Author Topic: The shrinking stock market  (Read 1134 times)

RuleNumberOne

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Re: The shrinking stock market
« Reply #10 on: December 01, 2019, 03:29:02 PM »
Couldn't agree more.

I think what is different this cycle is the Euro. When the cycle ends, the Euro would collapse because nothing has been fixed there since the crisis erupted in 2010. Postponing the end of the cycle doesn't change that, but the IMF and ECB (along with Trump) put a lot of pressure on the Fed to not raise rates.

Even with money managers who have experienced a bear market, they are investing other people's fickle money. They need to get their 2-and-20 as fast as they can before the OPM gets taken away. The only logical thing for them is to buy momentum stocks with the temporary OPM.

This explanation of fewer public companies is several years old, keeps appearing in different media outlets from time to time. We need to look at the market cap of the entire stock market.

We have $4.9 trillion in market cap in the big five tech companies. In 1996 you didn't have that concentration.

I think the reason stock prices keep going up without increased sales is the percentage of investors who have never experienced a bear market keeps going up everyday. I was just reading Howard Marks writing about the 1990s - the players "moving the market felt no fear."

@LC The same CNN article says this:

"Also, there is so much money sloshing around Silicon Valley that some unicorns have achieved jaw-dropping valuations that would be hard to replicate on Wall Street. Just recently, investors balked at WeWork's lofty price tag and questionable practices, forcing the company to abandon its IPO and eventually seek a bailout from SoftBank.
"Capital is locked up in the private market at inflated prices. It can't get out at reasonable prices," said Kathleen Smith, principal at Renaissance Capital, which runs the Renaissance IPO ETF (IPO). "They are trapped. They want another way to get out."

I know there are MONEY MANAGERS who have never experienced a true bear market!

It is one thing to read about bear markets and collapsing sectors...it is another thing altogether to actually go through it.  To lose money, to lose your job maybe, to lose properties or businesses.  I knew people who went through the Great Depression and it changed them forever. 

There are also a TON of real estate people starting to pop up today who weren't active in 08/09/10 when prices cratered.

The government has intervened WAY TOO MUCH with interest rates and the markets.  Every so often, you need a recession to clear out stupid/weak companies, businesses, projects, investors.   Since it has been so long since we've had a recession, there are lots of overvalued/stupid/weak investments/projects/businesses going on.


Spekulatius

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Re: The shrinking stock market
« Reply #11 on: December 01, 2019, 03:29:10 PM »
It’s not just companies disappearing, it’s public companies slowly eating themselves via share buybacks. The latter is a larger factor than companies disappearing. Also accompany disappearing doesn’t mean that the capital has left the market, if it happens via a stock merger for example.

As for the stock market, while it may not be a general bubble, the valuations overall is certainly stretched. There seems to be a particular with a narrow set of “quality” stock going on, while the tiers below in quality aren’t really that expensive. While the downturn in late 2018 was certainly considerable, it wasn’t really a severe bear market. It felt more like a correction, similar to 2011 ( European crisis), late 2015 (energy bear) or 1998 (Asian crisis) a short term correction of 29% or so that quickly reverses. Nothing like 1990/91 or 2001/2002 or even 2008/2009. The latter were certainly severe events, but there is certainly a garden variety of scenarios that can play out between the former and the latter event, especially one, where we take a decline and then an extended market where the market sort of just bounced around, instead of climbing right back up.

As for what could cause this, I see multiple things they could cause a decline like, negative interest rates blowing up banks, political changes (election), recession, trade war and most likely a combination of these factors.

Of course there are always reasons why the market may go down, or why the market may go up. Staying flexible and have a bit of cash in hand, should bargains represent themselves , is how I intend to play this.
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John Hjorth

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Re: The shrinking stock market
« Reply #12 on: December 01, 2019, 05:00:53 PM »
... Couldn't agree more ...

Ohh, please give me a break. You can talk macro walls-up, and walls-down. It dosen't matter. Where are your long money?
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Cigarbutt

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Re: The shrinking stock market
« Reply #13 on: December 01, 2019, 05:07:40 PM »
It’s not just companies disappearing, it’s public companies slowly eating themselves via share buybacks. The latter is a larger factor than companies disappearing. Also accompany disappearing doesn’t mean that the capital has left the market, if it happens via a stock merger for example.
...
Yes, most M&A happens in the public market but the other assumption mentioned (which I thought was correct until I looked at the facts, national accounts and all) needs to factor in that higher buyback activity has been associated with higher issuance of stocks through options and other equity grants. For example, in the last 10 years, on a net basis, net share count reduction occurred only at about 1% per year. Even if absolute amount of dollars were allocated to buybacks, the fact that shares were bought at relatively high levels (opinion) helped to mitigate the share reduction.(!)
If you look at what happened since the mid 90s (by choosing that initial reference point, there is an embedded starting point bias to some degree because this happened to be a high water mark of sorts), the defining features include declining "death" (all causes included) and "birth" rates but the birth rate has declined more, especially during the decade preceding the GFC. Since then, we've pretty much flat-lined, whatever that means.
https://fred.stlouisfed.org/series/DDOM01USA644NWDB
Capital does not die and the stock market has not shrunk ($ value) and it seems like the optimal scenario would involve recycling the enormous amount of capital returned to shareholders into new and more numerous ventures that would (eventually) displace incumbents. Isn't that the secret sauce?