Is The Bottom Almost Here?

[Gregmal]

I mean my wife the other day was like does it make sense to keep contributing to my retirement account? And I don’t follow any of her shit because she only works for health insurance and her earnings don’t really matter that much, but I asked what she meant and she said she started the year with ~$40k, put in $5k and had employer contributions of $3k. Current balance is $35k or something. So I was just like eh whatever it’s not meaningful money anyway, so don’t worry about it. But I’d hate to be her coworkers in their 50s or 60s, that’s for sure. 

[dealraker]

Again guys there is a model you should at least be aware of.  In my investment club, which I have been a part of for 45 years and it began in 1954, there are or have been (of course no original members are living and I'm still one of the younger ones at 68) small shoe shop owners, small grocery store earners, along with bank presidents and 10,000 employee company owners.   Small town, they all knew one another.

 

None sold stocks or complained about downturns, even in their 80's.   Not once.  At 68?  Far-far-far too early to sell stocks and curl up in a ball of fear.  We don't spend all our net worth this year or next, or in the next ten.

Edited October 12, 2022 by dealraker
grammar

[Spekulatius]

4 minutes ago, dealraker said:

Again guys there is a model you should at least be aware of.  In my investment club, which I have been a part of for 45 years and it began in 1954, there are or have been (of course no original members are living and I'm still one of the younger ones at 68) small shoe shop owners, small grocery store earners, along with bank presidents and 10,000 employee company owners.   Small town, they all knew one another.

 

None sold stocks or complained about downturns, even in their 80's.   Not once.  At 68?  Far-far-far too early to sell stocks and curl up in a ball of fear.  We don't spend all our net worth this year or next, or in the next ten.

FWIW, I am in the same age bracket than your father in law.  20% downturns occur about every 3 years on average. The last ones were in 2018, 2020 and now 2022. What we are seeing here is nothing out of the ordinary.

 

https://www.fool.com/investing/general/2013/08/19/what-i-plan-to-do-when-the-market-crashes.aspx

[Gregmal]

2 minutes ago, Spekulatius said:

FWIW, I am in the same age bracket than your father in law.  20% downturns occur about every 3 years on average. The last ones were in 2018, 2020 and now 2022. What we are seeing here is nothing out of the ordinary.

 

https://www.fool.com/investing/general/2013/08/19/what-i-plan-to-do-when-the-market-crashes.aspx

100%. And 150% what @dealraker said too. That also doesn’t mean that these things aren’t real or impactful to folks. Which is why it makes sense for these guys to chill with the rhetoric and realize this issue needs to be managed properly. Some of the underlying rationale for rate hikes into oblivion are based on virtually nothing. Such as, inflation is going to be 5-10% in perpetuity unless something drastic is done. Huh? Based on what LOL? If I changed that number to 25% in perpetuity it would have just as much logical standing.
 

Crusading for stock market crashes and job losses….which combined for those losing their jobs is devastating and shouldn’t be the baseline all over saving a few bucks on groceries.

[dealraker]

What I found interesting just a couple of years ago on my twitter feed (I gotta do somethng now that my physical outputs require such long downtimes) it seems an endless number of men and women were posting their list of owned stocks and every single one of those lists was the same bunch of companies.  Netflix, Paypal, Google, Apple, Datadog, Snowflake...and every one of the posters was "my forever one decision stocks."   This "list my growthies" peaked in October of 2021, don't much see it now.

 

Same bunch is in a pretty good state of panic today.  I'm more in the camp of thinking of what my stocks/businesses are worth and being annoyed by both the too high and too low valuations, but not so much as to panic sell or valuation sell, or whatever.   Some things I own have spend a decade being overvalued, and even today are that way.  But I don't sell them because they often surprise me, yea they are worth far more than my expertise opinionated mind would give them credit for.  

 

Some, like Berkshire, tend to stay far-far-far below what my expertise (being very sarcastic here) mind-set says it is worth.   But anyway, not sure how you get where you want to go by not being in business.  Safe comfy cash is sort of a holiday I guesss, but holidays don't pay well.  

[Red Lion]

18 minutes ago, dealraker said:

Again guys there is a model you should at least be aware of.  In my investment club, which I have been a part of for 45 years and it began in 1954, there are or have been (of course no original members are living and I'm still one of the younger ones at 68) small shoe shop owners, small grocery store earners, along with bank presidents and 10,000 employee company owners.   Small town, they all knew one another.

 

None sold stocks or complained about downturns, even in their 80's.   Not once.  At 68?  Far-far-far too early to sell stocks and curl up in a ball of fear.  We don't spend all our net worth this year or next, or in the next ten.

 

Do you ever sell stocks to raise capital? Otherwise just live on the dividends? 

[Dinar]

44 minutes ago, adesigar said:

I don't get the complaints about the drop in the S&P. The only reason the S&P rose to 4800 was because the fed had low interest rates. The fed giveth and the fed taketh away. Market is not even back to pre Covid levels. 

Yes and no.  While in nominal terms S&P is 10% higher than on Jan 1st 2020, adjusting for inflation it is down around 15% since then.  

[dealraker]

So this older man (he was in his 80's when I was in my late 20's and lived to 96) in my investment club named Roby would often say when we proposed buying a stock, "BEEN A GOOD ONE FOR ME!"  Over and over again I heard him say this...I finally figured out he owned shares of every well known business listed on the exchanges.

 

And here's what Roby would say during the downs: "FASTEST DOWN, FASTEST UP"  or "GOES DOWN A LONG TIME...GOES UP A LONG TIME."   Deep stock analysis right there baby!

 

Roby owned a small 3 truck snack distribution business.  25 years ago he left $10 million to the local hospice organization; 1 mil to the YMCA; and 1 mil to United Way.  

Edited October 12, 2022 by dealraker

[CorpRaider]

I agree with dealraker.  Also, we should make an insurance brokers thread?

Edited October 12, 2022 by CorpRaider

[Spekulatius]

1 hour ago, dealraker said:

So this older man (he was in his 80's when I was in my late 20's and lived to 96) in my investment club named Roby would often say when we proposed buying a stock, "BEEN A GOOD ONE FOR ME!"  Over and over again I heard him say this...I finally figured out he owned shares of every well known business listed on the exchanges.

 

And here's what Roby would say during the downs: "FASTEST DOWN, FASTEST UP"  or "GOES DOWN A LONG TIME...GOES UP A LONG TIME."   Deep stock analysis right there baby!

 

Roby owned a small 3 truck snack distribution business.  25 years ago he left $10 million to the local hospice organization; 1 mil to the YMCA; and 1 mil to United Way.  

Love this anecdotes. I believe patience and common sense beats trying to outsmart the market at every turn over time. Just look how badly these hedge funds are performing as  whole to prove this.

 

Says the guy who went all in with his 401K in late September 2008...

[maxthetrade]

1 hour ago, CorpRaider said:

Also, we should make an insurance brokers thread?

 

That would be a great idea. I first heard about BRO from dealraker on the old BRK Yahoo board over 20 years ago. Silly me sold it after a double. One thinks I should have learned my lesson when I bought it in 08 again, but no I sold again after a little more than a double. If I had hold on to the shares this would be a 20 bagger...

[Libs]

1 minute ago, maxthetrade said:

 

That would be a great idea. I first heard about BRO from dealraker on the old BRK Yahoo board over 20 years ago. Silly me sold it after a double. One thinks I should have learned my lesson when I bought it in 08 again, but no I sold again after a little more than a double. If I had hold on to the shares this would be a 20 bagger...

Dealraker is a legend. Glad he's posting.

[Castanza]

19 minutes ago, Spekulatius said:

Love this anecdotes. I believe patience and common sense beats trying to outsmart the market at every turn over time. Just look how badly these hedge funds are performing as  whole to prove this.

 

Says the guy who went all in with his 401K in late September 2008...

 

Similar to that Gas Station Attendant/Janitor who ended up leaving the local school 5m and was worth 8m. 

 

@dealrakerthanks for the insights and stories 

Edited October 12, 2022 by Castanza

[dealraker]

The last thing I will mention in my era (LOL) of tirades...that is: beware of the value investor.  Ah!  That'll piss off a few.  But...

 

We had/have this guy in our club, he tended to gravitate towards speaking up the most and inevitably being in control simply because most just didn't want to ruffle fethers...nice guys.  He was, most of the time...a huge percentage of time, absolutely correct.  Correct about the stocks discussed and market too.  But while he was bright in math he didn't use math in daily common sense as to investing.  Smart guy, but with a quirk or two maybe.

 

The one small problem?  We'd have these bull markets and good economy periods.  And in the years when he was in charge we would begin holding greater amounts of cash as the markets escalated...to the point of being 75% cash in later years of those "incorrect" rising charts.  And in the end?  Again, was almost always right that the market had been ahead of itself.

 

Then the market falls 25% and he's all excited to go gradually back in, and during the years he was pres of the club that's precisely what we'd do.  We'd go gradually back in...

 

...after being nearly "all out" during the last 100% gain we'd start "back in" once the market would fall 20-25%.  SMART!  or SMART???

 

And we underperformed and that underperformance compounded under his 10 years of being president.  Members appreciated the work he did (they loved the club atmosphere but sure-as-hell didn't want to work hard like he did- so heck yea let him be in charge!) but his use of math didn't work.  Companies grew earnings and paid divy's while being over-valued, they grew into their 2-3 years ago over-valued stock prices and then some...for years and years...

 

...while we didn't own them.  And these companies got long time periods of high PE multiples, not perpetual of course but such that they lasted a long, long, long time. Yes we got back into the markets on the downswings but we didn't do well with that "sell-to-cash then wait" model.  What came of our dealing with his model his presidency?

 

The club voted 100% to stay 100% invested now and forevermore.   Over time the club has slightly outperformed Mr. Market and that's most 5-10-15-20 and so forth.  No super-investment record but very decent.

Edited October 12, 2022 by dealraker

[Castanza]

10 minutes ago, dealraker said:

The last thing I will mention in my era (LOL) of tirades...that is: beware of the value investor.  Ah!  That'll piss off a few.  But...

 

We had/have this guy in our club, he tended to gravitate towards speaking up the most and inevitably being in control simply because most just didn't want to ruffle fethers...nice guys.  He was, most of the time...a huge percentage of time, absolutely correct.  Correct about the stocks discussed and market too.  But while he was bright in math he didn't use math in daily common sense as to investing.  Smart guy, but with a quirk or two maybe.

 

The one small problem?  We'd have these bull markets and good economy periods.  And in the years when he was in charge we would begin holding greater amounts of cash as the markets escalated...to the point of being 75% cash in later years of those "incorrect" rising charts.  And in the end?  Again, was almost always right that the market had been ahead of itself.

 

Then the market falls 25% and he's all excited to go gradually back in, and during the years he was pres of the club that's precisely what we'd do.  We'd go gradually back in...

 

...after being nearly "all out" during the last 100% gain we'd start "back in" once the market would fall 20-25%.  SMART!  or SMART???

 

And we underperformed and that underperformance compounded under his 10 years of being president.  Members appreciated the work he did (they loved the club atmosphere but sure-as-hell didn't want to work hard like he did- so heck yea let him be in charge!) but his use of math didn't work.  Companies grew earnings and paid divy's while being over-valued, they grew into their 2-3 years ago over-valued stock prices and then some...for years and years...

 

...while we didn't own them.  And these companies got long time periods of high PE multiples, not perpetual of course but such that they lasted a long, long, long time. Yes we got back into the markets on the downswings but we didn't do well with that "sell-to-cash then wait" model.  What came of our dealing with his model his presidency?

 

The club voted 100% to stay 100% invested now and forevermore.   Over time the club has slightly outperformed Mr. Market and that's most 5-10-15-20 and so forth.  No super-investment record but very decent.

 

How did you guys go about picking stocks to buy in? Members present their thesis individually then you put it to a vote? 

[John Hjorth]

46 minutes ago, Spekulatius said:

... Says the guy who went all in with his 401K in late September 2008...

 

@Spekulatius,

 

Here, I  do not  try to challenge your statement  quoted above. I feel pretty sure you by now have may overcome that [, alone based on reading about your activity here on CoBF].

 

Thank you for your contributions here on CoBF now over many years.

Edited October 12, 2022 by John Hjorth

[Viking]

Pepsi released results today. Volume was down 1.5%. Revenue was up 16%.  Can anyone say super-sized ‘price increase’. I wonder if that will be inflationary?

—————

Also of interest. What do Starbucks, Apple and Amazon all have in common? Workers attempting to unionize (and not just in the US but globally). 1970’s all over again? I wonder if this will be inflationary?

—————

In Canada, companies are getting very creative. Campbell’s soup redesign their popular Chunky soup line… new can (taller) is 515ml vs the old one that was 540ml. Same list price. And less discounting. Inflationary? 

—————

Getting the inflation genie back in the bottle without a severe recession is looking increasingly unlikely. Perhaps inflation is transitory. I really have no idea. But it looks to me like either ‘path’ is possible (transitory vs persistently high).

Edited October 12, 2022 by Viking

[SharperDingaan]

Keep in mind that you still have to live with the great many who are losing their shirts, and progressively bankrupting. It isn't a pleasant experience, and it is very hard to meet friends and neighbors in the eye.

 

Long time ago I helped a former Nortel client keep his option compensation 'funny money' through the collapse into bankruptcy. To minimize the wealth impact, we kept rolling the puts and spending the cash settlements on 1oz gold wafers at ridiculously low prices. When he eventually got packaged out and paid primarily in cash, he went to check his safety deposit boxes.   

 

The man came out with tears in his eyes. All around him, long-time friends and colleagues were losing their houses, their marriages, bankrupting, and in some cases even committing suicide as they'd lost everything. Yet here he was ... with a very good cash settlement, and literally boxes of gold wafers worth at least 4-5x what he had paid for them. Ultimately, he had to get help for a time. Today, there are a great many people who have benefitted from decades of Secret Santa. 

 

Point? It's not just about relative wealth, it's also about how you got it. 

 

SD

 

 

 

 

[TwoCitiesCapital]

12 hours ago, Gregmal said:

The thing is, why does it have to be equivalent to the 2009 system wide blow up. Raising rates to 3-4% isn’t really a big deal and 5% would probably be uncomfortable but pretty much in line with historic levels. 

 

See, the issue is that it IS a big deal. The near bankrupting of the UK pension system in the course of 2 days should demonstrate that this is problematic. 

 

You look at this in a vacuum and say "3% is nothing! We used to have 7% rates!" But you also had way less leverage/debt when rates were at 7%. We had incomes that were more reasonable to debt loads. We didn't have 9+% inflation breathing down our neck which meant there was flexibility in lowering rates if needed to. And you didn't have people/businesses/governments making long term decisions that were only reasonable if interest rates remained at 2-3%. 15 years of low rates and regular bailouts have coaxed people to continue to lever up because that's way less painful than delevering. 

 

Federal debt in 2007 - 9 trillion

Federal debt today - 31 trillion

Business debt 2007 - 10 trillion

Business debt 2022 - 19.5 trillion

Household debt 2007 - 14.4 trillion

Household debt 2022- 18.6 trillion

 

Total 2007 - 33.4 trillion

Total 2022 - 69.1 trillion

 

Aggregate income/GDP 2007 - 14.7 trillion

Aggregate income/GDP 2022 - 25 trillion (and falling)

 

Debt has more than doubled while aggregate incomes to service it have only gone up a fraction of that. That is in no way sustainable and the delay in that reckoning is the only reason equities ever got to where they were to begin with.

 

The debt/income ratio didn't matter while the debt was being socialized by the US govt and floated at lower and lower rates as the cost of carry was dropping like a rock. But now rates are rising and are the highest they've been in a decade. 

 

Suddenly people can't afford to roll balances forward at higher rates since incomes didn't keep pace...but the only way to put a dent in the balance is to sell assets in an environment everyone else is selling them too which begets lower prices.

 

This is what 0% rates for 15 years does and what raising them after that does. 

Edited October 13, 2022 by TwoCitiesCapital

[treasurehunt]

26 minutes ago, TwoCitiesCapital said:

 

See, the issue is that it IS a big deal. The near bankrupting of the UK pension system in the course of 2 days should demonstrate that this is problematic. 

 

You look at this in a vacuum and say "3% is nothing! We used to have 7% rates!" But you also had way less leverage/debt when rates were at 7%. We had incomes that were more reasonable to debt loads. We didn't have 9+% inflation breathing down our neck which meant there was flexibility in lowering rates if needed to. And you didn't have people/businesses/governments making long term decisions that were only reasonable if interest rates remained at 2-3%. 15 years of low rates and regular bailouts have coaxed people to continue to lever up because that's way less painful than delevering. 

 

Federal debt in 2007 - 9 trillion

Federal debt today - 31 trillion

Business debt 2007 - 10 trillion

Business debt 2022 - 19.5 trillion

Household debt 2007 - 14.4 trillion

Household debt 2022- 18.6 trillion

 

Total 2007 - 33.4 trillion

Total 2022 - 69.1 trillion

 

Aggregate income/GDP 2007 - 15.7 trillion

Aggregate income/GDP 2022 - 19.9 trillion

 

Debt has more than doubled while aggregate incomes to service it have only gone up by ~25%. That is in no way sustainable and the delay in that reckoning is the only reason equities ever got to where they were to begin with.

 

The debt/income ratio didn't matter while the debt was being socialized by the US govt and floated at lower and lower rates as the cost of carry was dropping like a rock. But now rates are rising and are the highest they've been in a decade. 

 

Suddenly people can't afford to roll balances forward at higher rates since incomes didn't keep pace...but the only way to put a dent in the balance is to sell assets in an environment everyone else is selling them too which begets lower prices.

 

This is what 0% rates for 15 years does and what raising them after that does. 

 

Your point that the increase in rates is a big deal might be correct, but your GDP numbers seem to be off. According to the St Louis Fed, GDP was 14.7 trillion in Q4 2007 and 25.2 trillion as of Q2 2022. So GDP has increased by 70% or so while debt has roughly doubled. Not great, but not as bad as you indicate.

 

https://fred.stlouisfed.org/series/GDP

 

Not sure how you came up with a 25% increase in GDP from 2007 to 2022; maybe your numbers are real rather than nominal?

 

[TwoCitiesCapital]

9 minutes ago, treasurehunt said:

 

Your point that the increase in rates is a big deal might be correct, but your GDP numbers seem to be off. According to the St Louis Fed, GDP was 14.7 trillion in Q4 2007 and 25.2 trillion as of Q2 2022. So GDP has increased by 70% or so while debt has roughly doubled. Not great, but not as bad as you indicate.

 

https://fred.stlouisfed.org/series/GDP

 

Not sure how you came up with a 25% increase in GDP from 2007 to 2022; maybe your numbers are real rather than nominal?

 

 

You're correct. Went back and updated to reflect nominal figures for better comparison.

 

Still a dramatic underperformance relative to debt growth. 

[Gregmal]

I also think just blanketing total debt figures lacks context. How much is fixed rate? Also why isnt it relative to EV? Business debt 10T to 19 over 15 years, so what? I have massively more debt than I did in 2007. I’m also 35 vs 20 then. But my debt/net worth ratio was way worse in 2007. 

[TwoCitiesCapital]

1 hour ago, Gregmal said:

I also think just blanketing total debt figures lacks context. How much is fixed rate? Also why isnt it relative to EV? Business debt 10T to 19 over 15 years, so what? I have massively more debt than I did in 2007. I’m also 35 vs 20 then. But my debt/net worth ratio was way worse in 2007. 

 

Fixed vs floating doesn't matter if you can't pay off the balance when it comes due. In that case, ALL debt is floating and just varies in duration and reset frequency. 

 

Even without resets, there are knock-on effects to higher rates. Best example of that is 30-year mortgages. Sure, your mortgage doesn't reset - but real estate transactions have ground to a halt because nobody can afford to sell their home and move into anything of comparable quality. Maybe there isn't a loss realized on behalf of the homeowner (other than the loss of optionality), but there are massive economic implications to there being few home sales (prices don't rise, less equity to pull out = contraction in credit availability, commissions don't get paid to brokers, fewer home improvements done, etc etc etc). 

 

Not too mention the pain on capital owners who lent long term capital at too low of rates.  The pain on lenders is pretty acute too as evidenced by UK pensions going to near insolvency and the massive mark-to-marker losses on insurers' bond portfolios. 

Edited October 13, 2022 by TwoCitiesCapital

[mcliu]

Can the market really be at a bottom when GameStop is still worth over $7B..?

 

Humans are greedy and short-sighted, so it's not surprising that when borrowing money was free (like the last 10 years), people will go out and borrow too much.

 

It's just like if alcohol was free, people will drink more than they should. Maybe now we're getting to the hangover.

[changegonnacome]

6 hours ago, Spekulatius said:

20% downturns occur about every 3 years on average. The last ones were in 2018, 2020 and now 2022. What we are seeing here is nothing out of the ordinary.

 

But what isnt ordinary is rates rising so quickly and inflation this high............and so given this how likely is the ensuing downturn, once completed,  to be of the ordinary (~20% ) kind? ....I'd argue and I guess have argued already that this wont be an ordinary drawdown in the market.....it will be when its done an historically noteworthy one....one that jumps out on the 30 year chart.

Edited October 13, 2022 by changegonnacome