General Investing and Economics Discussion - No Politics

[CuseJacket]

The valuations were astronomical. The Buffet indicator, which measures total stock market capitalization against GNP, was at an all-time high. It still indicates, even after the fall, a seriously over-bloated market. The Shiller p/e is a p/e that attempts to take temporary earnings fluctuations out of consideration, and it, too, was at an all-time high. Valuations based on these two indicators were higher than ever before. Valuations based on simple p/e may have been high before, but those are misleading due to the fluctuation of earnings and the unpredictability of where they're heading. But now, at any rate, they're headed south.

Coupled with this, we have a deficit that is one trillion dollars, even though the economy had a façade of strength. More stimulus spending will only increase the Debt to even more dangerous levels. On top of that, the FED has already cut interest rates to alarmingly low levels, leaving them with few weapons left. In fact, interest rates are so low any further cut simply accentuates the fact that there's almost no cutting left to do, which has the effect of alarming the market further - the opposite effect from that which is intended. For all practical purposes, the FED is out of bullets.

It's a perfect storm. Now comes a worldwide recession, to set off the selling. The selling will continue, on past the point of reasonable valuation because the market always overshoots. I'm not going to be interested in jumping back into this market until I see another 30 percent decline, bare minimum.

I don't have a strong opinion. I'm not saying all indicators were positive, but my read leaned that way prior to coronavirus. My point on valuations is that historically we've blown past many "all-time" highs (at that time) without issue. Yes, this was a new all-time high, just like the prior ones, which were followed by continued days in the green.

 

[CuseJacket]

With the caveat that I would never want to make that precise of a prediction, it would not surprise me if that happened. It would also not surprise me if the market was currently at the bottom as China shows signs of coming back to normal. For example, every single Apple store in the entire country is back open again, etc.

Fundamentals and valuations only get you so far. A large determining factor is people’s emotional responses.

In support of emotion vs. reality, we knew about China's progress a week ago. Just like we knew about South Korea 1-2 weeks ago. Assuming the data is accurate.

 

[Techster]

Something to keep in mind before being tempted to jump back in:

The United States population is 300+ million.

We currently have ZERO plans for containment or mitigation.

All containment has been self elected, by that I mean, organizations (Sports Leagues, Businesses, etc) and local governments are taking the lead in calling off events where mass crowds can gather.

We still don't have widespread testing, which means positive test results may be just a tip of the iceberg. Expect markets to react negatively once tests are more widespread.

The President is expected to declare a state of national emergency later today, which will trigger large funding for FEMA to enter into the picture. Will be interesting to see how the market reacts to that.

There's still a LOT of runway left for the virus to playout. Hold on to your horses...and bank accounts.

 

[bobongo]

With the caveat that I would never want to make that precise of a prediction, it would not surprise me if that happened. It would also not surprise me if the market was currently at the bottom as China shows signs of coming back to normal. For example, every single Apple store in the entire country is back open again, etc.

Fundamentals and valuations only get you so far. A large determining factor is people’s emotional responses.

I know what you're saying, but the market cannot sustain these levels of overvaluation forever. If they find an improbable cure for coronavirus tomorrow, the market will shoot back up, but then the overvaluation will just get worse again and the next shock will send it down the ski slope again. At some point, it will not hold. The problem with being in a grossly overvalued market is that the upside is tiny and the downside immense. It just isn't worth the gamble, IMO. Glad I got out - very glad.

 

[bobongo]

I don't have a strong opinion. I'm not saying all indicators were positive, but my read leaned that way prior to coronavirus. My point on valuations is that historically we've blown past many "all-time" highs (at that time) without issue. Yes, this was a new all-time high, just like the prior ones, which were followed by continued days in the green.

That the market reaches all-time-highs means nothing. It should, of course over time do that. I'm talking about all time highs as measured against real worth. That's a different thing.

https://www.gurufocus.com/shiller-PE.php

https://www.gurufocus.com/stock-market-valuations.php

 

[Techster]

It would also not surprise me if the market was currently at the bottom as China shows signs of coming back to normal. For example, every single Apple store in the entire country is back open again, etc.

You can't compare us to China...yet.

China took ruthless measures to contain and mitigate the virus. We have yet to enact any containment or mitigation measures on a nationally coordinated level. We still don't even have widespread testing yet, so numbers being reported in the United States are not accurate...probably not even close.

I don't expect to see bottom until after a form of national level containment and mitigation is announced.

 

[CuseJacket]

That the market reaches all-time-highs means nothing. It should, of course over time do that. I'm talking about all time highs as measured against real worth. That's a different thing.

https://www.gurufocus.com/shiller-PE.php

https://www.gurufocus.com/stock-market-valuations.php

I'm addressing your point about valuation and what the market did with that information. Valuations, not the stock market, have been at all time highs many times back to 1950. Yes, we established a new valuation all time high successively, month after month, for the last year. But it's not the first time people have said "valuations are at an all-time high" and then the stock market continues to soar regardless.

This doesn't entirely address the valuation all time high, rather runs/trends, but the "all time" stuff is addressed in the video after, if you want to look at it.

 

[Deleted member 2897]

I just read the following headline: "Stock market rallies 2,000 points after Trump declares National Emergency due to pandemic."

LOL

 

[LibertyTurns]

Bad news- buy, buy, buy???!?

 

[bobongo]

I just read the following headline: "Stock market rallies 2,000 points after Trump declares National Emergency due to pandemic."

LOL

You can't make this stuff up.

 

[bobongo]

I'm addressing your point about valuation and what the market did with that information. Valuations, not the stock market, have been at all time highs many times back to 1950. Yes, we established a new valuation all time high successively, month after month, for the last year. But it's not the first time people have said "valuations are at an all-time high" and then the stock market continues to soar regardless.

This doesn't entirely address the valuation all time high, rather runs/trends, but the "all time" stuff is addressed in the video after, if you want to look at it.

View attachment 7965

I get that p/e gets bigger when good returns are anticipated. But the last run started 12 years ago and the run is over. The stock market, fueled by a trillion dollars a year deficit spending and interest rates cut to near nothing, was grossly overvalued as compared to GDP when the bubble burst. Even after a 20% drop, it still is. Now we're staring down the barrel of a recession with the FED just about out of bullets (and any cuts now will just alarm the market that the FED is getting very close to shooting its last wad), and any stimulus spending jacking up deficits even higher. The house of cards is tumbling down.

 

[Deleted member 2897]

I get that p/e gets bigger when good returns are anticipated. But the last run started 12 years ago and the run is over. The stock market, fueled by a trillion dollars a year deficit spending and interest rates cut to near nothing, was grossly overvalued as compared to GDP when the bubble burst. Even after a 20% drop, it still is. Now we're staring down the barrel of a recession with the FED just about out of bullets (and any cuts now will just alarm the market that the FED is getting very close to shooting its last wad), and any stimulus spending jacking up deficits even higher. The house of cards is tumbling down.

I wouldn’t predict that necessarily (because you never know), but I agree with your sentiment. House of cards is exactly what our federal governments finances are. There is not enough money in the entire world to cover our unfunded liabilities.

 

[LibertyTurns]

@bobongo @bwelbo You guys sound like you’re solidly in the “we’re in a recession” camp. I have a different perspective, experience. I can’t expand fast enough. #1 issue is labor. Capable, qualified people are in significant short supply. #2 is vendor parts/components. All my suppliers are expanding or are at max capacity & have major Capex projects to resume a growth trajectory. #3 are raw material issues. We’re increasing buffer stocks tremendously of every major commodity.

I’m rapidly developing & implementing training programs to grow my own. Finding leadership, technical experts to support the growth is tough as well. I’m insourcing as many outsourced components, assemblies & processing operations as I can. Odd for me to hear people talk recession. I could double sales tomorrow, no problem but have had to slow down growth to let my operation mature.

 

[CuseJacket]

I get that p/e gets bigger when good returns are anticipated. But the last run started 12 years ago and the run is over. The stock market, fueled by a trillion dollars a year deficit spending and interest rates cut to near nothing, was grossly overvalued as compared to GDP when the bubble burst. Even after a 20% drop, it still is. Now we're staring down the barrel of a recession with the FED just about out of bullets (and any cuts now will just alarm the market that the FED is getting very close to shooting its last wad), and any stimulus spending jacking up deficits even higher. The house of cards is tumbling down.

You could be right. Just making a counterpoint that I saw more positive data points than negative. The one point I won't concede is what's caused this crash, and that is the coronavirus and the responses from the top, not market fundamentals. Whether that dominoes into something bigger as a result of prior fundamentals will be hard to gauge either way, imo, since I don't know how resistant business should be given a number of unknown factors and TBD coronavirus recovery timeline (public health, government mandates, consumer confidence rebounding, etc).

 

[Deleted member 2897]

@bobongo @bwelbo You guys sound like you’re solidly in the “we’re in a recession” camp. I have a different perspective, experience. I can’t expand fast enough. #1 issue is labor. Capable, qualified people are in significant short supply. #2 is vendor parts/components. All my suppliers are expanding or are at max capacity & have major Capex projects to resume a growth trajectory. #3 are raw material issues. We’re increasing buffer stocks tremendously of every major commodity.

I’m rapidly developing & implementing training programs to grow my own. Finding leadership, technical experts to support the growth is tough as well. I’m insourcing as many outsourced components, assemblies & processing operations as I can. Odd for me to hear people talk recession. I could double sales tomorrow, no problem but have had to slow down growth to let my operation mature.

Im happy for you - seriously. But we’re in a recession. IIWII. Hopefully the virus will pass on a month and the economy can get back to normal.

 

[LibertyTurns]

Im happy for you - seriously. But we’re in a recession. IIWII. Hopefully the virus will pass on a month and the economy can get back to normal.

I’m just having a hard time understanding the recession crowd. I don’t live anywhere near Atlanta, but have a ton of GT friends I get together with fairly regularly. Up until the last week or so, nobody’s had difficulty finding work. This hysteria (well founded or not) has driven a reality where everyone needs to take a pause & wait/see. Before that though it was/is constraints throttling growth not lack of demand. Those running projects are complaining about labor or material shortages to keep their projects on track. Ones in charge of operation are struggling with labor and materials as well. Folks I know that are local contractors & business owners, neighbors, etc all have these similar common complaints. One hell of a recession where so many people are trying to grow.

Maybe we just don’t have any of whatever you all are trying to do down here? Maybe you’re living in an anti-growth, high tax area? Very odd.

 

[Deleted member 2897]

I’m just having a hard time understanding the recession crowd. I don’t live anywhere near Atlanta, but have a ton of GT friends I get together with fairly regularly. Up until the last week or so, nobody’s had difficulty finding work. This hysteria (well founded or not) has driven a reality where everyone needs to take a pause & wait/see. Before that though it was/is constraints throttling growth not lack of demand. Those running projects are complaining about labor or material shortages to keep their projects on track. Ones in charge of operation are struggling with labor and materials as well. Folks I know that are local contractors & business owners, neighbors, etc all have these similar common complaints. One hell of a recession where so many people are trying to grow.

Maybe we just don’t have any of whatever you all are trying to do down here? Maybe you’re living in an anti-growth, high tax area? Very odd.

When you look at all professional and amateur sports being canceled, and those events...and the employees fired that helped support those...and cruise operators shut down...and airlines and hotels collapsing, and all kinds of events like the Boston Marathon...and again all the travel and spending. Love you man, but that comment doesn’t match real life today.

BTW, I live in a low tax, high growth area. It’s not about where I live. My comment was about the economy at a macro level.

 

[LibertyTurns]

When you look at all professional and amateur sports being canceled, and those events...and the employees fired that helped support those...and cruise operators shut down...and airlines and hotels collapsing, and all kinds of events like the Boston Marathon...and again all the travel and spending. Love you man, but that comment doesn’t match real life today.

BTW, I live in a low tax, high growth area. It’s not about where I live. My comment was about the economy at a macro level.

Ok maybe I’m misreading your posts. I took it to mean you believed before coronavirus we were in recession & now this is going to hammer us further. Yes, not amount of CFO finagling is going to paper over 30 days of disruption, but a recession is defined as 2 consecutive quarters of negative growth. The impact of this would have to last 6 months. Possible. Probable? Who knows.

 

[Deleted member 2897]

Ok maybe I’m misreading your posts. I took it to mean you believed before coronavirus we were in recession & now this is going to hammer us further. Yes, not amount of CFO finagling is going to paper over 30 days of disruption, but a recession is defined as 2 consecutive quarters of negative growth. The impact of this would have to last 6 months. Possible. Probable? Who knows.

Oh jeez sorry, no absolutely not. I’m only referring to after virus hit.

 

[LibertyTurns]

Oh jeez sorry, no absolutely not. I’m only referring to after virus hit.

We had a very unusual discussion at work yesterday. We have areas more heavily impacted by non-coronavirus delays, so the discussion was centered on do we idle a portion of the workforce, work the areas behind to level off the business. Also, we’re hand to mouth with several material types. We can idle those areas & replenish inventories. The hope is current state of affairs will result in a natural slowdown by not having enough people to show up to work where I need them, but reality is I’ll throttle OT where that doesn’t happen & increase it where we get lower numbers.

We got schools shutdown so Monday is going to be interesting. Our directive is to accommodate the workforce, ie they will be permitted to miss work PAID for any reason PTO balance or not. The reality is labor is in short supply, we don’t want people coming to work sick or failing to care for family if they don’t have time to take off, we don’t want to look like A holes, etc. It’s a small price to pay for our most precious resource.

Now we’re going to be upfront with our Team, but how many companies out there are going to use coronavirus as a means to obscure bad performance? Watch HR 6201 very carefully. It’s a big government giveaway. This 2 week “national vacation” that’s breaking out all over the place is just providing enough time to think through the issue at hand. It will likely be a month or more of heavy rolls, hysteria breaking out or cheering every time the media pukes out something.