Author Topic: Wilshire 5000 market cap / GDP exceeds dot-com peak  (Read 5393 times)

Gregmal

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Re: Wilshire 5000 market cap / GDP exceeds dot-com peak
« Reply #30 on: January 13, 2020, 02:12:42 PM »
The end is nearing. Just look at what kind of junk is trending everyday. A few glamor stocks and FAANGs and then retail investor stocks. I would be almost certain a good amount of money will be made being short just about anything sometime in the near future, especially stuff like AAPL. Nothing goes up in a straight line and things that do almost always retrace much if not all of it.


thepupil

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Re: Wilshire 5000 market cap / GDP exceeds dot-com peak
« Reply #31 on: January 13, 2020, 03:18:23 PM »
I’ve been trimming my family’s apple and google, but does the fact that these have re-rated to a low to mid 20’s PE really signal the end is near?

I’m not trying to be Pollyanna, but these just all seem like weak arguments to me.

I’ll probably end up looking like Bill Miller or PZena  pre GFC in all these posts and everyone calling for a big cyclical downturn will be right, but I think it’s actually hard to find real excess that is material portions of the indices.

The one thing that I really agree with is that leveraged loans and junk bonds and their borrowers (some small caps but mostly private equity  companies) look awful and downright bubbly. As part of my job I see the nitty gritty in these (detailed breakdowns of add backs and pro-formas, the contrived consultant due diligence reports, the lack of covvies etc). I think that the losers will be: institutions and retail investors who are investing in direct lending, mezz debt, CLO mezz tranches, business development companies, etc. Winners will be adept distressed debt investors and well positioned corporates. But as I mentioned earlier, the excesses in stucured credit are likely to hurt small portions of people’s institutional portfolio’s. If a pension throws 5 or 10% of their HY allocation into CLO BB’s for some spread pickup, I don’t think it’s going to be a huge issue when that unwinds. JApanese banks love them some CLO AAA but the 40 points of credit enhancement will insulate them just fine. Otherwise the banks don’t seem to be wearing all that risk; systemic risk from excesses in private / junk credit seems low to me

Long CLO tangent aside, I’d also point out that EM and Devloped International stocks trade for 12-14x earnings and their currencies have all underperformed.

I am not super bulled up; just Not buying these bearish arguments...unless the dems win, then its guns gold and canned food of course :)
« Last Edit: January 13, 2020, 03:21:51 PM by thepupil »

Gregmal

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Re: Wilshire 5000 market cap / GDP exceeds dot-com peak
« Reply #32 on: January 13, 2020, 03:40:58 PM »
The top 5 trending stocks on Stocktwits are TSLA, SPCE, BYND, APHA, CGC.... one probably couldn't put together a better short basket. Just let the sheep and cattle lead you to the greener pastures. Daily gains for those, +11%, +9%, +21%, +11%, +12%... material news? None.

RuleNumberOne

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Re: Wilshire 5000 market cap / GDP exceeds dot-com peak
« Reply #33 on: January 14, 2020, 09:45:38 AM »
Global debt to GDP at all-time high. European countries hitting all-time highs in household debt to GDP as central bankers blow a housing bubble in Europe.

https://www.bloomberg.com/news/articles/2020-01-13/global-debt-to-gdp-ratio-hit-an-all-time-high-last-year

"The global debt-to-GDP ratio hit an all-time high of 322% in the third quarter of last year, according to a report released Monday by the Institute of International Finance.

“While borrowing costs remain very low, many countries are finding a debt-driven growth model increasingly difficult to maintain,” said Sonja Gibbs, managing director of global policy initiatives at the institute. “High and rising debt-to-GDP ratios are making debt service and refinancing more challenging, and the 2020s are likely to see a greater incidence of debt distress and restructuring.”

Government debt-to-GDP hit a new high in the U.S. and Australia. Household debt-to-GDP reached a record high in Belgium, Finland, France, Lebanon, New Zealand, Nigeria, Norway, Sweden and Switzerland."


stahleyp

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Re: Wilshire 5000 market cap / GDP exceeds dot-com peak
« Reply #34 on: January 14, 2020, 11:40:35 AM »
This doesn't look like euphoria for stocks to me:


https://www.morningstar.com/articles/961935/2019-fund-flows-in-9-charts

"Taxable-bond funds had their best year ever with inflows of $413.9 billion in 2019, while U.S. equity funds lost $41.3 billion."
Paul

TwoCitiesCapital

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Re: Wilshire 5000 market cap / GDP exceeds dot-com peak
« Reply #35 on: January 14, 2020, 02:42:01 PM »
tax rates don't affect EBITDA, so I don't think tax reform really distorts net debt to EBITDA


Yes, you're right. I should have been more specific. I wasn't just referencing the comparison of EBITDA/net debt specifically, but just valuation and liquidity metrics as a whole being more favorable after tax reform.

Having substantially more income after taxes allows for higher debt service and more turns of leverage and better liquidity. On a net basis, the reversal of tax reform would be a net negative to companies' flexibility to carry their debt loads even if EBITDA/Net Debt as a  metric is unimpacted.

Regarding the pensions, they've have been handed a gift from the heavens by being overweight equities during the rally of 2016-2019. The situation today does appear better - but it also appeared great in 2000 as well. We'll have to weather the next downturn to be sure the recent gains haven't been ephmeral.

Even beyond equity risk, pensions will also likely be hit with widening credit spreads and lower rate projections in a downturn so today's funded status after a decade bull market does not mean the funding status is safe or permanent.

TL;DR - Easy come/easy go regarding tax gains and that "net debt" doesn't tell the whole story with hundreds of billions in non-debt liabilities like leases and pensions (as well as the non-constant nature of the pension liability)
« Last Edit: January 14, 2020, 02:43:43 PM by TwoCitiesCapital »

Cigarbutt

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Re: Wilshire 5000 market cap / GDP exceeds dot-com peak
« Reply #36 on: January 14, 2020, 05:35:28 PM »
This doesn't look like euphoria for stocks to me:


https://www.morningstar.com/articles/961935/2019-fund-flows-in-9-charts

"Taxable-bond funds had their best year ever with inflows of $413.9 billion in 2019, while U.S. equity funds lost $41.3 billion."
I don't want to enter a debate here but I find the 'message' of your post (and related link) to be incomplete.
Unaudited numbers and some approximations for 2019, US investors.
I estimate the rise in value of equity holdings by households, held through funds (pension adjusted) to be about 2.4T (2400B) in 2019. So, the total net outflows from funds (41.3B) represent about 2% of the increase in equity values in 2019. You can form an opinion about what this means in terms of investors' perception of the market. A recent well-done survey of investors in general reveals that a majority expects a recession in 2020 and a majority simultaneously expects to obtain good returns (both majorities being possibly constituted of the same people :) ).

Household surveys of allocation to equities tend to be pro-cyclical and may be reaching highs again. There are graphs circulating but it's not necessary to show them here; they have the same pattern compared to what RuleNumberOne  typically posts on this 'peak' topic. This is soft evidence and should probably not be used for timing purposes but one of the reasons that there are net outflows from equity funds is that people, in general, seem to have difficulty keeping up with rebalancing which explains the last section of your link (the author wonders if there is dry powder accumulating in money market funds). A possibly related topic is that 'funds' are reaching lows in terms of their own % to cash allocation.
« Last Edit: January 14, 2020, 05:43:30 PM by Cigarbutt »

stahleyp

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Re: Wilshire 5000 market cap / GDP exceeds dot-com peak
« Reply #37 on: January 15, 2020, 09:30:36 AM »
This doesn't look like euphoria for stocks to me:


https://www.morningstar.com/articles/961935/2019-fund-flows-in-9-charts

"Taxable-bond funds had their best year ever with inflows of $413.9 billion in 2019, while U.S. equity funds lost $41.3 billion."
I don't want to enter a debate here but I find the 'message' of your post (and related link) to be incomplete.
Unaudited numbers and some approximations for 2019, US investors.
I estimate the rise in value of equity holdings by households, held through funds (pension adjusted) to be about 2.4T (2400B) in 2019. So, the total net outflows from funds (41.3B) represent about 2% of the increase in equity values in 2019. You can form an opinion about what this means in terms of investors' perception of the market. A recent well-done survey of investors in general reveals that a majority expects a recession in 2020 and a majority simultaneously expects to obtain good returns (both majorities being possibly constituted of the same people :) ).

Household surveys of allocation to equities tend to be pro-cyclical and may be reaching highs again. There are graphs circulating but it's not necessary to show them here; they have the same pattern compared to what RuleNumberOne  typically posts on this 'peak' topic. This is soft evidence and should probably not be used for timing purposes but one of the reasons that there are net outflows from equity funds is that people, in general, seem to have difficulty keeping up with rebalancing which explains the last section of your link (the author wonders if there is dry powder accumulating in money market funds). A possibly related topic is that 'funds' are reaching lows in terms of their own % to cash allocation.

I think Rule is probably biased since he lives in CA (though, he could certainly see more of the excesses). Now it doesn't have to be euphoria for stocks to crash. There wasn't much euphoria in 2007 and we still had a meltdown. Personally, I wouldn't mind a huge meltdown.
Paul

Gregmal

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Re: Wilshire 5000 market cap / GDP exceeds dot-com peak
« Reply #38 on: January 17, 2020, 06:00:51 AM »
Per CNBC, both Tepper and Druckenmiller are still quite bullish on the market. Tepper is probably one of the few guys I drop everything to pay attention to, so there's that. But there's also the fact that I still cant find anyone but myself and maybe a couple folks here to pencil into the "bearish" column. Which continues to concern me nonetheless.

stahleyp

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Re: Wilshire 5000 market cap / GDP exceeds dot-com peak
« Reply #39 on: January 17, 2020, 06:19:18 AM »
Have you seen the latest issue of Barron's?

A few quotes from the cover:

"It is a year to be more defensive"

"There's not much margin for error"

"We have entered a new Cold War, and that is negative for global growth"

"The scale and pace of what's happening in China are beyond anything n America"

"I am not coming into this year expecting something dramatically negative the under economy (sorry this one is hard to read since the address label is there).

Paul