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What if things turn bullish?


alertmeipp
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With threads going on discussing how to hedge and short. I want to inject some bullish view...

With stocks going this low, how much gain would you expect from your portfolio if the world manage to have modest growth rather than depression?

 

I am waiting to see a sizable gain from this level if the econ just muddle along - I still think the chance is high.

 

US data is not that bad at all. China should reverse its tightening policy fairly soon. QE3 is coming. US  housing is cheaper than rents now.

 

EU - they are not stupid, they will get hurt the most if they don't solve this well. German wants to drag this on so they are not the only one to pay the bills and they may get that.

 

Risk is there but reward is there as well.

 

Disclosure: Fully invested and get creamed this year so far.

 

 

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I am not inherently bullish by any means but I have a good grasp of market behaviour.

 

I think it is instructive for me at least to review the comments of Buffett, Baruch, Livermore, and others from time to time.  When there is blood in the streets etc, etc, etc.

 

I too have been creamed this year - guessing about 30% drop right now and headed for my first down year in about 8.  Nearly all my losses are related to Leaps at the moment so they can rebound quickly. 

 

I get tired by the constant macro investment topics on the board to the extent I dont much read them anymore.  It seems people are looking for the perfect value investment.  Well, they dont exist.  To paraphrase Francis Chou: sometimes we go into some real stinky places to find our investments.

 

Francis has a significant position in BAC which he has held for 1.5 years via warrants.  Do you think he fully understands BACs derivatives, EU exposures, etc.  Unless he is psychic I truly doubt it.  For one thing, not all info is available to the public.  When your value investing one needs to accept that there are a certain amount of things we dont know and will never know.  What we know about BAC is that it has a huge cash generating franchise, one of the two or three top investment banks in the world, a lot of measurable legal and mortgage liability, and is interlinked throughout the world with derivatives and CDs.  Not an ideal situation, I will agree.  But that is the nature of value investing.

It is also insanely cheap.  The same applies to a lesser degree to Jpm, and wfc. 

 

Best buy generates nearly 1 b per year in FREE cash flow.  Yet its stock has been pummeled.  The perception is that their stores are too big, their earnings aren't sustainable, there is a depression coming, blah,blah,blah.  The stock is dirt cheap and cash is still pouring in.

 

 

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I think its almost a lock that eventually things will be bullish again.

 

When who knows? Probably when there are enough cheaply valued securities.

 

Sometimes it is so long that it feels like it will never occur. Usually when you have made a mistake.

 

I still hold my first investment (without any knowledge or  research) that I ever made in 1987- $1000 in Investors growth fund...now worth ~$400 (and they have managed to increase the MER because they were not making enough money; I had paid a load as well). Valuable lessons (do your own work, dont trust salesman, and most important don t buy at 50 x earnings or whatever insane valuation) learned for only $600

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Sometimes it is so long that it feels like it will never occur. Usually when you have made a mistake.

 

I still hold my first investment (without any knowledge or  research) that I ever made in 1987- $1000 in Investors growth fund...now worth ~$400

 

That's rich Biaggio... You might have done a little better with IGM itself.  Lol.

 

I might add to my above comments that the worlds central bankers are moving things along, despite the politicians.  Especially those in the States.  One Bernanke, or Henry Paulson, seems to get more done then a room full of Reps and Dems.

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This has been a tough year here also.  I think with all the overleverage in the system, it has scared folks into lower-risk assets.  The way this has historcially been dealt with is either devaluation (Great Depression - US/UK) or default (other nations).  Once the devluation event occurs, the debts become smaller and the real assets increase nominally to work our way out of the debt.  The devaluation can also happen via inflation.  This is happening now with negative real interest rates.  As more flight to safety occurs, real interest rates become more negative.  I think once folks realize how negative these real rates are, they will flock to stocks. 

 

Packer

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What I have been seeing the past couple of years is some pretty dramatic sector rotation. Last year oil and insurance stocks were in a bear markets. Earlier this year anything nuclear got creamed. Currently, financials are getting taken out to the woodshed.

 

Should Europe look like it is getting its act together (something that starts to build confidence) I would expect the outlook for financials to turn bullish pretty fast. I remember all the doom and gloom surrounding big oil 18 months ago... look at things today....

 

 

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I am not inherently bullish by any means but I have a good grasp of market behaviour.

 

I think it is instructive for me at least to review the comments of Buffett, Baruch, Livermore, and others from time to time.  When there is blood in the streets etc, etc, etc.

 

I too have been creamed this year - guessing about 30% drop right now and headed for my first down year in about 8.  Nearly all my losses are related to Leaps at the moment so they can rebound quickly. 

 

I get tired by the constant macro investment topics on the board to the extent I dont much read them anymore.  It seems people are looking for the perfect value investment.  Well, they dont exist.  To paraphrase Francis Chou: sometimes we go into some real stinky places to find our investments.

 

Francis has a significant position in BAC which he has held for 1.5 years via warrants.  Do you think he fully understands BACs derivatives, EU exposures, etc.  Unless he is psychic I truly doubt it.  For one thing, not all info is available to the public.  When your value investing one needs to accept that there are a certain amount of things we dont know and will never know.  What we know about BAC is that it has a huge cash generating franchise, one of the two or three top investment banks in the world, a lot of measurable legal and mortgage liability, and is interlinked throughout the world with derivatives and CDs.  Not an ideal situation, I will agree.  But that is the nature of value investing.

It is also insanely cheap.  The same applies to a lesser degree to Jpm, and wfc. 

 

Best buy generates nearly 1 b per year in FREE cash flow.  Yet its stock has been pummeled.  The perception is that their stores are too big, their earnings aren't sustainable, there is a depression coming, blah,blah,blah.  The stock is dirt cheap and cash is still pouring in.

 

UCCMAL this was a fantastic post..I concur with everything you said.

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What evidence (other than political talk) do you have that Europe is going to put it together.  In my mind you have the pols trying to hold an uneconomic system together by throwing good money after bad and the electorates not wanting to take any pain.  The only way out is devaluation of the Euro debt.  It happened in the 1930s around the world with a small amount of deflation due to the deflationary trends in the economy at the time.  However, the banks collapsed in Europe which caused the chaos leading up to dictatorships.

 

The idea of fiscal integration is a fantasy of the highest order as this would entail giving up sovereignity to Germany and the rule of law.  This will not be done in times of distress.  The devaluation will happen via split in the Euro into N. Euro and S. Euro or the Southern countries falling out of the Euro system.  In either case, the banks will need to be re-captalized with the N. Euro to cover the losses.  The recap funds will have to come from governments until they can be sold to the private sector (ala TARP).  The time to buy will be when the re-caps occur.

 

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I am not inherently bullish by any means but I have a good grasp of market behaviour.

 

I think it is instructive for me at least to review the comments of Buffett, Baruch, Livermore, and others from time to time.  When there is blood in the streets etc, etc, etc.

 

I too have been creamed this year - guessing about 30% drop right now and headed for my first down year in about 8.  Nearly all my losses are related to Leaps at the moment so they can rebound quickly. 

 

I get tired by the constant macro investment topics on the board to the extent I dont much read them anymore.  It seems people are looking for the perfect value investment.  Well, they dont exist.  To paraphrase Francis Chou: sometimes we go into some real stinky places to find our investments.

 

Francis has a significant position in BAC which he has held for 1.5 years via warrants.  Do you think he fully understands BACs derivatives, EU exposures, etc.  Unless he is psychic I truly doubt it.  For one thing, not all info is available to the public.  When your value investing one needs to accept that there are a certain amount of things we dont know and will never know.  What we know about BAC is that it has a huge cash generating franchise, one of the two or three top investment banks in the world, a lot of measurable legal and mortgage liability, and is interlinked throughout the world with derivatives and CDs.  Not an ideal situation, I will agree.  But that is the nature of value investing.

It is also insanely cheap.  The same applies to a lesser degree to Jpm, and wfc. 

 

Best buy generates nearly 1 b per year in FREE cash flow.  Yet its stock has been pummeled.  The perception is that their stores are too big, their earnings aren't sustainable, there is a depression coming, blah,blah,blah.  The stock is dirt cheap and cash is still pouring in.

 

UCCMAL this was a fantastic post..I concur with everything you said.

 

To follow on this sentiment: I personally am wary about banking on things like "QE3" to make the stock market go up. I mean even if it works, what happens when it stops or peters out. QE doesn't fix any of the systemic cracks.

 

BUT, the truly good businesses who are being hammered down and available cheap, they're out there and will be out there. The only problem is that their stock prices may go nowhere for the next decade. What I would hope is that they start paying out decent dividends or raising any existing dividends and then you actually have a reason to own these things instead of just digging a hole in the ground and hiding in it with a gun and tins of dog food.

 

The big question I wrestle with every day: Is it cyclical or is it secular? Is this just "Yet Another Financial Crisis" or are we really hitting the wall on something that was overdue and on an unsustainable track for a long time. And if so, what does that mean?

 

I still think owing a good business or three will get you through better than pretty well anything else.

 

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