Is The Bottom Almost Here?

[changegonnacome]

15 minutes ago, Gregmal said:

Wouldn’t that then make something like WD40 a better target if strictly going on the valuation angle?

Yep I talk about Apple because it’s really instructive around concept of holding a financial instrument which is inherently riskier than an FDIC account…like insert any 3-4% FCF yielding slow-ish grower I don’t care everybody likes to talk about the fruit company so I talk about that…...anyway the FDIC account is now paying you more with less risk. @thepupil has talked about fixed income…with real INCOME.

 

Something has to give…..you can have a view on that……which yours I guess is we’re going back to ZIRP soon….then I’m wrong and your right…..but one of those financial instruments has to give up the ghost and return to a logical relationship that is reflective of relative risk.

Edited October 28, 2022 by changegonnacome

[Cod Liver Oil]

Apple beautifully pickpockets more money from me every month: apple pay, apple card, apple tv, cloud storage etc..

Every few years: phones, laptops, ipads, airpods. They run the world better than the government.

 

[Gregmal]

4 minutes ago, changegonnacome said:

which yours I guess is we’re going back to ZIRP soon….

I’m not sure I’ve ever said that??? Basically my stance has been the economy is healthy, the Fed is taking the training wheels off, while also still misguided on inflation, and 3-4% rates are both normal and not a big deal.

[changegonnacome]

OK understood dont mean to put words in your mouth @Gregmal........3-4% rates normal and not a big deal.........BUT, and its a big but and a big deal......the equity risk premium traditionally has been about 3-4% in the USA.........4% rates + 3% equity risk premium......gets you a 7% FCF yield........thats a big problem for lots of the 'safest' stocks in the market......floating down in 2,3's. 

 

As it pertains to Apple.....because everybody loves talking about it......Tim Apple with each extra toll charge he takes from the Apple ecosystem monopoly is inching ever closer to hardcore DOJ/antitrust action. Tim is the best in the business but its a dangerous game he's playing........and silicon valley will get nasty in the downturn.....META I'm sure has its army of lobbyists slandering Apple behind closed doors in DC as a bully......Google will probably join them if ATT fed into their poor Q.....Apple may be biting the hand that feeds it......they could be shaping up to be a benevolent dictator, once tolerated, that one day turned nasty and needed to be overthrown.

 

It will be quite ironic that the thing that will actually spur the government into serious anittrust action....will be the tech giants turning on each other. (Sorry bit of tangent but that thought just occurred to me)

Edited October 28, 2022 by changegonnacome

[changegonnacome]

Anyhow - its beyond bonkers IMO the market rallying........and the pivot people are deluded.......unemployment really hasn't budged, the GDP numbers were actually pretty good......is this an economy with 'slack' appearing such that it has strong disinflationary pressures driven by sitting below its productive capacity for a while - such that we are on the pathway back to 2-3% inflation very soon. I just don't see yet.

 

Again define pivot........it used to mean cutting rates and printing fiat.......I guess for people desperate for the market to go up....pivot now means 50bps increases moving forward vs. 75bps. Its funny the way the narrative changes

[Gregmal]

You're wayyyy too into your narrative man. If, even as you've said, this is a 12-18 month issue, staring at 25-40% declines across the board and demanding significant further downside is just being a pig. The market, as always, is full of good investments and bad ones. Stop trying to be a macro trader. 

[mattee2264]

Yeah the Fed also said it would front load rate increases so just because it goes to 50bps doesn't mean that over the next year or so rates can go significantly higher. Also be careful what you wish for. If the Fed does pause or pivot then the benefit from lower rates will be offset by much lower earnings. The Fed started easing in 2001 and 2007 and the market didn't bottom until a year or two after that. And this time round with inflation uncomfortably high a lot more difficult for the Fed to aggressively slash to zero like it did in the last few bear markets. 

[Gregmal]

Im sure theres people out there trying to trade a pivot. Im sure even amongst that group theres multiple people with different definitions of what pivot even means. Most people, IDK, who TF cares? Just find shit that works for you and deal with that. If we keep talking about "the market" but then purposely only talking about FANG earnings, we're not really talking about "the market" are we? Like I said earlier, look at XOM and CVX.

[John Hjorth]

17 hours ago, LC said:

Assume Apple doesn't hold up - anyone thinking about the effects to Berkshire? 

 

@LC,

 

Yes, I do. But I think you actually wanted to ask for a response from the board members about another question.    [ ; - ) ]

Edited October 28, 2022 by John Hjorth

[Gregmal]

Yesterday AH AAPL was at 138 and BRK 286. This mornin? 155 and 297. When are folks gonna stop trying to predict the short term future? This shit only really works if you're in marketing and selling products to people. Handling your own money? Not so much. 

[John Hjorth]

14 minutes ago, Gregmal said:

Yesterday AH AAPL was at 138 and BRK 286. This mornin? 155 and 297. When are folks gonna stop trying to predict the short term future? This shit only really works if you're in marketing and selling products to people. Handling your own money? Not so much. 

 

@Gregmal,

 

Today I have received an e-mail from Bloomberg with the topic title : "Welcome to the blah blah blah economy.". -And certainly not meant condesending  or pratronizing towards any board members active in this topic.

 

[I'm sorry, I couldn't resist.]

 

Yes, it's tough times, but when has investing not been like that? -Always hard, though some times harder than others.

[Parsad]

3 hours ago, Dalal.Holdings said:

 

when everyone and their mother thought investing was as easy as “just buy big tech” it should have raised some flags…even the “pros” like Li Liu were piling into these.

 

 

I never owned any tech other than Overstock.com and Apple briefly for two years.  But today, about half my portfolio is now big-name tech.  I'm down about 2% YTD.  Buy when others are fearful!  Cheers!

[Parsad]

3 hours ago, Gregmal said:

I’m not sure I’ve ever said that??? Basically my stance has been the economy is healthy, the Fed is taking the training wheels off, while also still misguided on inflation, and 3-4% rates are both normal and not a big deal.

Agree!  Not sure this applies to the rest of the world.  Cheers!

[Dalal.Holdings]

4 hours ago, Parsad said:

 

I never owned any tech other than Overstock.com and Apple briefly for two years.  But today, about half my portfolio is now big-name tech.  I'm down about 2% YTD.  Buy when others are fearful!  Cheers!

 

Large swaths of tech investors did far, far worse than down 42% YTD because not only did they buy FAANMG, they bought stuff like SHOP, SE, COIN, NET, FSLY, etc etc

 

The mentality that tech could do no wrong and pricing stuff on revenue multiples, optimistic future growth projections, and assuming revenues as recurring indefinitely proved catastrophic

Edited October 28, 2022 by Dalal.Holdings

[Dinar]

8 hours ago, changegonnacome said:

OK understood dont mean to put words in your mouth @Gregmal........3-4% rates normal and not a big deal.........BUT, and its a big but and a big deal......the equity risk premium traditionally has been about 3-4% in the USA.........4% rates + 3% equity risk premium......gets you a 7% FCF yield........thats a big problem for lots of the 'safest' stocks in the market......floating down in 2,3's. 

 

As it pertains to Apple.....because everybody loves talking about it......Tim Apple with each extra toll charge he takes from the Apple ecosystem monopoly is inching ever closer to hardcore DOJ/antitrust action. Tim is the best in the business but its a dangerous game he's playing........and silicon valley will get nasty in the downturn.....META I'm sure has its army of lobbyists slandering Apple behind closed doors in DC as a bully......Google will probably join them if ATT fed into their poor Q.....Apple may be biting the hand that feeds it......they could be shaping up to be a benevolent dictator, once tolerated, that one day turned nasty and needed to be overthrown.

 

It will be quite ironic that the thing that will actually spur the government into serious anittrust action....will be the tech giants turning on each other. (Sorry bit of tangent but that thought just occurred to me)

There is a logical flaw in your argument, you are implicitly assuming growth = 0%.  1% free cash flow yield is fine if it will 10x in 2 years.  At an equity discount rate of 7%, if a company can grow cash flows at 15% per year for a decade, and then in line with inflation = 3% per annum, assuming 100%+ returns on marginal capital like tech companies, gives you a "proper" multiple of free cash flow = 75x

[dealraker]

9 hours ago, changegonnacome said:

Anyhow - its beyond bonkers IMO the market rallying........and the pivot people are deluded.......unemployment really hasn't budged, the GDP numbers were actually pretty good......is this an economy with 'slack' appearing such that it has strong disinflationary pressures driven by sitting below its productive capacity for a while - such that we are on the pathway back to 2-3% inflation very soon. I just don't see yet.

 

Again define pivot........it used to mean cutting rates and printing fiat.......I guess for people desperate for the market to go up....pivot now means 50bps increases moving forward vs. 75bps. Its funny the way the narrative changes

Edited October 28, 2022 by dealraker

[changegonnacome]

39 minutes ago, Dinar said:

There is a logical flaw in your argument, you are implicitly assuming growth = 0%

 

The logical flaw in yours is that you are implicitly assuming that growth isn't negative.......forget 0%, try on -2% for size...then inflation adjust that cash flow growth.....not so hot now.......but listen its a multi-variant equation lots of things can move around but my premise still holds which is there a exists a class of stock with really low FCF yields and exposed to a both peak earnings & a recession....now whats their smoothed out earnings (minus COVID stimulus/demand bubble), whats the FCF on that new smoothed out earnings stream for 10 years (hint: the FCF yield is even lower now)...........now strip out a couple of years trough recession earnings, now inflation adjust it all back from 10 years in future with 8% this, 5% next year, 3% year after, then 2,2,2..........for slow-ish growers....the math is quite scary.......and this why I warn against high multiple stocks, in an inflationary & a rate hiking regime change.

 

But yes I understand a stream of growing free cash flow changes the math....but some things arent growing cash flows nearly enough, or have and wont in the future.

 

Its complicated...but you have to think in alternatives is my main point.....think of everything as just another financial instrument.........cash, bonds, equites, RE....then think about relative risk, duration risk, principal risk.....and ask are you being adequately compensated, are you beating inflation......if not your purchasing power just got whacked.......we've gone from TINA to a new world folks need to start thinking a little more fluidly...

[Charlie]

"Yesterday AH AAPL was at 138 and BRK 286. This mornin? 155 and 297. When are folks gonna stop trying to predict the short term future? This shit only really works if you're in marketing and selling products to people. Handling your own money? Not so much. "

 

When the top lieutnant at Berkshire, who overseas most businesses, buy nearly 100 million $ Berkshire shares shortly pre 3rd quarter earnings it´s probably a bullish sign.

Somewhere all this price increases (that means for the companies charging it earnings) have to go and Buffett usually buys the companies with the most pricing power.

Berkshire shares tend to go up pre and after earnings releases, because it´s a wonderful company and a wonderful

company tends to produce great earnings.

Apple was near the buy zone where Buffett was buying and nearly every second man around me seems still smart phone addicted.

The first half of 2022 was not so good for equities and in addition there are a lot of equity strategies which don´t invest in Sep and Oct (because of unusually frequency of equty crashes) and this money will be invested in Nov again.

So sometimes the short term is not so unpredictable as it seems.

History does not repeat but it rhymes....

 

[DooDiligence]

I've always struggled with understanding TGA, RRP operations and the effect on liquidity and markets. Thank you to a few posters here who've chipped away at my ignorance. This substack made the game of musical chairs a little bit more clear to me; but the question still remains, who get's the chair that's too soft / hard and will there be one that's just right?

 

https://thelastbearstanding.substack.com/p/draining-the-repo?r=6gq23&utm_medium=ios&utm_campaign=post

 

edit: I'm already firmly planted in my chair with the knowledge that I may have to sit on the floor for a while if it collapsed. I think my carpet is thick enough to endure the indignity.

Edited October 29, 2022 by DooDiligence

[changegonnacome]

https://www.bloomberg.com/news/articles/2022-10-29/good-news-bad-s-p-500-earnings-are-playing-into-the-fed-s-hand?srnd=premium&sref=7zqHEcxJ

 

From article:

Quote

A similar dynamic is starting to take hold in what had previously been a bastion of hope for the equities set -- earnings. Almost a quarter of companies reporting results this season have missed estimates, high by historical standards, data compiled by Wells Fargo’s show. The estimates themselves also reflect serious pessimism being built into assumptions. As recently as May, third-quarter earnings for companies in the S&P 500 were forecast to rise by 9.7%. The expected gain was 2.5% last week.

 

[LC]

So if earnings suck, the market will drop

 

If earnings are good, the fed will jack up rates…and the market will drop.

 

am I getting this right?

[Gregmal]

A common rule of short selling at the institutional level is to ALWAYS control the narrative. ALWAYS. Top down. 

[dealraker]

When I read macro absolutes and macro certainty I often wonder if these absolutes/certainties are more successful at controlling/manipulating the reader or the writer?   The Chinese converted/brainwashed prisoners by making then both write it down and then state it publicly.  We have the web now so one is both.

  

 

 

 

 

[changegonnacome]

4 hours ago, LC said:

So if earnings suck, the market will drop

 

If earnings are good, the fed will jack up rates…and the market will drop.

 

am I getting this right?

 

Pretty much - there are no bullish outcomes in the near term given the opportunity set.....10year of ZIRP, Trump corp tax cuts, COVID stimilus.....everything got priced for perfection.....but then perfection didn't show up.......inflation did, then Putin & geopolitical tensions. @Gregmal points out you can still find individual names for sure....but lets be clear....the Fed & the beta had your back in 2010's, it bailed out lots of errors I made thats for sure.....but the stock picking game just got exponentially harder for those not paying attention. The beta is trying to stab you in the back now. So folks don't misunderstand me, I'm urging caution, Im urging enhanced due diligence.....I'm suggesting a larger margin of safety than one would otherwise seek. There are more ways to lose currently....multiple compression, earnings getting whacked, recession. I'm not saying dont play. I'm saying play sure but move forward with extreme caution.....look for 2ft hurdles, not 20ft ones. This is the way.

 

@LC I'm afraid earnings were gonna suck either way.......inflation, all on its own without the Fed or Wall St. narratives on the short side, is/was destroying purchasing power, driving up costs.....which is hurting sales/earnings/profit margins of businesses. Some people act like it was all roses till Jay Powell started talking about persistent inflation and ruined it for everybody.....the real problem is Jay Powell wasn't talking about persistent inflation early enough he was too busy buying god damn MBS's and keeping rates at 0% when they'd put the vaccine into everybody's arms.

 

The Fed can let inflation just do its thing....that is an option they have.......which is to painfully and slowly over time allow it to ravage the economy such that inflation itself gets worse and worse....but eventually left to its own devices inflation itself would put the economy into a horrible recession, which would be disinflationary & return price stability having put millions and millions of people out of work directly and through the meat grinder indirectly for unknown years.

 

or the Fed can administer some tough love.....and hopefully get this thing done in 12-18 months....in a controlled way minimizing misery.

 

There are no good options here folks..........only less bad ones......its an economic Sophie's Choice for you movie/book lovers out there.

Edited October 30, 2022 by changegonnacome

[Viking]

Stocks are off 20-25%. Bonds are off 15-20%. The opportunity set for investors is much, much better today than it was in January. There are way more bargains today than 9 months ago. every month this year the stock market has found another asset class and beaten it silly. Last week it was big tech. 
 

i also continue to think the Fed is a big driver of all asset classes. The Fed needs to tighten financial conditions (still). That means a lower stock market and a higher US$. Inflation continues to run too hot. Employment continues to run hot. Bottom line, i expect the Fed to continue to be more hawkish than Mr Market expects. Because the day the Fed ‘pivots’ the stock market is going to scream higher. And that will drive spending (wealth effect), which will drive inflation (again). And i think the Fed is smart enough to know this. Bottom line, the Fed needs a recession. But they can’t actually say that (Bank of Canada kind of just did). 
 

What is an investor to do? Buy stuff they understand when it gets cheap. But don’t go all in. More/better bargains likely lie ahead… we are in likely the middle of a bear market. Because a recession is likely coming in 2023. 

Edited October 30, 2022 by Viking