Is The Bottom Almost Here?

[SharperDingaan]

The reality is that tech drives to full automation and uses price to get there, whereas people are social. Where I see automation, I deliberately use the cashier and deliberately pay using a credit card - to inflict as much cost as possible. Whereas in a small mom/pop with the kids behind the till, I will deliberately do the impulse buy and pay in cash wherever I can - to reduce cost as much as possible.

 

Just one person doing this, is no big deal. But scale it up in the thousands, and it bites.

The social over robotics.

 

SD    

Edited February 27, 2023 by SharperDingaan

[fareastwarriors]

As a former cashier in college, I took pride in being friendly, polite, and efficient. I was consistently ranked highest items per minute among all cashiers at Whole Foods in White Plains, NY!

 

But too many of my coworkers should not had been customer facing... 

 

 

 

 

[Spekulatius]

16 hours ago, Castanza said:

Anyone else see grocery stores just becoming warehouses with pickup lanes over the next decade? I can't remember the last time I went in the store to get a full order of groceries. Instacart is way too convenient and Wegmans charges no fee. Fill the cart throughout the week, place my order and have my pickup time set so I can swing by after the gym. Comes neatly packed in paper bags. Never had an issue with broken eggs, expired or wilting veggies and fruit. Although one time early on instead of getting a bunch of 6 bananas I got 6 bunches of bananas...

 

Can imagine stores might save costs on employees, store space, and spoiled food that some lazy customer decided to :put back" on some random shelf. Some items are slightly more expensive but it's like $0.10 more or something negligible. 

I have yet to use instacart. For us here, it seems too expensive to use. We also do a trip to Costco every two weeks and grab most of our groceries there.

As for eggs, we buy these at Costco too mostly. I checked and we paid $5.99 for two dozen XL eggs there, so it still beats Whole Foods.

 

[Castanza]

1 hour ago, Spekulatius said:

I have yet to use instacart. For us here, it seems too expensive to use. We also do a trip to Costco every two weeks and grab most of our groceries there.

As for eggs, we buy these at Costco too mostly. I checked and we paid $5.99 for two dozen XL eggs there, so it still beats Whole Foods.

 

It's only 1.99 for pickup if you're not an Express member. I figure 1.99 is worth the hour I would spend once a week at the store. 

[Xerxes]

On 2/24/2023 at 2:47 PM, SharperDingaan said:

It is pretty clear that from now through the end of May, Canadian CPI is going to drop to around 4.7% from the current 6.8%. Simply because the cumulative Feb-May 22 change of 2.1% drops off, and is replaced with Feb-May 23 change, where the average monthly change has trended at near zero for the last six months. Similar story in the US. https://www.bankofcanada.ca/rates/price-indexes/cpi/

 

The yield curve drops 200bp+, millions of people instantly have lower mortgage payments, and all just in time for the nice weather of summer. Getting below 4.7% doesn't happen unless we have successive monthly deflation ... so keep firing those tech bro's in the hundreds of thousands, and speed it up!

 

It would be pretty surprising if we didn't have a nice summer rally, but that's not the 'story' being sold.  

Opportunity is knocking 

 

SD

 

 

 

The 10-year bond yield will have an effect of the fixed-rate mortgage. Therefore "new" mortgage buyers (not existing who got their mortgage) will see a windfall. 

 

However, variable-rate mortgage is hostage to the central bank rate changes.

 

So you assertion about "instantly lower mortgage payment" is only valid if central bank lower rates and it applies to variable-rate mortgage.

 

 

 

[SharperDingaan]

'So you assertion about "instantly lower mortgage payment" is only valid if central bank lower rates and it applies to variable-rate mortgage.'

 

Canadian mortgages are primarily priced off the 5-yr Canada bond rate, and 'reset' every 5 years or less; dependent upon the agreed term. The 5 yr fixed-rate mortgage just prices at a higher premium to the Canada bond than the 5 yr variable mortgage does. Alternatively, a HELOC will typically price at the T-Bill rate plus a spread, and reset every time there is a significant change in rate.

 

Agreed all variable and HELOC payments instantly drop as the BoC lowers rates.

However the payment on ALL MATURING, fixed rate mortgage amortizations ALSO instantly drops as the BoC lowers rates. 1/60 of all 5 year fixed rate mortgages, 1/48 of all 4 year, 1/36 of all 3 year, 1/24 of all 2 year, 1/12 of all 1 year. And that is just the amount THIS month ...... it ALSO repeats every month until the end of the mortgage term. 

 

A fixed rate mortgage may reset at a higher rate than it currently has, but it is still going to reset at a rate lower than it would have been at before the BoC reduced rates.  

 

The modeling needs to be more sophisticated, than simply using a duration x bp change x o/s principal.

 

SD

Edited February 28, 2023 by SharperDingaan

[Red Lion]

15 hours ago, StevieV said:

 

I don't know.  I really, really dislike self-checkout.  My local grocery store went to 1 cashier lane, got a ton of complaints and long lines and quickly reversed course.  I was going to switch grocery stores to be able to have a cashier.

I really hate BAD self checkout. Our raleys/belair is an overpriced chain that has the worst self checkout I’ve ever seen. Sam’s club on the other hand I’d seemless. 

[Xerxes]

@SharperDingaan

 

Say i have a 5-year mortgage (1 year in, so 4 years left) fixed at 3%.

 

Tomorrow, the treasury bonds wobbles and drops pricing in a recession, are you saying that principal/interest ratio on my fixed payment would change ? just so that I understand

 

[crs223]

On 2/24/2023 at 1:46 PM, Gregmal said:

Elon Musk showed everyone what productivity is at Twitter. Imagine what’s possible at the government level?

 

impossible.  first govt workers cannot be fired.  second, govt workers don’t care about their product.  third, even if they did care, govt workers are generally incompetent (the competent ones left for private industry).

[SharperDingaan]

2 hours ago, Xerxes said:

@SharperDingaan

 

Say i have a 5-year mortgage (1 year in, so 4 years left) fixed at 3%.

 

Tomorrow, the treasury bonds wobbles and drops pricing in a recession, are you saying that principal/interest ratio on my fixed payment would change ? just so that I understand

 

 

Nothing changes for you until you get to the end of the mortgage 4 years from now, at which point you will be refinance the balance with a new mortgage at whatever the rate is at that time. If at that time, both the mortgage balance and remaining amortization term remained unchanged, your mortgage payment will be lower if interest rates fall. 

 

Now assume there are 1.2T of 5 yr (60 mo) mortgages outstanding, all at higher rates that in the market today. At an even distribution roughly 200M (1.2B/60) of these mortgages will reset every month, at a lower interest rate. If the o/s mortgage balance and remaining amortization period remained the same, there would be a lower payment every month for the next 60 months. 

 

The reality of course is that mortgage balances and amortization terms will be shorter, and some of the mortgages will reset at rates higher than they were previously. That has to be modelled.

 

SD

 

[Xerxes]

I agree with that (as it concerns the resetting a basket of mortgages that would be coming due every month). That is the view from from a bank point of view that has a large portfolio of mortgages.

 

I am looking at it from a household point of view. If you had no choice but lock-in at 4-year at 4%. That is it for you until you are due, no matter what the inflation does or what the bond market yield is going to be. Unless you break it. 

 

As a homeowner with mortgages (one half due in 2027 fixed at 1.65-1.7% and the other ~3.1% due March 2024), I think the better bet for me in 2024 is actually try variable rate now that the risk-reward has tilted toward in favor. Also legions of variable rate holder had converted to fixed when the rate had gone up, I can bet you that Canadian banks would be offering good discount against the prime to entice people back. 

 

 

[rkbabang]

19 hours ago, SharperDingaan said:

Lot of grocers do local delivery for a $5-10 fee. Similar to instacart, but groceries at the store price, and delivered to your door at a pre-set time - even when it is in the middle of a snow/ice storm. Still seen as a 'convenience' by many, but the real market is the elderly/infirm aging in place at home. Lot different to the Uber Eats, or DoorDash model.

 

Cashiers cost, and their real value is security. Live in a rich neighborhood and there are few cashiers, simply because customers don't steal enough! Customers simply check out their own stuff, and the cost of their theft/hour is less than the cost of a cashier per hour. Paying someone to just scan goods has zero value add.

 

All that is really needed is a warehouse on cheap land, a good on-line portal, robotic loaders/sorters to unload/stack/load, a reliable fleet of electric delivery vans, a roof full of solar panels, and the odd windmills. Charge an average 20% less for everything, keep a small quantity of manual labor on hand for resilience, and ideally don't permit any customer pickups or in-store shopping as well.

 

Combine bigger players together, save 35% and give back 20% in discounts.

 

SD 

 

 

 

 

I think grocery stores will be the last physical retailers to get rid of human cashiers.  I don't mind going through self checkout if I have 3-5 items, but for a weeks worth of groceries, I'd just assume stand there and wait while someone else rings it all in and bags it.

 

 

[Viking]

Bond yields have been spiking higher over the past month. The entire yield curve is now over 4%, including the 30 year treasury. The 10 year Treasury is almost at 4.1% and the 2 year is almost at 5%.

 

When people ask Buffett about the valuation of the stock market (cheap or expensive) he usually says to look at the yield of the 10 year bond. The 10 year is now trading at a 15 year high yield. 
 

What about earnings? Dropping.

S&P500 EPS Estimates

- June 2022 = $252 

- Dec 1 = $231

- Jan 1 = $229

- Today = $222

 

Bond yields are at 15 year highs (and trending higher). Earnings falling (with guidance weak). So where does the stock market averages go from here? Not rocket science. 
 

What should an investor do? Of course, that depends on your situation, strategy, objectives etc. 

 

[changegonnacome]

Its a bitches brew - as I've said for many pages of this thread............conservatism on both earnings forecasts and the multiples you pay for those earnings is important right now........the last decade plus has been characterized by broad multiple expansion.......it flattered a lot of mis-forecasting of underlying earnings power as multiples time and time again bailed out misjudgments on a mark to market basis.

 

Multiples coming in coupled with mis-forecasting of earnings is just devastating to underlying equity returns and so if your gonna play, youve got to play carefully. 

[CorpRaider]

The Davis double wedgie.

[thepupil]

An increasingly great time to be a saver. Starting to be able to lock in decent returns with duration.

 

Short stuff

1 yr bill:    5.0% 

CLO AAA 6.3% 

 

Longer Stuff

10 yr:       4.07%

30 yr        4.01%

MBS Index Yield to Worst: 4.8%

20 yr BBB Corps 6%

 

TIPS

5 yr: 1.7%

10 yr: 1.6%

30 yr: 1.6%

 

Edited March 2, 2023 by thepupil

[mattee2264]

Obviously focus on this thread is primarily S&P 500. 

 

But European markets have been on a tear and are back at all time highs. 

 

Helps that they have a pretty high concentration in commodities and financials which have benefited from the increase in interest rates and growing optimism that there will be a soft landing and they don't have as much exposure to tech stocks and other interests sensitive growth stocks. 

 

How do people rate the prospects? Traditionally if the US has a good decade then EAFE tends to have a good decade the following one 

[Dinar]

1 hour ago, mattee2264 said:

Obviously focus on this thread is primarily S&P 500. 

 

But European markets have been on a tear and are back at all time highs. 

 

Helps that they have a pretty high concentration in commodities and financials which have benefited from the increase in interest rates and growing optimism that there will be a soft landing and they don't have as much exposure to tech stocks and other interests sensitive growth stocks. 

 

How do people rate the prospects? Traditionally if the US has a good decade then EAFE tends to have a good decade the following one 

A lot of European and non-US stocks are very cheap.  A number of excellent businesses priced at low multiples.  

[Luke]

55 minutes ago, Dinar said:

A lot of European and non-US stocks are very cheap.  A number of excellent businesses priced at low multiples.  

Which names would you throw in?

[longlake95]

Have a look at FEVR, small wonderful business. Disclosure: I own it.

[Luke]

21 minutes ago, longlake95 said:

Have a look at FEVR, small wonderful business. Disclosure: I own it.

1.5b marketcap, 80b net income, soft drinks? Doesnt look exciting on a first glance. Whats the thesis?

[longlake95]

Category leader in premium mixer (complementing the premium mixed drink category that's growing fast). Growing fast abroad. High ROIC. No debt. High inside ownership. Dividends (both regulars and specials) Sure, there's cost issues lately, with inflation. That too shall pass...

[Gregmal]

The inflation cost issues are gonna swing back the other way at some point, and then margins across the board get a boost again. This is true for pretty much every company with any sort of structural market advantage. 

[longlake95]

Just now, Gregmal said:

The inflation cost issues are gonna swing back the other way at some point, and then margins across the board get a boost again. This is true for pretty much every company with any sort of structural market advantage. 

absolutely.... Are glass prices and aluminum can prices going to stay elevated for ever? of course not.  It's a money laying on the ground (at the risk of sounding bold....LOL) They have been shipping most of the finished product to the U.S. ( largest market ) from the UK during this period (imagine those costs). Wait till the 2 bottling plants are up and running fully in the U.S. 

[Luke]

They grew revenues the past 5 years yes but it still trades at almost 20x net income. Not a bargain.