Is The Bottom Almost Here?

[Cigarbutt]

3 hours ago, Spekulatius said:

 

Ok, let's keep digging (there must be some flexibility here since the morality of wars is being concurrently discussed).

Around 2009, profitability increased as a result of profit distribution rule changes (possibly linked to some shareholder legal pressures; although not disclosed that way) and, as you mention better underlying profitability.

This is awfully complicated but also awfully simple in a way.

The ECB, through pooling mechanisms and other schemes with national central banks calls the shots but shares the risk/reward outcomes on bottom lines. CBs have been expanding in a comparable fashion (ECB exposed more to some credit risks versus interest rate risk). Since 2015, the ECB has been catching up, in terms of unconventional market exposure. They (mostly), like the Fed, make their money from their NIM but there are differences with commercial banks. The ECB (and BNB) make their money when interest rates rise AND when the yield curves steepen. This goes a long way in explaining the declining seigniorage profit margins from 2010 on, despite an overall larger balance sheet expansion. In 2021, the ECB declared a double dividend (none in 2020 as a macroprudential move), as their net margins increased from the unwinding of the previous inversion.

An interesting part is that ECB (and BNB and the Fed) has recently (last 20 years) tended to expand their balance sheets (and get exposure to interest rate risk) once curve tightening or inversion were well under way (especially 2006-7, also 2018-9). More recently (2020-1), the ECB (BNB doubled their balance sheet) expanded its balance sheet right before a central-bank driven tightening phase was globally prescribed. In this second fastest tightening since the Volcker era, they now have to pay more interest on their liabilities than they receive on their assets and are starting to report massive mark-to-market losses on their asset side due to longer durations.

Of course, the fun part is what comes next. 

How can you know you've gone too far if you haven't gone too far?

Don't fight the Fed, they say, even when they are doing an acte manqué?

 

[UK]

For fun: “SPX 666 (GFC low) to 3333 (QE bull high) to 2222 (COVID) to >4444 (QE supernova) to 3333 (bond bear); we nibble 3600, bite 3300, gorge 3000,” 

 

https://www.investing.com/news/stock-market-news/big-low-wont-be-in-before-q1-no-huge-rally-until-policy-panic-occurs--bofas-hartnett-432SI-2902877

 

 

[mattee2264]

Earnings season could be pretty brutal. Nike already warning on a hit to margins as a result of a strong dollar and excess inventories. That follows on from Fed Ex earlier this month. It will be a death by cuts as each blue chip (and smaller peers) are taken out and shot as markets realize estimates were overly rosy. And of course if there are enough negative earnings surprises or disappointing guidance then investors will want to get out before results and that will accelerate the pace of declines. 

 

We ended 2021 with SPY earnings estimates of around $230 for 2022 and $250 for 2023 and bond yields of 1.5%. Peak SPY was around 4800 so that was about a 20x multiple on 2023 earnings. 

 

We will probably close the year with bond yields of 4.5% and 2023 SPY earnings estimates will probably fall below $200. 

We are at 3600 at the moment so that is around a 15x multiple on 2023 earnings (as originally estimated) which seems appropriate given the change in bond yields. But if 2023 earnings fall below $200 and there is no immediate prospect of recovery (seems likely given there will be a hit to margins as well as to demand) difficult not to see the SPY falling below 3000. 

[Gregmal]

I guess just one semi relevant question I’d have on the logic of “the E falling off the market next year”….why are we giving so much weight to one year in the grand scheme of things? Didn’t we just go through this with COVID? Like there was literally a full 2-4 quarter period where not only did companies see “the E decline”, but they lost absolutely staggering amounts of money. Seems short sighted to me. 

[Dalal.Holdings]

2 hours ago, mattee2264 said:

Earnings season could be pretty brutal. Nike already warning on a hit to margins as a result of a strong dollar and excess inventories. That follows on from Fed Ex earlier this month. It will be a death by cuts as each blue chip (and smaller peers) are taken out and shot as markets realize estimates were overly rosy. And of course if there are enough negative earnings surprises or disappointing guidance then investors will want to get out before results and that will accelerate the pace of declines. 

 

We ended 2021 with SPY earnings estimates of around $230 for 2022 and $250 for 2023 and bond yields of 1.5%. Peak SPY was around 4800 so that was about a 20x multiple on 2023 earnings. 

 

We will probably close the year with bond yields of 4.5% and 2023 SPY earnings estimates will probably fall below $200. 

We are at 3600 at the moment so that is around a 15x multiple on 2023 earnings (as originally estimated) which seems appropriate given the change in bond yields. But if 2023 earnings fall below $200 and there is no immediate prospect of recovery (seems likely given there will be a hit to margins as well as to demand) difficult not to see the SPY falling below 3000. 

 

Depends on whose E you are talking about. Large global source of revenue in the face of strong dollar? Sorry to those who thought AAPL was the impervious FAANG stock...

 

I also have a hard time envisioning iPhone upgrades in the near future for Europeans who are worried about their utility bills.

 

S&P might go down due to its overweighting in tech stocks, but who is here to buy the S&P? My view is don't buy the blue chips and be heavily underweight in tech given the plethora of other opportunities available.

 

Perhaps once you stop hearing from everybody "how screamingly cheap" Google and Meta are is when that might change...

[ERICOPOLY]

1 hour ago, Gregmal said:

I guess just one semi relevant question I’d have on the logic of “the E falling off the market next year”….why are we giving so much weight to one year in the grand scheme of things?

 

Because it never fails to drive the market down by way more than reasonable.

 

 

[crs223]

2 hours ago, Dalal.Holdings said:

iPhone upgrades in the near future for Europeans who are worried about their utility bills

 

I would like to know what pct of iPhone sales are to people who already have a “completely functional” iPhone already.

 

If that number is high, than i can see a hit.  But iPhones are going to be the last thing people give up.

 

If you don’t have enough money to pay the bills, do you go without iPhone or Cellular service?  I don't think so, not nowadays.  My guess: people will stop paying rent (change their living situation) or give up their cars before they go sans-iphone.  At least for people under 35.

 

 

 

[mattee2264]

I think the problem is the market made its usual mistake of capitalizing peak revenues and peak margins at generous multiples as well as extrapolating very fast recent growth rates (that in many cases were the result of pandemic conditions and the fiscal bonanza). Pricing in more realistic estimates of earnings and growth rates is going to be a painful adjustment process. 

[ERICOPOLY]

That's funny when you think of something like MSGE which has been beaten to shit lately despite being nowhere close to peak margins from the pandemic -- actually, it has been the reverse of peak earnings because of the pandemic.

 

 

 

[Gregmal]

13 minutes ago, ERICOPOLY said:

That's funny when you think of something like MSGE which has been beaten to shit lately despite being nowhere close to peak margins from the pandemic -- actually, it has been the reverse of peak earnings because of the pandemic.

 

 

 

That’s what’s funny. Amongst all the talk of these inflation based theories on what’s gonna blow up, it’s the Apples and Costcos and Waste Managements that are still outperforming. Meanwhile the MSGEs, not to mention telcos and build supply companies with stupid FCF yields have been annihilated. By the time Costco gets to $300 or Apple to $100 MSGE is gonna be a penny stock lol. Markets are great ain’t they? Seems the fund money is betting that the Fed amputates the patients arm to cure the issue of a hangnail. Weird times. 

[ERICOPOLY]

14 minutes ago, Gregmal said:

That’s what’s funny. Amongst all the talk of these inflation based theories on what’s gonna blow up, it’s the Apples and Costcos and Waste Managements that are still outperforming. Meanwhile the MSGEs, not to mention telcos and build supply companies with stupid FCF yields have been annihilated. By the time Costco gets to $300 or Apple to $100 MSGE is gonna be a penny stock lol. Markets are great ain’t they? Seems the fund money is betting that the Fed amputates the patients arm to cure the issue of a hangnail. Weird times. 

my guess is MSGE continues to drop at 2x the market rate and bottoms around $27-$30.  Just because.

[Gregmal]

17 minutes ago, ERICOPOLY said:

my guess is MSGE continues to drop at 2x the market rate and bottoms around $27-$30.  Just because.

One can (kinda) hope. At that valuation I guarantee you’d see a tender for like 30% outstanding. Rockettes would be like 2/3 of the market cap. I don’t get the market pessimism at these prices. It’s not like they don’t make money and it’s not like the worst isn’t behind them on Sphere.  Baffling for sure. 

[crs223]

1 hour ago, Gregmal said:

It’s not like they don’t make money

 

The problem is that yahoo finance shows MSGE with negative EPS and negative cash flow going back… forever.

 

Once yahoo finance fixes that typo, the stock will go to the moon.

[Gregmal]

10 minutes ago, crs223 said:

 

The problem is that yahoo finance shows MSGE with negative EPS and negative cash flow going back… forever.

 

Once yahoo finance fixes that typo, the stock will go to the moon.

Totally. Between all the spins/financial engineering and COVID it’s an optical disaster. 

[Simba]

I love markets like this. IMO fear + uncertainty + large price declines -> create the room for investment opportunities.

 

I'm not excited buying equities when crowds are euphoric. I'm excited by markets charactered by panic. Names are starting to be valued as they should be. 

 

This is a slow bottom grind (with slow change in investment psychology). Reminds me exactly like 2008 of how everyone was fatigued by new lows.

 

Seeing 3000 price targets on the S&P excite me. I hope this does happen, because I'll be buying. 

 

For those in the accumulation phase, IMO lower prices are beneficial 

 

Rather be buying a market at fair value than overvalued 

[CorpRaider]

Hey, the CAPE is below 27!  

[Spekulatius]

 

3 hours ago, crs223 said:

 

The problem is that yahoo finance shows MSGE with negative EPS and negative cash flow going back… forever.

 

Once yahoo finance fixes that typo, the stock will go to the moon.

It looks to me like these operating losses are not a typo but quite real. MSGE business has improved in 2022 relative to 2021, but still had operating losses. If you think otherwise, pls explain based on their 10-k why you think so.

Edited October 1, 2022 by Spekulatius

[Gregmal]

I think we’ve discussed this in one of the other threads, but you don’t need the 10k to know that sometime in early 2020 something happened that might have impacted, just a little bit, MSGE operations. The last time the Rockettes had a full, uninterrupted slate, was 2019. Heck, the majority of their segments haven’t yet had a normalized 12 month run yet. And then on top of that they’ve been working on some pretty capital intensive project. This will all rapidly change over the next year. In two years the numbers are going to be insane relative to the current market cap. 

[Spekulatius]

15 minutes ago, Gregmal said:

I think we’ve discussed this in one of the other threads, but you don’t need the 10k to know that sometime in early 2020 something happened that might have impacted, just a little bit, MSGE operations. The last time the Rockettes had a full, uninterrupted slate, was 2019. Heck, the majority of their segments haven’t yet had a normalized 12 month run yet. And then on top of that they’ve been working on some pretty capital intensive project. This will all rapidly change over the next year. In two years the numbers are going to be insane relative to the current market cap. 

This may be the case, but the claim was that yahoo finance numbers are wrong and they are not. FWIW, TiKr does operating earnings as well, based on S&P estimates and they are negative too.

In my opinion, 2022 was already a post epidemic year, yet operating earnings for MSGE are still negative. We will see about next year, I think there are a lot of uncertainties how it will shake out.

[crs223]

@Spekulatiusis correct.  “typo” is not the reason MSGE is losing money year after year.

[Dalal.Holdings]

18 hours ago, crs223 said:

 

I would like to know what pct of iPhone sales are to people who already have a “completely functional” iPhone already.

 

If that number is high, than i can see a hit.  But iPhones are going to be the last thing people give up.

 

If you don’t have enough money to pay the bills, do you go without iPhone or Cellular service?  I don't think so, not nowadays.  My guess: people will stop paying rent (change their living situation) or give up their cars before they go sans-iphone.  At least for people under 35.

 

 

 

 

Obviously some iPhones will be purchased by those who drop it in the pool or lose it. Kids getting their first cell phones too. The question is all the "discretionary" iPhone purchases...upgrading because "the camera has more pixels", etc.

 

If you have a 13 or 12, is upgrading to the new 14 as compelling as it used to be? If you need a new phone, can you get away buying a cheaper 13? 

 

Furthermore, my point (which I've made in the META thread about Oculus/etc) was that the technology sector might learn a hard lesson here: that technology is often a discretionary purchase and that if you are worried about being able to afford food or heat your home, it's going to be cut back.

 

That includes all the advertising for discretionary purchases that GOOG and META provide (boner pills or crypto wallets) as well.

[Gregmal]

Of course not. COVID and shutdowns were. 
I don’t know how one can say otherwise, per the recent call even,

 

 

Looking ahead, fiscal '23 will represent our first full year of events at our venues since fiscal '19. 

 

Looking ahead to fiscal '23, we have meaningful visibility into our sponsorship revenue base and are currently on a path to deliver sponsorship revenue that is well ahead of fiscal '19, our last fiscal year before the pandemic.

 

Our traditional entertainment business is poised to deliver substantial revenue growth versus fiscal 2022 as well as relative to fiscal 2019. We expect this to reflect a full 12 months of event activity at our venues with continued strength in consumer demand. The return of the Christmas Spectacular for 181 shows for the 2022 holiday season versus 101 shows this past year and ongoing momentum across marketing partnerships and premium hospitality. 

 

 

3 hours ago, Spekulatius said:

my opinion, 2022 was already a post epidemic year, yet operating earnings for MSGE are still negative.

 

[Spekulatius]

11 hours ago, Gregmal said:

Of course not. COVID and shutdowns were. 
I don’t know how one can say otherwise, per the recent call even,

 

 

Looking ahead, fiscal '23 will represent our first full year of events at our venues since fiscal '19. 

 

Looking ahead to fiscal '23, we have meaningful visibility into our sponsorship revenue base and are currently on a path to deliver sponsorship revenue that is well ahead of fiscal '19, our last fiscal year before the pandemic.

 

Our traditional entertainment business is poised to deliver substantial revenue growth versus fiscal 2022 as well as relative to fiscal 2019. We expect this to reflect a full 12 months of event activity at our venues with continued strength in consumer demand. The return of the Christmas Spectacular for 181 shows for the 2022 holiday season versus 101 shows this past year and ongoing momentum across marketing partnerships and premium hospitality. 

 

 

 

You are right, MSGE‘s  Fiscal year 2022 ended in June 30, 2022. I was thinking calendar year.

[UK]

I understand, that one years earnings is only small part of the value, etc, and this relates only to SNP as a whole, but historically  I think it is a good yardstick to look at the total market through this F PE valuation lenses, because it provides, if not perfect, then somewhat normalised basis:

 

It is interesting, that putting some 4 per cent growth on the SNP500 earnings for 20 years (ant 2 after that) at some 10 per cent discount rate you would also arrive at around 16x fair value for the whole market, so this 16x seems like fair/reasonable multiple for the total market.

 

We are at it know, but the main problem I think is that those future earning estimates is still anticipated at around 240 for 2023 (and have not changed a lot from spring i believe) and comparing to estimated 210 for this year, it anticipates some 14 per cent earnings growth. I am not sure if this is not to optimistic? Those estimates always too optimistic, but in this case I am afraid they are just terrible lagging (and perhaps already getting adjusted in the markets mind) and if you put more conservative number, like same 200 and a still "not distressed" multiple of say 15x, you would arrive at 3000 for SNP500. If I had to invest only in SNP, below that level, I would be fully invested and perhaps, below some 12x, even add some 20-30 percent leverage, especially if it would be clear at that time, that rates will not rise anymore/are going down.

 

I also like these charts:

 

 

But perhaps all this does not mean nothing at all if you invest in a particular companies and have somewhat longer horizon than 6-18 month. Also it will be very interesting to see what team BRK will do in this environment, after all those writings about buckets and raining gold, they did not so much in 2020 spring, and later explained, that it was because that situation was really special/unknowable (which I agree it was), this year I think they (Tod?) said, that this time situation is more from their playbook. But maybe they just wait for that phone to finally starting to ring again, another way to time the bottom:), and  also something to think about while trying to answer threads subject question. 

Edited October 2, 2022 by UK

[mattee2264]

UK I am also thinking $200 or so as a kind of ball park estimate for normalized earnings for the SPY. Essentially splitting the difference between pre-pandemic earnings of $160 and the 2022 estimate of $240 which obviously did not anticipate the Ukraine war or the hangover from all the fiscal stimulus wearing off. I get it at another way by thinking that pre-pandemic we were in a low growth low inflation environment with limited cyclicality so no real need to normalize but it is reasonable to add a bit to reflect intervening inflation and some degree of earning boost from structural changes resulting from the pandemic. 

 

Agree with you that 15 seems a more reasonable multiple than the post-2000 average of around 20 given the higher interest rate/inflation rate environment. 

 

Of course the SPY tends to go below fair value in a bear market and aggressive rate hikes when we are already in recession would seem to encourage an overshoot. But I think that the risk of a pivot means it does not pay to get too greedy and historically if you can buy a 40% discount to the peak (even speculative peaks such as 2000 and 2021) you haven't regretted it.