1999 again?

[LC]

Do more cocaine?

[TwoCitiesCapital]

Michael Burry had an interesting tweet this today.

https://twitter.com/michaeljburry/status/1346565099750793217?s=21

Claim was 529k company bankruptcies in 2020. Apparently that is a 35 year low.

When the cocaine wears off....

https://www.bloomberg.com/news/articles/2020-11-24/u-s-bankruptcy-tracker-march-of-the-zombies-is-coming-soon

Here's a Bloomberg article that discusses 2020 being the worst year since 2009 for numbers of bankruptcies for firms with greater than $50 million in liabilities. Seems like rent/mortgage deferrals, PPP loans, EIDL loans, etc really did help small businesses stay afloat temporarily. But how many can remain that way in 2021 without that ongoing support?

[mattee2264]

 Interesting to see how it plays out. But I am guessing politically there will be a lot of pressure to provide ongoing support as the pandemic wasn't anyone's fault so forebearance, enhanced unemployment benefits, government subsized loans etc will continue. I think 2022 rather than 2021 might be the year of reckoning.

 I think the pent up demand argument is probably a bit exaggerated. It is probably going to be limited to certain sectors e.g. travel/entertainment and to some extent will displace spending on consumer goods and speculating on stocks. And because of supply constraints these activities will probably become a lot more expensive so it will contribute towards inflationary pressures. And stock markets have already pretty much priced in a V shaped recovery to pre-COVID levels.

 If the bubble continues it will be because as Grantham argued there is no moral hazard. Stock prices can seemingly only go up with the Fed swooping in to reverse any sharp market declines. And a whole new generation has discovered the joys of easy money. That dynamic could go on for at least another year or two until the Fed removes the punch bowl or inflation spooks markets and undermines confidence that the Fed can keep interest rates low.

[Castanza]

Do more cocaine?

  I hear it works on Wall Street!

Michael Burry had an interesting tweet this today.

https://twitter.com/michaeljburry/status/1346565099750793217?s=21

Claim was 529k company bankruptcies in 2020. Apparently that is a 35 year low.

When the cocaine wears off....

https://www.bloomberg.com/news/articles/2020-11-24/u-s-bankruptcy-tracker-march-of-the-zombies-is-coming-soon

Here's a Bloomberg article that discusses 2020 being the worst year since 2009 for numbers of bankruptcies for firms with greater than $50 million in liabilities. Seems like rent/mortgage deferrals, PPP loans, EIDL loans, etc really did help small businesses stay afloat temporarily. But how many can remain that way in 2021 without that ongoing support?

According to U.S. Bureau of Labor Statistics, 20% of small businesses fail within the first year and 33% make it to year 10. So many nuanced variables that will have drastic impacts on the outcome of small businesses in this environment. I imagine the bankruptcy numbers will increase substantially post covid. Even with ongoing support, it feels like a death by 1000 cuts. If consumers are slow to pick up the reigns post stimulus, I think a lot of owners will simply not bother with the effort and hang it up. This could change the appetite to start or own small businesses. At least in the short term 1-5 years.

[Spekulatius]

^TYX (30 year treasury) at 18.25 - highest level since late February 2020

[TwoCitiesCapital]

Interesting notes from Cuban above. Thanks for the additional context from Read the Footnotes! I generally agree that value investors do not pay enough attention to things like flows, technicals, and the structure of demand. Even I don't pay enough attention to them or have reliable sources for measuring them despite recognizing this as a short-coming in my process.

see Grantham. https://www.gmo.com/americas/research-library/waiting-for-the-last-dance/

I do think however that 2021 will differ from 2000, in the sense that there will be a significant upsurge in economic activity this year, imo, due to delayed consumption/entertainment/etc re covid. that will only enhance the bubbliciousness going into 2022. then Biden starts dribbling from the corner of his mouth, commie-la starts wearing only kente cloth outfits and the market goes to hell...

Was just about to post Grantham's letter myself, but see that I've been beaten to it.

Is delayed consumption really a thing?

Obviously, coming off a low base is always an improvement. But if we use 2018/2019 as a base - I don't think my activities in 2021 will exceed 2018/2019. Even ignoring that it will take months for vaccines to roll out, sports to readmit fans, travel restrictions to become less onerous, etc. I don't think my activity levels in 2022 will much exceed 2018/2019 by much.

I'll go back to buying sporting tickets, traveling, eating out, etc. But I don't think it's going to be much more just because I didn't do it for 2 years. I think it will be front-loaded in the first quarter things are "normal", but it will decelerate back to normalized levels quickly. Because I expect it will be quick and unsustainable, I don't know what impact it will really have on profits and growth.

Assuming I'm wrong, is it big and sustainable enough to offset the deceleration in stimulus? Is it enough to offset the drag that is likely from millions still working through the long-term hardship of business failures, underemployment, and unemployment? Is it enough to offset the impact of rising interest rates and debt service in a real recovery?

Just seems to me that I might expect 2022 aggregate earnings/GDP to be similar to 2018 or 2019 levels in a good-case scenario. But we are ~30% and ~15% above those respective levels with another 2-years to go before we have that certainty. Even if achieved, there is more debt sitting in front of the equity and more shares outstanding to share the remaining profits with. It's not at all clear to me the delta in EPS is positive relative to 2018/2019 (at the aggregate index level).

Maybe we do get bubblier from here. But I don't think it's pent-up demand, improving fundamentals, or economic growth that does it. I think it's entirely based on flows that would HAVE to come from more fiscal stimulus.

All of the other stuff is 100% priced in for the next 2 years while ignoring the risks of it not happening or the likelihood of higher rates/inflation if it does happen.

Maybe "pent up demand" is actually a thing

https://www.npr.org/sections/money/2021/01/12/955617983/what-1919-teaches-us-about-pent-up-demand

[Arski]

What do you guys do to adjust your portfolio for a probable crash or do you invest as y'all do as normal?

I've a lot of cash at hand (30%) but I am not sure if it's the best strategy. I'm interested in gold and SPACs for storing my money, but haven't invested in one of those yet.

[Spekulatius]

I did some more research on this topic and this is what I found:
https://www.reddit.com/r/wallstreetbets/comments/kzf0jz/when_boomers_are_proud_of_their_2020_gains/?utm_source=share&utm_medium=web2x&context=3

[Viking]

My wife’s niece (in her early ‘30’s and no investing knowledge) texted her this weekend asking if this was a good time to buy Tesla.

A buddy of mine texted me last week. His son was keen to invest in two companies (they were small; i had never heard of them) and wanted to know if they were a good investment.

This is starting to feel a little like the late ‘90’s...

—————————

My recollection of the late ‘90’s was it was a VERY bifurcated market.... new economy = bubble; old economy = on sale.

I do think there are parallels today. Tesla = bubble; however lots of sectors are cheap = telecom, pipelines, energy and lots of other stuff is not crazy expensive = financials, insurance, some reits and more.

—————————-

Where do we go from here? The .com bubble blew bigger for 4 or 5 years so we could just be getting started with this version. Perhaps at some point we see a crash in the high flyers and a rotation into the cheap stuff (similar to what happened when the .com bubble popped).

[Xerxes]

Why does history needs to repeat itself the way it did in 1999-2000. If the 1999-2000 debacle never happened or if it did happened but we were not born or too young to remember, we would not have that bias.

The new generation as they grow old in the next 10 years will remember the pandemic and the 2020 March market crash for what it was: the shaking out of the previous generation of investors who cashed out in a great hurry (close to retirement etc,) while opening door for them to build foundations. Sure there are the Robinhood gangs on WSB but many are not.

The same way that value investors, youngsters then, fondly remember the Dot.com crash and how it presented opportunities to them ... while also providing them with a gift of a bias - point of reference - forever seared into their minds: Remember 1999

There are many ways to see the past. We chose to see things in a linear way and choose to draw clear parallels between events, because it suits us.

The question to ask is then, is experiencing 1999 a handicap ? is the gift of a bias a curse.