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Tech Bellwethers..Recession is NOW
Old 07-26-2022, 04:14 PM   #1
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Tech Bellwethers..Recession is NOW

For those who think we are "not in a recession" because NBER hasn't "officially" declared one...

1/13 Is Big Tech signaling a pending collapse in the office market, as well as the job market? Let's explore; firstly, $AMZN recently announced it's halting construction on 5 office towers in Bellevue WA, w/ a 6th that was planned for construction canceled. $AMZN also put...

Great thread at..

https://twitter.com/GordonJohnson19/...59500428640257

Incidentally, the jobs market is a lagging indicator and not typically looked at to determine if we are in a recession. (That aside, job openings to call back those jobs lost due to COVID shutdowns are not "job gains" anyway). Two consecutive quarters of negative GDP - which we are almost certain to have once the "official" numbers are released Thursday, has been called a Recession from time immoral. Attempts to change the definition are unfortunate and will mislead / bamboozle many, and will likely cost a lot of people a lot of money.

Regardless, I heard a really good take earlier today.."a recession is a contraction in economic activity". Few of us could think we don't have a strong contraction in economic activity at present. Every indicator out there is SCREAMING recession based on traditional, "non-spun" definitions.

Invest accordingly.

ETA - as I write this..Alphabet - missed revenues and earnings. MSFT - missed revenues and earnings. Even Walmart - missed earnings. The economy is contracting, regardless of any happy talk to the contrary by those motivated to spin things otherwise.

I unfortunately didn't sell "everything" at SPX 4,600+. If we get back to 4,500 anytime soon, I plan to. Because the odds are high, IMHO, that we'll see SPX with the first digit being a "2" this year at some point. And with forecast equity returns of ~2% for the next 10+ years..Cash at ~4+% guaranteed is looking to be the superior investment for a long while.
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Old 07-26-2022, 04:30 PM   #2
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What actions should be taken based on this information?
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Old 07-26-2022, 04:34 PM   #3
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What actions should be taken based on this information?
If you're in ER..Sell everything on the next major rally. Buy back at SPX in the low 3s, or sub 3K.

If you're south of 45 or so..buy and hold and ride it out.

Risk management is important in ER. Many of us may not have 10+ years to recover from a major market meltdown with a "buy and hold" strategy - and all signs are pointing to a major market meltdown later this year.

I hope to be wrong. But suspect I will not be. If I am, I'll be the first to admit it, because none of us can forecast what WILL happen. At best, we can forecast what is LIKELY to happen. And many (often unexpected) things will happen along the way to change what may otherwise be a fairly predictable trajectory.
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Old 07-27-2022, 08:53 AM   #4
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If you're in ER..Sell everything on the next major rally. Buy back at SPX in the low 3s, or sub 3K.

If you're south of 45 or so..buy and hold and ride it out.

Risk management is important in ER. Many of us may not have 10+ years to recover from a major market meltdown with a "buy and hold" strategy - and all signs are pointing to a major market meltdown later this year.

I hope to be wrong. But suspect I will not be. If I am, I'll be the first to admit it, because none of us can forecast what WILL happen. At best, we can forecast what is LIKELY to happen. And many (often unexpected) things will happen along the way to change what may otherwise be a fairly predictable trajectory.
This will seem like questionable advice to many folks. Sell everything after stocks have fallen sharply. Really?

Also, the question of whether we are in recession is academic. Clearly the economy is contracting and whether it is growing 1% or declining 2% matters little. Earnings are going to decline (and are) and those reduced future earnings being discounted using higher interest rates means stock values fall, as we are seeing.

But they will subsequently rise again. Every bear market sets the stage for the next bull.
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Old 07-27-2022, 09:02 AM   #5
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The last time I “sold everything” was March of 2020. The market did nothing but recover from that point.

Since then - during 2020, I reassessed my risk tolerance and asset allocation and got back in the market with a lower risk profile. That helped me get some of the growth that occurred since 2020. I have some cash and am looking for opportunities but as for selling everything? I won’t be doing that again.
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Old 07-27-2022, 09:17 AM   #6
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This will seem like questionable advice to many folks. Sell everything after stocks have fallen sharply. Really?

Also, the question of whether we are in recession is academic. Clearly the economy is contracting and whether it is growing 1% or declining 2% matters little. Earnings are going to decline (and are) and those reduced future earnings being discounted using higher interest rates means stock values fall, as we are seeing.

But they will subsequently rise again. Every bear market sets the stage for the next bull.
You must have missed I suggested to sell on the next major rally (hopefully to low-mid 4s). And I probably overstated by saying to sell "everything". But if your choices are:

a) hold 100% of your current equity allocation through thick and thin. Ride down to low-mid 3s (or lower) on SPX as we go through what's shaping up to be a pretty severe economic downturn - aka recession. Likely wait 5-10 years to recover to SPX 4,500 or higher..

b) objectively assess the economic indicators (ignoring all the happy talk with suspect motivations) and assess and what they likely mean for markets the next several years. Exercise prudent risk management. Sell selectively ON RALLIES, locking in profits you'll likely still have since 1/1/21. Buy those shares back in at SPX mid-low 3s or lower.

It may not be 100% "guaranteed" that we're going to drop to low-mid 3s, but on the other hand, the likelihood that we will is looking to be pretty strong, and there are a lot of pretty solid folks like Mike Wilson @ Morgan Stanley thinking along these same lines. (FWIW, Wilson sees 3,400 IF we get a "soft landing" which we are not likely to. He sees 3,000 if we enter recession which is all but certain at this point).

And again, if you're south of 45 or so..just ride the bronco. However, if you're in ER and in your late 50s, 60s or later..risk management is highly prudent given potentially shortened timeframes for eventual recovery.

ETA - putting my money where my mouth is..I sold a good chunk back at the last rally (which I believe was in March). Darn glad I did, and wish I had sold more, as we're a lot lower now than we were then.

JMHO..
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Old 07-27-2022, 09:29 AM   #7
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I just bought Google for the 1st time ever, at the market open today.

Never owned it before, and decided that the trailing and forward P/Es are low enough to dip a foot.

Not touching other big-name tech stocks yet, because their P/Es are still not attractive, such as MSFT, AAPL, AMZN, NVDA, and certainly not TSLA. I have never owned these stocks. GOOG is my first.

And yesterday, Texas Instruments (TXN) reported better than expected top and bottom numbers, which increased over last quarter's numbers. No slow down! Expected higher numbers next quarter too.

As a result all semi stocks are going up today. Not selling covered calls on them yet. Heh heh heh...
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Old 07-27-2022, 09:49 AM   #8
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Originally Posted by 24601NoMore View Post
You must have missed I suggested to sell on the next major rally (hopefully to low-mid 4s). And I probably overstated by saying to sell "everything". But if your choices are:

a) hold 100% of your current equity allocation through thick and thin. Ride down to low-mid 3s (or lower) on SPX as we go through what's shaping up to be a pretty severe economic downturn - aka recession. Likely wait 5-10 years to recover to SPX 4,500 or higher..

b) objectively assess the economic indicators (ignoring all the happy talk with suspect motivations) and assess and what they likely mean for markets the next several years. Exercise prudent risk management. Sell selectively ON RALLIES, locking in profits you'll likely still have since 1/1/21. Buy those shares back in at SPX mid-low 3s or lower.

It may not be 100% "guaranteed" that we're going to drop to low-mid 3s, but on the other hand, the likelihood that we will is looking to be pretty strong, and there are a lot of pretty solid folks like Mike Wilson @ Morgan Stanley thinking along these same lines. (FWIW, Wilson sees 3,400 IF we get a "soft landing" which we are not likely to. He sees 3,000 if we enter recession which is all but certain at this point).

And again, if you're south of 45 or so..just ride the bronco. However, if you're in ER and in your late 50s, 60s or later..risk management is highly prudent given potentially shortened timeframes for eventual recovery.

ETA - putting my money where my mouth is..I sold a good chunk back at the last rally (which I believe was in March). Darn glad I did, and wish I had sold more, as we're a lot lower now than we were then.

JMHO..
These mostly seem like false choices. Of course I saw "sell on the rally" but my issue was with sell everything or even the idea you should be doing much selling in a down market.

In my opinion the most important three words in investing are Stay Fully Invested.
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Old 07-27-2022, 09:51 AM   #9
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Originally Posted by 24601NoMore View Post
...

ETA - putting my money where my mouth is..I sold a good chunk back at the last rally (which I believe was in March). Darn glad I did, and wish I had sold more, as we're a lot lower now than we were then.

JMHO..
When did you sell, and at what price? Please post the details.

And post when you get back in. As the old saying goes, with market timing, you have to be (partially) right twice.

-ERD50
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Old 07-27-2022, 09:57 AM   #10
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I still count 2 quarters of contraction as a recession and pretty sure we'll see it called this week. So im in agreement with you there. Your advice though sounds like a recipe to buy high, sell low.
Keeping 10+ years of FI in case the market really tanks. I'll just continue to tinker around the edges and rebalance when the mood strikes.
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Old 07-27-2022, 10:08 AM   #11
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In any case, MSFT and GOOG missed both top and bottom lines, and the market thus far is euphoric. Are we back in the good old times?
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Old 07-27-2022, 10:17 AM   #12
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Originally Posted by 24601NoMore View Post
You must have missed I suggested to sell on the next major rally (hopefully to low-mid 4s). And I probably overstated by saying to sell "everything". But if your choices are:

a) hold 100% of your current equity allocation through thick and thin. Ride down to low-mid 3s (or lower) on SPX as we go through what's shaping up to be a pretty severe economic downturn - aka recession. Likely wait 5-10 years to recover to SPX 4,500 or higher..

b) objectively assess the economic indicators (ignoring all the happy talk with suspect motivations) and assess and what they likely mean for markets the next several years. Exercise prudent risk management. Sell selectively ON RALLIES, locking in profits you'll likely still have since 1/1/21. Buy those shares back in at SPX mid-low 3s or lower.

It may not be 100% "guaranteed" that we're going to drop to low-mid 3s, but on the other hand, the likelihood that we will is looking to be pretty strong, and there are a lot of pretty solid folks like Mike Wilson @ Morgan Stanley thinking along these same lines. (FWIW, Wilson sees 3,400 IF we get a "soft landing" which we are not likely to. He sees 3,000 if we enter recession which is all but certain at this point).

And again, if you're south of 45 or so..just ride the bronco. However, if you're in ER and in your late 50s, 60s or later..risk management is highly prudent given potentially shortened timeframes for eventual recovery.

ETA - putting my money where my mouth is..I sold a good chunk back at the last rally (which I believe was in March). Darn glad I did, and wish I had sold more, as we're a lot lower now than we were then.

JMHO..
Or just leave everything as is, and enjoy the asset allocation that will guide you for the rest of life.
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Old 07-27-2022, 10:29 AM   #13
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Originally Posted by 24601NoMore View Post





If we get back to 4,500 anytime soon, I plan to. Because the odds are high, IMHO, that we'll see SPX with the first digit being a "2" this year at some point. And with forecast equity returns of ~2% for the next 10+ years..Cash at ~4+% guaranteed is looking to be the superior investment for a long while.
This sounds like a lousy plan for sure. You know that we're going down to SPX in the 2K's yet want to sell only in the unlikely event we have a market rally to SPX 4,500 before EOY. Why not sell now and avoid the very significant risk that there is no rally all the way to 4,500 before we drop into the 2K's?
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Old 07-27-2022, 10:33 AM   #14
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For those who think we are "not in a recession" because NBER hasn't "officially" declared one...

1/13 Is Big Tech signaling a pending collapse in the office market, as well as the job market? Let's explore; firstly, $AMZN recently announced it's halting construction on 5 office towers in Bellevue WA, w/ a 6th that was planned for construction canceled. $AMZN also put...

Great thread at..

https://twitter.com/GordonJohnson19/...59500428640257

Incidentally, the jobs market is a lagging indicator and not typically looked at to determine if we are in a recession. (That aside, job openings to call back those jobs lost due to COVID shutdowns are not "job gains" anyway). Two consecutive quarters of negative GDP - which we are almost certain to have once the "official" numbers are released Thursday, has been called a Recession from time immoral. Attempts to change the definition are unfortunate and will mislead / bamboozle many, and will likely cost a lot of people a lot of money.

Regardless, I heard a really good take earlier today.."a recession is a contraction in economic activity". Few of us could think we don't have a strong contraction in economic activity at present. Every indicator out there is SCREAMING recession based on traditional, "non-spun" definitions.

Invest accordingly.

ETA - as I write this..Alphabet - missed revenues and earnings. MSFT - missed revenues and earnings. Even Walmart - missed earnings. The economy is contracting, regardless of any happy talk to the contrary by those motivated to spin things otherwise.

I unfortunately didn't sell "everything" at SPX 4,600+. If we get back to 4,500 anytime soon, I plan to. Because the odds are high, IMHO, that we'll see SPX with the first digit being a "2" this year at some point. And with forecast equity returns of ~2% for the next 10+ years..Cash at ~4+% guaranteed is looking to be the superior investment for a long while.
A couple of comments:

Microsoft and Alphabet may have missed earnings projections, but both showed substantial growth in real inflation adjusted revenue. They are examples of growth, not contraction. Like other tech companies, they are slowing hiring and office expansion, but not stopping or reducing headcount.

Equity markets are not the same as the economy.

Walmart also grew, but less than inflation, so they are an example of contraction. Other companies showed growth in revenue and profit, such as McD and Coke. It’s been a real mix of positive and negative results, which looks more like some businesses have been more successful than others dealing with economic volatility.

Some members suggest the economy is not in recession. This is not “spin”. The NBER calls recessions, they have published their criteria for making the call, and the US economy does not meet all the criteria - for now. This definitely can change, and may do so, but so far has not.
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Old 07-27-2022, 10:35 AM   #15
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This sounds like a lousy plan for sure. You know that we're going down to SPX in the 2K's yet want to sell only in the unlikely event we have a market rally to SPX 4,500 before EOY. Why not sell now and avoid the very significant risk that there is no rally all the way to 4,500 before we drop into the 2K's?
or even better, massively short the market. Riches await, if you are right.
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Old 07-27-2022, 10:38 AM   #16
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A couple of comments:

Equity markets are not the same as the economy.
well stated.

Quote:
Some members suggest the economy is not in recession. This is not “spin”. The NBER calls recessions, they have published their criteria for making the call, and the US economy does not meet all the criteria - for now. This definitely can change, and may do so, but so far has not.
Agreed, but does the exact figure matter much? I say not. we all know the economy is slowing, and the tactics from my perspective are the same either way.
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Old 07-27-2022, 10:42 AM   #17
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Likely wait 5-10 years to recover to SPX 4,500 or higher..
SPX is currently just a hair below 4,000. So you're saying we are likely to not see even a 15% overall increase over the next 5, maybe 10 years? Anything's possible, of course, but I find that very hard to believe. I could be wrong, but looking at the chart I don't see a single instance where SPX did not post an overall 15% gain within 5 years of a relatively sharp selloff.

I'm firmly in the buy and hold camp, which has been proven statistically over many years to be the best strategy. Sure, certain investors can guess right sometimes and come out slightly ahead by doing lots of buying, selling, and market timing. I won't be one of those people.
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Old 07-27-2022, 10:50 AM   #18
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For those who think we are "not in a recession" because NBER hasn't "officially" declared one...


Invest accordingly.


I unfortunately didn't sell "everything" at SPX 4,600+. If we get back to 4,500 anytime soon, I plan to. Because the odds are high, IMHO, that we'll see SPX with the first digit being a "2" this year at some point. And with forecast equity returns of ~2% for the next 10+ years..Cash at ~4+% guaranteed is looking to be the superior investment for a long while.
Volatility is your friend, when the VIX is high, protect your investment by doing a Buy/Write on SPY selling a covered call in the money range where you expect SPY to be in the future. (hint the net difference in price to call is the time value premium you collect) If the market drops where you think it will, you keep your shares and the call you sold. If it is higher, you have simply limited your upside on SPY as your shares are called away. It is a good way of keeping invested while limiting your loss and upside.
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Old 07-27-2022, 10:58 AM   #19
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Volatility is your friend, when the VIX is high, protect your investment by doing a Buy/Write on SPY selling a covered call in the money range where you expect SPY to be in the future. (hint the net difference in price to call is the time value premium you collect) If the market drops where you think it will, you keep your shares and the call you sold. If it is higher, you have simply limited your upside on SPY as your shares are called away. It is a good way of keeping invested while limiting your loss and upside.
My question at the moment is what is the best thing to do with 1,000 shares of Verizon from an options standpoint? It is my remaining equity holding that is not in energy.
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Old 07-27-2022, 10:59 AM   #20
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I should mention, I assume I am going to be invested in equities at least 50% and SPY is the most highly traded ETF with strong liquidity in the option market. I also believe the experts I know and act in the same way. The math is pretty simple to model and show a worst case yield doing this when VIX is >32. Personally, I am mostly at the November 18 360 call on SPY, but I may roll that out and down closer to that date.
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