Have We Hit The Top?

[mattee2264]

Tech there do seem to be two ways to lose:

 

1) No landing/take off: investors gain confidence and rotate into cyclical and other more economically sensitive stocks and there is upward pressure on rates 

2) Hard landing: tech giants don't exist in a vacuum and are probably more cyclical than investors realise especially when you consider their underlying businesses e.g. Google/Facebook = advertising e.g. Amazon = consumer spending e.g. Tesla = autos. e.g. Nvidia = semiconductors. 

 

Soft landing suits tech because in a low growth low inflation low interest rate world the scarcity of growth makes their secular growth prospects especially valuable and reinforces their status as one-decision stocks. 

[MattR]

15 hours ago, Gregmal said:

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. 

Doordash, Palantir, MongoDB, Duolingo, Affirm, Upstart, Carvana, Coinbase, Broadcom, Nvidia, Sentiment is that Apple and Microsoft never goes down. 

 

[Sweet]

1 hour ago, MattR said:

Doordash, Palantir, MongoDB, Duolingo, Affirm, Upstart, Carvana, Coinbase, Broadcom, Nvidia, Sentiment is that Apple and Microsoft never goes down. 

 

Agree that some of them are too expensive but there are a great many stocks not expensive.  It’s a market of haves and have nots.

 

Some of the big companies like MSFT are truly global beasts that aren’t tethered to the US economy in the same way many other companies in the SP-500 are.

[james22]

2 hours ago, MattR said:

Doordash, Palantir, MongoDB, Duolingo, Affirm, Upstart, Carvana, Coinbase, Broadcom, Nvidia, Sentiment is that Apple and Microsoft never goes down. 

 

$6T cash on the sidelines.

[Gregmal]

US Steel is up a lot too...must be euphoria. 

[Cigarbutt]

5 hours ago, james22 said:

$6T cash on the sidelines.

In this one-liner, you likely refer to headlines made in reference to growing holdings in money-market funds.

Can you please describe what is meant by cash and where [the cash] is from and where [the cash] would go in the event of leaving the "sidelines"?

 

With all those top headlines,

and the moving from sidelines,

Irving Fisher and the permanent purchasing power of cash,

What happens when the cash goes away, some kind of a...?

 

Apologies, ran out of inspiration in the end.

[ValueArb]

6 hours ago, james22 said:

 

$6T cash on the sidelines.

 

People are going to dump all their emergency funds into the market because no one fears volatility any more. Need to buy a house, a car, pay your rent? Just sell some shares.

[Gregmal]

LOL everyone fears volatility, that’s we we have volatility 

[Spooky]

I love volatility. Wish we could get some more.

[james22]

3 hours ago, Cigarbutt said:

In this one-liner, you likely refer to headlines made in reference to growing holdings in money-market funds.

Can you please describe what is meant by cash and where [the cash] is from and where [the cash] would go in the event of leaving the "sidelines"?

 

Seems reasonable to assume some tactically invested at least new money (from income) into cash (MM funds) paying higher rates than they'd seen in a long, long time early this year when facing rising interest rates, a forecast recession, and after suffering market losses in 2022. 

 

Seems just as reasonable to assume those same investors will shift that cash to equities now that interest rates are predicted to fall, there's little fear of recession, and after suffering the opportunity cost of being out of the market in 2023.

 

3 hours ago, ValueArb said:

People are going to dump all their emergency funds into the market because no one fears volatility any more. Need to buy a house, a car, pay your rent? Just sell some shares.

 

I assume the money that moved into cash above was otherwise earmarked for long-term investing, not emergency funds.

 

 

This is the conventional wisdom, yeah?

[ValueArb]

3 hours ago, james22 said:

I assume the money that moved into cash above was otherwise earmarked for long-term investing, not emergency funds.

 

 

This is the conventional wisdom, yeah?

 

I was just being a sarcastic skeptical a-hole like I am about every new wall street claim. But in my defense I did read this in the Reuters article.

 

Quote

And while money market assets are at record highs, their size relative to the S&P 500 is smaller than it has been during past peaks.

 

Total money market fund assets as a percentage of market capitalization stand at about 15.5%, in line with the long-term median and well below the record high of 64% hit in 2009 in the aftermath of the global financial crisis.

 

So some of it could get dumped into the market, or triple that amount could get pulled out of the market, depending upon whether people get really greedy or extremely frightened. 

[Cigarbutt]

13 hours ago, james22 said:

Seems reasonable to assume some tactically invested at least new money (from income) into cash (MM funds) paying higher rates than they'd seen in a long, long time early this year when facing rising interest rates, a forecast recession, and after suffering market losses in 2022. 

Seems just as reasonable to assume those same investors will shift that cash to equities now that interest rates are predicted to fall, there's little fear of recession, and after suffering the opportunity cost of being out of the market in 2023.

...

This is the conventional wisdom (of the crowd?), yeah?

So just trying to be unreasonable for a second in this post.

"The reasonable man adapts himself to the world: the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man." George Bernard Shaw

 

There seems to be some kind of relative misconception about this money flow concept (in and out of equity and in and out of cash).

To support the unreasonable conclusion, many discussion paths can be taken (balance sheet approach, semantic approach) but let's use a simple example related to MMFs.

 

Euphoricbutt buys a Treasury security from james22. It's an asset swap and no money or 'cash' is created. For various reasons, let's say 'we' decide to use an intermediate. ValueArb accepts a deposit from Euphoricbutt in exchange for an IOU with interest and ValueArb buys the Treasury from james22 and performs another asset swap. Again, no money or 'cash is created. ValueArb figures out it's good business and leaves his job as a stock picker and becomes a Treasury-money changer, thereby expanding his business balance sheet, potentially faster than GDP. Again no money or 'cash' created, even on a larger scale.

The point is that when money enters the MMF, like Elvis Presley at the end of his shows, money leaves the building. Money is not sitting there as dry powder waiting to be deployed or whatever sideline terminology.

 

However, like most things in life, you may be onto something with this money-waiting-to-be-dumped-in-the-market 'narrative'. Despite all the tightening talk, 'we' are still living in a cheap (and excessive?) money era and the MMFs' growth in assets may be more a symptom than an actual disease in itself.

'We' now live in an era where the growth of money and credit aggregates has outpaced (and in fact decoupled) from underlying economic activity and, with a larger picture in mind than just MMFs, this 'growth' has fed into inflation (mostly asset inflation but with enough creativity also into consumer inflation (not that well tolerated by the populace)). Is this sustainable and does that provide any insight for future returns?

[MattR]

On 12/20/2023 at 3:01 PM, Sweet said:

Agree that some of them are too expensive but there are a great many stocks not expensive.  It’s a market of haves and have nots.

 

Some of the big companies like MSFT are truly global beasts that aren’t tethered to the US economy in the same way many other companies in the SP-500 are.

THe market is as bifurcated as it was in 2000. Tech stocks are insanely expensive, and ex US and old industries are among the lowest valuations in history. 

[ValueArb]

Everyone thought zero day options were a great thing when the market was on a hot streak, but one bad day and now they are the problem?

 

https://www.bloomberg.com/news/articles/2023-12-21/fingers-point-at-vilified-zero-day-options-to-explain-stock-drop

[Sweet]

41 minutes ago, MattR said:

THe market is as bifurcated as it was in 2000. Tech stocks are insanely expensive, and ex US and old industries are among the lowest valuations in history. 

So what do you own - Ex-US industrials?  Any in particular worth a look?

[Jaygo]

On 12/21/2023 at 8:48 AM, Cigarbutt said:

So just trying to be unreasonable for a second in this post.

"The reasonable man adapts himself to the world: the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man." George Bernard Shaw

 

There seems to be some kind of relative misconception about this money flow concept (in and out of equity and in and out of cash).

To support the unreasonable conclusion, many discussion paths can be taken (balance sheet approach, semantic approach) but let's use a simple example related to MMFs.

 

Euphoricbutt buys a Treasury security from james22. It's an asset swap and no money or 'cash' is created. For various reasons, let's say 'we' decide to use an intermediate. ValueArb accepts a deposit from Euphoricbutt in exchange for an IOU with interest and ValueArb buys the Treasury from james22 and performs another asset swap. Again, no money or 'cash is created. ValueArb figures out it's good business and leaves his job as a stock picker and becomes a Treasury-money changer, thereby expanding his business balance sheet, potentially faster than GDP. Again no money or 'cash' created, even on a larger scale.

The point is that when money enters the MMF, like Elvis Presley at the end of his shows, money leaves the building. Money is not sitting there as dry powder waiting to be deployed or whatever sideline terminology.

 

However, like most things in life, you may be onto something with this money-waiting-to-be-dumped-in-the-market 'narrative'. Despite all the tightening talk, 'we' are still living in a cheap (and excessive?) money era and the MMFs' growth in assets may be more a symptom than an actual disease in itself.

'We' now live in an era where the growth of money and credit aggregates has outpaced (and in fact decoupled) from underlying economic activity and, with a larger picture in mind than just MMFs, this 'growth' has fed into inflation (mostly asset inflation but with enough creativity also into consumer inflation (not that well tolerated by the populace)). Is this sustainable and does that provide any insight for future returns?

 

The growth in money supply should track the actual output of the economy. So population growth plus productivity growth. If we create too much money like during covid you are going to cause all sorts of disruptions in pricing as that money finds a home. Some get rich off of it while some suffer higher prices on what they buy without the increase in assets.

 

I now have roughly 2 million in assets and 500k in long term dept, And I spend about 100k per year so my net assets probably increased by 40% to get me to the 2million, my depts are reduced in actual value by 40% devaluation of currency and my expenses only increased by 40k per year and will soon be absorbed by increases in income. I am neutral to positive in actual net worth, someone without assets took it on the chin and all those numbers on the things they want are bigger. 

 

The real winners of this bullshit are the highly levered asset owners just like always!

 

The money supply increased by 40% and by in large prices of things like land, gold, perishables, profitable companies ect have gone up in price by roughly 40%.  It takes time but that is what should happen.

 

This is not inflation based on supply and demand or demographics. An example of real inflation is what we have in Single family homes where the supply is being constrained so the price goes up if you want to have that item is real inflation and not currency devaluation. I think Red Lion sees this and is leaning into SFH's since you have the tailwinds of supply and demand as well as the currency devaluation of dept to boost the potential returns.

[Red Lion]

1 hour ago, Jaygo said:

. I think Red Lion sees this and is leaning into SFH's since you have the tailwinds of supply and demand as well as the currency devaluation of dept to boost the potential returns.

You said it more eloquently than I ever could. Exactly. 

[Luke]

https://bilello.blog/2023/put-these-charts-on-your-wall-2023-edition?s=09

 

Nice one from Mayer posted on X

[Gregmal]

What Im loving looking and laughing at lately is all these fruitcake permabears who are trying to claim rates going down is now bearish because thats signaling a recession LOL. 

 

It. Never. Ends.

 

[bargainman]

Lots of CNBC talking heads happy about the fed's soft landing potential.  We'll see how that plays out.  But I wouldn't fight the fed!

[mattee2264]

What is a little bizarre is that talking heads are still talking about soft landing potential when with markets close to all time highs even a soft landing will probably result in some downside as it will mean slower growth and in a market dominated by growth stocks that is going to hurt as much as lower interest rates help. 

 

 

[Luke]

28 minutes ago, mattee2264 said:

What is a little bizarre is that talking heads are still talking about soft landing potential when with markets close to all time highs even a soft landing will probably result in some downside as it will mean slower growth and in a market dominated by growth stocks that is going to hurt as much as lower interest rates help. 

 

 

Slow growth developed markets trading at 25x+ earnings multiples, high growth developing markets trading at 7-8x earnings. 

 

Last time the US traded at 8x earnings was in the 80s? People who bought back then did very well in the coming 40 years

Edited December 29, 2023 by Luca

[Luke]

It would be interesting to know how the distribution of age on this board is and how that biases investment ideas and certain threads, if 70% are 55+ then your willingness to invest for the long term and be okay with 5 years flat returns obviously decreases, you will want safe and sound investments where safety is favored over growth? 

[mattee2264]

What are the high growth developing markets trading at 7-8x earnings? MSCI emerging markets has a forward PE of around 12x. Still a lot better than the 20x for developed markets. But not as obviously cheap and a lot of that cheapness is coming from China which has additional risks. 

[Luke]

14 minutes ago, mattee2264 said:

What are the high growth developing markets trading at 7-8x earnings? MSCI emerging markets has a forward PE of around 12x. Still a lot better than the 20x for developed markets. But not as obviously cheap and a lot of that cheapness is coming from China which has additional risks. 

The second-biggest economy in the world, trading at PE of 10 now, I think? And 12x forward for developed with those quality companies?: 

 

 

 

Edited December 29, 2023 by Luca