Is The Bottom Almost Here?

[Parsad]

55 minutes ago, Sweet said:

How do you define as cheap here for the retail segment i.e. p/e etc?

 

I’ve been looking at retail too but nothing slaps me in the face as something I’d want to buy.

 

Banks seem the best value for money right now.

 

Banks have a huge inherent risk because of their leverage and lack of transparency in their loan portfolio.  It's a simple business that has become incredibly complicated.  I think they need to get cheaper based on the current risks.

 

Yes, retail based on P/E and P/B.  Do they own their underlying real estate portfolio?  Are cash flows somewhat reliable?  Is debt manageable and are they paying it down?  Are they turning over inventory or is it stagnant and building?

 

Cheers!

[Spekulatius]

5 hours ago, TwoCitiesCapital said:

 

Between May and August 2000, QQQ rallied 45% before turning back down and continuing it's bear market and losing an additional 70% over the next 8 months. 

 

I'm not suggesting we see a repeat of 2000. Just pointing out 20-30% rallies aren't UNCOMMON as bear market rallies and are hardly evidence of a sustained recovery. 

 

Liquidity is still tightening. High yield spreads are approaching levels from last year where stocks were making lows while stocks are near local highs. Leading indicators continue to be significantly negative. Coincident indicators are rolling over. Consumers are continuing to demonstrate signs of becoming tapped out.  

 

This is hardly an environment that is supportive of assets with uncertain/cyclical cash flows. Particularly assets whose earnings are already falling despite "beating" newly lowered estimates. 

No debate on above. I am just providing the fact here, big tech has huge rally here. I suspect it’s based on flows, because pretty much all the big tech stocks rallied correlated with the QQQ. I agree it could down from here, but who knows? I guess you could just trade the chart and momentum.

 

It‘s not as simple as “Fed raises rates, stocks go down” apparently.

[changegonnacome]

Poor Carl.......still making mistakes after 87yrs....

 

Carl Icahn admits he got bearish bet that cost $9bn wrong:

https://www.ft.com/content/9e0cc00d-a910-455c-bc1a-2d20dfe21289

 

A warning to those that hear 'voices' about impending doom.......I hear those voices sometimes......I let it, on occasion, take my gross exposure from 112% down to ~80%.......but never below.......and never with 'bets' that cost significant NAV waiting for some imagined anticipated meltdown.......to the extent I ever use options......always much better to be a seller than a buyer

 

Peter Lynch says, “Far more money has been lost by investors trying to anticipate corrections, than lost in the corrections themselves.”.......

 

and he's 100% right of course

 

 

[LC]

Yep. I've only recently gotten comfortable staying around 100% invested regardless of the market environment, and using margin (rather than a cash balance) to go above/below depending on macro conditions and how confident I am in my ideas.

 

It started in COVID with such giant sell offs as if humanity was ending, and Greg's posts on how he thinks about his overall portfolio, and then even recently the post on how Buffett used leverage during his partnership days. Someone will always have a reason to predict financial apocalypse, and yet here we all are.  

Edited May 18, 2023 by LC

[backtothebeach]

4 hours ago, changegonnacome said:

Poor Carl.......still making mistakes after 87yrs....

 

Carl Icahn admits he got bearish bet that cost $9bn wrong:

https://www.ft.com/content/9e0cc00d-a910-455c-bc1a-2d20dfe21289

 

A warning to those that hear 'voices' about impending doom.......I hear those voices sometimes......I let it, on occasion, take my gross exposure from 112% down to ~80%.......but never below.......and never with 'bets' that cost significant NAV waiting for some imagined anticipated meltdown.......to the extent I ever use options......always much better to be a seller than a buyer

 

Peter Lynch says, “Far more money has been lost by investors trying to anticipate corrections, than lost in the corrections themselves.”.......

 

and he's 100% right of course

 

 

Krugman turning bullish and cancelling the recession.

Icahn running out of steam and can't keep his bearish hedges.

changegonnacome quoting Peter Lynch

Market arguably nearing FOMO mode.

 

I've been taking profits / reducing leverage today. Probably early or wrong...who knows.
 

Edited May 18, 2023 by backtothebeach

[LC]

Quote

Market arguably nearing FOMO mode.

 

You think so? Everyone I talk to is more excited about 5% high yield savings accounts and their 2.75% mortgages. Stocks are dead, long live stocks. 

[backtothebeach]

13 minutes ago, LC said:

 

You think so? Everyone I talk to is more excited about 5% high yield savings accounts and their 2.75% mortgages. Stocks are dead, long live stocks. 

You are probably right.

[Spooky]

Article in the FT with Bullard saying he is open to still raising rates as insurance against inflation. He is one of the more hawkish members and the top of his range is "just above 6%". If true, it still doesn't seem too bad to justify all this doom and gloom.

 

It was pretty obvious back at certain points in 2022 that sentiment had diverged significantly from reality towards pessimism, reaching levels last seen during the financial crisis. Unless something else breaks here (big if) it looks like the bottom has already happened and the stock market has bounced back pretty well this year. There is still also a tonne of institutional money sitting on the sidelines.

 

All that being said in a recent podcast Sam Zell said if he was at the Fed he would raise rates by another 3 or 4 percent....

[Dinar]

1 hour ago, Spooky said:

Article in the FT with Bullard saying he is open to still raising rates as insurance against inflation. He is one of the more hawkish members and the top of his range is "just above 6%". If true, it still doesn't seem too bad to justify all this doom and gloom.

 

It was pretty obvious back at certain points in 2022 that sentiment had diverged significantly from reality towards pessimism, reaching levels last seen during the financial crisis. Unless something else breaks here (big if) it looks like the bottom has already happened and the stock market has bounced back pretty well this year. There is still also a tonne of institutional money sitting on the sidelines.

 

All that being said in a recent podcast Sam Zell said if he was at the Fed he would raise rates by another 3 or 4 percent....

Yes, but why did he say it?  I think Sam was sitting on a mountain of cash and if rates are up another 3-4%, then perhaps massive bargains in real estate?

[Sweet]

15 hours ago, changegonnacome said:

Poor Carl.......still making mistakes after 87yrs....

 

Carl Icahn admits he got bearish bet that cost $9bn wrong:

https://www.ft.com/content/9e0cc00d-a910-455c-bc1a-2d20dfe21289

 

A warning to those that hear 'voices' about impending doom.......I hear those voices sometimes......I let it, on occasion, take my gross exposure from 112% down to ~80%.......but never below.......and never with 'bets' that cost significant NAV waiting for some imagined anticipated meltdown.......to the extent I ever use options......always much better to be a seller than a buyer

 

Peter Lynch says, “Far more money has been lost by investors trying to anticipate corrections, than lost in the corrections themselves.”.......

 

and he's 100% right of course

 

 

Why 112% exposure, what’s your reason for taking 12% margin.

 

Im a guy that doesn’t use margin, I see people running 10-20% margin, I’ve not seen anyone provide their reasoning for it - risk vs reward etc.

 

 

Edited May 19, 2023 by Sweet

[changegonnacome]

5 hours ago, Sweet said:

Why 112% exposure, what’s your reason for taking 12% margin.

I use IBKR due to low margin interest rate….in exchange I live in fear of automated margin liquidations that IBKR is famous for….I like the constraint, it’s quells my aggression..…see Petterffy doesn’t do margin calls, he does sales…and on average I hold small cap slightly illiquid stocks…..I also have all the warnings about leverage oozing out of my ears….the warnings are justified…..running a portfolio at 112.5% gross exposure means in a 50% sharp drawdown scenario…..my 12.5% margin loan would balloon to 25%…..depending on holdings this is still well within the overnight margin requirements that IBKR has and as a result even in a 50% drawdown scenario I should not find myself in a forced liquidation….or certainly that margin ‘space’ & time would allow me to take corrective action.

 

So short version - I want to be a hero, but I definitely don’t want to be a ZERO.

 

The 112.5% exposure is also reserved for times when the wind is really at the equity investors back…post a draw down….when the Fed has got your back, when credit is expanding….when Joe Sixpack’s monthly free cash flow can’t help but get better in the ensuing months. This is not one of those times….I’m not saying you can’t make money or pick your spots….for sure you can…..it’s just the wind is at your front and you need to make higher quality, higher probability decisions. Everywhere I look I wonder how Joe Sixpack is gonna have more money this year than last….and I don’t see it and haven’t heard anyone make a good argument to the contrary…..the median American’s b/s and purchasing power cash flow is dis-improving. It’s a time to move forward with caution and raise the quality bar on investments.

[Sweet]

2 hours ago, changegonnacome said:

I use IBKR due to low margin interest rate….in exchange I live in fear of automated margin liquidations that IBKR is famous for….I like the constraint, it’s quells my aggression..…see Petterffy doesn’t do margin calls, he does sales…and on average I hold small cap slightly illiquid stocks…..I also have all the warnings about leverage oozing out of my ears….the warnings are justified…..running a portfolio at 112.5% gross exposure means in a 50% sharp drawdown scenario…..my 12.5% margin loan would balloon to 25%…..depending on holdings this is still well within the overnight margin requirements that IBKR has and as a result even in a 50% drawdown scenario I should not find myself in a forced liquidation….or certainly that margin ‘space’ & time would allow me to take corrective action.

 

So short version - I want to be a hero, but I definitely don’t want to be a ZERO.

 

The 112.5% exposure is also reserved for times when the wind is really at the equity investors back…post a draw down….when the Fed has got your back, when credit is expanding….when Joe Sixpack’s monthly free cash flow can’t help but get better in the ensuing months. This is not one of those times….I’m not saying you can’t make money or pick your spots….for sure you can…..it’s just the wind is at your front and you need to make higher quality, higher probability decisions. Everywhere I look I wonder how Joe Sixpack is gonna have more money this year than last….and I don’t see it and haven’t heard anyone make a good argument to the contrary…..the median American’s b/s and purchasing power cash flow is dis-improving. It’s a time to move forward with caution and raise the quality bar on investments.

thanks for explanation

[John Hjorth]

On 5/18/2023 at 10:32 PM, backtothebeach said:

Krugman turning bullish and cancelling the recession.

Icahn running out of steam and can't keep his bearish hedges.

changegonnacome quoting Peter Lynch

Market arguably nearing FOMO mode.

 

... And all while the talk in this topic with the topic title "Is the bottom almost here" goes on and on and now includes talk about both recessions, inflation, interest rates and markets in FOMO mode, [please take no offense @backtothebeach ], and all such,

 

I found my self at a new ATH just exactly sniffing to the next million DKK i total portfolio value, while : 

 

1. Being almost fully invested, with no margin,

2. Doing basically nothing, but :

2a. Nagging here on CoBF about Brookfield, Brookfields reporting in various shades, Brookfields complexity & Brookfields opacity, &

2b. Studying the Swedish real estate carnage going on, evolving and unfolding in these days [from the sideline] & at the same time nagging about that too on Twitter to anybody in Sweden on Twitter who seem to be involved and care about it, &

2c. Nagging internally about the stock price of SCHO.CPH and why it does not go up, while buying on/off for dividends received, while I should just be buying, &

3. Being absolutely without any idea of what markets will do tomorrow, the day after tomorrow, and so on, with no clue at all, be it 1 - 5 years or so.

4. Remembering the signature line in @Spekulatiuss profile on CoBF under former software platform : "To be an realist optimist, one has to believe in miracles".

Edited May 22, 2023 by John Hjorth
Added to 2b. and added 2c.

[Spooky]

8 hours ago, John Hjorth said:

I found my self at a new ATH

 

Congrats John. I find myself in a similar position, I just kept consistently adding to my positions on weakness over the lifespan of this thread. 

[dealraker]

On 5/19/2023 at 10:57 AM, changegonnacome said:

I use IBKR due to low margin interest rate….in exchange I live in fear of automated margin liquidations that IBKR is famous for….I like the constraint, it’s quells my aggression..…see Petterffy doesn’t do margin calls, he does sales…and on average I hold small cap slightly illiquid stocks…..I also have all the warnings about leverage oozing out of my ears….the warnings are justified…..running a portfolio at 112.5% gross exposure means in a 50% sharp drawdown scenario…..my 12.5% margin loan would balloon to 25%…..depending on holdings this is still well within the overnight margin requirements that IBKR has and as a result even in a 50% drawdown scenario I should not find myself in a forced liquidation….or certainly that margin ‘space’ & time would allow me to take corrective action.

 

So short version - I want to be a hero, but I definitely don’t want to be a ZERO.

 

The 112.5% exposure is also reserved for times when the wind is really at the equity investors back…post a draw down….when the Fed has got your back, when credit is expanding….when Joe Sixpack’s monthly free cash flow can’t help but get better in the ensuing months. This is not one of those times….I’m not saying you can’t make money or pick your spots….for sure you can…..it’s just the wind is at your front and you need to make higher quality, higher probability decisions. Everywhere I look I wonder how Joe Sixpack is gonna have more money this year than last….and I don’t see it and haven’t heard anyone make a good argument to the contrary…..the median American’s b/s and purchasing power cash flow is dis-improving. It’s a time to move forward with caution and raise the quality bar on investments.

A counter to: Inflation means panic from equities.  Not my work, but I've debated/sponsored the model with the author.

 

Conversely, when you get a certain earnings yield from equities, it tends to be inflation adjusted on average over time.
If nominal earnings are rising at 5%/year in a 2% inflation environment, you can generally expect nominal earnings to rise at 7%/year in a 4%/year inflation environment.
To a first approximation, equity earnings yields are on average inflation adjusted: changes in inflation do not hurt your wealth.
That's assuming you are using a cyclical adjustment--obviously both earnings and prices do go up and down in the short term.

The exceptions are
* when inflation is so high that the economy breaks, but that's pretty rare.
* Some specific firms are unusually sensitive to inflation, and others are unusually resilient or even "antifragile". But on average it's a wash.

If there is any inflation over ~2% in future, a 5% earnings yield from a slate of equities is much more valuable than a 7% coupon from a fixed income instrument, whether bond or preferred.
Value Line currently covers around 240 stocks with P/E under 20, projected EPS growth rate over 10%/year, and projected annual total returns over 15%/year.
I would not put much faith in any of those numbers, but it seems not too hard to put together a broad portfolio with an earnings yield over 5%.
Your slate might not beat the broad market, but you'd be relatively immune from the risk of permanent capital loss from having a wildly overvalued portfolio--and the risk of inflation.

Inflation will drive down the apparent book value of physical earning assets in real terms, but that is no reason to suppose that those assets will have any lower real return.
In effect, inflation will (on average) cause reported ROE and ROA to rise. (same real return on same real assets, but understated asset value).
If a machine makes 20 widgets an hour, then the price of everything (including new widget machines) doubles due to inflation, it can still produce 20 widgets, not 10.
The real return on that asset is unchanged. The apparent return (naively calculated ROE in nominal dollars) doubles.

A much better line of reasoning goes like this: assume we have broadly-based inflation of (say) 10%.
The purchasing value of a currency unit falls. Everything goes up in nominal price, but the real price of everything stays the same.
All salaries go up a nominal 10%. All product and service selling prices go up a nominal 10%. All energy and material input prices go up a nominal 10%.
The inevitable consequence is that profits will go up a nominal 10%, and margin percentages will remain unchanged.
So, it is clear than in the case of evenly distributed inflation, real profits will be unaffected.

So the things to concern yourself about are only the company specific exceptions, and the smaller effects.
The main company specific exception is debt, which is fixed in nominal terms.
Companies with net debt will benefit from the erosion of the real value of their debts, and companies with (say) bond ownership will take a hit.
There are also effects because changes in inflation hit different companies at different speeds, which mean inputs and revenues may mismatch for a while.
This is largely a function of pricing power...everybody will raise their prices, but some companies will feel free to do it sooner than others.

Some companies will have distortions in their reported earnings, quite separate from possible distortions in their real earnings.
Railroads are the usual example: they have massive long-lived assets requiring maintenance capex, so their accounting depreciation will substantially understate their real economic depreciation:
the replacement cost of a worn-out piece of track might be a big multiple of its old depreciating book value in current nominal dollars.
In other words, reported profits will be higher than true profits (owner earnings). A lot of what looks like expansion capex will really be maintenance capex.
Another accounting quirk is the book value of real estate, which will cause firms with land to have book assets lower than their true real value.

But, the base line situation is inflation is pretty much a wash for real corporate profits, with the caveats mentioned above.
(on average across the economy but not every specific firm, after cyclical adjustment, and not inflation so high that the economy fails)
A rise in inflation often coincides with or precedes an earnings recession, but that will pass.
Once the dust settles, companies in general keep on making real profits on about the same old trend.
This makes sense in theory--if everything else goes up in price the profits will too--and matches the historical data.

Edited May 22, 2023 by dealraker

[Spekulatius]

@John Hjorth The line from Ben Gurion was “ To be an  realist, you have to believe in miracles.”

 

This was related to the founding is Israel that succeeded against all odds. My interpretation of the meaning is that “miracles” are possible and perhaps only possible, if someone believes in them.

Or perhaps it means that if you try something hard and long enough, you may succeed in what seems like a miracle to anyone else. 

 

Either interpretation sounds good to me. Now we can go back to our regular scheduled programming.

[John Hjorth]

Thanks for explanation of the backdrop, @Spekulatius,

 

When I typed what I did, I looked at it, thinking "Something is wrong here, does not look right, and it does not seem to have that punch, resourcefulness and impact I recalled from your line ..."  - Now fixed in my post above!

Edited May 22, 2023 by John Hjorth

[etai]

3 hours ago, Spekulatius said:

@John Hjorth The line from Ben Gurion was “ To be an  realist, you have to believe in miracles.”

 

This was related to the founding is Israel that succeeded against all odds. My interpretation of the meaning is that “miracles” are possible and perhaps only possible, if someone believes in them.

Or perhaps it means that if you try something hard and long enough, you may succeed in what seems like a miracle to anyone else. 

 

Either interpretation sounds good to me. Now we can go back to our regular scheduled programming.

Hello 

 

I was looking for that quote, found somethings very similar. 

 

Ben Gurion said:

בארץ ישראל,אדם שלא מאמין בנסים הוא

אדם לא ריאלי

 

"In the land of Israel, a person who doesn't believe in miracles is not a realistic person"

 

Your interpretation of that quote is perfect!

 

Etai.

 

[Spekulatius]

54 minutes ago, etai said:

Hello 

 

I was looking for that quote, found somethings very similar. 

 

Ben Gurion said:

בארץ ישראל,אדם שלא מאמין בנסים הוא

אדם לא ריאלי

 

"In the land of Israel, a person who doesn't believe in miracles is not a realistic person"

 

Your interpretation of that quote is perfect!

 

Etai.

 

I think what you quoted may be the original one. But then again, you can apply the gist of what Ben Gurion said to similarl situations than Israel found itself in, including investing. What I like about this particular quote is that it seems a contradictory on first glance, but there more you think about it, it captures a lot of about how humans (or at least some of them) can deal with adversity.

[Spekulatius]

TYX (30 year treasury bond index) crept up from 3.5% to almost 4% in the last few weeks. Its quite interesting and unusual that growth/tech stocks have been so strong while LT treasury yields have been going up at the same time.

[UK]

https://www.bloomberg.com/news/articles/2023-05-22/hedge-funds-rush-to-buy-stocks-with-s-p-500-on-brink-of-market-breakout?srnd=premium-europe&leadSource=uverify wall

 

“Risk managers at big institutional firms are saying, ‘Look, the markets are going up, and you can’t sit around and do nothing, you have to participate,’” said Quincy Krosby, chief global strategist at LPL Financial. “The cost of missing out may be just too high. There’s this optimism that the Fed is either finished or almost done with its rate-hiking cycle, then there’s the notion that the recession could be pushed out.”

[gfp]

22 minutes ago, Spekulatius said:

TYX (30 year treasury bond index) crept up from 3.5% to almost 4% in the last few weeks. Its quite interesting and unusual that growth/tech stocks have been so strong while LT treasury yields have been going up at the same time.

 

Why is that unusual?  The main thing that would make the TYX yield go down would be economic weakness and the main thing that would cause the yield to go up would be economic strength.  Just think about it as reflation/bullish vs deflation/bearish.

 

 

[Gregmal]

38 minutes ago, UK said:

https://www.bloomberg.com/news/articles/2023-05-22/hedge-funds-rush-to-buy-stocks-with-s-p-500-on-brink-of-market-breakout?srnd=premium-europe&leadSource=uverify wall

 

“Risk managers at big institutional firms are saying, ‘Look, the markets are going up, and you can’t sit around and do nothing, you have to participate,’” said Quincy Krosby, chief global strategist at LPL Financial. “The cost of missing out may be just too high. There’s this optimism that the Fed is either finished or almost done with its rate-hiking cycle, then there’s the notion that the recession could be pushed out.”

Well, maybe the problem isn’t the markets but the people tasked with these jobs? Isn’t it crazy how they’re all just sitting around guessing, gossiping, and speculating about the Fed? Instead of just doing their jobs and investing? The last few years, starting around early 2020, I’ve really been amazed how many people continue to participate in the stock market despite being overridden with fear of “something bad might happen tomorrow”. So dumb

[Dalal.Holdings]

1 hour ago, UK said:

https://www.bloomberg.com/news/articles/2023-05-22/hedge-funds-rush-to-buy-stocks-with-s-p-500-on-brink-of-market-breakout?srnd=premium-europe&leadSource=uverify wall

 

“Risk managers at big institutional firms are saying, ‘Look, the markets are going up, and you can’t sit around and do nothing, you have to participate,’” said Quincy Krosby, chief global strategist at LPL Financial. “The cost of missing out may be just too high. There’s this optimism that the Fed is either finished or almost done with its rate-hiking cycle, then there’s the notion that the recession could be pushed out.”

 

 “As long as the music is playing, you've got to get up and dance,” --Citi CEO before it all went Boom

[Spekulatius]

17 minutes ago, Dalal.Holdings said:

 

 “As long as the music is playing, you've got to get up and dance,” --Citi CEO before it all went Boom

Prince was a great dancer though.

 

Well, it was the other Prince.