Is The Bottom Almost Here?

[Jaygo]

31 minutes ago, changegonnacome said:

"https://www.bls.gov/news.release/realer.nr0.htm#:~:text=From December 2021 to December 2022%2C real average hourly earnings,weekly earnings over this period.

 

From December 2021 to December 2022, real average hourly earnings decreased 1.1 percent, seasonally adjusted. The change in real average hourly earnings combined with a decrease of 0.9 percent in the average workweek resulted in a 2.0-percent decrease in real average weekly earnings over this period.

 

What a great economy? One where your salary buys less this year than it did last year. For the well schooled and well heeled the cost of living background noise feels over done....you notice your Wholefoods receipt is a little high.......for some folks I know personally.....its very real.

 

People wonder what's the problem with this "strong" economy and great unemployment numbers and why does the Fed need to "wreck it" to fix inflation...............well look at the above.........purchasing power is going backwards.......3.4% unemployment sounds great as a statistic..............but as I said many pages back......an inflationary economy is one where EVERYBODY is losing their job.......just very slowly........and disproportionally the stealth job losses are heaped on the poorest.

 

The second point and back to the E getting whacked question we have going on here on the "bottom" and whether it was October or not......but lets just call it SPY earnings forecasts.......is how to do you fix the US employee/consumer's purchasing power and get them back to good health such that their purchasing power is increasing again?

 

Answer>

Nominal wage increases need to exceed nominal price increases? Such that real wages & purchasing power is growing again.

Whats that got to do with earnings? > 

Well last time I checked in business if your prices are rising more slowly than your costs......your facing margin & earnings headwinds.

 

Thats exactly where companies are right now........pushing price on a weakening consumer doesn't work...........and at the same time your employees are seeking pay increases.

 

In some ways its so simple........the corporate sector is going to have give up some of its margin/earnings and transfer them to employees/consumers to restore their purchasing power. This situation gets fixed once that happens......there are no free lunches in economics only trade off's........and earnings clearly have to give here.....such that consumers/employees can get back on track. 

 

Then we can all get back to the real game of progress which isn't printing funny money, fiscal transfers & QE/QT - its increasing the aggregate amount of real goods and services produced in the economy.

I am still in the camp that the inflation is caused by government ineptitude and a one time expansion of the money supply. 
 

if they cut taxes and government spending, then lower rates goods inflation will drop. Goods inflation leads to services inflation. 
 

free enterprise is and has always been the best solution to inflation. what I saw last night on the sotu tells me this admin is a circus and entirely willing to run a socialist command economy. Not good imo. 

[Gregmal]

I also kind of became desensitized to the used car and commodity inputs as a bellwether because last time the inflationistas screamed about them they fell off a cliff shortly thereafter and in response to this the inflationistas changed the goalposts and moved on to other more convenient bellwethers. Have we come full circle?

[Blugolds11]

9 minutes ago, Gregmal said:

Yup. Except now we ve been conditioned to see them as signs of the coming apocalypse. They’re not

 

Consumers have jobs, and no foreseeable risk of the majority losing them, and they don’t have to worry about losing their homes/housing…so there really is no reason to stop spending. They might complain about the price of gas, or utilities or groceries or whatever else, but do any of them really STOP buying? Do you really think they’re gonna say…whoa, alright, beans n franks this month kids, Nope, its the name brand sugar cereal, snacks, pop, chips, still grabbin that pack of Marbs, still grabbin the case of beer, still gettin the new iPhone, new pair of Nikes, LULU pants etc etc…American consumers gonna consume…give ‘em a job, and a place to sleep, a plastic card and get the F outta their way. 

 

Think about it, pervious generations had magazine ads, and TV commercials to brainwash them as consumers…now the avg American spends how much time on social media per day, that is essentially one GIANT commercial for all things consumable? If its not the brands, companies themselves its their influencers, reels, snaps, toks telling people that if you wanna be cool, pretty, rich etc this is what you need.There has never been a time in human history that the avg person has been more inundated with consumer branding, advertisements etc telling them every where they look, SPEND! BUY! Literally never in history has there been more minutes out of every day that the avg American has been subject to marketing. 

 

I used to think that more consumers thought like I did, but that was flawed thinking, they don’t. If I don’t buy something that I think it overpriced, its on principle, they don’t think that way, they complain and buy anyway, because lets be real, if the majority of them were financially literate and made good choices they wouldnt be in the situation they’re in statistically, they don’t make good choices when it comes to their health, and they don’t make good choices when it comes to their bank account/checkbook. 

 

I called 5 dealerships in 2 states last week to price out a new Honda ATV 4 wheeler for the cabin, best price, I would finance with them if it gave me a better OTD price (then just pay off the next month) or pay cash, up to them. Every single one came back between $1900-$2200 OVER MSRP. 2 years ago my cousin bought one for $200 UNDER MSRP and it wasnt a special deal, and these weren’t limited hard to find machines, they had 8-10 in stock ready to go, in all 3 color options. Consumers are spending, stimulus bucks or not, they don’t care, I think they just accept the new normal, they whine and complain but none of them actually STOP buying, it ends up “well, what are ya gonna do?” And that is the extent of it and the music plays on. 

 

I don’t see any serious scary stuff that is gonna be a problem, and like I said, the loss of purchasing power for the middle class isnt gonna do it, because they’ve been getting F’d for decades and here we are, still spendin, so thats nothing to worry about from a consumer spending standpoint. 

 

The beast is alive and it needs to feed, let it eat. 

[changegonnacome]

17 minutes ago, Gregmal said:

Yup. Except now we ve been conditioned to see them as signs of the coming apocalypse. They’re not

 

Dont think I've ever advocated for an apocalypse coming  My advocacy to folks to the extent they care......is a little more caution than is normal......higher FCF underwriting standards.......more conservative estimations of an enterprises cyclically adjusted earnings power.......shy away from high P/E's.....where a fall in earnings & a fall in optimism one can get really hurt.

 

What I've certainly said and its playing out - is that 2021/early 2022 was peak margins and peak earnings this cycle.......& if your underwriting investments at those levels, on average, you are going to be disappointed....earnings ordinarily go up YoY but the context I've covered helps explain why they are very very very unlikely to go up again (in real terms) in the way we are used to..........that is until earnings first fall, unemployment goes up, inflation returns to 2% and the Fed normalizes rates and we build out from there.....see in 2021 IMO they reached a kind of crescendo of everything going right for corporates...........underneath the hood of the index things are better and worse for individual names of course.......the upper range bound characteristic of SPY IMO (lets call it 4400 between friends) is an interesting way to hedge/play alpha games/sell vol. while picking winners/losers underneath. 

[Gregmal]

Yea for sure I know you're one of the good guys. I just kinda rant on the talking points because a lot of these are the ones manipulated by the bad actors and bullshit artists. Any way you cut it, a market and economy where everything is plummeting, like say, last summer, is not a healthy one. So the obvious skepticism from people who are deceptively lobbying everyone else that this is the answer, is bs and should be called out. Its just coincidental theyre hoarding cash or shorting the market...nothing to see there(shrug)...yea fuckin right.

 

If "everything plummeting" is not the answer, we will obviously have situations where some stuff goes up and some down and thats just always the way things have worked generally speaking, with a gradual longer term bias to the upside. Many last year in H2 got conditioned to scream anytime, anything, went up. I just look forward to what looks like a more normal, normal, going forward. Which should include 4-5% interest rates, not 0 and not 7. 

[thepupil]

seeing dealraker's beautiful 401K got me to look at my accounts. what stands out to me when i look at my accounts is that generally, I have a difficult time compounding my taxable accounts because I lead an expensive lifestyle and pay a high tax rate and am not a tax efficient investor. this is despite both of my taxable accounts handily beating the market / making good absolute returns. On the other hand, I have some earlier stage dealraker-esque tax advantaged accounts. The IRA's that result from my first two years' working (2011-2013) and have no contributions since are a material amount of money. 

 

So there's a lesson in there for some of the young folks. Max out that tax advantaged untouchable compounding vehicles!

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Edited February 8, 2023 by thepupil

[dealraker]

And one more post, mentioning the thing that matters over time regardless of good...or maybe awful cycles of whatever comes our way to slaughter our cherished quotes either for a few months or maybe years.   Here goes:

 

On my multi-lined multi-faceted 100 plus year Securities Research Chart framed downstairs, the damn thing is almost 5 feet wide by the way, is a typed note that I taped in the corner that quotes Buffett saying in the year 2000 that (too lazy to go down and verbatim it) "stocks are overvalued such that it likely exceeds 1928".  

 

So I think anyone reading my posts for the last 25 years knows that Berkshire and AJ Gallagher dominate my portfolio/outcome.  And since Buffett's quote in 2000 I think Berkshire is up 7 fold and AJ Gallagher is up (counting div's or not either is grand) about 10 times  that's 10 times it's 22-and-something years ago value.  Yea, stocks were over-valued yet about 9/10th's of my net worth came in those 22 years.  AJ Gallagher had spiked in 2000, surely it was over-valued.......right?  But at a PE of 20 what did I do?  I yawned; I didn't sell.

 

So just like those posting up "We tell all our clients that crypto/Bitcoin has beat stocks..." I have an extreme bias just as strong.   The difference is I don't come here telling Greg that he has to buy Berkshire and AJ Gallagher, suggesting that not doing so means "he just does NOT understand" how great this must-own entitiy(s) is that he has missed - thus he's out of it and ignorant of the NEW ERA. 

 

I come to get introduced to stuff I am unaware of, and I have gotten precisely that!  And my choices, whether luck or skill (I'll sure as hell never know) seem to be working.  Time will tell.

 

 

Edited February 8, 2023 by dealraker

[changegonnacome]

3 hours ago, Gregmal said:

I just look forward to what looks like a more normal, normal, going forward. Which should include 4-5% interest rates, not 0 and not 7. 

Yeah me too I like running 112.5% gross exposure when I’m very comfortable to do so……I’m just not doing anything close to that right now - moving forward I think the Goldilocks scenario is an earnings recession….where those earnings are hurt because prices weaken hurting margins and wages strengthen driving up costs.

 

That’s the route where you can actually square the circle on the price, inflation, wages, productivity story…….and not come up with unemployment and recession….but to be clear every scenario I play out on the journey back to 2% inflation see’s earnings getting whacked.

 

 

Edited February 8, 2023 by changegonnacome

[Munger_Disciple]

5 hours ago, dealraker said:

Individual stocks.  It is likely slightly below 13%, maybe closer to 12.5 or so.  I have now way of knowing now short of going back to plugging in the contributions that began with $50 a month and then went up towards the 1994 end.   I show this to my great neices and nephews.  They buy crypto and tell me how "out of it" I am.  Think I'm kidding?  LOL, they'll learn.  They too quote past returns as proof stocks are inferior.

 

@dealraker For simplicity, let us assume you put $30K into the account in early 1991. That's roughy 40X in 32 years which comes to 12.2% CAGR which is in the same ballpark as your guess. What surprises me is that for the first 20 years, it returned 4x which comes to 7.2% CAGR; so it seems like your returns went up massively almost 10x in the last 12 years which comes to 21.1% CAGR during this time! 

 

Can you share any explanations for such stunning improvement in your investment results? 

Edited February 8, 2023 by Munger_Disciple

[CorpRaider]

3 hours ago, thepupil said:

 

So there's a lesson in there for some of the young folks. Max out that tax advantaged untouchable compounding vehicles!

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Good advice.  Also, I've read, they're damn near judgment proof. 

Edited February 8, 2023 by CorpRaider

[rkbabang]

2 hours ago, dealraker said:

And one more post, mentioning the thing that matters over time regardless of good...or maybe awful cycles of whatever comes our way to slaughter our cherished quotes either for a few months or maybe years.   Here goes:

 

On my multi-lined multi-faceted 100 plus year Securities Research Chart framed downstairs, the damn thing is almost 5 feet wide by the way, is a typed note that I taped in the corner that quotes Buffett saying in the year 2000 that (too lazy to go down and verbatim it) "stocks are overvalued such that it likely exceeds 1928".  

 

So I think anyone reading my posts for the last 25 years knows that Berkshire and AJ Gallagher dominate my portfolio/outcome.  And since Buffett's quote in 2000 I think Berkshire is up 7 fold and AJ Gallagher is up (counting div's or not either is grand) about 10 times  that's 10 times it's 22-and-something years ago value.  Yea, stocks were over-valued yet about 9/10th's of my net worth came in those 22 years.  AJ Gallagher had spiked in 2000, surely it was over-valued.......right?  But at a PE of 20 what did I do?  I yawned; I didn't sell.

 

So just like those posting up "We tell all our clients that crypto/Bitcoin has beat stocks..." I have an extreme bias just as strong.   The difference is I don't come here telling Greg that he has to buy Berkshire and AJ Gallagher, suggesting that not doing so means "he just does NOT understand" how great this must-own entitiy(s) is that he has missed - thus he's out of it and ignorant of the NEW ERA. 

 

I come to get introduced to stuff I am unaware of, and I have gotten precisely that!  And my choices, whether luck or skill (I'll sure as hell never know) seem to be working.  Time will tell.

 

 

 

 

I don't think anyone is saying anyone _has_ to buy anything.  The only difference is that you can discuss Berkshire here without someone chiming in that it's Rat Poison.  And you can discuss AJ Gallagher here without people coming out of the woodwork saying its all a Ponzi scheme and worth nothing.   Some things cause more heated debates than others.  I've also owned Berkshire for over 20 years and I've never once had someone tell me quite confidently that it was worthless.

 

[changegonnacome]

Disney to Cut 7,000 Jobs as Bob Iger Seeks $5.5 Billion in Savings

https://www.bloomberg.com/news/articles/2023-02-08/disney-earnings-beat-in-first-results-since-iger-returned-as-ceo?srnd=premium&sref=7zqHEcxJ

 

Might be easier/quicker to start listing the companies that haven't done job cuts at this stage!

 

As I've said before - this is playing out as the inflation fixing playbook would suggest.........and again the problem with job cuts done in corporate unison as are being done now to restore underlying earnings that are deteriorating..........is that nobody gets to "save" anything with their cost cutting measures........if EVERYBODY is basically doing it at the same time.......your laid off employee is someone else's customer.......and your customer is somebody else's laid off employee....I should add that recessions of course arent driven by just folks who've lost their job.....they are driven fundamentally by people becoming aware of somebody in their network, friends or family losing their job....which drives changes in spending patterns.......the household sector attempts to "save" too by reducing aggregate spending but doing it unison has issues as per the corporate sector.

 

Ultimately this reduced aggregate demand/spending brings prices in the non-housing services category back to 2%.........the overarching adjustment however the more I think about is that corporates/capital's share of profits as % GDP gets reduced.....margins/earnings effectively......such that labor can enjoy at first a restoration of its pre-pandemic purchasing power from the 2020-2022 period and then as any growing economy should labor gets to expand its purchasing power over time.

 

Edited February 9, 2023 by changegonnacome

[dealraker]

2 hours ago, Munger_Disciple said:

 

@dealraker For simplicity, let us assume you put $30K into the account in early 1991. That's roughy 40X in 32 years which comes to 12.2% CAGR which is in the same ballpark as your guess. What surprises me is that for the first 20 years, it returned 4x which comes to 7.2% CAGR; so it seems like your returns went up massively almost 10x in the last 12 years which comes to 21.1% CAGR during this time! 

 

Can you share any explanations for such stunning improvement in your investment results? 

Without much thought Munger_Disciple for a start there were a few bank stocks in the portfolio that got bought out all the way up to Bank of NC exit in 2017.  Had a chunk of that.  Explains at least some of the change both lag and subsequent excel.

Edited February 8, 2023 by dealraker

[Charlie]

"So I think anyone reading my posts for the last 25 years knows that Berkshire and AJ Gallagher dominate my portfolio/outcome."

 

dealraker, I have a quote in my working room from Buffett that says: "The most important thing is to be in the right business(es)."

With Berkshire and AJ Gallagher you entered the right businesses.

I entered only Berkshire, but that worked also. 

[UK]

18 hours ago, changegonnacome said:

Disney to Cut 7,000 Jobs as Bob Iger Seeks $5.5 Billion in Savings

https://www.bloomberg.com/news/articles/2023-02-08/disney-earnings-beat-in-first-results-since-iger-returned-as-ceo?srnd=premium&sref=7zqHEcxJ

 

Might be easier/quicker to start listing the companies that haven't done job cuts at this stage!

 

As I've said before - this is playing out as the inflation fixing playbook would suggest.........and again the problem with job cuts done in corporate unison as are being done now to restore underlying earnings that are deteriorating..........is that nobody gets to "save" anything with their cost cutting measures........if EVERYBODY is basically doing it at the same time.......your laid off employee is someone else's customer.......and your customer is somebody else's laid off employee....I should add that recessions of course arent driven by just folks who've lost their job.....they are driven fundamentally by people becoming aware of somebody in their network, friends or family losing their job....which drives changes in spending patterns.......the household sector attempts to "save" too by reducing aggregate spending but doing it unison has issues as per the corporate sector.

 

Ultimately this reduced aggregate demand/spending brings prices in the non-housing services category back to 2%.........the overarching adjustment however the more I think about is that corporates/capital's share of profits as % GDP gets reduced.....margins/earnings effectively......such that labor can enjoy at first a restoration of its pre-pandemic purchasing power from the 2020-2022 period and then as any growing economy should labor gets to expand its purchasing power over time.

 

 

https://www.wsj.com/articles/jobs-hiring-boom-layoffs-employment-11675947399?mod=hp_lead_pos7

[Munger_Disciple]

22 hours ago, dealraker said:

Without much thought Munger_Disciple for a start there were a few bank stocks in the portfolio that got bought out all the way up to Bank of NC exit in 2017.  Had a chunk of that.  Explains at least some of the change both lag and subsequent excel.

 

Interesting. I guess these banks stocks were a big % of your portfolio for it to make such a big difference. 

Edited February 9, 2023 by Munger_Disciple

[fareastwarriors]

Surprised that Yahoo still had that many staff

 

 

https://www.cnbc.com/2023/02/09/yahoo-will-lay-off-nearly-1000-employees-by-end-of-2023.html

 

Private equity firm Apollo Global Management acquired 90% of Yahoo from Verizon in September 2021. The company had about 10,000 employees at that time, according to PitchBook data.

 

Axios reported that more than 1,600 workers would lose their jobs in the latest cuts, suggesting the company’s current head count is closer to 8,000 employees

Edited February 9, 2023 by fareastwarriors

[changegonnacome]

4 hours ago, UK said:

 

https://www.wsj.com/articles/jobs-hiring-boom-layoffs-employment-11675947399?mod=hp_lead_pos7

 

Thanks for sharing , interesting read and labor market is a dynamic one- two thoughts here.......first the aggregate spend/income effect of a $250k tech workers losing their job and a $35k hotel cleaner getting hired....is night and day......in both total spend in the economy......and on the income tax side of things if you bring the federal and state fiscal sectors income into the mix. Wealth/wage inequality is such now that every tech worker getting laid off is probably like five service level workers getting sacked in terms of their outsized impact on aggregate demand/spend.

 

Second thought on the hiring boom in leisure is interesting...when one thinks about the other thing I waffle on about alot - which is productivity........these are deeply unproductive incremental hires IMO........why?.....anybody who travelled last summer will know......hotels were producing 'bed nights' at 2019 volumes.....but doing so with skeleton staff......these were very very productive staff working in these hotels relative to bed nights produced......we all experienced it I think......"sorry our usually included breakfast buffett/restruant is closed because of COVID here's a muffin & banana in a brown paper bag"......"house keeping will only clean your room every five days and you have to request them to come in because of COVID".........consumers accepted this in 20/21/22............not anymore.........Hotels are hiring people returning staffing and service levels back to 2019 levels........but not a single extra bed night is likely to be produced by the addition of these staff over 22.......in short on the margins these workers dont increase aggregate output of bed nights......and all things being equal they diminish the average productivity per worker in the industry measured by $'s or bed nights produced.

[Parsad]

https://finance.yahoo.com/news/treasury-yield-curve-inversion-reaches-140649287.html

 

Recession is coming...no idea when, but rarely has the yield curve not been correct.  Cheers!

[TwoCitiesCapital]

5 minutes ago, Parsad said:

https://finance.yahoo.com/news/treasury-yield-curve-inversion-reaches-140649287.html

 

Recession is coming...no idea when, but rarely has the yield curve not been correct.  Cheers!

 

The when will likely be when thr 2-year Treasury yield starts to crater. 

 

It's typically the uninversion of the yield curve that signals a recession is at hand and the uninversion comes from the Fed cutting. And the Fed basically just follows what is predicted by the 2-year yield. 

 

 

[Munger_Disciple]

1 hour ago, TwoCitiesCapital said:

 

The when will likely be when thr 2-year Treasury yield starts to crater. 

 

It's typically the uninversion of the yield curve that signals a recession is at hand and the uninversion comes from the Fed cutting. And the Fed basically just follows what is predicted by the 2-year yield. 

 

 

 

2- year treasury yield is already lower than the fed funds rate

[Guest]

Bill, any thoughts on the Sanj's post?

[TwoCitiesCapital]

2 hours ago, Munger_Disciple said:

 

2- year treasury yield is already lower than the fed funds rate

 

I'm aware, but it's only a couple of basis points of it's all time highs. What you're waiting for is the 2-year to plunge like the 10-year recently did. 

 

That will signal the Fed pivot, the steepening of the yield curve, and the official recession. 

 

Stocks may, or may not, move significantly lower before that happens, but that is what will signal the recession.  

[Munger_Disciple]

3 hours ago, TwoCitiesCapital said:

 

I'm aware, but it's only a couple of basis points of it's all time highs. What you're waiting for is the 2-year to plunge like the 10-year recently did. 

 

That will signal the Fed pivot, the steepening of the yield curve, and the official recession. 

 

Stocks may, or may not, move significantly lower before that happens, but that is what will signal the recession.  

 

I doubt very much 4.x% was an all-time high in 2-year treasury yield. Apart from that, how do you define a "plunge" in 2-year yield? 

[TwoCitiesCapital]

30 minutes ago, Munger_Disciple said:

 

I doubt very much 4.x% was an all-time high in 2-year treasury yield. Apart from that, how do you define a "plunge" in 2-year yield? 

 

You're right. I misspoke. I meant the recent local highs. Not "all time".