negative experience was avoided.

 

Yet none doing this, at last from my watch, are the ones with the stuff hoped for in the long run.  Writing well to me is almost always counter to investing well, again from what I've seen.  Buffett sought help to write decently, countless hopefuls try to emulate - and the oddballs outpouring like the latest popular guy Bloomstran do get popular.  But as usual he can't invest well, but does a fantastic job confusing those reading his letters looking for actual investment returns.

One of the most underrated traits in some of the better investors I know is simply being humble enough to admit they dont know and dont need to know every detail or risk. Some things just fit into generalized boxes and can be left at that.