General Investing and Economics Discussion - No Politics

[Deleted member 2897]

That last graphic is a segue to a series of questions I meant to post yesterday.

At what point do you all expect the market will/would capitulate? In other words, how long can the Fed and stimulus packages keep us afloat?

Is it possible for government to overcome or bridge the gap of a downturn, or do you see these actions as the few remaining bullets left in the chamber?

The short answer is I don't know. The long answer is I don't know. No matter how good the government's intentions, it is too big, bureaucratic, and slow to do anything meaningful. Look at where we are right now. We're about 6 weeks into the major breakout here and not a single American has gotten their money from the federal government. Many people haven't been able to even sign up for unemployment, as the systems are down 24x7. A tiny slice of businesses have gotten something. The Kennedy Center got a free $25m grant and the next day laid off all their musicians and is currently laying off the remaining several hundred of their employees. Most of these employees at businesses that are shut down or mostly shut down will have nothing to do, so entering into some complicated agreement where you don't know ultimately what the terms are and restrictions and you can't even get the money...to pay employees to do nothing isn't helpful.

The last time we did a stimulus, all it did was prolong the misery and they didn't do anything material other than pay off the big fat cats who were connected to the government (well connected alternative energy companies, big banks, other government agencies, etc.)

The Fed isn't supposed to be buying our own debt back with printed money, or corporate debt, or state and local debt. But they're getting around the rules by using intermediaries like Blackrock. I wouldn't be surprised to find out they've been doing the same thing to support the stock market. These are the worst economic conditions is nearly 100 years but the stock market is up like 35% from when Trump was elected. Our company laid off a few people here and there - if the economy turns around, they're not hiring any of them back immediately. They'll need to see sustained proof of a recovery and over utilization of the current workforce. Hiring new employees is extremely expensive. Companies have taken a huge hit, and they'll need to bolster back their reserve cash positions into a reasonable spot before many of them will return to hiring. That's at least my take on it, which is worth about as much as the paper this post was written on.

 

[Deleted member 2897]

Our federal debt just topped $24 Trillion. Took only 5 months after crossing $23 Trillion. Goldman Sachs is forecasting that number to break $26 Trillion by the end of the summer.

 

[CuseJacket]

Thanks @684Bee and @bwelbo for the thoughts. Ultimately I think it's the million dollar question. Or rather, the multi-trillion dollar question. If anyone knew the answer, they'd be able to retire in a year and endow GT athletics budget in perpetuity.

Spitballing now...

What strikes me as different about the current economy vs. other recession/depressions is that the root cause is a non-partisan, common enemy. That enemy is a virus. It is difficult for politicians to do anything other than work together. It wasn't wall street, it wasn't corrupt business/lack of oversight, and it was largely unpreventable.

I continue to hear public and private examples of companies intentionally taking losses right now and betting that the government will cut a check to cover it, which effectively turns into operating margin. That is frustrating, as we're all paying for it. At some point, those shenanigans will be exposed, leading to social/political pressure.

Really tough to make a projection on when we've passed the worst.

 

[LibertyTurns]

More Chinese fraud exposed. Fake stocks, fake cities, fake Wuhan virus data....... These people are not honest & we’ve got American leadership buying their BS lock, stock & barrel. Sad.

https://www.businessinsider.com/these-chinese-cities-are-ghost-towns-2017-4

https://www.forbes.com/sites/ywang/...tion-and-luckin-coffee-reveal-inflated-sales/

 

[Deleted member 2897]

As Metallica said, sad but true.
https://www.ft.com/content/52a46bcf...tner/feed_headline/us_yahoo/auddev&yptr=yahoo

 

[Deleted member 2897]

Goldman Sachs projected deficit for this year is $3.6 Trillion.
A government watchdog group is in at a projection of $3.8 Trillion.
https://finance.yahoo.com/news/u-budget-watchdog-group-projects-174547058.html

Sadly, as I detailed with a bunch of numbers on tax revenue and spending in the bills they've passed, this seems totally possible to me. Our new debt has already surpassed $1 Trillion in just the first 5 months of the fiscal year, and that's before any drop in tax revenue or spending in these bills. Honestly, it wouldn't shock me (although it would be sad) if we did hit $4 Trillion.

 

[Peacone36]

Anything you guys are keeping a specific eye on today when some big companies release their earnings reports? Delta is the one I added to my watch list today.

 

[LibertyTurns]

JPM gets crushed as earnings blow, says people will be defaulting on credit cards, etc & stock market soars on this fantastic news. We’re collectively bat guano crazy. The next outbreak’s going to be covidirrational exuberance and somebody’s going to get pounded. For the time being I recommend swing trade on the good or bad news and pick up $$ as you can. It’s not my MO, but it does work.

 

[Deleted member 2897]

JPM gets crushed as earnings blow, says people will be defaulting on credit cards, etc & stock market soars on this fantastic news. We’re collectively bat guano crazy. The next outbreak’s going to be covidirrational exuberance and somebody’s going to get pounded. For the time being I recommend swing trade on the good or bad news and pick up $$ as you can. It’s not my MO, but it does work.

I'm telling you, it smells of Fed support. I'm not touching it. The stock market could go up 30% and I'm still not touching it. People are forecasting close to $4 Trillion deficits, 30%+ unemployment, 30%+ drop in GDP, high levels of economic misery around the country. There are already mile long lines for soup kitchens. None of this comports with a stock market where it is. I'm not saying others should stay out - but for my personal level of risk tolerance and timeframe with money (I have 1 kid entering college next fall and 1 more a few years after that), I'm not touching this market right now with a 10 foot pole. Its completely nonsensical. I mean Disney company just laid off almost 50,000 people yesterday alone.

 

[Deleted member 2897]

JPM gets crushed as earnings blow, says people will be defaulting on credit cards, etc & stock market soars on this fantastic news. We’re collectively bat guano crazy. The next outbreak’s going to be covidirrational exuberance and somebody’s going to get pounded. For the time being I recommend swing trade on the good or bad news and pick up $$ as you can. It’s not my MO, but it does work.

I just read JPM Morgan's press release. Earnings went from $4.2 Billion to $0.2 Billion, a decrease of 95%. Only the last couple weeks of the quarter could have impacted their business. Reading through their various business units, they have taken huge write-downs. If I'm reading it correctly, they decided to build reserves for losses equal to half the entire commercial banking and credit card businesses. In other words, again if I'm reading this correctly, they're expecting to have payment defaults on half of that entire business portfolio.

 

[Deleted member 2897]

I just read JPM Morgan's press release. Earnings went from $4.2 Billion to $0.2 Billion, a decrease of 95%. Only the last couple weeks of the quarter could have impacted their business. Reading through their various business units, they have taken huge write-downs. If I'm reading it correctly, they decided to build reserves for losses equal to half the entire commercial banking and credit card businesses. In other words, again if I'm reading this correctly, they're expecting to have payment defaults on half of that entire business portfolio.

Wells Fargo's quarterly earnings were pretty much the same...down 90% from $5.9 Billion to $0.6 Billion. Like JPMC, they are planning on having to write off a ton of their loan business.

 

[Deleted member 2897]

Monthly retail sales (March) were abysmal (of course), but monthly manufacturing numbers came out, and it was a record low, twice as bad as the low point during the Great Recession. I suspect the Dow will be up 4% on the news.

 

[Deleted member 2897]

https://apnews.com/66b6a574386b82357167e1d5b72fffbe

Looks like I was reading their earnings report correctly. This is really a double whammy – because by building reserves, they actually have not lost money yet, it is only on paper. But by taking that accounting change, they are affectively reducing their net income to zero, meaning they’re not paying any income taxes right now, so the government gets hurt on that end too.

 

[Deleted member 2897]

New debt so far fiscal year to date (5 1/2 months in) is now up to $1.4 Trillion. Sad.

https://treasurydirect.gov/NP/debt/...tYear=2019&endMonth=04&endDay=15&endYear=2020

 

[BuzzStone]

New debt so far fiscal year to date (5 1/2 months in) is now up to $1.4 Trillion. Sad.

https://treasurydirect.gov/NP/debt/...tYear=2019&endMonth=04&endDay=15&endYear=2020

It appears that the Debt held by the public has been rapidly increasing since October and the Intergovernmental holdings were actually down when all this started.

 

[Deleted member 2897]

It appears that the Debt held by the public has been rapidly increasing since October and the Intergovernmental holdings were actually down when all this started.

Keep in mind that while we don't know the exact breakdown of public debt versus corporate debt and mortgage notes, the Federal Reserve now owns over $6 Trillion of those in total. My guess is at least $5 Trillion of that is public debt.

 

[MountainBuzzMan]

https://apnews.com/66b6a574386b82357167e1d5b72fffbe

Looks like I was reading their earnings report correctly. This is really a double whammy – because by building reserves, they actually have not lost money yet, it is only on paper. But by taking that accounting change, they are affectively reducing their net income to zero, meaning they’re not paying any income taxes right now, so the government gets hurt on that end too.

I almost want to take this to a different thread. What are the qualifications to build reserves and not have to pay income tax on it at the corporate level?

 

[Deleted member 2897]

I almost want to take this to a different thread. What are the qualifications to build reserves and not have to pay income tax on it at the corporate level?

Caveat that although I have an MBA and a PhD in Economics from Facebook University, I am not steeped in account principles. Building reserves is akin to depreciating an asset. Its not, but I'm using that illustration insofar as its an accounting move to take costs against income to reduce your tax burden. I don't believe there are any restrictions on how you do this, but I am not an expert in that regard. The reason I think this is because at some point these loans will come due. If they are not paid, then you've already accrued against that loss, and you will not need to show a new loss in that period. If more loans are actually paid on time, then at some point you'll need to reverse those reserves and it will all hit your bottom line as income on top of the income from payment of the loans.

 

[bobongo]

Oil is trading right now at $20.00 a barrel. This even though the Russians and the Saudis agreed to cut production by 10%. I'll bet the barrel is worth more than two sawbucks. It could go lower, but down the road buying now could turn out to be quite a steal. Just sayin', in case anyone wants a piece of that...

 

[MountainBuzzMan]

Caveat that although I have an MBA and a PhD in Economics from Facebook University, I am not steeped in account principles. Building reserves is akin to depreciating an asset. Its not, but I'm using that illustration insofar as its an accounting move to take costs against income to reduce your tax burden. I don't believe there are any restrictions on how you do this, but I am not an expert in that regard. The reason I think this is because at some point these loans will come due. If they are not paid, then you've already accrued against that loss, and you will not need to show a new loss in that period. If more loans are actually paid on time, then at some point you'll need to reverse those reserves and it will all hit your bottom line as income on top of the income from payment of the loans.

Learn something new every day. We will have used up all of our previous years losses in 2019. My company is very profitable, but hardware is a bit hard to raise money on so I have to be my own VC. I am trying to build up extra reserves and then use it to go through a scaling and expansion phase to roll out my SaaS offering. I would rather invest the money back into my company than pay a lot of taxes now. I don't mind paying taxes, just this next transition phase is going to be tricky and I will need every dime to make it through cleanly.