I think that is the gist of it. But you can certainly see the parallels. But as you say there are some things that are different — just like there always are. Nothing is in a vacuum. Of course, we have been through flu outbreaks before and unemployment before. But if the shutdown continues on — we may all have other things to worry about besides which direction the market is headed.
That , I think, summarizes my position best. This country has never dealt with a financial shock + medical shock on this scale. And more importantly, a financial shock caused by a medical shock. Without effective testing/tracking & treatment going forward, we are on the terms of the virus at this stage... I don't think the Spanish Flu of 1918 is a helpful reference , either, given how young this country was and just sprouting its legs ..
Sure , all recessions and crises are different, but this one truly is different with a medical component. The cause and effect of the financial crisis was pretty well contained to banking and the housing industry. Dot com bust was really a re-set not only of small internet company prices, but lots of other companies , too. That covers our last two recessions of the last 20 years.
Given all this discussion we have had here, I'm hardly putting my money where my mouth is. I know better. I'm merely talking about building a very, very small position (~2%), and putting it back in on the next -20% decline. It really amounts to trading around the edges...
I'm going to read those other posts of yours with the article.. I always enjoy a good read.
Quote Originally Posted by Raiders22:
I think that is the gist of it. But you can certainly see the parallels. But as you say there are some things that are different — just like there always are. Nothing is in a vacuum. Of course, we have been through flu outbreaks before and unemployment before. But if the shutdown continues on — we may all have other things to worry about besides which direction the market is headed.
That , I think, summarizes my position best. This country has never dealt with a financial shock + medical shock on this scale. And more importantly, a financial shock caused by a medical shock. Without effective testing/tracking & treatment going forward, we are on the terms of the virus at this stage... I don't think the Spanish Flu of 1918 is a helpful reference , either, given how young this country was and just sprouting its legs ..
Sure , all recessions and crises are different, but this one truly is different with a medical component. The cause and effect of the financial crisis was pretty well contained to banking and the housing industry. Dot com bust was really a re-set not only of small internet company prices, but lots of other companies , too. That covers our last two recessions of the last 20 years.
Given all this discussion we have had here, I'm hardly putting my money where my mouth is. I know better. I'm merely talking about building a very, very small position (~2%), and putting it back in on the next -20% decline. It really amounts to trading around the edges...
I'm going to read those other posts of yours with the article.. I always enjoy a good read.
Rush. You are understanding why I went to 20% cash last week. I think it is prudent to make decisions based on what you personally believe. Having some cash is never a bad thing....especially now.
Absolutely, Gamble...
Quote Originally Posted by gambleholic63:
Rush. You are understanding why I went to 20% cash last week. I think it is prudent to make decisions based on what you personally believe. Having some cash is never a bad thing....especially now.
Is there any truth to the story that the FED is buying up Corporate Junk Bonds dollar for dollar as part of the covid relief plan including companies like Ford, The Gap & Macy's to name a few?
Is there any truth to the story that the FED is buying up Corporate Junk Bonds dollar for dollar as part of the covid relief plan including companies like Ford, The Gap & Macy's to name a few?
“Investors have lots to be nervous about,” said Mitch Goldberg, president of investment advisory firm ClientFirst Strategy. “But then again, for as long as I’ve been in this business, there has always been something to be nervous about. ... What we’re really talking about is risk tolerance and how one should react to that.”
If nervousness about the market is the motivation to increase cash allocation, then it should be obvious which investments that extra cash should be pulled from: the highest-risk positions.
“You want some cash available,” he said. “It gives you flexibility.”
“While cash also provides diversification and stability, holding too much cash can be a big drag on portfolio return as cash earns a negative real return. Some of this cash could be put to work if a sudden market sell-off — say, after the presidential election — results in attractive bargains,” Mishra said.
There’s a big caveat to this approach — the troubling result many investors experience when they go to cash. Most investors get out when it’s too late and wait way too long to get back in, compounding losses and missing out on gains.
And investors need to understand the difference between buying specific assets that are attractively valued after a dip, and the odds of successfully timing the market as a whole. Those odds are stacked against them — and always have been.
“Investors have lots to be nervous about,” said Mitch Goldberg, president of investment advisory firm ClientFirst Strategy. “But then again, for as long as I’ve been in this business, there has always been something to be nervous about. ... What we’re really talking about is risk tolerance and how one should react to that.”
If nervousness about the market is the motivation to increase cash allocation, then it should be obvious which investments that extra cash should be pulled from: the highest-risk positions.
“You want some cash available,” he said. “It gives you flexibility.”
“While cash also provides diversification and stability, holding too much cash can be a big drag on portfolio return as cash earns a negative real return. Some of this cash could be put to work if a sudden market sell-off — say, after the presidential election — results in attractive bargains,” Mishra said.
There’s a big caveat to this approach — the troubling result many investors experience when they go to cash. Most investors get out when it’s too late and wait way too long to get back in, compounding losses and missing out on gains.
And investors need to understand the difference between buying specific assets that are attractively valued after a dip, and the odds of successfully timing the market as a whole. Those odds are stacked against them — and always have been.
could keep a 5 percent to 10 percent cash allocation during uncertain times to give them the flexibility to buy on dips. For the nervous investor with almost zero risk tolerance, then probably a cash allocation as high as 15 percent to 20 percent makes sense. “If that helps you sleep better at night,” Mishra said.
“You should never hold cash because you think the market will go down,” he said. “Correctly forecasting the stock market is almost impossible. Rather, you keep cash to cover a few months of living expenses. The more your labor capital corresponds to the economy, the more you should hold.”
could keep a 5 percent to 10 percent cash allocation during uncertain times to give them the flexibility to buy on dips. For the nervous investor with almost zero risk tolerance, then probably a cash allocation as high as 15 percent to 20 percent makes sense. “If that helps you sleep better at night,” Mishra said.
“You should never hold cash because you think the market will go down,” he said. “Correctly forecasting the stock market is almost impossible. Rather, you keep cash to cover a few months of living expenses. The more your labor capital corresponds to the economy, the more you should hold.”
While holding or moving to cash might feel good mentally and help avoid short-term stock market volatility, it is unlikely to be wise over the long term.
Once you cash out a stock that's dropped in price, you move from a paper loss to an actual loss.
Cash doesn't grow in value; in fact, Inflation erodes its purchasing power over time.
Cashing out after the market tanks means that you bought high and are selling low—the world's worst investment strategy.
Rather than cash out, consider rebalancing your holdings in downtimes.
The Opportunity Cost of Holding Cash
Opportunity costis the price you pay in order to pursue a certain action. Put another way, opportunity cost refers to the benefits an individual, investor or business misses out on when choosing one alternative over another.
In the case of cash, taking your money out of the stock market requires that you compare the growth of your cash portfolio, which will be negative over the long term as inflation erodes your purchasing power, against the potential gains in the stock market. Historically, the stock market has been the better bet.
Opportunity cost is the reason why financial advisors recommend against borrowing or withdrawing funds from a 401(k), IRA, or another retirement-savings vehicle. Even if you eventually replace the money, you've lost the chance for it to grow while invested, and for your earnings to compound
KEY TAKEAWAYS
While holding or moving to cash might feel good mentally and help avoid short-term stock market volatility, it is unlikely to be wise over the long term.
Once you cash out a stock that's dropped in price, you move from a paper loss to an actual loss.
Cash doesn't grow in value; in fact, Inflation erodes its purchasing power over time.
Cashing out after the market tanks means that you bought high and are selling low—the world's worst investment strategy.
Rather than cash out, consider rebalancing your holdings in downtimes.
The Opportunity Cost of Holding Cash
Opportunity costis the price you pay in order to pursue a certain action. Put another way, opportunity cost refers to the benefits an individual, investor or business misses out on when choosing one alternative over another.
In the case of cash, taking your money out of the stock market requires that you compare the growth of your cash portfolio, which will be negative over the long term as inflation erodes your purchasing power, against the potential gains in the stock market. Historically, the stock market has been the better bet.
Opportunity cost is the reason why financial advisors recommend against borrowing or withdrawing funds from a 401(k), IRA, or another retirement-savings vehicle. Even if you eventually replace the money, you've lost the chance for it to grow while invested, and for your earnings to compound
Common sense may be the best argument against moving to cash, and selling your stocks after the market tanks means that you bought high and are selling low. That would be the exact opposite of a good investing strategy. While your instincts may be telling you to save what you have left, your instincts are in direct opposition with the most basic tenet of investing. The time to sell was back when your investments were in the darkest black—not when they are deep in the red.
The Bottom Line
You were happy to buy when the price was high because you expected it to keep ascending endlessly. Now that it is low, you expect it to fall forever. Both expectations represent erroneous thinking. The stock market rarely moves in a straight line—in either direction.
Common sense may be the best argument against moving to cash, and selling your stocks after the market tanks means that you bought high and are selling low. That would be the exact opposite of a good investing strategy. While your instincts may be telling you to save what you have left, your instincts are in direct opposition with the most basic tenet of investing. The time to sell was back when your investments were in the darkest black—not when they are deep in the red.
The Bottom Line
You were happy to buy when the price was high because you expected it to keep ascending endlessly. Now that it is low, you expect it to fall forever. Both expectations represent erroneous thinking. The stock market rarely moves in a straight line—in either direction.
That was an amalgamation of some folks that have written on it.
Bottom line if it eases your mind and takes the stress away — I understand.
But I never advise people that do not plan to need the cash to do this. You always want to invest with an eye for the longterm.
If you sell at a loss — it is locked in as a loss with no chance to get it back. If you sell at a slighter gain that you would have — then you have missed out on potential and compound and reinvested dividends, etc. Let alone the tax situation.
I know that you know this stuff. I am just not one to tell folks — ‘Hey, it’s your money.’ Unless, I know they are never going to see all of the aforementioned, no matter how clearly it is presented. But I certainly understand IF you have a plan or IF it eases your mind.
That was an amalgamation of some folks that have written on it.
Bottom line if it eases your mind and takes the stress away — I understand.
But I never advise people that do not plan to need the cash to do this. You always want to invest with an eye for the longterm.
If you sell at a loss — it is locked in as a loss with no chance to get it back. If you sell at a slighter gain that you would have — then you have missed out on potential and compound and reinvested dividends, etc. Let alone the tax situation.
I know that you know this stuff. I am just not one to tell folks — ‘Hey, it’s your money.’ Unless, I know they are never going to see all of the aforementioned, no matter how clearly it is presented. But I certainly understand IF you have a plan or IF it eases your mind.
I might even buy the other 99% of the 1% of one BTC that I experimented with last month. I would love to have you try to talk me into it....or out of it.
I will always be ‘trying’ to talk you OUT of it. I am not a BTC guy at all. I do not see it as an investment tool at all. I had some good chances to get in early with ‘advice’ from people ‘supposedly in the know’. Obviously, I missed out on a good run-up. But I have never looked back.
When I go over people’s investments there are some things I never recommend — IPOs, pennystocks, etc. — I put BTC firmly in that group.
I try not to talk ‘bad’ about it on here. Because I realize a lot of the folks on here are all gung-ho for it. As long as they realize it is pure speculation — good for them.
I am also a gambler. I just don’t believe in mixing it in with investing. I watched a couple of my gamblers that told me about it make out like bandits. But I also saw a few of their friends that got in late get lit up by BTC. They had loaned against 401k etc. to get in on it. It just happens to be the same type of people that love a 5-team parlay. Which I get because there is a place for that!
But if you do get in — good luck to you! I always wish folks the best with those types of things.
Quote Originally Posted by gambleholic63:
I might even buy the other 99% of the 1% of one BTC that I experimented with last month. I would love to have you try to talk me into it....or out of it.
I will always be ‘trying’ to talk you OUT of it. I am not a BTC guy at all. I do not see it as an investment tool at all. I had some good chances to get in early with ‘advice’ from people ‘supposedly in the know’. Obviously, I missed out on a good run-up. But I have never looked back.
When I go over people’s investments there are some things I never recommend — IPOs, pennystocks, etc. — I put BTC firmly in that group.
I try not to talk ‘bad’ about it on here. Because I realize a lot of the folks on here are all gung-ho for it. As long as they realize it is pure speculation — good for them.
I am also a gambler. I just don’t believe in mixing it in with investing. I watched a couple of my gamblers that told me about it make out like bandits. But I also saw a few of their friends that got in late get lit up by BTC. They had loaned against 401k etc. to get in on it. It just happens to be the same type of people that love a 5-team parlay. Which I get because there is a place for that!
But if you do get in — good luck to you! I always wish folks the best with those types of things.
One of my favorite quotes I saved. I do not remember where I saw it. But I always send it to the guys. They get all riled up and say it is wrong. But still funny to me:
There are two main problems with bitcoin.
First, people were told bitcoin was unique. In fact anyone can create a digital currency, and as the bitcoin forking phenomenon proved, there isn't really much of a first mover advantage either.
Second, since there is no unique power to bitcoin, the cost is virtually zero. The only value comes from the utility of using it. But compared to traditional financial services, it has high transaction costs, and slow transaction speeds. So what is the real advantage to using it? The speculation and irrational exuberance appears to be draining.
One of my favorite quotes I saved. I do not remember where I saw it. But I always send it to the guys. They get all riled up and say it is wrong. But still funny to me:
There are two main problems with bitcoin.
First, people were told bitcoin was unique. In fact anyone can create a digital currency, and as the bitcoin forking phenomenon proved, there isn't really much of a first mover advantage either.
Second, since there is no unique power to bitcoin, the cost is virtually zero. The only value comes from the utility of using it. But compared to traditional financial services, it has high transaction costs, and slow transaction speeds. So what is the real advantage to using it? The speculation and irrational exuberance appears to be draining.
That , I think, summarizes my position best. This country has never dealt with a financial shock + medical shock on this scale. And more importantly, a financial shock caused by a medical shock. Without effective testing/tracking & treatment going forward, we are on the terms of the virus at this stage... I don't think the Spanish Flu of 1918 is a helpful reference , either, given how young this country was and just sprouting its legs .. Sure , all recessions and crises are different, but this one truly is different with a medical component. The cause and effect of the financial crisis was pretty well contained to banking and the housing industry. Dot com bust was really a re-set not only of small internet company prices, but lots of other companies , too. That covers our last two recessions of the last 20 years. Given all this discussion we have had here, I'm hardly putting my money where my mouth is. I know better. I'm merely talking about building a very, very small position (~2%), and putting it back in on the next -20% decline. It really amounts to trading around the edges... I'm going to read those other posts of yours with the article.. I always enjoy a good read.
I completely beg to differ on the Spanish Flu and the economic situation. If you really do like to read — I can link here a very well-written paper from 10-15 years ago that was written in anticipation of this sort of pandemic and the whole thesis is the Spanish Flu of 1918 and what to expect economically.
Okay. Let’s say I am cool with your numbers. How long are you going to hold that ‘cash?’ position in anticipation of the next 20% drop? What if it is another 10-12 years?
There is a whole investing philosophy built around such an idea. The drawback is always what do you do in the meantime.
But I understand skepticism at a time like this.
Quote Originally Posted by Rush51:
That , I think, summarizes my position best. This country has never dealt with a financial shock + medical shock on this scale. And more importantly, a financial shock caused by a medical shock. Without effective testing/tracking & treatment going forward, we are on the terms of the virus at this stage... I don't think the Spanish Flu of 1918 is a helpful reference , either, given how young this country was and just sprouting its legs .. Sure , all recessions and crises are different, but this one truly is different with a medical component. The cause and effect of the financial crisis was pretty well contained to banking and the housing industry. Dot com bust was really a re-set not only of small internet company prices, but lots of other companies , too. That covers our last two recessions of the last 20 years. Given all this discussion we have had here, I'm hardly putting my money where my mouth is. I know better. I'm merely talking about building a very, very small position (~2%), and putting it back in on the next -20% decline. It really amounts to trading around the edges... I'm going to read those other posts of yours with the article.. I always enjoy a good read.
I completely beg to differ on the Spanish Flu and the economic situation. If you really do like to read — I can link here a very well-written paper from 10-15 years ago that was written in anticipation of this sort of pandemic and the whole thesis is the Spanish Flu of 1918 and what to expect economically.
Okay. Let’s say I am cool with your numbers. How long are you going to hold that ‘cash?’ position in anticipation of the next 20% drop? What if it is another 10-12 years?
There is a whole investing philosophy built around such an idea. The drawback is always what do you do in the meantime.
The WSJ discussed only very briefly our experience from the Spanish flu. Basically, life went on as usual as we lost half a million people to the flu. Business went on as the article put it... We as a society have chosen to chart a completely different course here in 2020. Even if we try, we can't draw any parallels to that pandemic.
Also, I mentioned that if I do choose to raise a small amount of cash, I would put it back in at the next -20% pullback. Theoretically, that next pullback could be years from now, and at a price level much higher than at today's prices. I fully realize that.
The WSJ discussed only very briefly our experience from the Spanish flu. Basically, life went on as usual as we lost half a million people to the flu. Business went on as the article put it... We as a society have chosen to chart a completely different course here in 2020. Even if we try, we can't draw any parallels to that pandemic.
Also, I mentioned that if I do choose to raise a small amount of cash, I would put it back in at the next -20% pullback. Theoretically, that next pullback could be years from now, and at a price level much higher than at today's prices. I fully realize that.
Is there any truth to the story that the FED is buying up Corporate Junk Bonds dollar for dollar as part of the covid relief plan including companies like Ford, The Gap & Macy's to name a few?
Not sure on the dollar amount, Midnight, but the Fed sure is working hard to drive down borrowing costs for everyone, including those companies in the junk bond markets .
Quote Originally Posted by Midnight1:
Is there any truth to the story that the FED is buying up Corporate Junk Bonds dollar for dollar as part of the covid relief plan including companies like Ford, The Gap & Macy's to name a few?
Not sure on the dollar amount, Midnight, but the Fed sure is working hard to drive down borrowing costs for everyone, including those companies in the junk bond markets .
Why the Market Is Not a Forward Looking Indicator I’m sure there are plenty of investors who will scoff at the thesis of this article after reading the title. After all, in a free market economy the equity markets are supposed to reflect investors’ perception of future earnings. However, looking back over the past decade or so, it seems as if this has rarely been the case. Rather, equity markets are mean-reverting mechanisms that react to investors’ irrational levels of optimism or pessimism. Were markets correctly pricing future earnings in March 2000 or October 2007? What about in March of 2009? What about now? Personally, my favorite take on QE2 was Jim Cramer’s reckless analysis on Thursday. My two favorite comments were “We're investing to make money, not make predictions about the economy.” and “If you can buy stocks that rally like they did today, because of this Bernanke plan, you can also sell those stocks after they've rallied.” Both of these comments are completely absurd. His audience is mostly amateur investors and frankly this is horrible advice. My first concern is with the term “wealth effect”. It is not wealth creation. Rather, the prices of the assets you own increase because they are worth less in dollar terms. The hope that this will fool investors or businesses discredits their intelligence. Certainly major corporations are not this stupid. Most of them operate in many countries and are well aware of currency effects. Even individual investors should be somewhat aware of the inverse relationship between equities and the dollar, they have mentioned it on CNBC everyday for the last five months. If anything, the Fed may be able to fool amateur investors who take a more passive approach. However, this seems counterproductive to the necessary deleveraging most Americans are still going through.
Not sure I agree wholly w the article. Of course markets ARE a forward looking mechanism to company prospects. I think he could have stated it a bit clearer that the long term pe ratio of the market is around 15. ( a commonly referred to metric). Of course there are periods when it overshoots or undershoots this metric, but over a long period of time , there is reversion to the mean. The fundamental question is how much are investors willing to pay for a dollar of company earnings .... in the future. It seems funny the author misses this most basic part of investing
Quote Originally Posted by Raiders22:
Why the Market Is Not a Forward Looking Indicator I’m sure there are plenty of investors who will scoff at the thesis of this article after reading the title. After all, in a free market economy the equity markets are supposed to reflect investors’ perception of future earnings. However, looking back over the past decade or so, it seems as if this has rarely been the case. Rather, equity markets are mean-reverting mechanisms that react to investors’ irrational levels of optimism or pessimism. Were markets correctly pricing future earnings in March 2000 or October 2007? What about in March of 2009? What about now? Personally, my favorite take on QE2 was Jim Cramer’s reckless analysis on Thursday. My two favorite comments were “We're investing to make money, not make predictions about the economy.” and “If you can buy stocks that rally like they did today, because of this Bernanke plan, you can also sell those stocks after they've rallied.” Both of these comments are completely absurd. His audience is mostly amateur investors and frankly this is horrible advice. My first concern is with the term “wealth effect”. It is not wealth creation. Rather, the prices of the assets you own increase because they are worth less in dollar terms. The hope that this will fool investors or businesses discredits their intelligence. Certainly major corporations are not this stupid. Most of them operate in many countries and are well aware of currency effects. Even individual investors should be somewhat aware of the inverse relationship between equities and the dollar, they have mentioned it on CNBC everyday for the last five months. If anything, the Fed may be able to fool amateur investors who take a more passive approach. However, this seems counterproductive to the necessary deleveraging most Americans are still going through.
Not sure I agree wholly w the article. Of course markets ARE a forward looking mechanism to company prospects. I think he could have stated it a bit clearer that the long term pe ratio of the market is around 15. ( a commonly referred to metric). Of course there are periods when it overshoots or undershoots this metric, but over a long period of time , there is reversion to the mean. The fundamental question is how much are investors willing to pay for a dollar of company earnings .... in the future. It seems funny the author misses this most basic part of investing
The WSJ discussed only very briefly our experience from the Spanish flu. Basically, life went on as usual as we lost half a million people to the flu. Business went on as the article put it... We as a society have chosen to chart a completely different course here in 2020. Even if we try, we can't draw any parallels to that pandemic. Also, I mentioned that if I do choose to raise a small amount of cash, I would put it back in at the next -20% pullback. Theoretically, that next pullback could be years from now, and at a price level much higher than at today's prices. I fully realize that.
Well that is not completely the case. Nothing is in a vacuum and there were many extenuating circumstances. Many good studies show a marked affect but a turn back to the trend — and it doesn’t take a economist to see that, even an amateur historian could see what was going on with the economy at the time.
So, the question is will this much less devastating pandemic get us back to trend or will there be other extenuating circumstances — because the timeframes are not parallel economically. You might make the argument they are inverse to each other.
But for sure there were tough economic times:
Consistent with this empirical evidence, the large economic disruption caused by the pandemic is also evident in narrative accounts from contemporaneous newspapers. For instance, on October 24, 1918, the Wall Street Journal wrote:
In some parts of the country [the pandemic] has caused a decrease in production of approximately 50 percent and almost everywhere it has occasioned more or less falling off. The loss of trade which the retail merchants throughout the country have met with has been very large. The impairment of efficiency has also been noticeable. There never has been in this country, so the experts say, so complete domination by an epidemic as has been the case with this one.
Quote Originally Posted by Rush51:
The WSJ discussed only very briefly our experience from the Spanish flu. Basically, life went on as usual as we lost half a million people to the flu. Business went on as the article put it... We as a society have chosen to chart a completely different course here in 2020. Even if we try, we can't draw any parallels to that pandemic. Also, I mentioned that if I do choose to raise a small amount of cash, I would put it back in at the next -20% pullback. Theoretically, that next pullback could be years from now, and at a price level much higher than at today's prices. I fully realize that.
Well that is not completely the case. Nothing is in a vacuum and there were many extenuating circumstances. Many good studies show a marked affect but a turn back to the trend — and it doesn’t take a economist to see that, even an amateur historian could see what was going on with the economy at the time.
So, the question is will this much less devastating pandemic get us back to trend or will there be other extenuating circumstances — because the timeframes are not parallel economically. You might make the argument they are inverse to each other.
But for sure there were tough economic times:
Consistent with this empirical evidence, the large economic disruption caused by the pandemic is also evident in narrative accounts from contemporaneous newspapers. For instance, on October 24, 1918, the Wall Street Journal wrote:
In some parts of the country [the pandemic] has caused a decrease in production of approximately 50 percent and almost everywhere it has occasioned more or less falling off. The loss of trade which the retail merchants throughout the country have met with has been very large. The impairment of efficiency has also been noticeable. There never has been in this country, so the experts say, so complete domination by an epidemic as has been the case with this one.
Studies will even indicate GDP growth and per capita income growth.
One of the things we use sometimes in economic theory is what we call a gravity equation. We will use this a lot to extrapolate with trade and goods using empirical data. Then you will check for a ‘placebo effect’, verify regression and things.
One of the studies done using this — without printing the equations all out and defining all the variables — shows that even taking into account the drastic labor shortage, the economy really recovered very well. Using a theoretical model with gravity equations there are great indications that the cities and regions hardest hit by the pandemic recovered the fastest.
Who is to say that it cannot be this way today? Even now we may be well into a recovery. As I mentioned before the economy already had downward pressure — it was just looking for an excuse. But have those other factors subsided or changed. Or will policies — rightly, or wrongly — be implemented that will change things? No one can say for sure. My bet is just that this pandemic is not that big a factor — yet.
Studies will even indicate GDP growth and per capita income growth.
One of the things we use sometimes in economic theory is what we call a gravity equation. We will use this a lot to extrapolate with trade and goods using empirical data. Then you will check for a ‘placebo effect’, verify regression and things.
One of the studies done using this — without printing the equations all out and defining all the variables — shows that even taking into account the drastic labor shortage, the economy really recovered very well. Using a theoretical model with gravity equations there are great indications that the cities and regions hardest hit by the pandemic recovered the fastest.
Who is to say that it cannot be this way today? Even now we may be well into a recovery. As I mentioned before the economy already had downward pressure — it was just looking for an excuse. But have those other factors subsided or changed. Or will policies — rightly, or wrongly — be implemented that will change things? No one can say for sure. My bet is just that this pandemic is not that big a factor — yet.
Not sure I agree wholly w the article. Of course markets ARE a forward looking mechanism to company prospects. I think he could have stated it a bit clearer that the long term pe ratio of the market is around 15. ( a commonly referred to metric). Of course there are periods when it overshoots or undershoots this metric, but over a long period of time , there is reversion to the mean. The fundamental question is how much are investors willing to pay for a dollar of company earnings .... in the future. It seems funny the author misses this most basic part of investing
That was my point. He missed by a country mile! We all remember the sentiment when he wrote that. An awful lot of folks thought the market was due to head back down hard. Yes, we always look at P/E for sure. But there are a lot of other things to look at.
I chopped up his article for brevity. But his overarching point is correct — you have to weigh a lot of factors. Maybe they are forward indicators at that time — maybe they are not.
That time he was wrong. But you know what the day about economists and weathermen.
Quote Originally Posted by Rush51:
Not sure I agree wholly w the article. Of course markets ARE a forward looking mechanism to company prospects. I think he could have stated it a bit clearer that the long term pe ratio of the market is around 15. ( a commonly referred to metric). Of course there are periods when it overshoots or undershoots this metric, but over a long period of time , there is reversion to the mean. The fundamental question is how much are investors willing to pay for a dollar of company earnings .... in the future. It seems funny the author misses this most basic part of investing
That was my point. He missed by a country mile! We all remember the sentiment when he wrote that. An awful lot of folks thought the market was due to head back down hard. Yes, we always look at P/E for sure. But there are a lot of other things to look at.
I chopped up his article for brevity. But his overarching point is correct — you have to weigh a lot of factors. Maybe they are forward indicators at that time — maybe they are not.
That time he was wrong. But you know what the day about economists and weathermen.
Quote Originally Posted by Rush51: The WSJ discussed only very briefly our experience from the Spanish flu. Basically, life went on as usual as we lost half a million people to the flu. Business went on as the article put it... We as a society have chosen to chart a completely different course here in 2020. Even if we try, we can't draw any parallels to that pandemic. Also, I mentioned that if I do choose to raise a small amount of cash, I would put it back in at the next -20% pullback. Theoretically, that next pullback could be years from now, and at a price level much higher than at today's prices. I fully realize that. Well that is not completely the case. Nothing is in a vacuum and there were many extenuating circumstances. Many good studies show a marked affect but a turn back to the trend — and it doesn’t take a economist to see that, even an amateur historian could see what was going on with the economy at the time. So, the question is will this much less devastating pandemic get us back to trend or will there be other extenuating circumstances — because the timeframes are not parallel economically. You might make the argument they are inverse to each other. But for sure there were tough economic times: Consistent with this empirical evidence, the large economic disruption caused by the pandemic is also evident in narrative accounts from contemporaneous newspapers. For instance, on October 24, 1918, the Wall Street Journal wrote: In some parts of the country [the pandemic] has caused a decrease in production of approximately 50 percent and almost everywhere it has occasioned more or less falling off. The loss of trade which the retail merchants throughout the country have met with has been very large. The impairment of efficiency has also been noticeable. There never has been in this country, so the experts say, so complete domination by an epidemic as has been the case with this one.
Lots of good material Raiders... thanks for sharing all the information
Quote Originally Posted by Raiders22:
Quote Originally Posted by Rush51: The WSJ discussed only very briefly our experience from the Spanish flu. Basically, life went on as usual as we lost half a million people to the flu. Business went on as the article put it... We as a society have chosen to chart a completely different course here in 2020. Even if we try, we can't draw any parallels to that pandemic. Also, I mentioned that if I do choose to raise a small amount of cash, I would put it back in at the next -20% pullback. Theoretically, that next pullback could be years from now, and at a price level much higher than at today's prices. I fully realize that. Well that is not completely the case. Nothing is in a vacuum and there were many extenuating circumstances. Many good studies show a marked affect but a turn back to the trend — and it doesn’t take a economist to see that, even an amateur historian could see what was going on with the economy at the time. So, the question is will this much less devastating pandemic get us back to trend or will there be other extenuating circumstances — because the timeframes are not parallel economically. You might make the argument they are inverse to each other. But for sure there were tough economic times: Consistent with this empirical evidence, the large economic disruption caused by the pandemic is also evident in narrative accounts from contemporaneous newspapers. For instance, on October 24, 1918, the Wall Street Journal wrote: In some parts of the country [the pandemic] has caused a decrease in production of approximately 50 percent and almost everywhere it has occasioned more or less falling off. The loss of trade which the retail merchants throughout the country have met with has been very large. The impairment of efficiency has also been noticeable. There never has been in this country, so the experts say, so complete domination by an epidemic as has been the case with this one.
Lots of good material Raiders... thanks for sharing all the information
We are in the midst of the most unpredictable period of time our markets have ever seen. We have business shut down with the FED pumping money into the system that will keep the economy afloat for roughly three months. Conspiracy theorists are making a lot of noise on a number of fronts. Is the virus really not as deadly as they say? Did China allow this to happen to the world intentionally? Are politics deciding the direction of the nation in fighting the virus? How bad will the second wave of infection be? How gradual will the opening of the economy be and when does it begin?
So much uncertainty yet the markets push higher today? Yeah, it's a good day for the markets but the banks are getting hammered. Whispers of load defaults to come have investors in the sector wondering if the first round of government assistance will be enough to make it through?
I feel that this will be a long slug back to all time highs. This rally will soon exhaust itself and the next round of news will almost certainly reverse the short term direction of these markets. People will make their own individual decisions on when they will want to go to restaurants, malls, and live sporting events. These behaviors will not change in a V shape. Nor will the markets.
Gamble for entertainment, invest for wealth!
We are in the midst of the most unpredictable period of time our markets have ever seen. We have business shut down with the FED pumping money into the system that will keep the economy afloat for roughly three months. Conspiracy theorists are making a lot of noise on a number of fronts. Is the virus really not as deadly as they say? Did China allow this to happen to the world intentionally? Are politics deciding the direction of the nation in fighting the virus? How bad will the second wave of infection be? How gradual will the opening of the economy be and when does it begin?
So much uncertainty yet the markets push higher today? Yeah, it's a good day for the markets but the banks are getting hammered. Whispers of load defaults to come have investors in the sector wondering if the first round of government assistance will be enough to make it through?
I feel that this will be a long slug back to all time highs. This rally will soon exhaust itself and the next round of news will almost certainly reverse the short term direction of these markets. People will make their own individual decisions on when they will want to go to restaurants, malls, and live sporting events. These behaviors will not change in a V shape. Nor will the markets.
I hear you 'Gamble.. I sold a very small position and raised some cash today in some funds that had run up some, from my purchase level a few weeks ago. You raise all kinds of good points related to the virus that we agree on. I just remain convinced that this economy is held hostage to a virus on its own terms. How is this remotely similar to other recessions ? (a question to the naysayers) Where are the testing kits ?? How does a society even begin to get back to normal w/o "mass testing". Every company that wishes to get back to normal in a business office must have testing available to know who has it, and who doesn't . Scott Gottlieb, prior FDA commissioner, wrote this exact point in an op/ed in the WSJ yesterday. I have heard nothing about these testing kits on a mass scale, have you ? I just don't see how this disconnect between Wall Street (gleefully optimistic) & Main Street (massive hurt/pain) will continue. We have a market that has now made up more than half of its losses (~55%), with no further information as to how we as a society get back to normalcy. Talk about wishful thinking based on nothing concrete. The Investment community is betting on a hope.. To which I say, Hope is not a strategy.
I hear you 'Gamble.. I sold a very small position and raised some cash today in some funds that had run up some, from my purchase level a few weeks ago. You raise all kinds of good points related to the virus that we agree on. I just remain convinced that this economy is held hostage to a virus on its own terms. How is this remotely similar to other recessions ? (a question to the naysayers) Where are the testing kits ?? How does a society even begin to get back to normal w/o "mass testing". Every company that wishes to get back to normal in a business office must have testing available to know who has it, and who doesn't . Scott Gottlieb, prior FDA commissioner, wrote this exact point in an op/ed in the WSJ yesterday. I have heard nothing about these testing kits on a mass scale, have you ? I just don't see how this disconnect between Wall Street (gleefully optimistic) & Main Street (massive hurt/pain) will continue. We have a market that has now made up more than half of its losses (~55%), with no further information as to how we as a society get back to normalcy. Talk about wishful thinking based on nothing concrete. The Investment community is betting on a hope.. To which I say, Hope is not a strategy.
I think I mentioned this earlier, but one of the most interesting indicators I like to like to look at is the "Buffet Indicator," or the percentage of total market cap (TMC) relative to the US GDP. I like it because it strips away "earnings" and all the financial games that companies play with their EPS. This breaks it down to simple goods & services sold. So , this indicator correctly predicted great buying opportunities in both prior recession periods, 2002 & 2009. The indicator went "negative" in these prior recessions. Where do we see the indicator today ?? Quite Expensive AND with a GDP figure that will be declining precipitously in the months ahead. Not good. So let's summarize . We have a market that is expensive , even by "normal" historical standards, AND with a virus left to its own devices. Let's just say a retest of March Bottoms (IMHO) has a greater probability of occurring before we see new highs. I'm even giving 5% juice, considering the market has now made up more than half of its losses. Lol.
I think I mentioned this earlier, but one of the most interesting indicators I like to like to look at is the "Buffet Indicator," or the percentage of total market cap (TMC) relative to the US GDP. I like it because it strips away "earnings" and all the financial games that companies play with their EPS. This breaks it down to simple goods & services sold. So , this indicator correctly predicted great buying opportunities in both prior recession periods, 2002 & 2009. The indicator went "negative" in these prior recessions. Where do we see the indicator today ?? Quite Expensive AND with a GDP figure that will be declining precipitously in the months ahead. Not good. So let's summarize . We have a market that is expensive , even by "normal" historical standards, AND with a virus left to its own devices. Let's just say a retest of March Bottoms (IMHO) has a greater probability of occurring before we see new highs. I'm even giving 5% juice, considering the market has now made up more than half of its losses. Lol.
Gamble picked up something I had noted earlier in my dashboard of stocks. Bank stocks were getting hammered relative to the economy as a whole. Why is that ? Because they were the first to report earnings ?! Why penalize them, like you weren't expecting their earnings & revenue to fall off a cliff ? lol. I have to laugh (again) at the investment community on that one. Also, noted oil fell (again) today. So, banks & oil were mostly down today. Most other sectors were positive.
And what are we to make about FAANG + M. These tech monsters had monster gains today. Almost +5% all over the place, aside from Facebook.. You don't have to look far to see who is doing the heavy lifting in this market (again).
Another crazy stat ? AMZN hit an all time today ! They are the delivery experts, and people seem to be delivering everything in these times, so I get it. But hitting all time highs still sounds crazy in this environment
Gold also hit a high it hasn't seen since 2012.
Gamble picked up something I had noted earlier in my dashboard of stocks. Bank stocks were getting hammered relative to the economy as a whole. Why is that ? Because they were the first to report earnings ?! Why penalize them, like you weren't expecting their earnings & revenue to fall off a cliff ? lol. I have to laugh (again) at the investment community on that one. Also, noted oil fell (again) today. So, banks & oil were mostly down today. Most other sectors were positive.
And what are we to make about FAANG + M. These tech monsters had monster gains today. Almost +5% all over the place, aside from Facebook.. You don't have to look far to see who is doing the heavy lifting in this market (again).
Another crazy stat ? AMZN hit an all time today ! They are the delivery experts, and people seem to be delivering everything in these times, so I get it. But hitting all time highs still sounds crazy in this environment
I don't own Amazon shares but it is perfectly positioned to be a leader in an economic shutdown. Restaurants being shut down for 3-9 months or more make the Whole Foods deal three years ago look that much better. I do agree with you that overall "non food" consumption being down should hurt their bottom line enough to keep the stock from making these new highs.....but it isn't. Call it mystery #1001 in figuring out these markets.
Gamble for entertainment, invest for wealth!
I don't own Amazon shares but it is perfectly positioned to be a leader in an economic shutdown. Restaurants being shut down for 3-9 months or more make the Whole Foods deal three years ago look that much better. I do agree with you that overall "non food" consumption being down should hurt their bottom line enough to keep the stock from making these new highs.....but it isn't. Call it mystery #1001 in figuring out these markets.
I will always be ‘trying’ to talk you OUT of it. I am not a BTC guy at all. I do not see it as an investment tool at all. I had some good chances to get in early with ‘advice’ from people ‘supposedly in the know’. Obviously, I missed out on a good run-up. But I have never looked back. 
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