Is The Bottom Almost Here?

[Gregmal]

1 hour ago, changegonnacome said:

& thats the opportunity......the underlying components of the thesis are playing out.....yet 'the market' has ignored the poor performance of E to date.....by actually paying a higher & higher multiple for those earnings just to standstill in this ~4000 area......so where do we go........

Says who though? We keep hearing of this euphoria and market being asleep and everyone all in on a pivot, except I don’t actually hear ANY of this? Meme stocks are getting bid up because of bozo hedge funds covering short positions. No one is shouting for all time highs on the indexes. You keep saying Fed taking rates to 0…I haven’t heard a single person say that. The predominant chorus is highly bearish and complains about PE multiples and screaming about non traded REITs doing non traded reit things and this is now third Q is a row where the consumer is “running on fumes”….a lot of this stuff just doesn’t add up.

 

It still basically seems that the bear thesis was to scream about the economy blowing up, inflation being 10%, housing crashing….and they were totally wrong and now pivot to “it’s too strong we need to raise rates more” hoping for a second chance.

[Xerxes]

3 hours ago, John Hjorth said:

 

@Xerxes,

 

Honestly, why is is it even relevant to quote something like this here on CoBF, where you can take as a given assumption that the individual members actually know what sh1te [<- @SharperDingaan phrasing!] they own.

 

Mentioned here ref. @Gregmals post above. Bring it here only if it's also your personal position on the topic at hand , and you're willing to defend it under discussion.

 

John

While I recognize my handwriting in that post, I actually do not remember in what context I wrote it. I looked back a few pages ago as well could not find it. But point taken.

 

[TwoCitiesCapital]

2 hours ago, Gregmal said:

 

It still basically seems that the bear thesis was to scream about the economy blowing up, inflation being 10%, housing crashing….and they were totally wrong and now pivot to “it’s too strong we need to raise rates more” hoping for a second chance.

 

How can you say they were totally wrong?

 

Leading indicators have been negative for 10 months running and many are ACCELERATING to the downside. Corporate margins are contracting and earnings are falling. Housing prices are falling while most of the market for buys/sells has stalled. New construction and permits have basicsally dried up. Consumer savings have cratered while revolving credit balances are exploding. 

 

If anything, the people suggesting economic weakness and malaise have been absolutely right with most of the data (and risk asset returns) supporting that deterioration. 

 

You just think they're wrong because a handful of unprofitable tech companies are having a multi-month bounce. I tend to think that is just symptomatic of the last 15-year psychology of the Fed saving markets which isn't going to be true this time around - people just haven't changed their minds about it yet. 

 

Edited February 20, 2023 by TwoCitiesCapital

[Gregmal]

21 minutes ago, TwoCitiesCapital said:

 

How can you say they were totally wrong?

 

Leading indicators have been negative for 10 months running and many are ACCELERATING to the downside. Corporate margins are contracting and earnings are falling. Housing prices are falling while most of the market for buys/sells has stalled. New construction and permits have basicsally dried up. Consumer savings have cratered while revolving credit balances are exploding. 

 

If anything, the people suggesting economic weakness and malaise have been absolutely right with most of the data (and risk asset returns) supporting that deterioration. 

 

You just think they're wrong because a handful of unprofitable tech companies are having a multi-month bounce. I tend to think that is just symptomatic of the last 15-year psychology of the Fed saving markets which isn't going to be true this time around - people just haven't changed their minds about it yet. 

 

Dude the crappiest of crap is off like 90% from highs but clearly bottomed with the SoftBank and Tiger liquidations is June. You guys have been talking about savings getting wiped out and then pointing to misleading metrics like upticks versus a year ago. You’ve claimed the consumer is tapped out for 3 straight quarters with the recession coming “any month now”. Corporate margins have contracted from huge one off benefits but still remain healthy. Look no further than homebuilders. I don’t think you’re wrong because a handful of crap tech bottomed in June, I think you are wrong because you’ve sat around regurgitating talking points like yield curves and “past recessions” and a whole lot of other backwards looking historical comps and meanwhile everything from Markel to Facebook, Uber to DR Horton, Prologis to Cleveland Cliffs has ripped face in classic bottom style and yet we continue to be obsessed with “never before in history” and crap like that. It’s the same thing we had in late 2021 when folks claimed the top wasn’t in cuz “the indexes”. Never before in history is true until it isn’t. That’s why markets are markets. Because they don’t always follow the exact playbook that everyone and their mother says they should. This is the problem with the perma bear position, you can be right and a few things and still not make money because at the end of the days there’s too much guesswork and making shit up involved. Claiming we re headed to 2800-3000 on deteriorating earnings and then sitting at 4000 with a quick visit to 3500 doesn’t warrant a victory lap but I guess if we want to keep saying “bear market rally” we can keep the gig going in perpetuity. Where is the cutoff? 

[Gregmal]

I mean I simply ask the same question Ive asked before..whats the point in this obsession with "the market" and "the bottom"??? I wake up in the morning with a list of assets I own, and a list of things and scenarios in which I wish to own others. What exactly do we get out of "calling" the top/bottom or next recession? Well, money one would think. But thats if you nail the top and the bottom which is a suckers game. Otherwise, whats the point if we claim margins(which everybody already knew where pretty darn close to peak) will come down? We short stuff like AAPL or Costco on a macro and earnings deterioration story but then best shot we ever get at making money is some short term hysteria cuz someone said something and you get a bit of....pause....stock market volatility inspired decline? Followed by a swift recovery and then whoops wouldnt you know it, those earnings were awful and "I knew it" and....Apples at $150, and Costco $500 again....Im not totally mocking this to be denigrating as ive definitely gotten caught up in this sort of shit, including Apple...but at some point its just head scratching. Like what are we gonna sit around for the next year debating bottoms and IDK, who wins if SPY is flat for 2023? Of flat from today? Or up 10% or down 10%? Cuz thats still indicative of a bottom being in. If we get 3300 and then a bounce...is that validating that we were super duper smart know it alls not falling for last years "false bottom" a mere 4-5% higher? This is dumb. 

[dealraker]

The absolute sure thing, certain to make you feel like a market genius, is that if you blow out of your stock portfolio enough then eventually you will nail it.  Then you can come right here and post repeatedly your cash position...

 

...to those who in the long run who will have multiples more money than you.

Edited February 21, 2023 by dealraker

[vinod1]

There is a good article that is worth reading called "What if You Only Invested at Market Peaks?".

 

Basically about a guy who saves all his money up to that point and ends up investing just the day before start of the last 4 major bear markets and what his results where. I did not check the data but passes the smell test.

 

https://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/

 

 

 

 

[mattee2264]

If history is any guide markets will bottom some months before the economy bottoms and some months AFTER the Fed pivots. 

 

I don't think anyone has bragging rights at this point because it is too soon to tell whether there will be no landing, a soft landing or a hard landing and that is ultimately going to drive what the next bottom is and whether it will be above or below the bottom we saw autumn 2022 at around 3400 on the SPY.

 

But if I had to hazard a guess I would say a soft landing might see us get close to 3400 and a hard landing would get us close to 3000 and no landing might get us close to 3800 as I suspect with no landing rates go a little higher. 

 

But of course all bets are off if there is a massive bailout from the Fed/US government 

[Gregmal]

25 minutes ago, mattee2264 said:

if I had to hazard a guess I would say a soft landing might see us get close to 3400 and a hard landing would get us close to 3000 and no landing might get us close to 3800 as I suspect with no landing rates go a little higher. 

 

But of course all bets are off if there is a massive bailout from the Fed/US government 

So if I may summarize, and correct me if I’m wrong;

 

-the markets going higher from here is inconceivable barring something crazy. I guess the popular refrain is “the Fed cuts rates to 0 again”(which I don’t think anyone forecasts and is something I’d put 95% of my net worth on NOT happening in the next few years) 

-the best case scenario is the markets are 7-10% overvalued 

-the most likely scenario is that they’re 15-20% overvalued

-a less likely, but still reasonably probable scenario is that the markets are 25% overvalued

 

[Paarslaars]

13 hours ago, dealraker said:

The absolute sure thing, certain to make you feel like a market genius, is that if you blow out of your stock portfolio enough then eventually you will nail it.  Then you can come right here and post repeatedly your cash position...

 

...to those who in the long run who will have multiples more money than you.

 

Well I'm 50% cash now...  but the money was recently acquired, I'll spend it asap!

 

I'm sure there are some people good at timing the market, as rare as they may be. I have proven many times I'm not, with exception of march 2020 but that was too obvious.

Edited February 21, 2023 by Paarslaars

[TwoCitiesCapital]

16 hours ago, Gregmal said:

Dude the crappiest of crap is off like 90% from highs but clearly bottomed with the SoftBank and Tiger liquidations is June. You guys have been talking about savings getting wiped out and then pointing to misleading metrics like upticks versus a year ago. You’ve claimed the consumer is tapped out for 3 straight quarters with the recession coming “any month now”. 

 

Yes, and for the last 9 months economic indicators have continued to deteriorate. I'm sorry the economy doesn't just fall off a cliff in 30 days so you can be content with the timing of people's calls. The fact is, we've been saying these things would be happening and they've been unfolding for the last 9 months with nearly every economic release strengthening the bear case. 

 

Bear markets take time. It's not uncommon for contractions to be 2+ years long. Yes, unprofitable tech might be 90% off it's bottoms, but much of it is still 50-90% off it's tops even after those rallies. Most people buying those names were likely in it long before the bottom, likely didn't nail the bottom on additional buys, and may still be in the red on the whole position and may not yet have sold the recent rally. To have made money on those names required impeccable timing of very short term tops and bottoms. 

 

Or you could have just taken a 12-month view and bought gold, short duration bonds, or stayed in cash and done better than ALL of them without taking much risk and without having to call tops and bottoms every 2-3 months. Just sitting on your ass and winning. 

 

I'm simply suggesting the trend in outperformance over a longer time horizon  is likely to continue. I still think gold, cash, and short term bonds outperform equities for the next 1-2 years. I've added intermediate bonds to that mix once we surpassed 3% rates. I'll add some equity on dips, sell it on the rips, and continue to be cautious overall since the economic environment is signaling even more cautioun than a year ago. That is - until we get valuation that reflect that weakness. 

Edited February 21, 2023 by TwoCitiesCapital

[mattee2264]

I am referring to the next "bottom" before a new bull market resumes. That does not rule out future bear market rallies which might take markets higher. 

 

Is it possible that we will never see the S&P 500 fall below 4000 i.e. a V shaped recovery similar to the one we saw in 2019 and 2020? Well anything is possible especially if sentiment trumps fundamentals or the Fed/US government launch massive stimulus packages. But the latter seems unlikely and even the positive sentiment lately has been based on economic data that looks rosy on the surface and reading too much into Fed comments so I expect sentiment to sour as the Fed holds firm and we start to see job losses, stickiness to inflation and corporate earnings continue to decline. 

 

 

 

[Gregmal]

5 minutes ago, TwoCitiesCapital said:

Yes, unprofitable tech might be 90% off it's bottoms, but much of it is still 50-90% off it's tops even after those rallies

Thats exactly my point. What I said was that theyre still of like 90% from the ATHs. Thats definitely not what a top is, and if we're trying to be cute and pinpoint bottoms, thats typically how they form. 

 

7 minutes ago, TwoCitiesCapital said:

you could have just taken a 12-month view and bought gold, short duration bonds, or stayed in cash and done better than ALL of them without taking much risk and without having to call tops and bottoms every 2-3 months. Just sitting on your ass and winning. 

Exactly and this is the same thing because every single year Ive paid attention to the markets we've had people suggesting this course of action. 3 or 4 years its temporarily been a good one, especially with the benefit of hind site. I mean even the bond thing...now you cant even just say "buy bonds" you have to redefine with the benefit of hind site, what worked. So 15+ years, 2,3,4 times you get these temporary blips where those things look wise, and the rest of the time theyre generally garbage. I still hear Peter Schiff calling for gold to go to $5000/oz in 2011. Whereas every one of those years you could have just paid attention to quality stuff, averaged out purchases and done better. The ironic thing about hoarding bonds and cash and gold is that the years they outperform, are the years youd be silly to allocate to them versus quality stocks. Unless of course, again, you're the 1/1000 who's got a crystal ball and buys at exactly the right time and sells at the right time and then reallocates at the right time. Ive played that game, and im not even half bad at it, but over time its just become so obvious that betting on 1/1000 is a fools game and when you consider how easy the alternative is...I mean why waste time with this stuff?

[SharperDingaan]

For the most part the market trades the 'story', and not the 'thesis' (longer term view); hence as the story changes, so does the trade. Only the 'storyteller' gets rich in this game, and it is almost entirely via 'front running' the story. So if another 'storyteller' suddenly shows up, or a more catchy 'pitch' ....... change is inevitable 

 

The people who are very good at sales, are good for a reason.

Rather than fight the crowd, learn from them.

 

SD

 

[Gregmal]

100%. It’s interesting that despite all the talking, and everyone really laying it on thick the past 6-12 months, TTM performance, depending upon what you look at, the markets still aren’t even really down all that much(said while still struggling to decipher what “the market” is in terms of an index or group of stocks…is it really just FANG???).
 

Which is funny cuz I do chat with a lot of folks and see plenty of commentary from others and those mega bears all still claim to have profited handsomely and gotten rich but then when you point out a lot of this stuff, you always get some iteration of “oh I cashed in my options/shorts”, which then kind of brings about a look of like “oh, wait, but much of the things you have been peddling didn’t even really happen or haven’t happened to nearly the degree you said”….and then you get a “but the stock went down” type of response….and have your “eureka!” moment where it’s like “oh, now I see what game you’re playing”…

[bizaro86]

On 2/15/2023 at 3:34 PM, SHDL said:

 

Ouch that sounds like a disaster in the making... And IIRC you have rent control laws in place right?

 

Gonna call back that guy from Deutsche who wanted to sell me CDS on Canadian mortgage bonds 

 

I know this is a bit outdated, but I'd be a bit careful with that. Most Canadian mortgage bonds are guaranteed wholly (or in parts on the underlying) by CMHC, a crown corp. My understanding is that (unlike Fannie/Freddie) it has a full faith/credit guarantee from the government. So if the the entity that prints CAD guarantees a CAD obligation...

[SHDL]

43 minutes ago, bizaro86 said:

 

I know this is a bit outdated, but I'd be a bit careful with that. Most Canadian mortgage bonds are guaranteed wholly (or in parts on the underlying) by CMHC, a crown corp. My understanding is that (unlike Fannie/Freddie) it has a full faith/credit guarantee from the government. So if the the entity that prints CAD guarantees a CAD obligation...

 

I was joking about the CDS trade but this is very good to know, thank you.

Edited February 21, 2023 by SHDL

[thepupil]

32 minutes ago, Gregmal said:

100%. It’s interesting that despite all the talking, and everyone really laying it on thick the past 6-12 months, TTM performance, depending upon what you look at, the markets still aren’t even really down all that much(said while still struggling to decipher what “the market” is in terms of an index or group of stocks…is it really just FANG???). 

 

Which is funny cuz I do chat with a lot of folks and see plenty of commentary from others and those mega bears all still claim to have profited handsomely and gotten rich but then when you point out a lot of this stuff, you always get some iteration of “oh I cashed in my options/shorts”, which then kind of brings about a look of like “oh, wait, but much of the things you have been peddling didn’t even really happen or haven’t happened to nearly the degree you said”….and then you get a “but the stock went down” type of response….and have your “eureka!” moment where it’s like “oh, now I see what game you’re playing”…

 

You've asked this a few times. there is no one "market", but  I'd say that generally when people discuss "the market", one is referring to a broad based cap weighted index such as the  MSCI ACWI Index for global investors and/or a broad based US Index such as the Russell 3000, Vanguard Total Stock Market Index, or S&P 500 (just large cap of course, but like 70-80% of the others is this). If at any time you would like information re "the market" you can google things like MSCI USA, MSCI ACWI, MSCI World, MSCI ACWI Quality, MSCI Emerging Markets or look at vanguard's individual ETF / Mutual Fund websites. MSCI produces monthly factsheets that show the makeup of these indices, their constituents, performance, fundamental metrics like P/E, forward P/E, etc. Vanguard allows you to download excel sheets of all the holdings of their mutual funds.  This is "the market". The market is not "what google/FAANG did" or what pupil says the market is or what gregmal thinks the market is. If one is a true tech bro, only investing in tech, I'll accept QQQ as "a market" but not "the market". 

 

I don't think that this is that difficult to process for a capable person such as yourself. Much of the investment community, individuals and institutions alike are judging their own performance against or are invested in "the market" which means "a broad based cap weighted index" as espoused by John Bogle, Warren B, etc. We can debate the merits of this approach or have little nitpick arguments about whole world vs just US  all day long, but to agree on definitions is not that difficult. 

Edited February 21, 2023 by thepupil

[Gregmal]

@thepupil lol I’m doing it somewhat tongue in cheek, but now that we can agree the “market” is a world index, now I know what chart and PE I should be looking at to determine whether it’s a good time to buy individual stocks for the next couple quarters!

[thepupil]

5 minutes ago, Gregmal said:

@thepupil lol I’m doing it somewhat tongue in cheek, but now that we can agree the “market” is a world index, now I know what chart and PE I should be looking at to determine whether it’s a good time to buy individual stocks for the next couple quarters!

Like I said, I love a good MSCI Factsheet. For a quick snapshot of "what do all the world's stocks look like?" "What P/E multiple do high quality US companies trade for?" etc. and you just google "MSCI ____ Factsheet"...available to everyone. 

 

MSCI ACWI

https://www.msci.com/documents/10199/a71b65b5-d0ea-4b5c-a709-24b1213bc3c5

MSCI ACWI Quality

https://www.msci.com/documents/10199/9386d956-d8a5-4cf1-9eaa-fc597c10ad81

MSCI USA

https://www.msci.com/documents/10199/67a768a1-71d0-4bd0-8d7e-f7b53e8d0d9f

MSCI USA Quality

https://www.msci.com/documents/10199/4af921f5-0bbc-470b-ad69-19a177fad9cf

MSCI EAFE

https://www.msci.com/www/fact-sheet/msci-eafe-index/05694439

MSCI EM

https://www.msci.com/documents/10199/c0db0a48-01f2-4ba9-ad01-226fd5678111

MSCI US Real Estate

https://www.msci.com/documents/10199/a3fb12a5-ada1-48e2-a5dc-df570d1c7137

Edited February 21, 2023 by thepupil

[Simba]

On 2/20/2023 at 6:09 PM, TwoCitiesCapital said:

 

How can you say they were totally wrong?

 

Leading indicators have been negative for 10 months running and many are ACCELERATING to the downside. Corporate margins are contracting and earnings are falling. Housing prices are falling while most of the market for buys/sells has stalled. New construction and permits have basicsally dried up. Consumer savings have cratered while revolving credit balances are exploding. 

 

If anything, the people suggesting economic weakness and malaise have been absolutely right with most of the data (and risk asset returns) supporting that deterioration. 

 

You just think they're wrong because a handful of unprofitable tech companies are having a multi-month bounce. I tend to think that is just symptomatic of the last 15-year psychology of the Fed saving markets which isn't going to be true this time around - people just haven't changed their minds about it yet. 

 

 

wait your telling me I shouldn't pay up for tech companies valued on TAM on a revenue basis, and on 2048 Adj. Earnings before all expenses, when the 10Y is at 4% 

[changegonnacome]

I have no interest in the world market..........as I've outlined previously..........what makes the US indexes such a bad bet (or interesting opportunity) right now IMO is a kind of toxic mix of three things not really found in other markets:

 

(1) high absolute multiples being paid relative to high interest rates/risk free rates....and especially relative to my permanently higher inflation/rates thesis which is a conversation for another day

(2) Earnings that reached a cyclical perfect BOOM peak in 2021 on the back of unprecedented fiscal stimulus....and are absolutely declining in nominal terms....but actually much larger declines when one inflation adjusts EPS figures.....for example when Home Depot today says SSS are gonna be flat this year....they really mean they will decline in real terms ~5% given the outlook for 2023 inflation....if you arent growing your topline in an inflationary environment....your bottomline is screwed!

(3) then finally and most importantly for equity returns......you've got Monetary inflation which has unfortunately IMO embedded in the economy.....as I've repeated.....wages (Jan BLS wage data confirmed my fears), nominal spending increases (Jan retail sales data for example) are ALL happening against the backdrop of full employment/max output economy with terrible productivity growth...........it is ultimately the definition of of inflation......too much money (wage increases/spending increase) chasing a finite fixed level of domestically produced goods and services that just arent growing as quickly as wages/spending are....................such that broad prices HAVE to exceed the inflation target. Putting the monetary authorities in a horrible bind. THIS is the most important thing right now, cut out the noise....the fact stock market multiples remain high here, when the truth is so clear. Is amazing to me.

 

You can absolutely pick your spots in this market.........but the reality is.....the bitches brew I've outlined above does not speak well for the prospective returns of SPY/QQQ for the next couple of years......so your dealing with shitty beta & your dealing with a Fed that needs to engineer a serious deceleration in nominal spending growth & wage growth.

 

The question of the thread is the bottom almost here - which I take to mean was the ~3500 on SPY seen last year the low.......my answer......not a chance.........the low will come, most likely based on past history....only after the Fed has begun to cut rates to try to revive an economy it put on the skids on purpose.......we've got based on the recent data a Fed that I think probably has to get terminal rates up closer to 6% now.....and will hold them there even as unemployment accelerates up to 5+%.....its gonna be very jarring for a market so used to the Fed put. We'll rip through 3500 IMO very easily in that scenario. Let's see.

 

Edited February 22, 2023 by changegonnacome

[Spekulatius]

@changegonnacome bet against America to your peril and that included the stock market. It the EM's that I would be worried about when liquidity gets drained. I expect to see more Adanis moments there.

[changegonnacome]

1 hour ago, Spekulatius said:

@changegonnacome bet against America to your peril and that included the stock market. It the EM's that I would be worried about when liquidity gets drained. I expect to see more Adanis moments there.

Yep hate to do it…..but it’s really the stock market here Im bearish on….why?…….cause there’s not really a scenario I can credibly play out in my mind where SPY doesn’t get run over on the journey to getting back to 2%…..

 

…….if you think about the soft landing scenario in the context of what I’ve said Re: wage growth, nominal spend, output & prices.…..and how you square the circle of bringing inflation back to 2, maintaining unemployment where it is and modest positive growth……..it’s really the corporate sector that has to pay the price via shrinking margins…..done by not pushing price while simultaneously delivering pay increases = earnings getting whacked……..and that’s like the best case scenario for the economy and the soft landing everybody is dreaming off. In my mind soft landing for the economy is actually bad news for SPY……and to a certain extent it’s already happening……it’s corporate America that’s beginning to suffer an earnings recession…..while the consumer…and broad economy still does OK…..the only problem of course is when the corporate sector feels earnings contract it reacts by cutting cost….done by a company in isolation it works beautifully to restore margins/earnings…..done simultaneously and broadly across the economy it doesn’t work at all.

[james22]

How many here invest in a S&P 500 or TSM index fund? Anyone?