Skip to main content
Message Font: Serif | Sans-Serif
 
No. of Recommendations: 17
"More dour economic figures underscored the damage wrought by the COVID-19 crisis, with U.S. employers shaving off nearly 2.8 million private payrolls in May...

However, markets shrugged off the data, which beat consensus expectations by a mile. On average, Wall Street economists expected private sector job losses to total 9 million for the month"

https://finance.yahoo.com/news/stock-market-news-live-june-3...

Hypothetical question. Suppose a C19 vaccine is discovered tomorrow. Is the current market fairly priced? I guess what I'm getting at, is the damage already wrought by C19 priced into the market, excluding the possibility of a second wave and other future bad events? It seems to me the market is irrationally high even in the "vaccine tomorrow" scenario.

Anecdotal information. As background, the circle of people I know tend to be well educated. I'm not aware of anyone, and that's probably over 100 people including work and church, that has returned to "back to normal". And I live in GA, USA where it's almost encouraged to do so. Everyone I'm aware of has canceled summer trips and is still isolating at home, leaving only to buy essentials. We pick up food from restaurants regularly (few times a week), order things online, but that's our only contribution to the economy. No sporting event, canceled 2-3 summer vacations. Not going to Hamilton, or any other theater, movies, etc. Kids are not doing summer day-camps, although some may occur online. That has to hurt the economy.

Google rescinded offers to contract workers (thousands?) and IBM had layoffs, so even large companies without cash-flow issues are feeling the pinch. So what am I missing? Market up 1% today on news "only" 2.8 million private payrolls were cut in May, when 9 mil was expected. What is the most bullish case a person could come up with? I guess that's my question.

John
Print the post Back To Top
No. of Recommendations: 10
"What is the most bullish case a person could come up with?"

This too shall pass.
Print the post Back To Top
No. of Recommendations: 0
Trumpanomics!

Let it rip and sign trillion dollar cheques....

Mr Market seems to love it 🤷???
Print the post Back To Top
No. of Recommendations: 18
In the US, there has been both fiscal stimulus and monetary stimulus. These stimuli aren't showing up in increased economic activity, therefore, they must be causing inflation somewhere. Most goods and services are not seeing inflation, so that inflation has been directed to the stock markets.

In looking at a chart of the S&P 500, it's recent bottom was on March 23. The CARES act was signed on March 27. The Fed's bond purchase program was announced that same week. Those two actions appear to have halted the stock market slide.

In the mean time, Q1 GDP was down at about a 5% annual rate. Q2 GDP may be down as much as 25% to 35%.

Granted, this is all short term stuff. As a value investor, I know that the vast majority of a stock's value lies in future business profits, not the next quarter. On the other hand, a business needs to survive the next quarter and the quarter after that to realize those future profits. And with drops of this magnitude in business activity, some businesses will not survive.

Therefore, my personal theory is that the US stock market and the US economy have become disconnected from each other. That fits pretty well with the idea that in the short run markets are a voting machine, while in the long run they are a weighing machine.

Right now, stocks are popular and the prices of stocks have been bid up. The big problem I see is that both wheat and chaff are at inflated prices, but chaff is way ahead of wheat. There are plenty of firms that are not situated to survive such a steep drop in economic activity. And there are also firms that ARE so situated. But you can't tell them apart by their stock price or valuation metrics. You have to dig into balance sheet strength - a rather unpopular task in some corners of investment analysis.

For businesses that survive this economic downturn, I don't see a huge change in their long term valuation. You might need to push specific valuation estimates out a year or two from where those were at the end of last year to account for the current economic situation.

The broad valuation hit is to those firms that should be valued near zero today because their survival through the next year or two is (or should be) in serious question. I believe that is the current irrationality in stock prices.

--Peter
Print the post Back To Top
No. of Recommendations: 7
I was watching CNBC this morning where one of the hosts was making the same point when Cramer said "yawn, did you say something"? It was a commentary on the deafness of the market to the real world. This feels like a gigantic asset bubble being pumped up by the Fed. Without the Fed spending trillions on asset purchases, what would equity and bond prices be? I think that without the Fed action Berkshire Hathaway would be neck deep in elephants.
Print the post Back To Top
No. of Recommendations: 0
Without the Fed spending trillions on asset purchases, what would equity and bond prices be? I think that without the Fed action Berkshire Hathaway would be neck deep in elephants.

So what?

The Fed *did* do what it did, and that's the world we are in.
Print the post Back To Top
No. of Recommendations: 4
Without the Fed spending trillions on asset purchases, what would equity and bond prices be? I think that without the Fed action Berkshire Hathaway would be neck deep in elephants.

So what?

The Fed *did* do what it did, and that's the world we are in.




Yeah. Tricky situation.

Should time-proven value investors stick with time-proven methods? Or is it maybe actually "different this time"? If whatever-it-takes government intervention to prop up the stock market and zombie businesses is the new normal, how do we deal with that? On the other hand, maybe this is all end-stage-of-bubble stuff, and we'll find out that there's nothing new under the sun, and history does repeat itself.

A few things we need to remind ourselves, though:
1) Even if low interest rates "justify" high stock valuations, if buying at stocks at these very elevated valuations, your return will be pathetic compared to historical returns...unless you posit ever-increasing valuations. Essentially, over the past half decade or so we used a one-time elevate-the-valuation Monopoly card, but there's not a second card like that.
2) While the Fed can print money, it can't print wealth. Or jobs. So unless/until our underlying productivity as a nation improves, wealth won't improve. Again, money does not equal wealth or prosperity; it is only a medium of exchange.
3) Propping up zombie businesses and encouraging reckless behavior (e.g., airlines swapping debt for equity at the late stage of a business cycle to repurchase shares) will be damaging for the economic health of the nation. What we've moved to is the worst of socialism and the worst of capitalism, rather than the best of either.
4) Given the huge government obligations holes at every level...combined with generally increasing populist sentiment, it seems a near certainty that governments will soon increase their take on corporate profits.
Print the post Back To Top
No. of Recommendations: 0
) Even if low interest rates "justify" high stock valuations, if buying at stocks at these very elevated valuations, your return will be pathetic compared to historical returns..

Scene from a great book & movie:
Frodo: I wish none of this had happened.
Gandalf: So do all who live to see such times; but that is not for them to decide. All we have to decide is what to do with the time that is given to us.



your return will be pathetic compared to historical returns..

Yes? A lamentable situation indeed. But it is what it is. Getting the historical return does not seem to be in the cards. You just have to navigate the rapids, no matter how much you wish that it was a gentle stream.


4) Given the huge government obligations holes at every level...combined with generally increasing populist sentiment, it seems a near certainty that governments will soon increase their take on corporate profits.

I recall once hearing a saying: "History does not always repeat itself. Sometimes history roars, "DO YOU HEAR ME NOW??!!"
Will be sad times for my grnadchildren and great-grandchildren.
Print the post Back To Top
No. of Recommendations: 2
"Should time-proven value investors stick with time-proven methods? Or is it maybe actually "different this time"? If whatever-it-takes government intervention to prop up the stock market and zombie businesses is the new normal, how do we deal with that? On the other hand, maybe this is all end-stage-of-bubble stuff, and we'll find out that there's nothing new under the sun, and history does repeat itself."

This.

Doing whatever-it-takes government intervention to prop up the stock market and zombie businesses is NOT capitalism in any way shape or form.
Print the post Back To Top
No. of Recommendations: 0
commoncents... Common sense.

Sorry, you can only recommend a post to the Best of once.
Print the post Back To Top