Where Does the Global Economy Go From Here?

[changegonnacome]

5 hours ago, UK said:

And TSLA still >CAP 800 B!

 

This 'market' aint over till TSLA is valued like a straight up car company.......the 50% annualized rev growth story supposedly holding up the valuation will be stopped dead in its tracks by the global recession.......its car factory footprint TODAY (Freemont, Texas, Shanghai,Berlin) with some modest edge outs in capacity inside of these should see Tesla peak out at best 2.5m annual run rate in this cycle.....the story built into the stock is of course an auto company producing 20m cars per year by 2030 + autonomy + robotaxis + humanoid robots........the breaking of the car production ramp narrative alone (which will be irrefutable even the dreamers cant deny it) will BREAK the stock......ironically after every short seller you ever heard of has been burned for the last half decade.....now is the best risk reward I've ever seen in being short the Tesla bubble....I mean is this thing gonna quadruple on you right now to a 3.2 trillion company? Not a chance, a double? Give me a break!.........but everybody has PTSD. Its exactly the way markets work.....NOW is the right time to be short Tesla but peeps cant bring themselves to do it because of the corpses of short sellers all around it. Its hard to step over dead bodies to pick up diamonds  

Edited September 24, 2022 by changegonnacome

[changegonnacome]

9 hours ago, UK said:

value/high FCF/short duration/leveraged things could lead decline?

 

Leveraged yes....but not all leverage is created equal..... on what business is the leverage placed.....a company that sells a consumer staple or is it leverage placed on a company that sells consumer discretionary/luxury products.....very different outcomes.

 

High FCF/shorter duration......wont lead the decline.........see the growth/value gap is shrinking as predicted by many.....but its the growth names which are contracting to shrink that gap......everything is/will fall if the BETA commands it.......value/high FCF are falling from a 'lower height' than low FCF/longer duration.....on a comparative basis value/high FCF will outperform growth.....but in market like this where the BETA sucks.............its a competition in who has the least ugliest wife........but when the BETA stops sucking, price stability returns AND the new normal of more elevated inflation and by extension higher more normal rates vs. 2010's......I expect value/high FCF to go on the tear again.....such that it wins back the crown of 'best' strategy over the long pull.....its got some catching up to do.....the last 14 years was just heaven for the growth factor.......but i think its time in the sun is over

[Spekulatius]

When it's all said and done, I think almost any sector benefiting from COVID-19 will get whacked and mean revert. 

 

List so far:

online retail, Tech, Lumber, Energy, building/construction, Cable, PC's, semis, consumer credit, retail

List just gets longer and longer...

 

Edited September 26, 2022 by Spekulatius

[Viking]

Are we at the beginning of the ‘something breaks’ part of the Fed tightening cycle? Bond yields are on a one way train higher. The US$ is on a one way train higher. What is next? Is this the beginning of the panic trade? Having some cash just might be a really good thing in the coming weeks… 

Edited September 26, 2022 by Viking

[LC]

44 minutes ago, Viking said:

Are we at the beginning of the ‘something breaks’ part of the Fed tightening cycle? Bond yields are on a one way train higher. The US$ is on a one way train higher. What is next? Is this the beginning of the panic trade? Having some cash just might be a really good thing in the coming weeks… 

 

About two years ago I found out I have an old fixed annuity that's been earning 3% since the early 90s.

 

Parents stuck 55k in a 3% fixed annuity back in 93. Worth about 100k now. If they bought SPY it would be 3.5M, Berkshire even more.

 

Well I've been meaning to figure out the best way to move those funds into a market product, today is the day I'll be redeeming it. I'd rather pay the taxes & early surrender charges than keep earning a measly 3% for another 20 years, and it's a real PITA to transfer to a market product within an annuity contract.

[LearningMachine]

4 hours ago, LC said:

 

About two years ago I found out I have an old fixed annuity that's been earning 3% since the early 90s.

 

Parents stuck 55k in a 3% fixed annuity back in 93. Worth about 100k now. If they bought SPY it would be 3.5M, Berkshire even more.

 

Well I've been meaning to figure out the best way to move those funds into a market product, today is the day I'll be redeeming it. I'd rather pay the taxes & early surrender charges than keep earning a measly 3% for another 20 years, and it's a real PITA to transfer to a market product within an annuity contract.

 

What are you going to put the funds in?

Edited September 26, 2022 by LearningMachine

[Castanza]

https://www.bloomberg.com/news/articles/2022-09-26/biden-team-monitoring-markets-amid-volatility-white-house-says
 

Wonder what they’ve got up their sleeves? 
 

Biden Bucks just in time for the mid-terms?  

[Gregmal]

14 minutes ago, Castanza said:

https://www.bloomberg.com/news/articles/2022-09-26/biden-team-monitoring-markets-amid-volatility-white-house-says
 

Wonder what they’ve got up their sleeves? 
 

Biden Bucks just in time for the mid-terms?  

Enough people see their retirement account statements and you’re gonna see all sorts of funny stuff. First one probably being jpow at senate hearings asking why $20 a week higher grocery bills called for destroying middle class dreams of home ownership and 75 being the new retirement age due to 30-50% declines in 401k. This whole year has been hilarious in so many ways. But really it’s been no different than the last couple; blind leading the blind and feebly serving the wealthy and their agendas. Like Mr Sokol today offering to PAY MORE for a shipping company! 

Edited September 27, 2022 by Gregmal

[TwoCitiesCapital]

6 hours ago, Viking said:

Are we at the beginning of the ‘something breaks’ part of the Fed tightening cycle? Bond yields are on a one way train higher. The US$ is on a one way train higher. What is next? Is this the beginning of the panic trade? Having some cash just might be a really good thing in the coming weeks… 

 

Yes. And what's breaks is corporate profits/margins. Not saying we can't see a bounce in equities - particularly of the Fed capitulates. 

 

But ultimately I think it's likely that risk assets are lower in a 6-12 months than they are today. 

Edited September 27, 2022 by TwoCitiesCapital

[Guest]

26 minutes ago, TwoCitiesCapital said:

 

 

But ultimately I think it's likely that risk assets are lower in a 6-12 months than they are today. 

 

You might be right but statistically, that's unlikely. Markets are usually up around 70% of the time over a 1 year period. 

[Gregmal]

7 minutes ago, stahleyp said:

 

You might be right but statistically, that's unlikely. Markets are usually up around 70% of the time over a 1 year period. 

There’s never been a decline, period, like even 2-5% declines, where “lower” wasn’t the forecast somewhere. Even at 670 in 09 we had another 30% to go. Look at @LC example with 3% return 30 years ago. What a waste. This is just where fools and their assets part ways. They get fooled into believing the day to day quotes they get represent the value of what they own, and the whole irony there is that if that were true, there’s no point to buying anything but an index.

[TwoCitiesCapital]

30 minutes ago, stahleyp said:

 

You might be right but statistically, that's unlikely. Markets are usually up around 70% of the time over a 1 year period. 

 

70% of the time you didn't have CAPEs at 30+ heading into an inflation above 9%. 70% od the time you didn't have dollar at 20+ year highs. 

 

What matters is the relevant comparables - not all data ever. 

 

There's NEVER been a time where CAPEs were this high with inflation this high. All relevant comparables has CAPEs @ like 15 or less. We started at 30. 

 

Historically, higher rates and higher USD and higher oil led to contractions in corporate profits. USD is @ 20-year highs, US rates @ 12 year highs, and oil is still up like 10-20% YTD despite the massive pullback recently. Contracting profits is a MUCH higher probability in that environment. 

 

SO historically, multiples have NEVER been this high with inflation this high and historically earnings have contracted when you had those 3 things in tandem. That doesn't sound like a "1/3 of the time stocks go down" environment. 

 

things are oversold. I expect we could get another bounce - but the ultimate trajectory is lower and will be until the Fed capitulates. We can re-evaluate forward looking projections at that time. 

[LC]

3 hours ago, LearningMachine said:

 

What are you going to put the funds in?

Not sure yet. The namesakes (BRK & FFH) both look cheap. But I have hedges and some aggressive names already so I may hold cash or play some merger arb (ATCO, looking at you) until the next rate hike or two and see if Powell conquers his inflation nemesis. 
 

Also looking at property on vacation areas - stuff that I want to use myself and that is easy to Airbnb or rent weekly/monthly for when I am not there.

[changegonnacome]

2 hours ago, TwoCitiesCapital said:

 

Historically, higher rates and higher USD and higher oil led to contractions in corporate profits.

 

Take it to the bank

[Paarslaars]

4 hours ago, Gregmal said:

They get fooled into believing the day to day quotes they get represent the value of what they own

 

And this is a wonderful thing for the rest of us.  

[Guest]

10 hours ago, TwoCitiesCapital said:

 

70% of the time you didn't have CAPEs at 30+ heading into an inflation above 9%. 70% od the time you didn't have dollar at 20+ year highs. 

 

What matters is the relevant comparables - not all data ever. 

 

There's NEVER been a time where CAPEs were this high with inflation this high. All relevant comparables has CAPEs @ like 15 or less. We started at 30. 

 

Historically, higher rates and higher USD and higher oil led to contractions in corporate profits. USD is @ 20-year highs, US rates @ 12 year highs, and oil is still up like 10-20% YTD despite the massive pullback recently. Contracting profits is a MUCH higher probability in that environment. 

 

SO historically, multiples have NEVER been this high with inflation this high and historically earnings have contracted when you had those 3 things in tandem. That doesn't sound like a "1/3 of the time stocks go down" environment. 

 

things are oversold. I expect we could get another bounce - but the ultimate trajectory is lower and will be until the Fed capitulates. We can re-evaluate forward looking projections at that time. 

 

There are always talking points about why the next 12 months the market will be down (and all seem completely rational).

 

Perhaps it will be but there's only a 30% chance that it will. I mean 30% of the time, the bears are right after all.

 

So what do you know that the market doesn't in order for you to be confident when the odds are against you?

Edited September 27, 2022 by stahleyp

[Gregmal]

I’d also argue that historically speaking, 4% rates and $80 oil isn’t really anything special in terms of high or low. Dollar is another story lol

[TwoCitiesCapital]

3 hours ago, stahleyp said:

 

There are always talking points about why the next 12 months the market will be down (and all seem completely rational).

 

Perhaps it will be but there's only a 30% chance that it will. I mean 30% of the time, the bears are right after all.

 

So what do you know that the market doesn't in order for you to be confident when the odds are against you?

 

There's a 30% chance that it will if you're in a vacuum and considering no additional information. 

 

But if you are a fan of Bayes, than we must update the marginal probability with new information. The new information being way above average inflation, commodity input prices significantly higher than a year ago, interest rates at 12-year highs, the USD at 20-year highs, the starting near record valuations, and the Fed being aggressive with interest rates while the economy is already in a technical contraction. 

 

All of those would typically point to the risk of it being well in excess of the 30% that prices may be lower. Just like the probability is probably quite a bit less than 30% in the year following a recession.  

 

Until the Fed capitulates, the risk is falling profits in an environment where multiples are still elevated and a Fed that is still removing massive amounts of liquidity from the market. 

 

I'm still buying stocks - commodity companies and Fairfax are still cheap. Things like Porsches IPO and Stelco's tender above the current price provide opportunity. But ultimately will be quick to take gains and have a higher allocation to fixed income/cash than I'd otherwise like. 

 

Edited September 27, 2022 by TwoCitiesCapital

[Guest]

17 minutes ago, TwoCitiesCapital said:

 

There's a 30% chance that it will if you're in a vacuum and considering no additional information. 

 

But if you are a fan of Bayes, than we must update the marginal probability with new information. The new information being way above average inflation, commodity input prices significantly higher than a year ago, interest rates at 12-year highs, the USD at 20-year highs, the starting near record valuations, and the Fed being aggressive with interest rates while the economy is already in a technical contraction. 

 

All of those would typically point to the risk of it being well in excess of the 30% that prices may be lower. Just like the probability is probably quite a bit less than 30% in the year following a recession.  

 

Until the Fed capitulates, the risk is falling profits in an environment where multiples are still elevated and a Fed that is still removing massive amounts of liquidity from the market. 

 

I'm still buying stocks - commodity companies and Fairfax are still cheap. Things like Porsches IPO and Stelco's tender above the current price provide opportunity. But ultimately will be quick to take gains and have a higher allocation to fixed income/cash than I'd otherwise like. 

 

 

Yes but isn't that all pretty well known information? Wouldn't that already be priced in?

[Guest]

annnnd we just hit a new year low. Yayyyy! 

[TwoCitiesCapital]

16 minutes ago, stahleyp said:

 

Yes but isn't that all pretty well known information? Wouldn't that already be priced in?

 

Was 2008 priced in when we were down only 20%? 

 

Was 2020 priced in when we were only down 20%? 

 

Was the Fed hiking rates priced in in March 2022? 

 

If you look at earnings estimates, they don't yet reflect a contraction that is near certain to come IMO regardless of how "well known" or "priced in" it's supposed to be. 

[Guest]

21 minutes ago, TwoCitiesCapital said:

 

Was 2008 priced in when we were down only 20%? 

 

Was 2020 priced in when we were only down 20%? 

 

Was the Fed hiking rates priced in in March 2022? 

 

If you look at earnings estimates, they don't yet reflect a contraction that is near certain to come IMO regardless of how "well known" or "priced in" it's supposed to be. 

 

2008 and 2020 was not priced in because people underestimated the severity. However with 2020 markets were priced in very quickly.

 

Perhaps now people are underestimating the severity of rate hikes. I don't know.

[Gregmal]

5 minutes ago, stahleyp said:

 

2008 and 2020 was not priced in because people underestimated the severity. However with 2020 markets were priced in very quickly.

 

Perhaps now people are underestimating the severity of rate hikes. I don't know.

Pretty sure in both 2008 and 2020 bottoms occurred within 12 months. In 2020 probably within a couple weeks. That’s the problem generally with sell offs is that the noise and current headlines get everyone trying to guess the tomorrows tape, or exact bottom or avoid the next leg and in the process forget entirely about the fact that investing should be about longer term fundamentals.
 

For instance it’s hard to envision a scenario where Berkshire at 260 or FFH at 460 doesn’t make tons over money over the next 3-5. In the short term if there’s another 10-20% folks feel good avoiding it, but longer term it’s just always kinda the same thing.
 

Markets are always moving ahead, when we hit earnings trough the market will already be way off the bottom. Things in general seemed priced in until the recent possibility was raised that the Fed would purposely put us in a recession and destroy jobs. Which even there, is eventually something that will have to be fixed. And it will be. They’ve already said this is temporary. Unless you’re investing with a 6-12 month window, in which case I guess it’s possibly permanent. Thankfully I don’t have that problem.

So, take your pick. Sit around trying to guess a million different short term variables, most temporary, or just play the long game. I try to do a bit of both, but the major skew really should just be towards acquiring great and indestructible assets.

[Kupotea]

16 minutes ago, stahleyp said:

 

2008 and 2020 was not priced in because people underestimated the severity. However with 2020 markets were priced in very quickly.

 

Perhaps now people are underestimating the severity of rate hikes. I don't know.

 

[Guest]

6 minutes ago, Gregmal said:

Pretty sure in both 2008 and 2020 bottoms occurred within 12 months. 

 

If memory serves we had a high in Nov 2007 and hit bottom March 2009.