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Posted
9 minutes ago, Dinar said:

The country does NOT need unskilled labor.  Immigration depresses wages and raises housing costs.  We have plenty of unskilled people on welfare who can do these jobs.


I hate to be the one to say this but there’s unskilled labor and then there’s unskilled labor. 
 

the people on welfare, and I’m speaking as an employer, are fucking useless. That’s why they’re on welfare. They should go to work certainly, but I don’t want them on my payroll. 
 

I’ll take the Central American immigrants that work until midnight on my construction projects after spending a week doing full time work at their day job. 
 

I think there’s clearly a cultural element at play here, and I’m sure not all immigrants are created equal, but they’re the best workers by a country mile in my neck of the woods. 

Posted
8 minutes ago, RedLion said:

You should come check out California. I feel like the immigrants are the only ones working. Often under the table for cash. Mostly these are Central American immigrants.

Yup. At least from the people I know and speak with, the Central Americans are unmatched as far as work ethic go. Especially the ones from socialist regimes. 

Posted

That’s the problem Jaygo, you’re the exception. You work hard like I did/do, and you built your net worth. Not afraid of work. Now we have the generation behind us, that’s used to the government propping them up. Yes, I know, not everyone is lazy…

 

but, tell me why, in Canada 40% of Canadians receive more in government benefits then they contribute to system. Talk about long term damage.

 

Rant over. 
 

Posted
4 minutes ago, longlake95 said:

That’s the problem Jaygo, you’re the exception. You work hard like I did/do, and you built your net worth. Not afraid of work. Now we have the generation behind us, that’s used to the government propping them up. Yes, I know, not everyone is lazy…

 

but, tell me why, in Canada 40% of Canadians receive more in government benefits then they contribute to system. Talk about long term damage.

 

Rant over. 
 

And they complain about taxes lol. Most people receive far more than they will ever pay ( thank you Alberta!!) but bitch and complain about how high are taxes are. I doubt anyone has ever read their tax forms to see how little is actually paid unless you are making millions as an employee. 

 

One heart surgery is close to 100k apparently and most men end up getting one or something similar.

Posted

It’s unfortunate, and that’s the reason Canada will never be as successful as the US.

I spent a lot of time down there, and their work ethic is much greater than north of the border. 
 

Another reason to have a bulk of your assets at work outside our borders. 

Posted
11 minutes ago, longlake95 said:

Another reason to have a bulk of your assets at work outside our borders. 

I have a much easier time finding value here though. Wajax, FFH, DOO, Doman, Equitable all under 10P/E

 

The US equivalents are generally valued higher.

Posted
3 minutes ago, Jaygo said:

I have a much easier time finding value here though. Wajax, FFH, DOO, Doman, Equitable all under 10P/E

 

The US equivalents are generally valued higher.

Agreed, however, a great example of the perfect combo is Canadian domiciled - US/international operations, think FFH. SJ, sells most of their products in the US. 
TFII, Canadian based US centric. I’ll pay up for this model. Not much though I’m thrifty. 

Posted

Anyway, back to the topic of 3%, largely high rate propelled inflation...and the topic of equities "not pricing it in", weren't the same exact things said about 4-5% rates? And outside of a couple short lived, headline fueled panic corrections....We're not at SPY 3000 or 4000 or even 5000? And sure we can argue about "absolute" all time highs after taking a hatchet to things in the adjustment category....but still, cant we all admit that we are still MILES away from where the persistent parade of "market isnt pricing things in" predictions have forecast we'd be? Nothing gives away a flawed argument more than extended periods of time going by where.... it simply doesnt occur. 

Posted
14 minutes ago, Jaygo said:

I have a much easier time finding value here though. Wajax, FFH, DOO, Doman, Equitable all under 10P/E

 

The US equivalents are generally valued higher.

What do you think is a sustainable level of profits for Wajax and why?  Thank you.

Posted

Sorry for the thread derail but I think that all or most industrials have elevated margins right now that will shrink. By how much i'm not sure but i could see 20% lower. I can also envision a business environment where a lot of contractors are simply giving back the keys or getting liquidated.

 

That said I think Wajax can continue in the range of $2.-4 eps. Hitachi is gaining ground and they are the distributor. A lot of niche parts run through them so I dont think they are likely to fade away. I learned about them from buying some parts and took a small position in the low 20's and have done a bit of research lately.

 

Some parts are priced to insanity because of the rarity of them and I'm not sure if pissing off your customer is good business. Tennant has done this for years and customers hate them for it. I would say Wajax is definitely in that game and it may be a problem long term depending on management. 

 

I look at it like a infrastructure, mining and energy play at a reasonable valuation vs peers. 

Posted (edited)

Isn't QE simply an asset swap of long-term bonds for cash, with QT being the reverse? The Federal Reserve's balance sheet has shrunk by around $1.2 trillion in assets since last year and is continuing, and I don't see how this doesn't affect asset prices. The system is currently tightening and we'll almost certainly see higher long-term rates in the near future. It's interesting to me because when I talk to anyone about the value behind both stocks and real estate, it seems they believe that prices just have to continuously go up. Looking at past data, this seems somewhat more true for real estate but certainly not equities.

Edited by blakehampton
Posted (edited)
13 minutes ago, blakehampton said:

My idea of the two options at the FED:

  1. Shrink the balance sheet and cripple markets
  2. Or don't and we see runaway inflation

Please correct me if I'm wrong

 

19 minutes ago, blakehampton said:

Isn't QE simply an asset swap of long-term bonds for cash, with QT being the reverse? The Federal Reserve's balance sheet has shrunk by around $1.2 trillion in assets since last year and is continuing, and I don't see how this doesn't affect asset prices. The system is currently tightening and we'll almost certainly see higher long-term rates in the near future. It's interesting to me because when I talk to anyone about the value behind both stocks and real estate, it seems they believe that prices just have to continuously go up. Looking at past data, this seems somewhat more true for real estate but certainly not equities.

The biggest mistake Ive seen made over the last few years is that people really want to believe, and go to great lengths to convince themselves, that the market is as simple as "the Fed controls whether stocks go up or down"...I just dont know why this is the case or even would be. At this point pretty much everyone Im aware of has had fair notice as far how to position.

 

In addition, to the last bolded part, why isnt this generally and loosely true, from a historical standpoint? Stocks are at an ATH, or pretty close to it. They are also a VOLATILE asset class. Is this statement untrue because "sometimes they go down"?

 

Like Ive seen so many times talk of "in 2018 the market went down" and its like yea, stocks can do that sometimes, and fast forward 6 years and anyone who bought stocks from those panicking dopes in November and December 2018 has made a fortune...whats the point?

Edited by Gregmal
Posted
7 minutes ago, blakehampton said:

Isn't QE simply an asset swap of long-term bonds for cash, with QT being the reverse? The Federal Reserve's balance sheet has shrunk by around $1.5 trillion in assets since last year and is continuing, and I don't see how this doesn't affect asset prices. The system is currently tightening and we'll almost certainly see higher long-term rates in the near future. It's interesting to me because when I talk to anyone about the value behind both real estate and stocks, it seems they believe they just continuously have to go up. Looking at past data, this seems somewhat more true for real estate but certainly not equities.


The other side to this coin is the funny money you’re using as a measuring stick. 
 

Government deficit spending is driving more inflation, and higher rates beget higher deficits as the interest on already borrowed money continue to go up. 
 

Government deficits alone will put a lid on long term rates. And by the way most holders of treasuries are investing funny money of their own. Insurance float, bank reserves, sovereign wealth fund reserves, central banks, etc. 

 

Then there’s the almost certain reality that QT is only being performed right now to give our central bank even more firepower to do more QE at the next sign of distress. 
 

The path of least resistance on many fronts is for low rates and higher inflation. Or else a huge one time devaluation at some point in the future. I don’t see why a huge on time devaluation is more likely or preferable to a gradual inflating away of our debt problem. Yet meaningfully higher long term rates all but guarantee that the federal government ends up printing money (possibly even directly by act of congress) which results in the huge devaluation / loss of reserve status.

 

I just don’t see it. And I don’t have a phd in economics so maybe I’m not totally wrong. 😂 

Posted (edited)
32 minutes ago, Gregmal said:

 

The biggest mistake Ive seen made over the last few years is that people really want to believe, and go to great lengths to convince themselves, that the market is as simple as "the Fed controls whether stocks go up or down"...I just dont know why this is the case or even would be. At this point pretty much everyone Im aware of has had fair notice as far how to position.

 

In addition, to the last bolded part, why isnt this generally and loosely true, from a historical standpoint? Stocks are at an ATH, or pretty close to it. They are also a VOLATILE asset class. Is this statement untrue because "sometimes they go down"?

 

Like Ive seen so many times talk of "in 2018 the market went down" and its like yea, stocks can do that sometimes, and fast forward 6 years and anyone who bought stocks from those panicking dopes in November and December 2018 has made a fortune...whats the point?

I believe that the valuations for almost everything are simply absurd right now.

  • The median home sale price is 6x the median household income.
  • The S&P500 is set to return approximately 5-5.5% at current prices. This is assuming 2% earnings growth and that corporate taxes stay at 21%. A higher growth rate is certainly possible but so are higher corporate taxes, arguably more so. The point here is that you can get this same yield with cash, and this is without any of the added risk.
Edited by blakehampton
Posted
16 minutes ago, blakehampton said:

I believe that the valuations for almost everything are simply absurd right now.

  • The median home sale price is 6x the median household income.
  • The S&P500 is set to return approximately 5-5.5% at current prices. This is assuming 2% earnings growth and that corporate taxes stay at 21%. A higher growth rate is certainly possible but so are higher corporate taxes, arguably more so. The point here is that you can get this same yield with cash, and this is without any of the added risk.

why are you assuming 2% earnings growth?  @RedLion, I think having a PhD in economics is more of a hindrance than help, common sense seems to be uncommon in academia (I got to half a dozen PhD seminars every year...) 

Posted (edited)
22 minutes ago, blakehampton said:

I believe that the valuations for almost everything are simply absurd right now.

  • The median home sale price is 6x the median household income.
  • The S&P500 is set to return approximately 5-5.5% at current prices. This is assuming 2% earnings growth and that corporate taxes stay at 21%. A higher growth rate is certainly possible but so are higher corporate taxes, arguably more so. The point here is that you can get this same yield with cash, and this is without any of the added risk.

Last 10 year sales growth of the SP 500 was around 4% if i remember correctly, at stable margins and stable earnings multiple and sharecount flat, you will make 4%+the dividend yield. So yes, 5-6% is a realistic scenario.

Edited by Luca
Posted (edited)
26 minutes ago, Dinar said:

why are you assuming 2% earnings growth?  @RedLion, I think having a PhD in economics is more of a hindrance than help, common sense seems to be uncommon in academia (I got to half a dozen PhD seminars every year...) 

GDP growth has averaged around 2% over the last 10-20 years and 3% preceding that. I think 2% is a good average for growth going forward. I recently listened to an interview with John Bogle in 2017 where he explained his valuation model using dividends. He used the S&P500's dividend yield and 5% growth going forward. Funnily enough, the dividend for the S&P is approximately its net earnings - capex, so it's almost the same as owner earnings. Anyway, I redid his recommended model for dividend growth and got nearly the same results as my model with earnings.

 

Sources:

Edited by blakehampton
Posted
1 hour ago, blakehampton said:

Isn't QE simply an asset swap of long-term bonds for cash, with QT being the reverse?

 

It sounds like that but in reality it is a swap of some type of Bond for Bank Reserves.  Bank reserves are not useful or important and they can't be used to buy stocks or really make their way into the real economy.  Lending by large Fed member banks is not constrained by bank reserves in the system.  Lending is restrained by capital ratios, demand for loans, appetite to take risk, regulatory changes on what counts for what, etc...  

 

New money ("inflation") makes it into the real economy in two primary ways.  1.) The government deficit spends it into the economy.  and 2.) Banks make new loans.

 

Swapping one government liability (treasury bond) for another government liability (bank reserves) does not have much of an effect.  It used to be that bank reserves didn't pay interest, so QE was actually taking away an interest bearing security that was paying interest to the private sector and leaving the bank with useless, non-interest-bearing, neutered banking system tokens.  In that way, QE was the opposite of stimulus.  It was more like a tax - and you can see that because the Fed was making a profit on the balance sheet and remitting the extra capital to the treasury.  A tax is when money is transferred from the private sector and remitted to the treasury.

 

But then bank reserves started earning interest and the yield curve inverted and then you had bank reserves paying more than the bonds of the Fed's balance sheet so the Fed started running a loss.

 

The only thing QE did of any consequence was slightly tighten mortgage spreads while the Fed was buying those securities.  That is it.  A few basis points.

 

 

Posted

We desperately need an undo button. I just accidently deleted a long written response and I now want to kms.

 

14 minutes ago, gfp said:

 

It sounds like that but in reality it is a swap of some type of Bond for Bank Reserves.  Bank reserves are not useful or important and they can't be used to buy stocks or really make their way into the real economy.  Lending by large Fed member banks is not constrained by bank reserves in the system.  Lending is restrained by capital ratios, demand for loans, appetite to take risk, regulatory changes on what counts for what, etc...  

 

New money ("inflation") makes it into the real economy in two primary ways.  1.) The government deficit spends it into the economy.  and 2.) Banks make new loans.

 

Swapping one government liability (treasury bond) for another government liability (bank reserves) does not have much of an effect.  It used to be that bank reserves didn't pay interest, so QE was actually taking away an interest bearing security that was paying interest to the private sector and leaving the bank with useless, non-interest-bearing, neutered banking system tokens.  In that way, QE was the opposite of stimulus.  It was more like a tax - and you can see that because the Fed was making a profit on the balance sheet and remitting the extra capital to the treasury.  A tax is when money is transferred from the private sector and remitted to the treasury.

 

But then bank reserves started earning interest and the yield curve inverted and then you had bank reserves paying more than the bonds of the Fed's balance sheet so the Fed started running a loss.

 

The only thing QE did of any consequence was slightly tighten mortgage spreads while the Fed was buying those securities.  That is it.  A few basis points.

 

 

 

Anyway, my response was formed around how there is currently a spread between bank reserves and the recorded assets on the FED's balance sheet. I believe that this is cash that has made its way into the economy through asset inflation. By buying bonds and injecting cash, the FED essentially made owning assets more attractive relative to fixed-income and cash, especially when you consider how low rates were and for how long they stayed there. I do agree though that it ultimately comes down to bank reserves. I think that the biggest focus during QT is gonna be watching reserves as they let the bonds run-off. I'm sure they don't want to put banks in a precarious situation.

Posted (edited)
3 minutes ago, blakehampton said:

We desperately need an undo button. I just accidently deleted a long written response and I now want to kms.

 

 

Anyway, my response was formed around how there is currently a spread between bank reserves and the recorded assets on the FED's balance sheet. I believe that this is cash that has made its way into the economy through asset inflation. By buying bonds and injecting cash, the FED essentially made owning assets more attractive relative to fixed-income and cash, especially when you consider how low rates were and for how long they stayed there. I do agree though that it ultimately comes down to bank reserves. I think that the biggest focus during QT is gonna be watching reserves as they let the bonds run-off. I'm sure they don't want to put banks in a precarious situation.

 

Yes the current net interest paid by the Fed is stimulative and should be added to the deficit to determine the amount of fiscal stimulus we are currently getting.  But this is stimulus now, not during QE.  The net interest paid by the Fed (the losses they are experiencing on their balance sheet) are not big compared to the "regular" fiscal deficit.  

 

So - during "QE" they were accidentally taxing the private sector and now that we are inverted and in "QT" their balance sheet is stimulating the economy by paying net interest into the private sector.

 

Not exactly what they were going for on paper...

Edited by gfp
Posted
49 minutes ago, blakehampton said:

GDP growth has averaged around 2% over the last 10-20 years and 3% preceding that. I think 2% is a good average for growth going forward. I recently listened to an interview with John Bogle in 2017 where he explained his valuation model using dividends. He used the S&P500's dividend yield and 5% growth going forward. Funnily enough, the dividend for the S&P is approximately its net earnings - capex, so it's almost the same as owner earnings. Anyway, I redid his recommended model for dividend growth and got nearly the same results as my model with earnings.

 

Sources:

2% is real, so in nominal terms closer to 5%, no?

Posted
9 minutes ago, Dinar said:

2% is real, so in nominal terms closer to 5%, no?

You're right, thanks for correcting me. Still though by Bogle's valuation standard, the market comes out to be significantly overvalued.

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