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Question about the economy, stock market, and near future
Old 12-08-2018, 11:41 AM   #1
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Question about the economy, stock market, and near future

I'm trying to understand all the brou-ha-ha in the forum created by the actions of the stock market. I have not seen such a large disconnect ever before.

There is some talk about recession because of a potential inverted yield curve, but I thought a recession was when all your neighbors lose their jobs. Unemployment is still near the 40-year low isn't it? And companies cannot seem to find enough qualified employees to hire either. GDP growth recently reported was 3.5% (see [URL="https://tradingeconomics.com/united-states/gdp-growth"[/URL]).

There would have to be unprecedented mass layoffs in a short-period of time and a complete cratering of the economy to change any of the statistics in a meaningful way.

Yes, the stock market is not doing much right now at the end of 2018, but so what? We all know that the stock market has a negative year or two every 3 or 4 years. It never goes up all the time. Companies seem to be making money for the most part, but old economy companies like GE and the auto companies might be having problems, but they don't employ as many people as they used to anyways.

Sure, overseas seems to be a mess, but so what?

That's the question: So what?
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Old 12-08-2018, 11:46 AM   #2
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Stock market swings = snoozefest. I'll take a peek or two once 2018 financial statements are released.
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Old 12-08-2018, 11:55 AM   #3
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I think what is causing jitters is two things:


- The speed with which the downdrafts have happened this year


- The fact that there really wasn't an asset class that performed well this year


The actual economy? Hard to say what the future will bring (like always), but we have had the sugar high of the tax cuts heavily offset by the impact of tariffs, short term interest rates rising, and the gradual unwind of QE. All of those cross currents make it harder than usual to figure out what will happen. Looks to me like the median forecast is a moderation of growth next year and into 2020, possibly leading to a mild recession but not the most likely outcome. I suspect that will prove to be accurate.
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Old 12-08-2018, 11:56 AM   #4
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People are nervous.
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Old 12-08-2018, 12:05 PM   #5
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I will add that I have yet to see evidence of one of the telltale signs that we are about to tip into recession: a commodity price overshoot. If you look at, say, oil process leading up to the last few recessions there has generally been a moonshot within 6 months of when the equity market plunges. I suspect that the price leap is the last straw that causes short term rates to be spiked enough to cause the next recession, but regardless of the cause the pattern is recognizable. Maybe with the US now producing record amounts of oil this is not a reliable indicator before. OK, but the overshoot has not been limited to oil in the past. Other commodity markets seem to show no sign of overheating either. Even random stuff like the caustic soda market has yet to show the historical trend.


This has been a weird, prolonged economic cycle, so tough to read the tea leaves.
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Old 12-08-2018, 12:09 PM   #6
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Originally Posted by ShokWaveRider View Post
People are nervous.
Yes, there seems to also be a sense of malaise and lack of trust.
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Old 12-08-2018, 12:15 PM   #7
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Stock market goes down BEFORE the recessions. If you are in the recessions, the stock market is usually at the bottom.
That is why everyone tries to figure out the recessions and act BEFORE the recessions come.
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Old 12-08-2018, 02:01 PM   #8
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The economy and the stock market are not Zach & Cody or The Olsen Twins. They're more Chip & Ernie or Jethro ad Ellie Mae.

Secondly, they say (and keep saying over and over again...) that the stock market is a forecasting mechanism. It looks ahead. So, if your neighbors aren't unemployed yet, keep watching. That's if you believe that -stock market as economic predictor- thing.
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Old 12-08-2018, 02:35 PM   #9
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Originally Posted by flyingaway View Post
... That is why everyone tries to figure out the recessions and act BEFORE the recessions come.
But ... of course no one actually knows how to do this.

Sometimes people make lucky guesses and from that conclude that they are geniuses, however. This is especially visible among the pontificating classes, where whenever news media find one who has guessed correctly they crown him/her as genius monkey (https://en.wikipedia.org/wiki/Infinite_monkey_theorem) until their subsequent predictions prove that the genius designation was premature.
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Old 12-08-2018, 02:47 PM   #10
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Back at the end of February I made the following post:

Quote:
Originally Posted by Freedom56 View Post
My take on interest rates:

Short term rates will rise and the yield curve will continue to flatten and eventually invert signalling a recession. It's not a matter of if, but when. There is far too much debt out there for long term rates to move up meaningfully. Banks margins are being squeezed by a flattening yield curve and large defaults in commercial loans. The regional banks are will be impacted the most. It's a matter of time before banks start selling off. There are far too many stores, malls, and chain restaurants in this country. The retail sector is going to go through more pain than anticipated and as the year progresses will become more apparent. Remember, the market is driven by fund flows (supply and demand) in the near term and can behave very irrationally near market tops. This was the case in late 1999 and also 2007. Many sectors are already in a deep bear market - retail, REITS, energy, and some industrial stocks. If you hold individual bonds and notes to maturity, you can ride out this interest rate cycle. If you own bond funds, you are exposed to market risk and will suffer capital losses.

I sold all my perpetual preferred stocks and long duration notes off in December since they were trading at a high premium and the capital gain covers the next two years of dividend income from those securities for the next two years. I hold a lot of cash now and corporate notes with maturities from 2019 though 2028. I plan to hold those through maturity and they will provide my income stream. High investment grade notes (A and up) and bonds are grossly overpriced and have started to correct.

Any short term interest spike will cause a sell-off of bond and preferred stock funds into a fairly illiquid bond market which will cause some significant price swings in individual note and bond issues. That is the best time to buy notes, bonds and preferred stocks - when the passive funds are liquidating.
Rates have started their inversion. Regional bank stocks are nearing bear market territory. Rates have not moved up meaningfully an the retail sector is a mess. They really won't move up too much more. Markets discount the future. Equities were trading at unsustainable multiples as was low yields on high investment grade bonds. The growth just isn't there. Consumers have continued to spend money they the don't have on the believe that they were getting big tax cuts. Credit fueled the rally in the markets and the collapse of the consumer credit bubble and a disastrous tariff plan is worrying investors. Listen to the CEOs and company guidance not the cheerleaders in government. Watch the retail sector carefully. The massive number of store closures will have a ripple throughout the economy. If you own CDs, Treasury Notes/Bonds, or individual corporate bonds, you can ride this out as your income from investments won't be impacted and your securities will mature at par. Equities will continue to correct. As some point, you need to judge a company on future earnings and cash flow not how many "likes" and page views they get.
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Old 12-08-2018, 02:48 PM   #11
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! Trillion Dollars Gone. Where did it go?

U.S. Stocks Lost $1 Trillion In Less Than A Week | Time

Seriously... Where did it go?
... and did you get any of it?
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Old 12-08-2018, 03:23 PM   #12
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The massive number of store closures will have a ripple throughout the economy.
OK, I can agree with that, but I see no hint of a massive number of store closures. In other words, that just appears to be a made up statement by you.
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Old 12-08-2018, 03:41 PM   #13
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I got what I consider to be my "fair share" so no complaints here! I do not live in the USA so not worried about a recession (unless it impacts friends and loved one's)! I have no idea when the next Bear Market will come (although I am positioned for one.) I also know that we can have it before the recession comes. What I do know is the out performance of US equities as opposed to the Intl markets won't last!
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Old 12-08-2018, 03:41 PM   #14
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I think Freedom56 is our resident bear
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Old 12-08-2018, 03:41 PM   #15
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Quote:
Originally Posted by LOL! View Post
I'm trying to understand all the brou-ha-ha in the forum created by the actions of the stock market. I have not seen such a large disconnect ever before.

There is some talk about recession because of a potential inverted yield curve, but I thought a recession was when all your neighbors lose their jobs. Unemployment is still near the 40-year low isn't it? And companies cannot seem to find enough qualified employees to hire either. GDP growth recently reported was 3.5% (see [URL="https://tradingeconomics.com/united-states/gdp-growth"[/URL]).

There would have to be unprecedented mass layoffs in a short-period of time and a complete cratering of the economy to change any of the statistics in a meaningful way.

Yes, the stock market is not doing much right now at the end of 2018, but so what? We all know that the stock market has a negative year or two every 3 or 4 years. It never goes up all the time. Companies seem to be making money for the most part, but old economy companies like GE and the auto companies might be having problems, but they don't employ as many people as they used to anyways.

Sure, overseas seems to be a mess, but so what?

That's the question: So what?
The 2000-2003 recession occurred with super low unemployment at the beginning.

But the stock market and economy can be disconnected and often are.
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Old 12-08-2018, 03:50 PM   #16
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OK, I can agree with that, but I see no hint of a massive number of store closures. In other words, that just appears to be a made up statement by you.
Given how mall REITs are trading now, the market disagrees with you. Sears/K Mart will be gone, JC Penny will be gone, Bed Bath and Beyond is starting to close down stores, Macy's is on life support, many clothing retailers (GAP, Victoria's secret, Under Armor, have started to close stores). You need to get out more to see what's going on. There are far too many malls and far too many retail stores in this country. Here is a partial list from earlier in the year:

https://www.usatoday.com/story/money...far/557275002/

This situation is much more dire now. Wait until January/February 2019 for more closure announcements.
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Old 12-08-2018, 03:54 PM   #17
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I think Freedom56 is our resident bear
Not really... I am just protecting an 8 figure portfolio. I'd rather stay conservative and preserve capital.
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Old 12-08-2018, 03:59 PM   #18
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Originally Posted by Freedom56 View Post
... As some point, you need to judge a company on future earnings and cash flow ...
Wow. I wonder why no one has ever thought of that before.

Oh, wait. There was this guy named Ben Graham and there is this thing called the efficient market hypothesis ...

@Freedom56, you seem quite certain that you know more than all those people that comprise the market. Do you have 5- or 10-year compiliation of your forecasts that compares them to how things turned out?
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Old 12-08-2018, 04:09 PM   #19
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.... Sears/K Mart will be gone, JC Penny will be gone, Bed Bath and Beyond is starting to close down stores, ....
Sears and JC Penny are an old story. Retail is not going away. It is simply moving to Amazon and other mail order places.

I am happy to wait until 2019 for more closure announcements, but I also know they are offset by higher sales at all the online places, too. I mail order from the local stores including Bed, Bath, Beyond and have no reason to go inside even though the stores are less than 5 miles away. And thanks for the link about closings. I had never heard of most of the chains mentioned and for most of the others I can understand why they are closing. I often wondered why they even existed in the first place. Anyways, change "massive" to "some" and your statement has a ring of truth to it.

I spent the last 5 weeks in rural counties with populations of 10,000 or less each. There were no malls. In a town, there was maybe a Family Dollar or Dollar General store and grocery store. The people living in these counties have been living just fine for decades without a lot of brick & mortar retail stores.
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Old 12-08-2018, 04:22 PM   #20
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I agree that the issues of retail now are not like 2008/09. The current issue is older big box stores not doing well, because that business is moving to Amazon etc. Sure, there will be some ripple impacts, because those stores employ staff so jobs leave with them, but it's not because consumers aren't spending retail dollars.

Axios shared this pic today - the CEO of walmart keeps this on his phone as a constant reminder that retailers come and go. A lot of those listed in this thread have slipped in recent years, but others have taken their place.
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