Author Topic: 1999 again?  (Read 20673 times)

RuleNumberOne

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Re: 1999 again?
« Reply #140 on: July 08, 2019, 09:17:45 AM »
I think the central bankers see the IPO bubble as a smaller worry compared to the gigantic bond bubble in Europe. I was looking for some data on possible losses, and found this Bloomberg article (thanks to heisenbergreport)

https://www.bloomberg.com/news/articles/2019-06-26/trillion-dollar-monster-lurks-as-bonds-price-out-duration-risk

"Investors riding easy-money policies are breeding a trillion-dollar monster in the bond market, the likes of which has never been seen in decades of history...

Bloomberg Barclays sovereign-debt index is near a record high of 8.32 years, meaning just a one-percentage-point increase in yields would equate to more than a $2.4 trillion loss.

ďAt one point the market may start challenging central banks about the effectiveness of their monetary policy,Ē said the chief investment officer. ďThey may start pricing in credit risk, and thatís going to push yields higher.Ē


RuleNumberOne

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Re: 1999 again?
« Reply #141 on: July 08, 2019, 09:32:58 AM »
In my opinion, they can't push rates down anymore. For example, only a central bank can buy a -5% yielding bond (real investors don't want an offer where their net worth will be wiped out 5% per year.) Denmark's negative rate mortgages don't make sense at more negative rates either - the bank forgives -0.4% of the loan every year. Would it make sense for the bank to forgive 4% of a mortgage every year? The bank would go broke.

But if rates were to go back up just a bit, the bond losses would cause a recession. The ECB is currently fueling housing bubbles in most of Europe. How are they going to retreat from zero rates?

Meanwhile, WFC and BAC have an earnings yield of 11% and are returning 14% to investors this year. What a contrast, investors can't get enough of negative rate debt, but they run away from WFC and BAC.

Whoever identifies the snapping point can make a ton of money. The setup is similar to 2008. Can individual investors buy CDS?

RuleNumberOne

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Re: 1999 again?
« Reply #142 on: July 08, 2019, 09:50:58 AM »
The reason for the contradiction is "mandates." The same Bloomberg article I linked above says:

"JPMorgan Chase & Co. estimates U.S. mutual funds with active mandates have recently increased long-duration exposures after turning underweight last month."

Bullard and Kashkari are undermining US investors with their calls for rate cuts, pushing mutual funds farther on the precipice.

"US mutual funds with active mandates" are forced to play Russian Roulette. Buffett of course can buy whatever he pleases, but these "mutual funds" have "active mandates", they are forced to increase long-duration.

Bullard refused Fed Governorship, doesn't mean he will refuse Chairmanship.

Liberty

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Re: 1999 again?
« Reply #143 on: July 08, 2019, 10:02:20 AM »
Naturally SHDL is right that it's a data point with regard to sentiment. I suppose my post came out as an acid burp from an grumpy old man. I apologize for that. What I actually meant was that I'm 100 times more interested in how SHDL thinks about that particular data point than Mr. Fisher's opinion. Based on a supplementary question from RuleNumberOne SHDL elaborated shortly in post #134. [And personally, I agree with SHDL on that stance.]

So I suppose all is good.

- - - o 0 o - - -

My post may also be severely biased by the fact that Mr. Fisher is very promotional here in Denmark with ads, trying to collect AUM, which I consider really annoying. That should really not be mixed into a reply to SHDL, naturally. That article on USA Today that SHDL linked to represent a stance and investment approach, that is a special type of market timing, that I personally speculate has no support among CoBF members. But naturally, still a data point.

That's all valid, I'm just encouraging you to say this to him rather than tell him not to post at all or how to post. I think we all want the same thing: Interesting discussions. How we get there is by asking each other questions and suggesting ideas and by constructively disagreeing.
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John Hjorth

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Re: 1999 again?
« Reply #144 on: July 08, 2019, 10:34:42 AM »
Agreed, Liberty,

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ĒIn the race of excellence Ö there is no finish line.Ē
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SHDL

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Re: 1999 again?
« Reply #145 on: July 08, 2019, 03:09:34 PM »
Gents: 

Just to be clear, no offense is taken so no worries about that.

With regard to how I feel about the Fisher article, as you can probably tell from my previous posts, I think itís silly.  Obviously what matters at the end of the day is the price you pay vs what you expect to get back, not what other investors think according to some survey. 

My own opinion about the general stock market is that this is a time to be cautious given that stock prices in general are somewhat (but not extremely) high relative to, say, TTM profits, which may themselves prove to be unsustainably high.  Personally Iím fully hedged at the moment for this reason.  Iím not exactly in the ďthis is 1999 and the marketís gonna crash soonĒ camp, but I certainly see a disconnect between economic fundamentals and where the major US equity indexes currently stand. 

The big wild card in my mind is what is going on with the corporate bond market, which a few posters like RuleNumberOne have been writing about.  Apparently a lot of US corporate bonds are essentially mis-rated as investment grade, and there are real concerns as to what is going to happen if we were to enter a recession and those bonds get downgraded or even default.  In particular, who owns those bonds and what does that mean for the broader economy?  Iím not connected enough to the relevant networks to have good answers to those questions but itís certainly something Iím paying attention to.

jschembs

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Re: 1999 again?
« Reply #146 on: July 08, 2019, 07:02:29 PM »
What I find interesting is that for a subject heading of "1999 again," the discussion has almost exclusively focused on valuations. The late 90s were certainly a time of euphoria in the capital markets, which gave plenty of startup enterprises a long leash of funding that otherwise wouldn't have existed. With that leash came jobs, office leases, computer equipment, consultants, etc.

I see plenty of parallels today. While we can argue whether or not a "pets.com" exists today, there are plenty of very questionable business models being funded, which, whenever the cycle turns (and it will), results in shuttered businesses, lost jobs, unpaid leases, and plenty of excess capital spending.

Even for the well-regarded business models, as growth slows and the market begins to demand profits, opex cuts will be the first place to look. The double-edged sword of high margin SAAS companies is that operating leverage cuts both ways.

I know I'm jaded from having graduated college around the time of the dot com bubble, and I acknowledge we're nowhere near that time, but I am honestly surprised to see little to no consideration of how these factors may play into the current cycle.

mcliu

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Re: 1999 again?
« Reply #147 on: July 08, 2019, 07:24:17 PM »
This paper on IPO stats is kind of interesting, I've attached an excerpt (page 29):

https://site.warrington.ufl.edu/ritter/files/2019/01/IPOs2018Statistics_Dec.pdf

The % of companies IPOing with negative earnings in 2018 is definitely at a high of 81%.
However, the euphoria is nowhere near 1999 in terms of the number of IPOs and the first day stock price increase.

RuleNumberOne

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Re: 1999 again?
« Reply #148 on: July 08, 2019, 07:45:58 PM »
The big difference between now and 1999 is the ECB has no ammo left.

I wish the market calls Draghi's bluff. The ECB is destroying free markets, hurting the banking system, fueling housing bubbles. If the market senses Draghi is waving an empty gun, it will be an enormous bond bubble bursting.

My own sense is that the ECB's latest stimulus threat is their last jawboning effort. The French central bank governor doesn't sound confident in my opinion:

ECB Officials Ready to Add Stimulus But Wonít Say When or How
https://www.bloomberg.com/news/articles/2019-07-08/ecb-officials-ready-to-add-stimulus-but-won-t-say-when-or-how

RuleNumberOne

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Re: 1999 again?
« Reply #149 on: July 08, 2019, 07:51:08 PM »
If Danish mortgage rates are at -0.43%, are deposit rates even more negative?

If they are not, on a 30 year mortgage, the bank would lose -13% (since the negative rate is implemented by forgiving -0.43% of the loan every year.)

I really liked that Bloomberg article headline about the stimulus - "won't say when or how." Not sure if the bears will continue to believe there are bullets in Draghi's gun.

The bond bears can make a killing, duration has increased so much that a one percent interest rate increase results in $2.4 trillion in sovereign debt losses alone. Not to mention home price implosion.
« Last Edit: July 08, 2019, 07:53:51 PM by RuleNumberOne »