S&P 500 - Worst Start to a Year Since 1939!

[Gregmal]

Isn’t there a degree of bias here though. It seemed obvious in terms of one thing, the Fed has been VERY GOOD at communicating their intentions. They told us this is what they are doing. But at some point the computers and fear mongering outlets drew up this wild thesis that they’d go rogue and raise unexpectedly by 75 bps MULTIPLE times? This started driving thing. But ultimately Powell did and said what he s said all along, no?

[Viking]

This was the same guy who said a few short months ago that inflation was transitory  And we all believed him then too. So, yes, the Fed has been very good at communicating their intensions… until they realize they are wrong, change their mind, and communicate the ‘new intention’. So the current intention is to hike… and they will… until something breaks… and then they will communicate the new new intention…

 

Bottom line, i am happy to play all the volatility. 

Edited May 5, 2022 by Viking

[Gregmal]

Sure, you have to use your head. I don’t know why anyone thought last year, that the inflation wasn’t going to persist longer than everyone was telling us. I was shocked you kicked the Stelco cuz you were on it too. If I’m recalling accurately, you got the lumber trade right. Both seemed pretty obvious along with crude and nat gas, at least to me. 
 

But with the actual adjustment of rates, you have to ask why they’d deviate from what they’ve communicated? It’s one thing to say you think inflation is transitory. But so what? That’s a guess. So is predicting what happens in June with the start of run off. You know for certain? I don’t. What’s Powell gonna say? Well I think the Nasdaq will fall 4.7% but the S&P being a little more diverse only 3.9? That is dumb. Why rail on him for making an obvious statement or refusing to attempt to predict something like that? 
 

Consistently I’ve seen this bizarre animosity towards the Fed. For basically the whole decade. My father does it all the time and on and on about how incompetent they are as if it’s personal. And finally one day I asked and he didn’t have a good answer for why he feels this way but did mention how he thinks they are “stealing” from savers by manipulating interest rates. And then it kind of made sense to me. He s older and risk averse. And feels entitled to interest. But guess what? Life changes and just like David Tepper did on the spot in February of 2009, he listened. They told you what their goals were and what they were going to do. And if you missed it, because you wanted to earn interest, who’s fault is that? The Fed has never desired to destroy wealth, just kind of balance things. They basically said “we re going to fix the economy”. They have done that. Now they’re saying “we re taking the training wheels off”. It doesn’t necessarily have to mean the entire market is going to implode or that they’re going to wreck the economy just cuz.

Most people are doing well. They bitch, but it’s their choice. I was picking up my son from a Lego themed engineering class(he s 5, how awesome is having classes like that? Wish I did) and this mom is talking to another mom bitching about how her new Buick SUV cost $6k more than sticker because of the dealer mark to market price bump. And I just thought, “you bought it though right?”. And that’s the thing. Everyone’s got their complaints and yea stuff is more expensive, but folks can handle it to a greater deal than the WS spreadsheets seem to think. So no, the Fed probably doesn’t find it terribly urgent to fuck up what they’ve spent a decade restoring. They’ll stick to the plan, and hike 50 or whatever amount of bps they’ve communicated until shit slows. As I’ve detailed before, the majority of this stuff is just a matter of time before it fixes. Cars aren’t hard to produce. Eventually things will get back to normal and folks will have as many of them as they want to purchase at MSRP. 

 

 

Edited May 5, 2022 by Gregmal

[ICUMD]

2 hours ago, Gregmal said:

Sure, you have to use your head. I don’t know why anyone thought last year, that the inflation wasn’t going to persist longer than everyone was telling us. I was shocked you kicked the Stelco cuz you were on it too. If I’m recalling accurately, you got the lumber trade right. Both seemed pretty obvious along with crude and nat gas, at least to me. 
 

But with the actual adjustment of rates, you have to ask why they’d deviate from what they’ve communicated? It’s one thing to say you think inflation is transitory. But so what? That’s a guess. So is predicting what happens in June with the start of run off. You know for certain? I don’t. What’s Powell gonna say? Well I think the Nasdaq will fall 4.7% but the S&P being a little more diverse only 3.9? That is dumb. Why rail on him for making an obvious statement or refusing to attempt to predict something like that? 
 

Consistently I’ve seen this bizarre animosity towards the Fed. For basically the whole decade. My father does it all the time and on and on about how incompetent they are as if it’s personal. And finally one day I asked and he didn’t have a good answer for why he feels this way but did mention how he thinks they are “stealing” from savers by manipulating interest rates. And then it kind of made sense to me. He s older and risk averse. And feels entitled to interest. But guess what? Life changes and just like David Tepper did on the spot in February of 2009, he listened. They told you what their goals were and what they were going to do. And if you missed it, because you wanted to earn interest, who’s fault is that? The Fed has never desired to destroy wealth, just kind of balance things. They basically said “we re going to fix the economy”. They have done that. Now they’re saying “we re taking the training wheels off”. It doesn’t necessarily have to mean the entire market is going to implode or that they’re going to wreck the economy just cuz.

Most people are doing well. They bitch, but it’s their choice. I was picking up my son from a Lego themed engineering class(he s 5, how awesome is having classes like that? Wish I did) and this mom is talking to another mom bitching about how her new Buick SUV cost $6k more than sticker because of the dealer mark to market price bump. And I just thought, “you bought it though right?”. And that’s the thing. Everyone’s got their complaints and yea stuff is more expensive, but folks can handle it to a greater deal than the WS spreadsheets seem to think. So no, the Fed probably doesn’t find it terribly urgent to fuck up what they’ve spent a decade restoring. They’ll stick to the plan, and hike 50 or whatever amount of bps they’ve communicated until shit slows. As I’ve detailed before, the majority of this stuff is just a matter of time before it fixes. Cars aren’t hard to produce. Eventually things will get back to normal and folks will have as many of them as they want to purchase at MSRP. 

 

 

Well, in my mind that's the question.  Are things going to occur in an orderly way?  Rising interest rates giving way to a soft landing?   Alternatively, the rich may complain about the 2x or 3x increase in prices.   The poor may be absolutely crushed by debt such that food and shelter is difficult to afford.  And therin lies the problem.  Poor outnumber rich by far.  Try living in Toronto or Vancouver on minimum wage.   

[Ulti]

[berkshiremystery]

Some great data charts from Peter Thiel´s friends David Sachs + Chamath Palihapitiya about the NASDAQ + tech >>>

 

great opportunity to selectively buy certain names at cheap prices, I personally bought days ago FB,... Cheers! 

 

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Edited May 5, 2022 by berkshiremystery

[Gregmal]

7 hours ago, ICUMD said:

Well, in my mind that's the question.  Are things going to occur in an orderly way?  Rising interest rates giving way to a soft landing?   Alternatively, the rich may complain about the 2x or 3x increase in prices.   The poor may be absolutely crushed by debt such that food and shelter is difficult to afford.  And therin lies the problem.  Poor outnumber rich by far.  Try living in Toronto or Vancouver on minimum wage.   

I’ll copy and paste cuz I’m lazy and sent out like the same thing to several people already but I think there’s a much simpler reason for much this this and people feel comfortable using the Fed as an excuse or blaming them for every market move. The explanation is much simpler IMO and it started before the Fed did much of anything:

 

 End game here, little of this makes sense in any context other than well, ridiculously overvalued tech stock bubble burst. Funds owned way too much of that stuff and are now getting blasted. Too much leverage forces wind downs. Seems to be consistent with that read and how markets have been acting for last year or so. I don’t really believe that the 10 year going back to 2018 levels is really doing this. That’s just the excuse or maybe the straw that broke the camels back. 

 

 

[Viking]

The Fed controls the Fed funds rate. The Fed took interest rates to crazy low levels and kept them there for far too long. This blew asset bubbles in bonds, stocks and real estate. The bond bubble has popped. The stock bubble is in the process of popping. Real estate? It is slow moving so we will see.

 

Too much fiscal spending plus free money is also a factor in out of control inflation. Bottom line, the Fed messed up. But i am not complaining when i say that. It is a statement of fact. And completely predictable. 
 

Investing is not a Disney movie. The stock market takes money from those who don’t know what they are doing and gives it too those who do know what they are doing. Everybody makes money in a bull market. Most everybody loses money in a bear market. Especially the ugly bear markets that take months to play out (and decline 40%). The trick is to not lose so much that you get kicked out of the game (that capital preservation thing). A reminder… the Fed is just getting started with its tightening campaign.

Edited May 5, 2022 by Viking

[patience_and_focus]

12 hours ago, Gregmal said:

Sure, you have to use your head. I don’t know why anyone thought last year, that the inflation wasn’t going to persist longer than everyone was telling us. I was shocked you kicked the Stelco cuz you were on it too. If I’m recalling accurately, you got the lumber trade right. Both seemed pretty obvious along with crude and nat gas, at least to me. 
 

But with the actual adjustment of rates, you have to ask why they’d deviate from what they’ve communicated? It’s one thing to say you think inflation is transitory. But so what? That’s a guess. So is predicting what happens in June with the start of run off. You know for certain? I don’t. What’s Powell gonna say? Well I think the Nasdaq will fall 4.7% but the S&P being a little more diverse only 3.9? That is dumb. Why rail on him for making an obvious statement or refusing to attempt to predict something like that? 
 

Consistently I’ve seen this bizarre animosity towards the Fed. For basically the whole decade. My father does it all the time and on and on about how incompetent they are as if it’s personal. And finally one day I asked and he didn’t have a good answer for why he feels this way but did mention how he thinks they are “stealing” from savers by manipulating interest rates. And then it kind of made sense to me. He s older and risk averse. And feels entitled to interest. But guess what? Life changes and just like David Tepper did on the spot in February of 2009, he listened. They told you what their goals were and what they were going to do. And if you missed it, because you wanted to earn interest, who’s fault is that? The Fed has never desired to destroy wealth, just kind of balance things. They basically said “we re going to fix the economy”. They have done that. Now they’re saying “we re taking the training wheels off”. It doesn’t necessarily have to mean the entire market is going to implode or that they’re going to wreck the economy just cuz.

Most people are doing well. They bitch, but it’s their choice. I was picking up my son from a Lego themed engineering class(he s 5, how awesome is having classes like that? Wish I did) and this mom is talking to another mom bitching about how her new Buick SUV cost $6k more than sticker because of the dealer mark to market price bump. And I just thought, “you bought it though right?”. And that’s the thing. Everyone’s got their complaints and yea stuff is more expensive, but folks can handle it to a greater deal than the WS spreadsheets seem to think. So no, the Fed probably doesn’t find it terribly urgent to fuck up what they’ve spent a decade restoring. They’ll stick to the plan, and hike 50 or whatever amount of bps they’ve communicated until shit slows. As I’ve detailed before, the majority of this stuff is just a matter of time before it fixes. Cars aren’t hard to produce. Eventually things will get back to normal and folks will have as many of them as they want to purchase at MSRP. 

 

 

 

+100

 

Fed will do what it must to tame inflation or whatever objective they have using the tools they have at their disposal. And they will change their minds too. It is what it is, not under the control of investors. Same goes for geopolitical situations when investing in stocks abroad. Same goes for companies with shitty management. Not in the control of average investor to change that (most of the time). One should operate with what is their control (due diligence, position sizing, long term view, avoiding donuts, playing volatility, yada yada). Sometimes shit will happen without the investors fault as not everything is knowable. But this is the nature of the game. Everyone is responsible for their own financial well being and there are plenty of way to avoid total disaster.

 

By the way, if Fed was so terrible, we would not be the #1 economy in the world by far for the last 80 years.  It is easy to point fingers after the fact but everyone (including the Fed) has to make choices and every choice has consequences in the other direction. It is not too different in investing either where we make choices all the time (including opportunity costs of not doing anything) and those weigh on the performance. Relative is the best one can do in many life situations (sort of like democracy which looks total shit, but then you look around for alternatives and be glad that you have it the way it is).

 

 

[Gregmal]

I sense a lot that people are just mad. Savers are mad they didn’t get in on the free money bonanza. Bad or lazy investors are mad that now buying SHOP at 60x revenue doesn’t work simply because it’s “cheap” compared to 70x. The leverage crowd is mad because it’s more expensive to put on less profitable trades. And FANG investors are mad because price is what they’re paying but value is still scarce in GAAP terms, or just generally if you account for things like SBC. But really, all this was just a great chance to dance. Now you actually have to earn your returns. People don’t like having to work for things. 

[ICUMD]

30 minutes ago, Gregmal said:

I sense a lot that people are just mad. Savers are mad they didn’t get in on the free money bonanza. Bad or lazy investors are mad that now buying SHOP at 60x revenue doesn’t work simply because it’s “cheap” compared to 70x. The leverage crowd is mad because it’s more expensive to put on less profitable trades. And FANG investors are mad because price is what they’re paying but value is still scarce in GAAP terms, or just generally if you account for things like SBC. But really, all this was just a great chance to dance. Now you actually have to earn your returns. People don’t like having to work for things. 

Arguable the Fed had to do what it had to do.  Perhaps it even made all the right decisions.  Of course people are going to be mad the punch bowl is being taken away. The 'mad' emotion is harmless.  It's the 'reaction' that matters - both on the part of the Fed and the people.

[Ross812]

2 hours ago, Viking said:

The Fed controls the Fed funds rate. The Fed took interest rates to crazy low levels and kept them there for far too long. This blew asset bubbles in bonds, stocks and real estate. The bond bubble has popped. The stock bubble is in the process of popping. Real estate? It is slow moving so we will see.

 

Too much fiscal spending plus free money is also a factor in out of control inflation. Bottom line, the Fed messed up. But i am not complaining when i say that. It is a statement of fact. And completely predictable. 
 

Investing is not a Disney movie. The stock market takes money from those who don’t know what they are doing and gives it too those who do know what they are doing. Everybody makes money in a bull market. Most everybody loses money in a bear market. Especially the ugly bear markets that take months to play out (and decline 40%). The trick is to not lose so much that you get kicked out of the game (that capital preservation thing). A reminder… the Fed is just getting started with its tightening campaign.

Let's not forget the rate cut from 2.4 to 1.5 and quantitative easing in 2019 at the behest of a president to coincide with a huge tax cut to juice a 10 year bull run. 

[Spekulatius]

11 minutes ago, Ross812 said:

Let's not forget the rate cut from 2.4 to 1.5 and quantitative easing in 2019 at the behest of a president to coincide with a huge tax cut to juice a 10 year bull run. 

Mr Market is just front running the rate rises from the Fed. The Fed rising by 0.5% while inflation is running at 9% still means borrowing money is cheaper than free. This applies even to the 5% mortgages. It's just less free than it was a few month ago.

 

I agree the tech selloff is just looking for an excuse here - and it's the Fed. Now once a downtrend gets started it's just momentum and reflexivity at work.

[Gregmal]

The tech framework used for investing the last decade isn’t going to work going forward. I think some stuff has gotten cheap, but even there, it’s gonna be awhile. Lotta folks learning the hard way. I mean AAPL and GOOG not long ago traded at like 15x. It’s not inconceivable that at some point Mr. Market assigned that to AMZN, NFLX, SHOP, etc. and if he wants to use real GAAP earnings? What are the share prices then? I wouldn’t not be a buyer for the longer haul. Just mindful that you are basically making private placements at this stage in the game because these sort of reckonings often take a while to sort out. 

[scorpioncapital]

At what rate of interest does the US go bankrupt??

[Thrifty3000]

1 hour ago, scorpioncapital said:

At what rate of interest does the US go bankrupt??

I think it depends on the level of interest expense vs the ability to pay.

[Guest]

11 minutes ago, Thrifty3000 said:

I think it depends on the level of interest expense vs the ability to pay.

 

Why do those things matter?

[crs223]

1 hour ago, scorpioncapital said:

At what rate of interest does the US go bankrupt??

US appoints the Fed.  The Fed prints money to buy US debt.

 

I’m not sure how US goes BK under that arrangement.

[scorpioncapital]

7 hours ago, crs223 said:

US appoints the Fed.  The Fed prints money to buy US debt.

 

I’m not sure how US goes BK under that arrangement.

 

But the rate of interest is rising. Will money printing accelerate for like each 50 basis point rise?

 

[crs223]

2 minutes ago, scorpioncapital said:

 

But the rate of interest is rising. Will money printing accelerate for like each 50 basis point rise?

 

 

I'm just saying that there would not be a technical BK.   If things go bad, and the US is facing bankruptcy, the US will avoid bankruptcy by monetizing the debt.  Of course this would be horrific (inflation) -- but it's just too easy -- countries have been doing it for thousands of years.

 

[berkshiremystery]

Michael Burry´s recent tweets >>>

 

https://twitter.com/burryarchive

 

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Edited May 6, 2022 by berkshiremystery

[mattee2264]

I think earnings matter far more than interest rates. And what we are seeing in a lot of companies is that earnings gains during the pandemic were not sustainable either for cyclical reasons (we are heading back towards a recession) or because of changes in spending patterns (consumers aren't spending as much online and businesses will probably have to cut back on advertizing etc).

 

And it is interesting how many companies have gone on complete roundtrips back to their pre-pandemic levels or lower with the likes of FB, AMZN, JPM, BAC prominent examples of this. So it is somewhat of a surprise to me that the market is still 20% higher. Obviously there has been a bit of a rotation towards defensives and things like consumer staples and utilities have done well, and commodities while a small component of the index have been on a roll, and the likes of APPL and MSFT have held on to a lot of their pandemic gains. But it suggests some vulnerability as inflation was much lower pre-pandemic and while the economy was slowing a recession wasn't imminent until COVID hit. 

 

Generally bear markets do coincide with recessions. So what happens next depends a lot on whether we go into a recession and how severe it is. An average recession brings S&P 500 earnings down around 25%. Taking 2021 earnings of around $210 that would bring us back to around $160 right in line with pre-pandemic earnigns and even if you still give a 20x multiple to that (despite interest rates going higher) that gets you to 3200 on the S&P 500 which suggests quite a bit of downside and is also consistent with the idea of the market giving up all of its pandemic gains which is the usual outcome if most of these gains can be attributed to speculation/cyclical/temporary factors. 

 

Of course how low we go also depends on at what point the Fed pivots, slashes interest rates and prints a bunch of money. And I don't think we know yet whether the Fed's hands are tied because of inflation. Most of their confidence in pressing forward with rate increases seems to be based on their belief that the economy is still pretty strong and they can engineer a soft landing. And they don't really care about the speculative stuff selling off when the overall market is holding up pretty well. Whether that changes if markets continue to fall and economic data worsens remains to be seen. 

 

 

 

 

[Ulti]

[Xerxes]

Sometimes it is fashionable to be a bull, sometimes it is fashionable to be bear and point all the historical anecdotes of bear markets. 
 

I don’t know more than the next person but if inflation has peaked, you will only see it six months from now when you look back and say ahhh that was the peak ! 
 

Reverse wealth effect (stocks going down) + higher interest rate + higher cost for goods/services + higher fuel prices are all having a damping effect on “demand” and that will work itself through the system … lower economic demand means relatively lower inflation. 

 

I think our focus should be on the “rate of change” in inflation and not the “absolute level of inflation”.   
 

[Ross812]

16 hours ago, Spekulatius said:

Mr Market is just front running the rate rises from the Fed. The Fed rising by 0.5% while inflation is running at 9% still means borrowing money is cheaper than free. This applies even to the 5% mortgages. It's just less free than it was a few month ago.

 

I agree the tech selloff is just looking for an excuse here - and it's the Fed. Now once a downtrend gets started it's just momentum and reflexivity at work.

 

I was making the point that the bubble started with a huge tax cut in 2018 when the economy was doing well then another shot in the arm in 2019 when the fed cut interest rates and turned on the tap of QE reversing course from slowly letting assets roll of the balance sheet and raising rates. I agree tech was just looking for a reason to sell off. The late 90's tech bubble inflated when the fed funds rate was 5%+.