Me not I Me

The market thinks with justification a) the government is going to keep dumping money into the system b) there will be a treatment or vaccine by year end c) the only people really hurt truly hurt are bar employees everything else can and will be done with masks.

masks make everything but bars safe? airlines? movie theaters? concert venues? university classrooms? triathlons and marathons? (let me know if you need to know what those are.) amusement parks? indoor restaurants? cruise ships? you are telling me the market believes that all the customers and workers in these industries are safe if they wear masks? and that the rest of society will sooner rather than later catch up to their expertise and wisdom?

i don't justification for this. really, for any of what you list. that masks will safeguard all these other industries; that people will believe that fiction; that a vaccine will be shot into your arm and mine by year-end; nor that congress is going to pump another $4 trillion into the system. i rather guess that nobody's pumping any more money into the system without a lot of conditions that the white house won't agree to.

hence my sense that we might be where we were in feb, with the market happy talking to itself.

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Dan Empfield
aka Slowman

Nikola, a company that has no production, is selling a truck with no prototype and has promised losses for the next several years has a market cap higher than Ford.

I'd rather not have a vehicle then have a Ford, so, that sounds about right to me.

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Long Chile was a silly place.

...and now they're taking "reservations" ($5,000/per) for a truck that doesn't have a functional prototype let alone any visibility on a factory.

Dan with an N95 mask (preferably) on, all of the activities you listed can be done safely based on current transmission data except eating inside a restaurant (take out and delivery offset that somewhat as well as outdoor dining) and those weird sporting things I had to Google. Not to 100% capacity obviously but also not completely shutdown. A surprising number of people I know are still flying (I wouldn't BTW). Also racing is not that big a deal to the economy.

if the great majority of those who're trading the bulk of equities actually believes what you just wrote, then i'm definitely getting clear out of the market.

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Dan Empfield
aka Slowman

Dan the biggest thing is the dumping of money into the system via bailout etc.

Yes, it is time to be in cash (in my opinion). Some anecdotes and opinions follow:

https://www.yelpeconomicaverage.com/yea-q1-2020.html

Lots of gems in there, too much to discuss in a thread without basically replicating the report. Two key points that I would like to highlight: first, people in most of the U.S. radically changed their behavior, curtailing trips outside the home weeks ahead of any stay at home order. Second, a lot of the business closures from the lockdown were permanent.

The next thing I would point to is the personal savings rate


That move literally breaks the chart. We'll see where it settles but I believe it will remain persistently high. I believe we've entered into what Richard Koo calls a "balance sheet" recession: a phase in which households and private corporations wish to de-lever. Doing so reduces income. This cycle feeds on itself unless reversed. Further, our reactionary monetary policy has pushed the rate of return on risk-free (or even "low risk") assets to near-zero (this was the correct policy response). So now the expected rate of return going forward is even lower thus the increasing the present rate of savings (no way to make 5% on your money tomorrow thus the need to spend less and save more today).

"But Green, the stock market isn't the economy!" you say

That's true. It's not. However there's essentially no difference at this point in owning investment grade debt and holding cash. That leaves junk debt and equities. Within the junk market you could loan to own (if you're big and smart), sift through the junk to find the companies that will survive (if you're smart), or you could just blindly bet on the Fed stepping into the junk market. Which might happen... but know it's a bet.

That leaves equities where most of the market value is vested in a handful of companies. Said companies have very solid balance sheets and market positions but their profitability is potentially exposed to regulatory action. The future of the rest of the publicly traded companies is very much in question. The Fed can fix liquidity but it can't fix bad credit. Could the Fed buy equities? Sure, and I think they will at some point. However that day is not today and it will not happen until the Fed has 1.) a reason... like a crash... and 2.) political clarity. One of the ways I could see the Fed buying equities, btw, is by lending money to pensions at very low rates over very long time horizons (e.g. a ZCB century bond) and letting pensions bid up equities. Again, don't expect that response anytime soon.

That leaves us with policy risk to equities going forward. What are some likely policies we'll see post 2020? Higher corporate and personal income taxes? Probably. Will things with China get any better? Almost certainly not. Domestic increases to minimum wage? Likely. Domestic environmental initiatives? Likely. Somewhat on-balance I think some sort of universal, single-payer healthcare is actually likely which partially offsets the prior negatives for corporate profitability (outside of healthcare). Also, significant infrastructure investment should help employment and aggregate demand recover.

I'm in cash for the foreseeable future.

i sold everything today. all of it, with the exception of a little bit of CAT and AAPL. i feel like i got lucky just by breaking even on my airline stocks. i'd remain in the airline stocks if i knew, for pretty well certain, they wouldn't reorganize themselves out from under my positions. i had that happen with GM back in 2008 or 09 or whenever it was. i just think we're in for a much rougher summer and fall than the market thinks.

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Dan Empfield
aka Slowman

We took out nearly everything on 5/11. Time to go with "good enough" rather than stressing about "most."

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----------------------------------
"Go yell at an M&M"

I'm staying put.

I've given up trying to predict either the 'Vid or humanity's response to it.

Though I'm younger than you, so can handle a "lost decade." Or two.

No. "I" is more traditionally correct. Add the verb to prove it - "what say you all who're smarter than I (am)."

You are correct. Windy has a hit rate of about 50% in correctness. Which is why I'm convinced we're just a petri dish in his experiment to deflect every thread into some tangential trivial discussion. (like this one, DAMMIT!)

I humbly submit I read the sentence wrong and was incorrect in my snarky post. I shall now accept the flagelletion without word.

We require a more heartfelt and robust apology, like this:

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I miss YaHey

Mother [Redacted]

At your age I'd be out.

You sold it all in one day based on a feeling. Wow. I am more than 50 percent in cash but that is a pretty big move.

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They constantly try to escape from the darkness outside and within
Dreaming of systems so perfect that no one will need to be good T.S. Eliot

 

It's a good synopsis of the US market, but what about international?

I've been mostly out of US markets since last fall (about 30% in cash), but have maintained all my positions in international stocks (Indexes on Europe, Developed Asia and Emerging markets). I can see a scenario where the US continues to be a train wreck because people don't have the discipline or common sense to get control of COVID and at least until January the Federal government is beyond worthless. Meanwhile, it looks like the major EU nations, China, Japan, Australia have a handle on it. We could see the US get left in the dust while these other economies get somewhere back close to normal during the second half of the year. Those markets will still be down in absolute terms, but will perform way better than the US comparatively. It's also entirely possible this could be somewhat permanent, it might take 10 years for the US to catch back up.

I alos think there is some evidence that COVID will not hit developing nations as badly, because their demographics is younger (so less fatalities) and my personal view is even if they do get hit badly, China's emergence over the last 20 years was strongly influenced by one child policies in the 80s and 90s. It sounds bad, but culling the population in emerging markets could be a long term benefit for these economies because the populations have badly outpaced the ability to feed and house people and build infrastructure, so slowly population growth may help them catch up.

Nothing is certain, but I'd be interested to hear what your take is on the world wide picture.

i sold it all one day on a feeling. you're right. but i've been feeling this feeling for a couple of weeks. i just think we're kidding ourselves, as a country. here is what i wrote on february 28th:

"goldman sachs now sees a Q1 GDP of 1.2%. but it sees a Q2 of 2.7%, which is partly a pick-up from what will be lost in Q1. which i question, because i kind of think that Q2 might be worse than Q1, because factories have stock on hand now. it's Q2 when the supply chain problem will really hit U.S. manufacturers. but i digress and anyway what do i know?"

that seems pretty quaint now. point is, this is what goldman thought or, at least, what it publicly said. the dow was 25,400 on february 28th, pretty much what it is now. 3 weeks later it was at 18,500. of course you never know. this just feels now as it felt to me then, where you could sort of look at the data, the facts. except now i don't feel so sure that the govt is going to step in and spend another $4 trillion, because, 1) we've already spent $4 trillion; and 2) the administration chose to get rid of the oversight the democrats put in place in the spending bill; 3) the 5-4 SCOTUS just gave trump the right to fire any IG-type oversight he wants. so, i think it's a lot more likely the consumer is on his own, and employers are on their own, than they were at the beginning of this.

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Dan Empfield
aka Slowman