Have We Hit The Top?

[ValueArb]

17 hours ago, Viking said:

Investing 101: rule #1 - don’t fight the Fed.

 

 

Rule #1 is don't lose money, Rule #2 is never forget rule #1, and Rule #3 is every second spent thinking about what the fed is doing or will do is a second wasted.

[Gamecock-YT]

Must be getting close to something breaking then.

[Gregmal]

3 hours ago, ValueArb said:

 

Rule #1 is don't lose money, Rule #2 is never forget rule #1, and Rule #3 is every second spent thinking about what the fed is doing or will do is a second wasted.

If you bought stocks every time someone said dont fight the fed or made a recession call over the past 2 years you're crushing it. Sometimes it pays to think independently and go against the crowd. 12-18 months ago I was told about this GFC 2.0 type housing collapse and the impending recession too....here I stand today, far wealthier than the 5% treasury would have made me. 

[ValueArb]

43 minutes ago, Gregmal said:

If you bought stocks every time someone said dont fight the fed or made a recession call over the past 2 years you're crushing it. Sometimes it pays to think independently and go against the crowd. 12-18 months ago I was told about this GFC 2.0 type housing collapse and the impending recession too....here I stand today, far wealthier than the 5% treasury would have made me. 

 

If someone says rates are going down, I'm buying stocks. 

If they say we are having a soft landing, I'm buying stocks.

If they say no a recession is starting, I'm buying stocks.

If fed raises rates, I'm buying stocks.

 

To tell the truth, I don't even know how to buy bonds;)

[james22]

On 12/14/2023 at 5:17 AM, mattee2264 said:

I think the risk for markets is that the S&P 500 is already trading at 20x forward earnings.

 

Nah.

 

 

Edited December 16, 2023 by james22

[Gregmal]

19 minutes ago, james22 said:

 

Nah.

 

 

Lol exactly. This was all so seemingly obvious yet people chose to live in the textbooks. 
 

I really do want to start a thread titled “never forget the experts” and pin all the moronic articles, interviews and columns, Twitter posts, and analyst takes the last 2 years. Probably 85% of so called “experts” turned out to be total chumps.

Edited December 16, 2023 by Gregmal

[Paarslaars]

That sounds like a full time job though...

[Parsad]

https://finance.yahoo.com/news/forecasting-tool-hasnt-wrong-70-100600330.html

 

 

Cheers!

[mattee2264]

The yield curve has been inverted for ages as well. 

 

But are these usually good indicators still relevant in an economy where:

 

-The US government is running multi-trillion dollar deficits every year which can offset any weakness in manufacturing (which is a far less important sector than it used to be historically)

-Interest rates are incredibly manipulated as a result of money printing and forward guidance and market speculation 

 

The US economy reminds me of a gym bro juiced up on steroids. On the surface it looks strong and healthy. And will probably remain so as long as it continues to be juiced by stimulus. But eventually it will either get a heart attack or there will be some policy constraints that prevent the ongoing stimulus that it is so reliant upon. 

 

It seemed for a while as if inflation would put an end to accommodative monetary policy and the market didn't like that at all. 

 

But monetary policy hasn't really been that restrictive. There is still way more money floating around than there was pre-COVID and with the regional banking crisis the Fed has actually been expanding its balance sheet and QT has been proceeding at a fairly sluggish pace. And markets have now (probably correctly) determined that "tight" policy is transitory and pricing in much lower rates which along with stock markets approaching record highs has substantially loosened financial conditions. 

 

And any contractionary effect from monetary policy has been blown out of the water by unprecedented fiscal stimulus that is still at war time/emergency levels even though COVID is a distant memory and we are supposedly at full employment. 

 

Maybe policymakers will be able to stave off recession and eventually the economy will be able to stand on its own two feet and the excessive stimulus can be withdrawn. 

 

But more likely there will be an eventual bust even if we do have a few more boom years to go. 

Edited December 18, 2023 by mattee2264

[Gregmal]

Probably one of the hardest things for some(many) market participants to come to terms with is, 1) that they aren’t that smart and don’t have an edge, and 2) that maybe, just maybe, the market is simply, roughly speaking, where it should be and the macro is just kinda gonna truck along in an uneventful way….

 

One of the bigger takeaways from the past few years is this pissing match like contest of sorts taking place in the public domain where people need to predict these entertaining and sensational things. Of course, as we ve seen, 90% of the predictions from 95% of people are at best just guesses masquerading as informed predictions….but really, it’s not nearly as entertaining or career building a venture to just state that the market/economy is just gonna be fairly average/bland… 

[blakehampton]

The "Magnificent Seven" are very expensive.

 

https://www.wsj.com/finance/stocks/its-the-magnificent-sevens-market-the-other-stocks-are-just-living-in-it-5d212f95?mod=Searchresults_pos2&page=1

[mattee2264]

I don't think Mag7 are so bad. 

 

Microsoft, Apple, Meta, Alphabet are all around 30-35x trailing earnings. That is only about a 50% premium to the average stock which doesn't seem unreasonable for quality growth stocks.  

 

Amazon PE ratio has always been misleading because they invest so much for growth. 

 

Tesla and Nvidia have nosebleed valuations for sure. But it is dangerous to bet against stocks that seem at the forefront of the most popular market themes i.e., green revolution and AI. 

 

[TwoCitiesCapital]

14 hours ago, mattee2264 said:

I don't think Mag7 are so bad. 

 

Microsoft, Apple, Meta, Alphabet are all around 30-35x trailing earnings. That is only about a 50% premium to the average stock which doesn't seem unreasonable for quality growth stocks.  

 

Amazon PE ratio has always been misleading because they invest so much for growth. 

 

Tesla and Nvidia have nosebleed valuations for sure. But it is dangerous to bet against stocks that seem at the forefront of the most popular market themes i.e., green revolution and AI. 

 

 

50% premium absolutely seems expensive IMO.  Especially when that growth is tenuous a la Apple. 

 

Basically is a one product company who is under regulatory fire (see ruling against Android app store) which will hamper app store growth/revenues AND payments isn't working out as well as expected (see Goldman Sachs exiting partnership). 

 

Pair that with stagnating revenues from its primary product as the industry cycle matures and people don't upgrade every two years? You start to see what we've been seeing for the last few years - inconsistent revenue and profit growth.

 

Revenues are already down YoY, as is gross profit, and net profit. The only thing supporting this are debt funded buybacks and retail being in it en masse because it's a trade that has worked so well for so long....until it doesn't. 

[changegonnacome]

Been kicking around all the data - and to be honest I admire the markets view that things are just done and were headed to 10% annualized returns again for the next decade.

 

Feels a bit like a George W Bush on the back of an aircraft carrier moment - an exercise in collective wishful thinking.

 

The reality is I can't wait to get to Jan 1st to take some of these 2023 gains off the table such that Uncle Sam extends me some 0% margin financing until Mid-2025 to play around with.........either inflation doesn't cooperate as per expectations or it does cooperate but really its coming at the cost of a weakening economy. The 3 to 2% journey remains in my view the perilous one and I've seen little to suggest otherwise. I really do wonder what the Fed is seeing as regards weakening incoming data. The change in tone was abrupt - either they can see significant weakening on the horizon or in some sense they've done what many have been asking for....they've given up on the 2% target and are happy to run the economy hot at ~3% inflation. 

 

Further raincheck to those talking about a new broad bull market.... let's get SPY back to ATH's first (inflation adjusted) which is really something at the ~5200 level....we've cracked ~4700 and are back to the nominal all time high.....there's been 10% cumulative inflation since the Dec 2021 high......if your not grossing up your mostly ATH Dec 2021 positions by 10% to assess their inflation adjusted performance during this late-2021 to 2023 period your involved in a form of willful self-deception. 

[ValueArb]

 

If you want a list of all the reasons inflation might not be dead and rates might not go down, the always interesting Porter Collins and Vinnie Daniels visit Value After Hours to kvetch about their fears.

[mattee2264]

Fed is political and I do not think it has any real intention of bringing inflation down to 2%. Its projections (for what little they are worth) do not see inflation returning to 2% until 2026 which they are seemingly OK with given they project rate cuts next year. That would be five years that they would have missed their target. 

 

By that point inflation expectations will be anchored at a higher level and I cannot see them being willing to go through the pain necessary to go the final mile and restore credibility in their inflation target. 

 

 

[changegonnacome]

The ironic thing of course regarding this rally for those that have laughed at the incompetence of the Fed (with justification).

 

Is that this rally.......is BUILT on the inflation & rate projections contained in the SEP of the very same committee members that were ridiculously late to the inflation in the first place.......and are/were so derided as incompetent in their ability to predict anything, any time, anywhere.

 

However when the committee predicts something that can be 'sold' by Wall St. i.e. stock go up. Well they aren't idiots any more and we have total faith in their predictive powers in the SEP  

[TwoCitiesCapital]

9 minutes ago, changegonnacome said:

The ironic thing of course regarding this rally for those that have laughed at the incompetence of the Fed (with justification).

 

Is that this rally.......is BUILT on the inflation & rate projections contained in the SEP of the very same committee members that were ridiculously late to the inflation in the first place.......and are/were so derided as incompetent in their ability to predict anything, any time, anywhere.

 

However when the committee predicts something that can be 'sold' by Wall St. i.e. stock go up. Well they aren't idiots any more and we have total faith in their predictive powers in the SEP  

 

[mattee2264]

I think that is backwards. Market was predicting lower rates way before Fed threw in the towel. 

[Gregmal]

So what’s the new super bear target? 3750? When is the recession coming as well? Need to prep. What if inflation stays sticky icky icky at 2.197846% vs 2.0%?

 

At some point we either learn or we don’t. New records make money. Old records make money. Broken records don’t. 

[changegonnacome]

43 minutes ago, mattee2264 said:

Market was predicting lower rates way before Fed threw in the towel. 

Market was predicting lower rates in 2022 for FY2023….the market has been predicting rate cuts since effectively 2022 and been wrong.

 

The difference here is the market is predicting rate cuts (what’s new) and the Fed via the SEP for first time is agreeing with the market.

 

So the point still stands - this incremental Fed driven rally is built on the SEP projections of those previously derided as being incapable of predicting anything. 

[RedLion]

So if this commentary of inflation closer to 3% and lower rates comes true, it seems highly beneficial for risk assets no? 

[Haryana]

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

 

[Gregmal]

Idk but the “greed and euphoria” narrative really only seems paired with stocks going up. I don’t see much by the way of crazy positive sentiment in too many places. It still actually seems like the overriding emotions are skepticism and bitterness. 

[dipod]

Purely speculative but I think some of the tech giants are good put option portfolio hedges right now.