Is a depression priced in?

[Spock]

Quote:

Originally Posted by Freedom56 The Fed's statements have stabilized the markets that were in a free fall. Bond yields spreads in mid March were at extremes. The statement that they made stabilized the bond market but in reality Fed has not purchased a single corporate bond investment grade or high yield through ETFs as they stated they intended to do. Many traders who were short investment grade and high yield ETFs covered, which let to the rally in bonds and then in turn stocks. This was temporary. Bankruptcies will continue to happen at an accelerated pace hitting the oil and gas sector, retail, and commercial real estate. 72% of GDP in this country is consumer driver and you have to ask yourself, what kind of recovery will you get with high unemployment and social distancing at retail and entertainment venues? Companies with good free cash flow and a stable market for their goods or services will survive. Those that burn cash and have high debt, will eventually file for bankruptcy. Markets don't drop in a straight line. Look back to 2000 and 2008. This time however, the market is being propped up by 5 stocks whose combined market cap is higher than the bottom 350 stocks in the S&P 500. This is another major bubble that is forming. Once they break down, the market indices will also.

"The SMCCF is expected to begin purchasing eligible ETFs in early May. The PMCCF is expected to become operational and the SMCCF is expected to begin purchasing eligible corporate bonds soon thereafter."


https://www.newyorkfed.org/markets/p...t-facility-faq

[Shredder]

Quote:

Originally Posted by Spock "The SMCCF is expected to begin purchasing eligible ETFs in early May. The PMCCF is expected to become operational and the SMCCF is expected to begin purchasing eligible corporate bonds soon thereafter." https://www.newyorkfed.org/markets/p...t-facility-faq

This too is scary in an election year. One hopes its not politics picking winners and losers.

[travelover]

Quote:

Originally Posted by Shredder This too is scary in an election year. One hopes its not politics picking winners and losers.

Surely you jest.

[kgtest]

Quote:

Originally Posted by Freedom56 72% of GDP in this country is consumer driver and you have to ask yourself, what kind of recovery will you get with high unemployment and social distancing at retail and entertainment venues?

I apologized to my UPS driver, retailers been splitting up orders into multiple single items shipments...driver said...NO NO, this is GREAT, I get to make more than one stop.

I have a 130 month runway so I am buying the whole market weekly. It's the only thing I know at this stage.

[Chuckanut]

I'm not sure the severity of this virus event is priced in yet. But, time will tell.

I did book a few losses today, and I will keep the cash available for future expenses just in case things go down the drain.

[targatom2019]

Quote:

Originally Posted by Chuckanut I'm not sure the severity of this virus event is priced in yet. But, time will tell. I did book a few losses today, and I will keep the cash available for future expenses just in case things go down the drain.

so what if it the markets keep going up, will you go back in later in an up market ?

[pb4uski]

Quote:

Originally Posted by Chuckanut I'm not sure the severity of this virus event is priced in yet. But, time will tell. I did book a few losses today, and I will keep the cash available for future expenses just in case things go down the drain.

Quote:

Originally Posted by vipertom1970 so what if it the markets keep going up, will you go back in later in an up market ?

Reading comprehension is hard.

[targatom2019]

Quote:

Originally Posted by pb4uski Reading comprehension is hard.

It's when English is not my first language. I only learned enough English to understand the market, make money in the market, not sell low then buy back high and retired at 50.

[trixs]

Quote:

Originally Posted by kevink Of course the MPT crowd will probably say that small caps, value and international will rally any day now after two decades of underperformance but I think the above article makes it clear that companies with gigantic cash reserves who can do all of their business online are going to continue to dominate while entire industries that require brick-and-mortar presence disappear forever or change in ways we're only beginning to get a sense of. Good time to batten down the hatches.

Huh?

Small Cap has beat large cap by a large margin over the last 20 years. https://www.portfoliovisualizer.com/...ocation2_2=100

Small Cap Value has completely trounced large caps over the last two decades. https://www.portfoliovisualizer.com/...ocation2_2=100

Large cap value has beat large cap over the last two decades. https://www.portfoliovisualizer.com/...ocation2_2=100


Yes, the US has outperformed international equities over the last few years. Unless you consider international value or international small caps. https://www.portfoliovisualizer.com/...ocation2_2=100

[pb4uski]

Quote:

Originally Posted by vipertom1970 It's when English is not my first language. I only learned enough English to understand the market, make money in the market, not sell low then buy back high and retired at 50.

Then it looks like you have done well but still have more to learn.

[kevink]

Quote:

Originally Posted by trixs Huh? Small Cap has beat large cap by a large margin over the last 20 years. https://www.portfoliovisualizer.com/...ocation2_2=100 Small Cap Value has completely trounced large caps over the last two decades. https://www.portfoliovisualizer.com/...ocation2_2=100 Large cap value has beat large cap over the last two decades. https://www.portfoliovisualizer.com/...ocation2_2=100 Yes, the US has outperformed international equities over the last few years. Unless you consider international value or international small caps. https://www.portfoliovisualizer.com/...ocation2_2=100

The New York Times article specifically refers to results from the 2008 financial crisis onwards that don't include the brief 2000-2002Dot.com boom and bust:

"The years since the 2008 financial crisis have been marked by an increase in the consolidation of some industries, such as banking and airlines.
And as bigger companies have steadily grown, they’ve also snagged a larger share of profits. In 1975, the biggest 100 public companies in the country took in about 49 percent of the earnings of all public companies. Their piece of the pie grew to 84 percent by 2015, according to research from Kathleen M. Kahle, a finance professor at the University of Arizona, and René M. Stulz, an economist at Ohio State University.
The current surge of megacap stocks suggests that many investors expect those companies’ slices to expand even more after the current economic implosion, in which smaller companies are widely expected to be the hardest hit. Small-cap companies — such as those included in the Russell 2000 — carry more debt, making them vulnerable to having financing cut off by bond markets. They’re less globally diversified, making them heavily dependent on the performance of the economy in the United States, the current epicenter of the crisis."

https://www.portfoliovisualizer.com/...ocation2_2=100

But rather than cherry-pick data points why not look at the thrust of the article, which is that the dominance of mega-corporations with huge cash reserves and the ability to conduct most or all of their business online, which spurred massive growth in their size and influence in the years immediately following the 2008-09 crash, has been launched into warp drive by the unfolding of this pandemic.

But if you insist on using 2000-2020 numbers, try on these:

https://www.portfoliovisualizer.com/...ocation2_2=100

[Lsbcal]

My guess is that the market will go down but the path down may be torturous. Consumer spending is in the dumpster.

CAVEAT: I am mad as hell. Stocks are going up without me.

[2177V]

One reason that the market is up is because of the fed is flooding the market with liquidity to avoid a credit crunch similar to 2008. The fed is also buying corporate bonds which is like lending money to corporations. The government is also providing bailouts to citizens, small businesses, etc, etc
This also mean the government is printing money. When the government stops printing money, the market will decline. I would not bet that the government will print money forever. If data indicates inflation is beginning to rise, the government will either stop printing money and allow the market to decline or accept inflation.
The current goal of the government is to avoid hardships to people who lost their jobs and saving companies from bankruptcies which also save jobs. Remember what happen to GM in 2008, the government saved GM which saved jobs but GM stock became worthless. This is why Warren Buffet dumped the airlines to avoid something similar. The government will not save or bailout investors.
I do not have very large position in equities but if I did, I would check if I own companies that may potentially declare bankruptcy or needs a bailout under this current economic situation. Warren Buffet already went through this process so other investors should do something similar.

[Dtail]

Quote:

Originally Posted by vchan2177 One reason that the market is up is because of the fed is flooding the market with liquidity to avoid a credit crunch similar to 2008. The fed is also buying corporate bonds which is like lending money to corporations. The government is also providing bailouts to citizens, small businesses, etc, etc This also mean the government is printing money. When the government stops printing money, the market will decline. I would not bet that the government will print money forever. If data indicates inflation is beginning to rise, the government will either stop printing money and allow the market to decline or accept inflation. The current goal of the government is to avoid hardships to people who lost their jobs and saving companies from bankruptcies which also save jobs. Remember what happen to GM in 2008, the government saved GM which saved jobs but GM stock became worthless. This is why Warren Buffet dumped the airlines to avoid something similar. The government will not save or bailout investors. I do not have very large position in equities but if I did, I would check if I own companies that may potentially declare bankruptcy or needs a bailout under this current economic situation. Warren Buffet already went through this process so other investors should do something similar.

Bolded by me - but isn't that what the government is effectively doing with the huge emphasis being placed on how the stock market is performing?

Additionally, when the Fed flooded the markets in 2008, it did not lead to inflation, although the flooding was much less.
From economics theory, the printing of monies should lead to inflation, but not sure if it will.
I still believe there will be 2 opportunities for the markets to fall; either around July or November if there is a change in Administrations.
Otherwise, even without a V recovery, there might not be another leg down.
Just my crystal ball.....

[Starsky]

Quote:

Originally Posted by kgtest I apologized to my UPS driver, retailers been splitting up orders into multiple single items shipments...driver said...NO NO, this is GREAT, I get to make more than one stop.

So UPS drivers are monitored and measured far more than any other employees in the company. One of the metrics they measure is the number of stops a driver makes on the road per hour.

These shipments are from the same vendor, but occurred at different times, so they are different shipments. Therefore, he gets credit for delivering to two stops at the same address by scanning the two different tracking numbers. It just means he doesn't have to be as rushed to make his daily numbers for management.

[Rowej]

Quote:

Originally Posted by Aerides Well yeah I think we all know the market is forward looking, but you have more optimism than I do that we have hit absolute anything. I don't think airlines, hotels, stadiums, conventions, casinos - and all their advertising - are going back to normal in 2020, or even 21.

I am with Aerides, on this one. I don’t believe many of the furloughed employees will be hired back by major corporations. I believe many were furloughed so they could get the help provided by the CARES ACT. I think over time, when business does not return to Pre COVID Levels, employees will not be asked to return, as companies cut all expenses to increase their earnings to make up for all the losses during the shutdown. Most all expenses continued for the companies including health care expenses for most furloughed workers even though sales and profits were drastically reduced. Public Companies will try to dress up their earnings by not bringing back employees, and cutting inventories and expenses.

So I sleep at night with 78% cash, 7% long positions and 15% invested in short mutual fund positions. I can offset sme losses in my short positions as the market creeps up by the Fed Printing Money, sell those positions, at some point and keep the short for when the market drops again, as I expect it will based on my comments above.

[2177V]

Quote:

Originally Posted by Dtail Bolded by me - but isn't that what the government is effectively doing with the huge emphasis being placed on how the stock market is performing? Additionally, when the Fed flooded the markets in 2008, it did not lead to inflation, although the flooding was much less. From economics theory, the printing of monies should lead to inflation, but not sure if it will. I still believe there will be 2 opportunities for the markets to fall; either around July or November if there is a change in Administrations. Otherwise, even without a V recovery, there might not be another leg down. Just my crystal ball.....

I agree with your November crystal ball. The FED is independent of the WH. However, The WH has a lot of influence over the Department of Treasury headed by Steven Mnuchin. I understand the connection because I was former federal employee for 34 years.

As far as inflation we should be aware that the debt to GDP ratio is important in predicting inflation and here are the countries with the highest ratio that I extracted from https://worldpopulationreview.com/co...ational-debt/:

Japan237.54%
Venezuela214.45%
Sudan177.87%
Greece174.15%
Lebanon157.81%
Italy133.43%
Eritrea127.34%
Cape Verde125.29%
Mozambique124.46%
Portugal119.46%
Barbados117.27%
Singapore109.37%
United States106.70%

In 2008, USA debt increased from $9T to $12T but the GDP was $14.7T so the debt to GDP ratio was still under 100% even after the increase.

However, the USA debt is now about $22T with a GDP of $20.5T so we are over the 100% to begin with. Currently the USA GDP is now going down while the national debt is going up.

My point: The danger of inflation in 2020 is significantly higher than 2008 based on these numbers. The government will probably not let inflation get out of hand but there is a limit of how much increased debt our nation can tolerate. I suspect the government will push the envelope and increase the debt as much as possible because of the virus. Inflation will not happen during the bear market since low demand causes low prices because consumers are buying less. However, when consumers do start to buy more, prices may start to increase. When that starts to happen, they may have to increase taxes, decrease liquidity and raise interest rates.

[Spock]

Quote:

Originally Posted by Dtail Bolded by me - but isn't that what the government is effectively doing with the huge emphasis being placed on how the stock market is performing? Additionally, when the Fed flooded the markets in 2008, it did not lead to inflation, although the flooding was much less. From economics theory, the printing of monies should lead to inflation, but not sure if it will. I still believe there will be 2 opportunities for the markets to fall; either around July or November if there is a change in Administrations. Otherwise, even without a V recovery, there might not be another leg down. Just my crystal ball.....

The 2008 money flood did cause inflation in the areas the money reached. Back then the $ never reached Joe Sixpack... it stayed in financial markets which inflated asset prices.

[Theo]

Short term there is inflation risk due to supply shocks related to shutting down the economy. Long term there is very little risk of inflation due to demand even with the deficit spending because, unless a permanent Ubi is introduced giving spending money to poor people, the money is not going to people with a high propensity to spend.

[ElizabethT]

Quote:

Originally Posted by Aerides You're not alone in your head-scratching on this topic. And while I believe the mantra "the market is not the economy" I also know that the market strongly dislikes uncertainty. If the market knows, it bakes it in, good or bad. I see no reason for the strong, substantiated confidence that current prices would imply. So I've taken some of my recent recovery-gains off the table, against my normal judgment, and I have no regrets.

Same here. Not a hugh amount, just 10%, but it simply felt like an appropriate action for us to take. We're still in the market at a level of 40%, and we're comfortable with that exposure at this point in our lives (ages 57/64) even with so much unsettled pertaining to pandemic fallout.