Is The Bottom Almost Here?

[dealraker]

The cloud is perceived an eternally astronomical PE sector.  I disagree with this idea 100%, the same with cyber security. 

[UK]

1 hour ago, mattee2264 said:

If tech stocks get into value territory (i.e. 10x earnings etc) which happened with Microsoft about a decade ago and Apple several years ago and Facebook last year then there is definitely a lot of money to be made. But the mispricing usually occurs because they are under a cloud e.g. Microsoft's PC business was dying, Apple was thought to be at risk from cheaper smartphones, Facebook was losing out to Tik Tok and wasting tons of money on the metaverse. And there are contrary examples of famous and mature tech companies that got cheap and turned out to be value traps so it is not always as obvious and it can be with the benefits of hindsight. 

 

Also you have to put a 50% decline in the context of crazy high market caps and stock prices that have increased five to ten fold over the last decade or so. 

 

As for the relatively unblemished mega tech stocks like Microsoft, Apple, Google etc you still have the law of large numbers. Cloud growth and services growth is going to be a lot more subdued going forward and there is no guarantee new avenues for growth will be discovered. And when you combine slower growth with higher interest rates that can result in a considerable hit to valuation multiples. 

 

And while obviously even more money can be made picking through the rubble of the unseasoned tech stocks that exploded in value during the pandemic only to crash back to earth and identifying which companies are going to be long term successes. But isn't an easy game easy or else everyone would have bought Amazon, eBay, Priceline etc in 2002. 

 

Also during the pandemic mega tech stocks gained a reputation as a safe haven and now that the market is far less worried about aggressive rate hikes and starting to get a little more worried about a possible recession they may be reprising that role. Of course the shock might be that the mega tech stocks are more cyclical than people realize especially as they now represent a large part of the economy and are close to market saturation. 

 

 

I agree with most of your observations. Just wanted to say, that between tech stocks, especially after they finaly went down much more than the market, just like between other stocks, there could also be good oportunities, just like value traps. I myself never owned any US tech stock in large allocation untill last autumn, except for IBM (at the same time, when MSFT was at almost single digit multiple, dont ask why), so I understand my limitations on circle of competence with tech company and what a value trap is:). I think you have to be more open minded and be able to change your mind with these. 

[UK]

26 minutes ago, dealraker said:

The cloud is perceived an eternally astronomical PE sector.  I disagree with this idea 100%, the same with cyber security. 

 

Astronomical PE is dangerous for any sector, but dont you agree, that cloud is a growing (not necessarily by 40 per cent) market for a long term?

[dealraker]

5 minutes ago, UK said:

 

Astronomical PE is dangerous for any sector, but dont you agree, that cloud is a growing (not necessarily by 40 per cent) market for a long term?

UK my guess is that like storage of the 1990's and early 2000's at some point pricing/growth rate/competition makes it literally stop on a dime...

 

...and reverse.  Yep, that's my guess.

 

But my oh my does cloud sell well.  Reminds me of the Buffett story:

 

Fisherman walks into a tackle shop and sees an eight colored lure with eight hooks.  Fisherman asks the clerk, "Does this thing catch fish?"  Clerk replies, "I don't sell to fish."

 

Like everyone else on earth the mystical thought of cloud and cloud growth, just like data storage, makes me want to put everything I have into it.  It must have endless growth!   It must!  It must!

[UK]

11 minutes ago, dealraker said:

UK my guess is that like storage of the 1990's and early 2000's at some point pricing/growth rate/competition makes it literally stop on a dime...

 

...and reverse.  Yep, that's my guess.

 

But my oh my does cloud sell well.  Reminds me of the Buffett story:

 

Fisherman walks into a tackle shop and sees an eight colored lure with eight hooks.  Fisherman asks the clerk, "Does this thing catch fish?"  Clerk replies, "I don't sell to fish."

 

Like everyone else on earth the mystical thought of cloud and cloud growth, just like data storage, makes me want to put everything I have into it.  It must have endless growth!   It must!  It must!

 

Thanks, yes very good story:). Not sure cloud is just commodity storage though. Everything might as well develope into nice oligopoly market, controled by few players. It remainds me IBM 360 of old era more than just storage. Only my guess of course.

[dealraker]

5 minutes ago, UK said:

 

Thanks, yes very good story:). Not sure cloud is just commodity storage though. Everything might as well develope into nice oligopoly market, controled by few players. It remainds me IBM 360 of old era more than just storage. Only my guess of course.

So let's do another story...seriously LOL.  Our builder's supply we refer to as "the lumber company", Lexington, NC...the only private one left there.  We put $20k into EMC in 1994-1995 or so, data storage.  By 2000-2001 or so the stock had gone from our $20k to $1.2 mil.  Yep, and our investment club had $600k of it.

 

Data storage...the chant within the club was: The Internet is just beginning! The Internet is just beginning!  Now this isn't the present club I'm fleeing from, this is a sophisticated bunch in the club, average age probably 78 and all had done well in both business and the markets.

 

So, and I'm just right-brained guessing here, the stock at some point had gone from our $1 to $1.50 split adjusted price to $105 per share.  Along the way, in the club, I just mentioned at a meeting, "Maybe given no one wants to step up and say "sell" ---- that we should simply just begin to sell like a percentage on a quarterly basis.  The club sold a tad in the $90 range, yes we voted to do "program" quarterly selling.  But I was told, from older members of the club, "Charlie, you just can't buy and sell stocks you know...there's no way to know when this is all done."   But the members voted, just barely, to sell some - again - each quarter.  We also owned Cisco, Intel, Microsoft, we'd bought them all at reasonable prices- but of course none were selling reasonable by then and the growth in their industries was simply astounding.

 

At the lumber company?  We met and finally someone said, "Enough is enough don't you think?"  A sigh of relief came from all of us other 3 who all really wanted to sell but not be 'the one' who made the decisions, we sold all our EMC for about $900k some 6 years after investing $20k.  

 

The club?  After selling a tad at $90-something, we held the stock.  When EMC had fallen from $105 to $35" there was a motion made to "put all the club's money into EMC".  Yep, that's how "cloudish" the era was UK, the Internet and data storage was "forever" thus endless profitable growth...right?

 

In the end the club made 15% annual on EMC stock.  We sold the majority of it at $7, some 7 times or so what we paid.  Data storage?  Oh yea, it continued to grow exponentially.  Along the way EMC fell from $105 to $7.

 

So my view is very biased.  Yesterday while working a crossword puzzle I listened to John Chambers on CNBC.  Chambers was on more magazine covers (this is before the web had destroyed most magazines) than any person in history, he was a business GOD at the time.  Chambers said, "Yea technology will continue to grow.  Some of the big co's will thrive and some won't."  Then he says, "At Cisco we had 40% sales growth for 15 years...and then it stopped...and then it went in reverse."

 

That will NEVER happen to the cloud.  Never-ever.  

[changegonnacome]

20 minutes ago, dealraker said:

Then he says, "At Cisco we had 40% sales growth for 15 years...and then it stopped...and then it went in reverse."

 

The trend is your friend, until it isnt! - how many folks jumped into Cisco at year 13 and paid up for dreams of another 13 years of 40% YoY growth....I'm guessing a-lot.....and way more than the people who jumped in at Yr 1, 2 & 3 of that run.

 

What does Howard Mark's say - "first the Innovator, then the imitator, then the idiot"......the life cycle of investing flows.....the first two make money.....and then the idiot gets killed.

[changegonnacome]

Americans Fall Behind on Car Payments at Higher Rate Than 2009 -

 

https://www.bloomberg.com/news/articles/2023-01-27/car-repossessions-grow-as-inflation-slams-consumers?sref=7zqHEcxJ

 

 

Edited January 27, 2023 by changegonnacome

[UK]

1 hour ago, dealraker said:

So let's do another story...seriously LOL.  Our builder's supply we refer to as "the lumber company", Lexington, NC...the only private one left there.  We put $20k into EMC in 1994-1995 or so, data storage.  By 2000-2001 or so the stock had gone from our $20k to $1.2 mil.  Yep, and our investment club had $600k of it.

 

Data storage...the chant within the club was: The Internet is just beginning! The Internet is just beginning!  Now this isn't the present club I'm fleeing from, this is a sophisticated bunch in the club, average age probably 78 and all had done well in both business and the markets.

 

So, and I'm just right-brained guessing here, the stock at some point had gone from our $1 to $1.50 split adjusted price to $105 per share.  Along the way, in the club, I just mentioned at a meeting, "Maybe given no one wants to step up and say "sell" ---- that we should simply just begin to sell like a percentage on a quarterly basis.  The club sold a tad in the $90 range, yes we voted to do "program" quarterly selling.  But I was told, from older members of the club, "Charlie, you just can't buy and sell stocks you know...there's no way to know when this is all done."   But the members voted, just barely, to sell some - again - each quarter.  We also owned Cisco, Intel, Microsoft, we'd bought them all at reasonable prices- but of course none were selling reasonable by then and the growth in their industries was simply astounding.

 

At the lumber company?  We met and finally someone said, "Enough is enough don't you think?"  A sigh of relief came from all of us other 3 who all really wanted to sell but not be 'the one' who made the decisions, we sold all our EMC for about $900k some 6 years after investing $20k.  

 

The club?  After selling a tad at $90-something, we held the stock.  When EMC had fallen from $105 to $35" there was a motion made to "put all the club's money into EMC".  Yep, that's how "cloudish" the era was UK, the Internet and data storage was "forever" thus endless profitable growth...right?

 

In the end the club made 15% annual on EMC stock.  We sold the majority of it at $7, some 7 times or so what we paid.  Data storage?  Oh yea, it continued to grow exponentially.  Along the way EMC fell from $105 to $7.

 

So my view is very biased.  Yesterday while working a crossword puzzle I listened to John Chambers on CNBC.  Chambers was on more magazine covers (this is before the web had destroyed most magazines) than any person in history, he was a business GOD at the time.  Chambers said, "Yea technology will continue to grow.  Some of the big co's will thrive and some won't."  Then he says, "At Cisco we had 40% sales growth for 15 years...and then it stopped...and then it went in reverse."

 

That will NEVER happen to the cloud.  Never-ever.  

 

Thanks for sharing!

[TwoCitiesCapital]

1 hour ago, changegonnacome said:

Americans Fall Behind on Car Payments at Higher Rate Than 2009 -

 

https://www.bloomberg.com/news/articles/2023-01-27/car-repossessions-grow-as-inflation-slams-consumers?sref=7zqHEcxJ

 

 

 

Q4 GDP was predominantly positive due to inventory restocking after multi-quarter drawdowns.

 

The consumer that everyone is talking about being strong and resilient? Yea - consumer spending contracted during the quarter. 

 

Discover card is expecting write offs to go to 3-3.5% from the current 2.1% (and 1.4% a year ago). 

 

Leading indicators have been contracting for like the last 8-10 months. Seems like that coincident indicators are about to turn presently. 

 

Then the lagging indicators like inflation and employment will follow. 

[changegonnacome]

1 hour ago, TwoCitiesCapital said:

Q4 GDP was predominantly positive due to inventory restocking after multi-quarter drawdowns.

Yep went through the report -

“Core GDP” ex-Gov. spending & inventory build across all the other sub-categories were either negative or trending dangerously close to zero/negative & that’s in a 3.5% unemployment economy.
 

Think we can all agree that unemployment is certainly not going lower from here and so things are asymmetric on that front.
 

So very very hard to see what areas of the economy are turning upwards to rescue some of those GDP numbers (investment/consumption etc)….consumer is running on fumes due to erosion of purchasing power….burning through excess savings point to a cliff….on that front Id take Jamie Dimon’s assessment as pretty good which is no later than mid-year…..but recessionary spending behavior will kick-in before then as some folks notice they are approaching zero….so I’d expect to see some serious weakening in consumer spending/confidence in early Q2…as folks approach that Mid-Year savings ‘cliff’.

[Whensthepaintdry?]

Brk is down and everything else is up. Bull market is back.  

[Spekulatius]

2 hours ago, TwoCitiesCapital said:

 

Q4 GDP was predominantly positive due to inventory restocking after multi-quarter drawdowns.

 

The consumer that everyone is talking about being strong and resilient? Yea - consumer spending contracted during the quarter. 

 

Discover card is expecting write offs to go to 3-3.5% from the current 2.1% (and 1.4% a year ago). 

 

Leading indicators have been contracting for like the last 8-10 months. Seems like that coincident indicators are about to turn presently. 

 

Then the lagging indicators like inflation and employment will follow. 

On Discover - their charge off rate for 2019 was 3.2%. If you ask anybody - 2019 was hardly a recession. While 3.2% is higher than current levels, the current CC chargeoff rates are extremely low.

 

I think it's important to set these numbers in perspective.

Edited January 27, 2023 by Spekulatius

[Dinar]

Spek, anecdotal evidence points to recession.  Car repossessions increasing sharply, Diageo reporting volume declines in North America, massive lay-offs across the board, real estate is down - so massive layoffs or declines in employment/income (mortgage brokers, construction workers, real estate agents.)  Crypto wealth destruction is insane, and a lot of people also worked in that field.

[TwoCitiesCapital]

1 hour ago, Spekulatius said:

On Discover - their charge off rate for 2019 was 3.2%. If you ask anybody - 2019 was hardly a recession. While 3.2% is higher than current levels, the current CC chargeoff rates are extremely low.

 

I think it's important to set these numbers in perspective.

 

The perspective is that they expect defaults to more than double from 2021 in an economy with record employment, record wages and consumers that are coming off a bumper of 2+ trillion in excess savings. 

That's the perspective.

 

That directionality and magnitude should mean a hell of a lot more than it did in 2019 and I doubt it stops at 3.2% - that's just what they think it will average for the calendar year which means we likely end the year higher than that. 

 

Would also add that I was calling for a recession in 2019, too, due to the inverted curve, breaking money markets/repos, and the weakness in manufacturing. I didn't predict covid - I didn't have to. The economy was so fragile that ANYTHING could've sent it over the edge. It was just covid that did it.

 

We're in the same environment now. I don't know what the trigger will be, just the economy is unlikely to have the resiliency to handle it.

 

Edited January 27, 2023 by TwoCitiesCapital

[changegonnacome]

21 hours ago, Spekulatius said:

On Discover - their charge off rate for 2019 was 3.2%. If you ask anybody - 2019 was hardly a recession. While 3.2% is higher than current levels, the current CC chargeoff rates are extremely low.

 

I think it's important to set these numbers in perspective.

 

Yep I think this important - not every uptick in negative metrics foreshadows a recession......and historical context matters....chargeoff rates going to 2019 levels is kind of a nothing burger.........car repos hitting 2009 levels is a very different data point and one I pay attention too.....people do not fall behind on their car payments and risk repos unless under severe strain....its usually the last debt domino people allow to fall.

 

However what I would say also is with 3.5% unemployment......and an economy at full economic output.......how exactly do things improve or get better from here?......the risk/reward feels asymmetric and to the downside......not sure anybody out there is arguing unemployment is gonna drop to 3%, workers are suddenly gonna start getting inflation beating pay increases such that their real purchasing power is gonna go up so their balance sheets get repaired & cost of living difficulties subside......and then most importantly of all massive productivity gains (i.e. real wealth) is gonna show up out of the blue......feels to me like corporate margins peaked in 2021 and the 'real economy' non-government sector/inventory economy peaked sometime in 2022.

 

It sounds terrible - but creative destruction is part of the capitalist system.......artificially low interest rates for a decade + COVID stimulus.....allowed a huge cohort of zombie companies to carry-on operating while creating negative real value.........low cost of equity/VC capital also allowed large cohorts of no business model companies to scale and hire talent and to keep going when it's clear they will never create a $ of positive earnings.......the inflationary fire got lit by COVID stimulus but the kindling was years in the making via the misallocation of capital. There's a reasonable argument to make that VC money is part of the inflation problem.....there just arent that many good ideas......so bad ones got funded......but those bad ones consumed/hoarded human capital....and this was non-productive activity for that human capital to be engaged in which precluded actually productive value creating enterprises from producing more.

 

I've used the example before but health insurance companies have had a terrible time hiring good tech talent to modernize and implement tech efficiency projects front end/back end.....think of the marginal Tier 1 software developer.......he/she can go to United Health and make UHG 0.0001% more efficient which passes through to customer premiums, US healthcare & UHG's efficiency and headcount requirement....UHG is doing the same with less = aggregate productivity gains for the USA......however that marginal software developer in the last five year went to fart.io to work on Fart coins.....zero productivity gains & but alot of fun watching it go to da the moon and back down again!

 

Anyway I think about the huge mis-allocation of human capital in value destructive activities across the economy right now as result of ZIRP & lower for longer. as being one of the culprits of inflation.........Bed, Bath & Bankruptcy in 90's/00's would have gone bust easily 5yrs ago puking out the talent still sitting in there right now instead they kept going, doing buybacks along the way.....but access to cheap debt kept it artificially going.......Party City the same, you see its balance sheet...........think of the immense technology related human capital consumed in the creation of various ponzi/multi-level marketing schemes under the guise of crypto/blockchain......or more innocently the tech bros/hoes working on various 'Amazon of XYZ' start-ups in SF where it was clear ages ago to anyone with a brain who cared to look it was going nowhere (Theranos for example) but VC turned a willingly blind eye, played pass the parcel & money kept showing up to fund pointless endeavors.

 

This economy feels like a cathartic, albeit painful, recycling and re-allocation of human capital is required to get us out of the productivity mystery which has bedeviled the 2010's......I'm coming around to the thesis that the real cost of ZIRP & monetary looseness & low hurdle rates for investment for a decade plus.....is the corruption of capitalisms secret sauce - the efficient allocation of finite resources to their highest and best use.

 

Edited January 28, 2023 by changegonnacome

[changegonnacome]

Back to the question of the thread - has the bottom been put in yet?......Jim Chanos (yes understand peeps think he's some kind of monster) but also others on FinTwit using Robert Shiller analysis..... have pointed out that no bear market bottom since late 1950's has ever been put in (except for the COVID panic) that didnt see the market PE relative to the previous peak earnings number hit a multple low of at least 14x - 15x times that peak earnings number............in October 2022 low, that many hoped was the bottom..........we hit a 19 multiple on peak earnings. The more typical or average trough is somewhere in 9x - 14x peak multiple range.......havent checked the math on this one but interesting nonetheless:

Edited January 31, 2023 by changegonnacome

[Libs]

On 1/27/2023 at 3:52 AM, dealraker said:

The cloud is perceived an eternally astronomical PE sector.  I disagree with this idea 100%, the same with cyber security. 

Dang it, Deal. This is some serious contrarian thinking. If you are right, there will be Cisco-esque stock massacres coming in these two areas. 

 

I remember the Cisco debacle vividly. They were an unstoppable beast, and everyone's darling....until they weren't. (To his credit, Chambers at one point did note the absurdity of his stock's valuation).

 

As an aside, this sort of thinking - call it the generalist approach- is more important in my opinion than the 'spreadsheet approach,' to use Gregmal's derisive term. It doesn't matter how well you crunch numbers if you miss the big picture.

 

I think about this issue a lot. If you are a good generalist, you can do very well without having deep technical skills. The reverse is not true.

 

Of course, the true greats do both. Like Buffett. Some of the contributors here are in that camp, I dare say.

 

Edited January 31, 2023 by Libs

[changegonnacome]

2 hours ago, Libs said:

Dang it, Deal. This is some serious contrarian thinking. If you are right, there will be Cisco-esque stock massacres coming in these two areas.

The question I have for enterprise tech folks out there is in an environment where say corporate earnings are contracting…..does ‘the move to the cloud’ on a purely immediate basis vs. on-prem/private cloud basis start delivering cost savings to the enterprise straight out of the gates???……or given the implementation costs, decommissioning , re-architecting applications to be cloud first…..that a cloud migration is actually an immediate term upfront expense where the cost savings/revenue benefits acrue to the business years later. Suspect it’s the latter.

 

If it is the latter then cloud migration IT projects will likely get deferred in a cost cutting environment. I’ve been through one of these cycles the projects that survive provide either immediate cost savings or immediate revenue opportunities. Everybody’s thinking gets very short term once the shit starts hitting the fan.

 

Edited January 31, 2023 by changegonnacome

[nafregnum]

@changegonnacome you absolutely slayed me with the reference to Fart Coins, thanks for a good laugh.  I had to google to see if it was real, and started laughing even harder.  Couldn't help but share it  

 

 

 

[nafregnum]

Hmm...  Is there a chance that a lot of the tech whiz kids of today will contribute meaningfully to real value creation if there's a meaningful exodus from Cloud Fart Coin Land?  

[changegonnacome]

22 minutes ago, nafregnum said:

 you absolutely slayed me with the reference to Fart Coins, thanks for a good laugh.  I had to google to see if it was real, and started laughing even harder.  Couldn't help but share it  

 

My other favorite coin I saw was 'CumRocket'.....the funny thing is, as funny as it is.....it might actually have a future as its some currency associated with online pornography  

[Sweet]

4 hours ago, changegonnacome said:

Back to the question of the thread - has the bottom been put in yet?......Jim Chanos (yes understand peeps think he's some kind of monster) but also others on FinTwit using Robert Shiller analysis..... have pointed out that no bear market bottom since late 1950's has ever been put in (except for the COVID panic) that didnt see the market PE relative to the previous peak earnings number hit a multple low of at least 14x - 15x times that peak earnings number............in October 2022 low, that many hoped was the bottom..........we hit a 19 multiple on peak earnings. The more typical or average trough is somewhere in 9x - 14x peak multiple range.......havent checked the math on this one but interesting nonetheless:

This is what the bears do.  They find a metric which states - x predicted the last y recessions,  and this indicates that the bear market isn’t over.  Or something similar.

 

They then use that to sell their thesis. My experience is that far more often than not their calls are wrong.  

 

Hussman is the perfect example of this, he had data like this coming out of his ass, and yet he was dead wrong year after year.

Jim Chanos performance - anyone know what it is?  I don’t think it’s very good.  
 

Even his short portfolio, I remember him in an interview saying that his short positions make very little money.

Regarding Jim Chanos factoid, it’s irrelevant.  This bear market may or may not be over, but those data mined statistics once found are often immediately proven wrong.  

Next year we will get a new one.

 

 

Edited January 31, 2023 by Sweet

[Gregmal]

8 minutes ago, Sweet said:

This is what the bears do.  They find a metric which states - x predicted the last y recessions,  and this indicates that the bear market isn’t over.  Or something similar.

 

They then use that to sell their thesis. My experience is that far more often than not their calls are wrong.  

 

Hussman is the perfect example of this, he had data like this coming out of his ass, and yet he was dead wrong year after year.

Jim Chanos performance - anyone know what it is?  I don’t think it’s very good.  
 

Even his short portfolio, I remember him in an interview saying that his short positions make very little money.

Regarding Jim Chanos factoid, it’s irrelevant.  This bear market may or may not be over, but those data mined statistics once found are often immediately proven wrong.  

Next year we will get a new one.

 

 

For someone who seemingly has a decent name brand, the way Chanos conducts himself is an embarrassment. The stuff is so misleading, including how they show his top short positions, like TSLA being -44% on the year as if he s successful without telling you that he's been short it for years and has likely lost tons of money on it. All I know is if I was that age, peddling my bs on Twitter, misrepresenting things often and clearly trying to influence the outcome of my own positions, the way he does, I'd ask someone to put me out of my misery. 

Edited January 31, 2023 by Gregmal

[changegonnacome]

Hey listen - I report - you decide  

 

You guys remember business cycles right?.....you know the way the majority of major inflationary cycles have played out in the past? So far....

 

Completed:

 

(1) we had a monetary/fiscal fueled spending rally starting in 2020 - unprecedented in scale/scope 

(2) that rally in spending led to jump in savings/incomes/spending which also found its way into financial assets

(3) that spending surge.....resulted in an earnings jump and peak margins for the corporate sector

(4) that additional cash also found its way into financial assets - we had bubble in those....crypto, SPACS, NFT's, no FCF tech.....multiples expanded and they expanded on top of spending fueled record earnings

(4) but............INFLATION arrived......some supply chain (no biggie) but alot that was monetary....because we had a full employment economy going into COVID.......and we sure as hell didn't make much extra STUFF (productivity) during COVID?....we just created extra money to buy stuff.!...and so we got good old fashioned monetary inflation 

(5) The monetary authorities had to tighten aggressively to try to reduce the inflation

(6) Financial Assets get hit first - and multiples contracted 

(7) Real economy looks OK & corporate sector has a little weakness but also looks ok.....its just a DCF multiple adjustment so far 

 

 WE ARE HERE  * - at the maybe we got away with it stage, the wily coyote moment off the cliff.....(its just big tech doing layoffs, they were dumb, they hired too many people)...........we had a boom.....there will be no bust....its those precious few seconds in the morning after the night before when you wake up and think I'm actually ok.....but by the time you get to the bathroom your desperately hunting for pain pills & have ordered take-out on your phone from both Taco Bell AND McDonald's 

 

To be Completed/Whats left (my take):

 

(8) Higher costs of capital (equity/debt) + higher SG&A costs (labor/inputs) + weakening consumer begin to seriously erode corporate margins & profits.......you can only 'make the quarter' a couple of times

(9) Corporations en-masse (not just big tech) either in advance or in response to these earnings weakness try to "cut their way back to prosperity" by instituting "efficiency" lay-offs to protect the bottomline....they also reign in their investments budgets

(10) The problem is that in a circular economy where when one persons income is another persons spending....the corporate sectors chorus of layoffs done in close proximity to each other......doesn't protect their earnings......it actually ensures they get destroyed.......the paradox of thrift

(11) Earnings Fall......Unemployment goes up.......spending falls........earnings fall further..............

(12) Real economy goes into a RECESSION

(13) in financial markets optimism turns to pessimism....remember Mr.Market is manic depressive - multiples contract further on pessimism ESPECIALLY when the Fed is nowhere to be seen.....the Fed Put is gone.......and now that multiple is on an even lower earnings number than before.

(14) But.......and here's the good news........inflation falls back to two as growth in income/spending comes back in-line with productivity growth....inflation is no longer the primary concern...the Fed can re-focus on its other mandate employment

(15) Fed and/or fiscal authorities ease/stimulate......multiples on equity capital expand.......cheaper debt encourages investment.......companies start to hire again.......spending increases........earnings recover etc etc

 

* possibly I'm just a guy on the internet......ChatGPT writes all my posts  ......

 

Anyway the way the movie plays out in the negative version of things is the above.....lets see I've given more credence because you have too, based on the data, to the idea of a soft landing...maybe inflation is actually done for..............you can add in there somewhere for extra giggles that the Fed eases too soon and inflation returns and it requires another tightening cycle and more pain.

Edited January 31, 2023 by changegonnacome