Why the Melt Up...?

[donheff]

Pension funds, balanced funds, etc. also had to rebalance and they frequently do so before the end of the quarter. That is now in the past so I suspect we will resume downward movement. We are a long way away from A) really knowing when we will come out of the pandemic and economic freefall and B) starting to get back to normal. Buckle up, buckaroos.

+1. The melt up turned down at the end of the day and the futures this morning are predicting a 3+% drop today. If the mid month predicted daily deaths materialize (and all evidence says they will) we are undoubtedly in for a lot more downside.

 

[REWahoo]

My hope is that my investing friends at Er.org are using or used the melt up to give thought as to whether “stay the course” really applies right now.

Appreciate your concern. Steady as she goes.

 

[Quantum Sufficit]

I think this posting marked the end of the melt up.

Looking at the markets now (both Muni bonds and the stock market), you appear to be very prescient!

 

[PatrickW]

OP here. Been away from the computer for a week or so.


Sure looks like the market is still on a real tear.



I'm beginning to wonder if this whole Coronavirus thing wasn't over hyped a bit, and that it's starting to fizzle out. Not sure what to believe anymore when it comes to the news coverage.


I'm still dollar-cost-averaging a chunk of money into index funds over the next 6 months.



Am happy to see everyone's 401k's starting to come back.

 

[travelover]

..........I'm beginning to wonder if this whole Coronavirus thing wasn't over hyped a bit, and that it's starting to fizzle out........ .

Yea, it is like Y2K, just a plot to sell generators and prepper stuff. Why, just look at how low unemployment claims are - if this was real they'd be through the roof.

 

[Lakewood90712]

Markets sometimes act in un-usual ways. I recall a time in the mid 1990's when inflation was a kicking up , un-employment numbers kicked up, and wall street surged. The talking heads atributed the ralley to getting labor cost down by using fear of unemployment as a bargining chip.

 

[COcheesehead]

Yea, it is like Y2K, just a plot to sell generators and prepper stuff. Why, just look at how low unemployment claims are - if this was real they'd be through the roof.

The unemployment is the result of the “cure” not the virus.

We should have been prepared to test and isolate, instead we isolate everybody.

 

[pb4uski]

So you expected a test for a new, unknown virus that had never been seen before to arise out of thin air?

A bit naive commentary from the cheap seats.

 

[Which Roger]

Market is driven by expected future earnings and perceived risk, i.e., uncertainty about future earnings. We now have a better understanding of the level of risk than we did a couple weeks ago when the market was much lower. Reduced risk would drive up values even in the absence of any change in expected earnings.

 

[statsman]

We should have been prepared to test and isolate, instead we isolate everybody.

A lack of preparation decades in the making. Won't be solved overnight.

Same goes for securing needed medical supplies and medicines themselves.

 

[COcheesehead]

So you expected a test for a new, unknown virus that had never been seen before to arise out of thin air?

A bit naive commentary from the cheap seats.

It was known for months before it hit here and a test exists. You don’t have to get derogatory.

 

[MichaelB]

Such a good thread, let's keep it friendly.

 

[njhowie]

Simple answer: PPT & Fed

In addition to the known manipulations, there are probably a lot of things happening behind the curtain that is not disclosed. This would explain a lot.

Absolutely.

My personal belief is that it cannot continue much longer. The economic severity of the current situation is being downplayed a tremendous amount. We're likely going to see something many times more horrific than the financial crises. The economy has been shut down - full stop. Mortgage defaults are already happening. Renters aren't paying. Millions are being laid off weekly. We're going to be seeing mass bankruptcy filings soon. The $1200 checks and expanded unemployment benefits will do little more than delay things a bit for some. However, there's very likely a collapse coming and there's really not much the government or the Fed can do to prevent it from happening.

Corporate earnings are guaranteed to be awful for the remainder of the year. How much of a pass will investors give? Will the Fed be buying up shares to prevent them from going lower when the masses go to sell? So instead of corporate share buybacks to keep share prices artificially high, the Fed will buy instead? One is less bad than the other? I've read that the Fed is now buying high yield bond ETFs.

Would it be wonderful if it were the case that I'm making a mountain out of a molehill and the administration has everything figured out, under control, and will take care of it all? Definitely! However, I just don't see it. The actions being taken are not well conceived (in my view). There's little thought taking place - the solution to everything is to just throw more money (which we don't have) at it.

I believe that sending everyone the $1200 check is a mistake. There's no reason to send it to those who do not "need" it. It's not free money, we're all paying for it one way or another. My belief is that most folks here would take the $1200 and immediately put it into savings - not spend it. They're not worried how they will pay this month's rent, make the car payment, or put food on the table. Those are the folks who need it.

 

[njhowie]

Has anyone considered that ETFs had to rebalance?

Indeed.

Similarly, the index funds were certainly responsible to some extent for what took place. As the market headed lower and redemption requests flooded in, the index funds had to blindly sell everything without regard.

It will be interesting to see what happens in a couple months as the Russell indexes get reconstituted.

https://content.ftserussell.com/sit...tion_schedule_announce_march_2020_final_1.pdf

 

[pb4uski]

The unemployment is the result of the “cure” not the virus.

We should have been prepared to test and isolate, instead we isolate everybody.

It was known for months before it hit here and a test exists. You don’t have to get derogatory.

It wasn't realistically possible for a country the size of the US to test and isolated as you previously advocated.

Iceland has tested more than any country... but only 10% of its population... in a country with the population of Tulsa, OK.

https://www.usatoday.com/story/news...19-small-nations-iceland-big-data/2959797001/

By Friday, Iceland will have achieved something no other country has: tested 10% of its population for coronavirus, a figure far higher than anywhere else in the world.

No country or scientist or doctor has all the answers about the pandemic that has swept the globe, infecting more than 1.6 million people and killing at least 95,000.

But some places, such as tiny Iceland, Europe's most sparsely populated country – pop. 364,134, broadly equivalent to the number of people in Tulsa, Oklahoma...

... Singapore, Hong Kong and even China, where coronavirus originated in December last year and authorities have all but claimed total victory over COVID-19, have meanwhile seen rising clusters of new infections in recent weeks. While most of these cases are imported, it remains unclear whether by lifting restrictions authorities around the world will be forced into a game of coronavirus whackamole with no obvious end date. In the last few days Japan, which initially held off on a lockdown, has fortified its restrictions. ...

(emphasis added)

 

[MichaelB]

It wasn't realistically possible for a country the size of the US to test and isolated as you previously advocated.

Iceland has tested more than any country... but only 10% of its population... in a country with the population of Tulsa, OK.

https://www.usatoday.com/story/news...19-small-nations-iceland-big-data/2959797001/

(emphasis added)

I agree with COcheesehead and figure it would cost money, but not as much as we're risking now by isolating everyone.

 

[steelyman]

I realized I hadn’t been taking advantage of the opportunity to make Roth contributions (not conversions) for the past couple of years so I opened a new Roth IRA at Fidelity and funded it for 2019. I bought one stock (Disney) already and have limit orders in to buy a few more at these lower prices. It’ll take for-never, but my goal is to slowly move stocks from taxable to tax-free.

That’s not exactly a response to melt-up but a little related in my view.

 

[jim584672]

I'm looking at S&P at around 2,800. That is an extremely high valuation considering earnings are dropping like a rock and not to far from the all time highs. I don't think this value is justified by the facts. The Fed induced sugar high will wear off, then things will get interesting.

 

[Sunset]

The market is having a "melt-up?" We just finished the WORST first quarter in the history of the US stock market and the feeling is we are having a melt-up?

....
Again I urge people to read the only time in history that came close to this current economic environment and read not some Nobel prize winning book but The Great Depression a Diary by Benjamin Roth. Back then it became impossible to collect rental income on properties. How long can the present high rents be sustained across the country with 36% unemployment?.......

Has it started, across the USA roughly 30% of renters didn't pay:

"Data from 13.4 million apartments across five real estate management software companies show 69% of renters made full or partial payments between April 1-5"

https://www.chicagotribune.com/coro...0200409-zshzfbdqlvdfbnziglbenqjpvy-story.html

 

[Clone]

I suspect that there will be a number of sectors/ folks that are going to have a tough time:

Gig workers, side hustle, similar self directed jobs. Things like Lyft, Uber, bloggers, etc may be able to make it go when folks are flush with cash and the economy is rockin', but that ain't now.

Contract employees- A number of 1099 type jobs or jobs through contract houses could be in jeopardy. As industry tries to stop the bleeding, these are among the first to go.

Rental Real Estate- A number of tenants, both individuals and retail, are not going to survive the downturn. The over supply will depress the rates for awhile.

House flippers- Their business model works when you have a hot real estate market so you can sell the property before you have to start making payments on it. Any slowing of the market or depression of prices will slow these folks down quickly.

Houses for sale- in certain markets, taking the flippers out of the game will put some lower priced houses back on the market where ordinary folks might be able to see them. We re looking at some 55+, and expect to see 1) the number of new buyers drop (market crash + delayed retirement + uncertainty) 2) the number of sellers increase (existing attrition + any increased attrition + uncertainty). This may be enough to tip the scales from a seller's market to a buyer's market. Any drastic change in 1 or 2 could snowball into some serious discounting.

Real estate workers- We have seen real estate folks participating in the flipping game, they could get hurt by a sudden reversal of the market.

 

[RAE]

I'm looking at S&P at around 2,800. That is an extremely high valuation considering earnings are dropping like a rock and not to far from the all time highs. I don't think this value is justified by the facts. The Fed induced sugar high will wear off, then things will get interesting.

Agreed. The market is apparently reacting mostly to what the FED is doing (and also to the short-lived news about an oil deal), but once it becomes clear just how bad unemployment and business closings are, and with no prospect for those things improving for the next several months (minimum), the market is going to have to head back downward. You can only stay detached from reality for so long........

 

[COcheesehead]

It wasn't realistically possible for a country the size of the US to test and isolated as you previously advocated.

Iceland has tested more than any country... but only 10% of its population... in a country with the population of Tulsa, OK.

https://www.usatoday.com/story/news...19-small-nations-iceland-big-data/2959797001/

(emphasis added)

You don’t test “everybody”. There are indicators of the virus. When these are evident, you test, find contacts of the individual, test those as well and then isolate. Other countries have had success with this method.

Instead, we take the TSA route. #whenwillwelearn

 

[RAE]

It was known for months before it hit here and a test exists.

+1. You can bet they knew about this virus back in December when it was starting to cause big problems in China (if not earlier), and were tracking it closely. Risk assessments were being circulated among our fearless leaders back in early January, but they were largely ignored by those responsible for decision-making. I don't want to get political, but we don't have a lot of people in leadership positions these days that are very literate in science (to put it mildly), and who understand what can happen when potentially threatening situations like this come along. So, at least two months were wasted, denying that the "Chinese" problem would ever affect us, and now we are paying the price for that. South Korea, on the other hand, jumped into testing very early, and as a result, they have fared much better.
So, let's not pretend that the US could not have done any better with testing, and recognizing the seriousness of this, much earlier.....of course we could have done better.

 

[statsman]

I don't want to get political ...

You did.

 

[JustCurious]

I'm beginning to wonder if this whole Coronavirus thing wasn't over hyped a bit, and that it's starting to fizzle out.

Yep.