Have We Hit The Top?

[Spekulatius]

Omicron $OMIC coin is a 4+ bagger in one day. This game isn’t that difficult, people.

 

Edited November 28, 2021 by Spekulatius

[maplevalue]

12 hours ago, IceCreamMan said:

Makes sense, however, what would we have predicted in January 2020 would happen to asset prices had we known about the upcoming lockdowns, etc?

 

A great point about how what the market did defied what many predicted in 2020. With that said the setup for future lockdowns is different. In 2020 we had lockdowns -> deflation -> easy monetary policy. With this go around, and CPI having gone up 6% over the past year, I suspect we would have lockdowns -> inflation -> ?. The ? could very well be monetary policy stands pat (i.e. no incremental stimulus), or potentially a tightening. I am not saying tighter policy in a lockdown scenario is the most likely scenario, but given how big of a negative it would be for markets, it's important to consider the possibility.

[Guest]

4 hours ago, Spekulatius said:

Omicron $OMIC coin is a 4+ bagger in one day. This game isn’t that difficult, people.

 

 

 

haha. These are crazy, crazy times. 

[muscleman]

2 hours ago, maplevalue said:

 

A great point about how what the market did defied what many predicted in 2020. With that said the setup for future lockdowns is different. In 2020 we had lockdowns -> deflation -> easy monetary policy. With this go around, and CPI having gone up 6% over the past year, I suspect we would have lockdowns -> inflation -> ?. The ? could very well be monetary policy stands pat (i.e. no incremental stimulus), or potentially a tightening. I am not saying tighter policy in a lockdown scenario is the most likely scenario, but given how big of a negative it would be for markets, it's important to consider the possibility.

 

I don't think we will get another lockdown this time. In the US, repulicans are anti-lockdowns. Democrats were pro-lockdowns last year, only because they want to destroy the economy and win the election. But now that they are in charge, they will have no incentive to lockdown because they have the lowest approval rating now among all administrations in the US history now. They are in desperate mode to curb inflation and make people happy so they can win 2022 mid term election.

I think we will likely see fed tightening while the virus is running wild.

 

Note that having a variant more contagious is not a bad thing. More contagious => less deadly. Eventually it will become no big deal to get infected.

 

[ERICOPOLY]

12 hours ago, muscleman said:

Democrats were pro-lockdowns last year, only because they want to destroy the economy and win the election.

 

 

You are being ridiculous.

 

Don't you realize you are espousing a conspiracy theory?

Edited November 29, 2021 by ERICOPOLY

[Gregmal]

6 hours ago, ERICOPOLY said:

 

You are being ridiculous.

 

Don't you realize you are espousing a conspiracy theory?

It is somewhat true. This past January I left NJ where I couldn't go to a restaurant or a reasonably expect to socialize publicly. Still mask central as well. A week later I was in FL bar hopping and dining out 2x a day with no restrictions. Not coincidentally, it was a mere week or two after inauguration when NY and Co started announcing reopening plans. There was certainly coordinated efforts to stunt things. How coordinated, I dont know. I didnt really care because where I live in NJ no one followed that stuff anyway and then I spent a lot of time in the South so it didnt effect me. But I just remember driving back and crossing into NJ on the turnpike and laughing because after getting totally back to normal then the first thing I see is a HUGE government sponsored billboard saying "traveling from out of state? Call xxxxxxx or text "ABC" to find out how long you need to quarantine"....and just being like "yea fuck this state". 

 

That said, relevant to this topic, covid poses no threat to the market, other than short term opportunity for people who arent scarped of a short term paper loss IMO. Its done and people still worrying about it and selling their stocks in fear of the next variant should just index or something. The threats to the market IMO are still rate and inflation related and this holiday season should give a good indication of where the consumer really stands. If we can bulldoze through this and then get some pricing relief into Q1 there may be some opportunities. Either way though I still think theres lot of shit masquerading around that is going to have a very hard time. 

[Spekulatius]

There is very little appetite to do lockdowns anywhere, blue or red state.

 

That said, in Europe and Germany, Hospitals running full forces hands. I know for fact that in some areas in Germany (Bavaria and Saxonia), hospital were running full and patients had to be airlifted to other parts in Germany with less case loads.

 

Somewhat surprising given the higher vaccination rate there, but keep in mind that the Astra Zeneca vaccine was widely used and it has proven to have lower efficacy. My brother in Germany has a friend who ended up going to the hospital from COVID-19 even though he was double vaxxed with Astra Zeneca to add an anecdote. He is in his mid fifties.

 

Note that this has nothing to do yet with the Omnicron variant, which i believe to be not yet a factor for In Europe, but will be. I do think we will see a surge in cases in the US too post Thanksgiving (cases should start going up in a week or so) and Xmas. However, it is hospital utilization that drives decisions (or should) not case load.

 

Maybe the emergency authorization of the Pfizer antiviral helps out too.

 

It's a good idea to get the booster shot, if you haven't already. I got mine last month.

 

 

Back to the topic of this thread, I wonder if this gives the Fed an excuse to delay tapering. The Fed announced an end to tapering at the end of this year, but it seems to me that they are just looking for excuses to delay anything that could cause pain to the market.

Edited November 30, 2021 by Spekulatius

[TwoCitiesCapital]

On 11/28/2021 at 7:56 AM, scorpioncapital said:

the top of what is coming? inflation is a disaster like deflation but it works differently. Inflation is like 2 horses. prices go up, stocks go up, there is no 'top', but the expense side of your life grows faster than your net worth/income. As a result you actually have personal deflation, camouflaged as inflation and infinite growth of assets, but just not enough.

 

Stocks go up is primarily only true in hyper inflationary scenarios and is only true in nominal terms. 

 

Equity returns were very negative during the last inflation of the 70s - particularly on a real basis. 

 

If we get +5% inflation consistently going forward, there's no way that we're not near a decade long top. 

Edited November 30, 2021 by TwoCitiesCapital

[muscleman]

1 hour ago, TwoCitiesCapital said:

 

Stocks go up is primarily only true in hyper inflationary scenarios and is only true in nominal terms. 

 

Equity returns were very negative during the last inflation of the 70s - particularly on a real basis. 

 

If we get +5% inflation consistently going forward, there's no way that we're not near a decade long top. 

 

Yep. 1970s is not very far away from now, and I haven't seen anyone talking about a repeat of the 70s except you.

Buffet lost 30% in 1973 and another 30% in 1974. I don't think that's something most people here can tolerate. At least I can't, so I choose to get out.

Venezuela stock index went up 600% from 2014. But that's nothing compared to houses. What used to buy a 2 br condo there in 2014 can only buy one egg.

 

[matthew2129]

1 hour ago, muscleman said:

 

Yep. 1970s is not very far away from now, and I haven't seen anyone talking about a repeat of the 70s except you.

Buffet lost 30% in 1973 and another 30% in 1974. I don't think that's something most people here can tolerate. At least I can't, so I choose to get out.

Venezuela stock index went up 600% from 2014. But that's nothing compared to houses. What used to buy a 2 br condo there in 2014 can only buy one egg.

 

Two big differences that I think make the 70s an unhelpful comparison are:

 

1. Corporate profit margins are at an all-time high today. It's very rare, if not completely unprecedented, to have sustained inflation when you don't have increasing input costs threatening to take marginal costs towards or above marginal revenues. And despite increases in wages per employee, aggregate wages have never been lower as a % of revenues. Corporations have never been further from the "viscous circle" of an increase in input costs forcing an increase in prices. 

 

2. You can't buy a 30 yr treasury yielding 15%, and I don't think rates will necessarily rip anytime soon. US treasuries may have had deeply negative real interest rates this year when you denominate in USD, but denominated in yen or Euro, US treasuries  had highly positive real returns this year (thanks to the strength in the USD)

 

We also don't have the demographics we did in the 70s for sustained CPI inflation. The money has to go somewhere, but my bet is on continued financial asset inflation. 

Edited November 30, 2021 by matthew2129

[TwoCitiesCapital]

1 hour ago, matthew2129 said:

Two big differences that I think make the 70s an unhelpful comparison are:

 

1. Corporate profit margins are at an all-time high today. It's very rare, if not completely unprecedented, to have sustained inflation when you don't have increasing input costs threatening to take marginal costs towards or above marginal revenues. And despite increases in wages per employee, aggregate wages have never been lower as a % of revenues. Corporations have never been further from the "viscous circle" of an increase in input costs forcing an increase in prices. 

 

2. You can't buy a 30 yr treasury yielding 15%, and I don't think rates will necessarily rip anytime soon. US treasuries may have had deeply negative real interest rates this year when you denominate in USD, but denominated in yen or Euro, US treasuries  had highly positive real returns this year (thanks to the strength in the USD)

 

We also don't have the demographics we did in the 70s for sustained CPI inflation. The money has to go somewhere, but my bet is on continued financial asset inflation. 

 

I don't necessarily disagree with you regarding inflation. I am definitely still in the disinflation/deflation being the threat, but would not be shocked to see inflation averaging slightly higher than the last decade if we successfully navigate this monetary experiment (like 3-4% per annum as opposed to 1-2%). 

 

That being said, I only brought up the 70s because it does seem everyone here simultaneously believe that inflation is here to stay and that equities are the best investment to own in that environment.  Equities make a terrible inflation hedges when inflation gets above 4ish% - particularly if you're paying 25x earnings that are predicated on margins remaining at all time highs (i.e. no contraction in E as input and labor costs rise). I would think that is also unlikely - as corporations have been big beneficiaries of a larger cut of the economic pie as inflation stagnated, so to they will likely be the bigger losers of economic pie as inflation results in pro-labor policies that bring that pendulum back. 

 

Basically, if I'm right, stocks can likely remain elevated for a bit longer solely on momentum. Wouldn't be hard to imagine a blow off top to this bubble another 20-30% higher from here. But if everyone ELSE is right about elevated inflation being sticky...look out below because you likely won't see 4600 on the S&P 500 again for years. 

[scorpioncapital]

7 hours ago, TwoCitiesCapital said:

 

Stocks go up is primarily only true in hyper inflationary scenarios and is only true in nominal terms. 

 

Equity returns were very negative during the last inflation of the 70s - particularly on a real basis. 

 

If we get +5% inflation consistently going forward, there's no way that we're not near a decade long top. 

 

Stocks went down in the 70s...after they went up a lot in the 60s...because the government was *fighting* the high inflation with eye-popping interest rate rises. It was the fighting inflation that made stocks go down. 

 

Now I've seen 2 scenarios. Look at Turkey - they lowered rates from like 20% to 15%!! and currency continued to tank because not only was 15% too low but 20% was too low to 'break the back' of inflation.

The other scenario is financial repression which is what we have now. Where interest rates are suppressed below the rate of inflation for a long time.

 

So to me it seems to be the inflection points that cause damage to stocks - the commitment to fight inflation. Even a half-ass commitment is not enough. If fed raises rates to 5% and inflation rages at 10% we are in no different situation than today with inflation at 5% and rates at 0%...

Edited November 30, 2021 by scorpioncapital

[LearningMachine]

6 hours ago, scorpioncapital said:

If fed raises rates to 5% and inflation rages at 10% we are in no different situation than today with inflation at 5% and rates at 0%...

 

We may not be in a different situation when it comes to how much cash is losing value.

 

However, we will be in a different situation when it comes to valuing stocks because cost of rollover debt will change, alternative investments for people will change, and discount rate will change immediately while price increases will take time to come through. 

[mcliu]

13 hours ago, muscleman said:

 

Yep. 1970s is not very far away from now, and I haven't seen anyone talking about a repeat of the 70s except you.

Buffet lost 30% in 1973 and another 30% in 1974. I don't think that's something most people here can tolerate. At least I can't, so I choose to get out.

Venezuela stock index went up 600% from 2014. But that's nothing compared to houses. What used to buy a 2 br condo there in 2014 can only buy one egg.

 

 

The future is difficult to predict. Isn't it better to hedge your bets probabilistically rather than go all in on one scenario? 

[Gregmal]

Yea everyone has a different strategy but holding large amounts of cash is both bizarre and inefficient. I know plenty of people and even active managers who sold because they were scared of COVID in February, March and April 2020. No one that I am aware of became fully invested again until the market had already surpassed previous highs and even a year later most of them still weren't back to being invested. Over time Ive learned to hedge whenever some sort of short term uncertainty arises. Selling long term holdings to avoid 3-6 month paper losses is dumb. 

[ERICOPOLY]

On 11/29/2021 at 5:40 AM, Gregmal said:

That said, relevant to this topic, covid poses no threat to the market, other than short term opportunity for people who arent scarped of a short term paper loss IMO. Its done and people still worrying about it and selling their stocks in fear of the next variant should just index or something. The threats to the market IMO are still rate and inflation related and this holiday season should give a good indication of where the consumer really stands. If we can bulldoze through this and then get some pricing relief into Q1 there may be some opportunities. Either way though I still think theres lot of shit masquerading around that is going to have a very hard time. 

 

You are right that a threat to the market is due to inflation but the global supply chain issues that are fueling inflation are BECAUSE of covid.  

 

So the threat is covid.

 

The global supply chain issues are a combination of covid restrictions and covid's influence on consumer spending patterns.

Edited November 30, 2021 by ERICOPOLY

[muscleman]

https://www.wsj.com/articles/powell-warns-omicron-variant-could-worsen-inflation-boosting-bottlenecks-11638280800

Fed's primary mandate is to battle inflation, not to pump the stock market. 

Right now the tide has shifted from "when to taper QE" to "if we should taper faster due to inflation out of control".

Last year, covid is the cause of the start of this crazy QE program. This year, covid will be the cause for ending this crazy QE program. That's my understanding. My original post calling for a November top was also based on Fed's timeline to start tapering.

Edited November 30, 2021 by muscleman

[wabuffo]

The Fed can't stop monetary inflation (i.e., currency debasement) with interest rate hikes - let alone tapering.

 

Bill

[Gregmal]

53 minutes ago, ERICOPOLY said:

 

You are right that a threat to the market is due to inflation but the global supply chain issues that are fueling inflation are BECAUSE of covid.  

 

So the threat is covid.

 

The global supply chain issues are a combination of covid restrictions and covid's influence on consumer spending patterns.

So then certainly there would be beneficiaries of this? Rhetorical question. But we both know the answer. So again, why be in cash LOL?

[Gregmal]

Its like people rather lose money via the inflation monster because "the number in my checking account is still the same" and it makes them feel better than seeing a temporary red down arrow....I think its all but a certainty that the top is/was in(IMO it was Feb 2021, not now or whenever) for most of tech and high growth, high multiple stuff. But a new horizon is emerging and there's a good bit to eat there IMO.

[Spooky]

3 hours ago, wabuffo said:

The Fed can't stop monetary inflation (i.e., currency debasement) with interest rate hikes - let alone tapering.

 

Bill

 

Can you elaborate on this please?

 

[wabuffo]

Can you elaborate on this please?

 

Its simple - the Federal government offers to us (the private sector) three types of liabilities that exhibit "moneyness":

a) currency in circulation

b) bank reserves

c) treasury securities

 

(I compare this to a bank offering you: a) cash b) demand deposit or c) time deposit.)

 

There are three types of transactions that the consolidated Federal govt (US Treasury + Fed) does with the private sector that affects these three types of Federal government "moneyness" liabilities:

1) US Treasury deficit spending (net of taxes and fees received)

2) Federal Reserve buying/selling US Treasuries.

3) US Treasury issuing new treasury securities.

 

Of these three, the only transaction that increases money supply for the private sector is deficit spending.  

 

The other two types of transactions with the private sector are asset swaps and change one form of Federal government liability for another and thus do not added to the total amount of Fed govt liability to the private sector.

 

Some say bank lending also increases the amount of money supply - but I say that this is a private sector transaction that adds an asset but also a liability - and thus does not increase total private sector net assets.

 

So the headline is - watch US Treasury deficit spending.  Its the only thing that matters when it comes to money supply increases.

 

Bill

 

 

[TwoCitiesCapital]

12 minutes ago, wabuffo said:

Can you elaborate on this please?

 

Its simple - the Federal government offers to us (the private sector) three types of liabilities that exhibit "moneyness":

a) currency in circulation

b) bank reserves

c) treasury securities

 

(I compare this to a bank offering you: a) cash b) demand deposit or c) time deposit.)

 

There are three types of transactions that the consolidated Federal govt (US Treasury + Fed) does with the private sector that affects these three types of Federal government "moneyness" liabilities:

1) US Treasury deficit spending (net of taxes and fees received)

2) Federal Reserve buying/selling US Treasuries.

3) US Treasury issuing new treasury securities.

 

Of these three, the only transaction that increases money supply for the private sector is deficit spending.  

 

The other two types of transactions with the private sector are asset swaps and change one form of Federal government liability for another and thus do not added to the total amount of Fed govt liability to the private sector.

 

Some say bank lending also increases the amount of money supply - but I say that this is a private sector transaction that adds an asset but also a liability - and thus does not increase total private sector net assets.

 

So the headline is - watch US Treasury deficit spending.  Its the only thing that matters when it comes to money supply increases.

 

Bill

 

 

 

Can you elaborate? Because we just had 10+ years of massive and unprecedented deficits...and still didn't get massive inflation outside of asset markets. 

 

So, is that it? Inflation was simply contained to financial assets? Or is there something more important to watch than just the deficit? 

[wabuffo]

Can you elaborate? Because we just had 10+ years of massive and unprecedented deficits...and still didn't get massive inflation outside of asset markets. 

 

We did not.  We had a big deficit splurge in 2008-2009 and then quickly got back to deficits that were 3-4% of GDP.  The numbers are large but as a % of GDP they aren't big.    Now 2020-2021 was much larger and it was more in the form of direct payments to individuals (stimmie round 1, 2 & 3) and businesses (PPP forgiveable loans).  

 

I think the key question is:  Are these big deficits behind us and one-time in nature or is this the beginning of more deficit spending under this administration that will average much larger percentages of GDP?

 

I don't know. 

 

But what I do know is that the Fed is a minor player in all of this action.  The big gorilla is the US Treasury.

 

 

Bill

Edited November 30, 2021 by wabuffo

[CorpRaider]

Ron Paul just stroked out again.