Author Topic: Did we just here a bell?  (Read 6645 times)

stahleyp

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Re: Did we just here a bell?
« Reply #10 on: March 13, 2020, 07:44:24 AM »

Also, for what it's worth, I also work w/ retail investment clients. For the most part, they're doing as they should and staying the course and some are even adding. The "buy-the-dip" mentality has not been sufficiently punished for this to be the end of the selling.

This is good information. thanks.
Paul


jschembs

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Re: Did we just here a bell?
« Reply #11 on: March 13, 2020, 08:35:05 AM »
We're still @ like 16x trailing earnings. When has a bear market and a recession EVER ended @ 16x earnings? And those earnings haven't even really been revised down yet.

S&P 2000 and the announcement of the recession will be the time to start buying. Each rally is a selling opportunity until then.

Also, for what it's worth, I also work w/ retail investment clients. For the most part, they're doing as they should and staying the course and some are even adding. The "buy-the-dip" mentality has not been sufficiently punished for this to be the end of the selling.

Exactly - this began with elevated multiples, which in conjunction with a recession doesn't seem like it would end in just a ~25% decline.

ERICOPOLY

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Re: Did we just here a bell?
« Reply #12 on: March 13, 2020, 08:48:08 AM »
16X at 0.9% on the 10 yr... that might be cheapish, considering the market for the past 100 years has averaged 16x but with a 6% 10 yr.

Yes, but I've hammered on and on again about how low interest rates do NOT support high multiples b/c they also imply low growth.

Just like Europe and Japan weren't trading @ 20x earnings even with lower rates. But people were allowed to conveniently ignore that b/c U.S. stocks kept rising and we had to find a way to justify it. Every bubble has a grain of truth - me thinks the "low interest rates = higher equity multiples" will be the main contributor to this one.

Japan has traded above P/E 20 for a very long time:

https://www.ceicdata.com/en/indicator/japan/pe-ratio

thepupil

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Re: Did we just here a bell?
« Reply #13 on: March 13, 2020, 08:48:33 AM »
I would draw a distinction between high quality, growing, going-concern businesses, such as Google for example, which I think is reasonably priced, having corrected down from levels where one could start to get nervous and a bunch of other lower quality assets (banks, real estate, chemicals, energy, midstream, travel) etc. where we have seen far greater declines and are seeing the beginnings of a potential credit opportunity and or highly levered recovery play (if one is more bullish)

I think a lot of the "this ain't close to the bottom" crowd is looking at the first type. Google is trading where it was in October 2019, and well above the Christmas eve 2018 lows, which was a more clear opportunity.

For the other shittier stuff, I am not saying it's the bottom either, but I'm saying that a more material de-rating / unwind has occuured than is implied by the broad market indices. As one example, the Alerian index is down over 50%

TwoCitiesCapital

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Re: Did we just here a bell?
« Reply #14 on: March 13, 2020, 09:07:20 AM »
16X at 0.9% on the 10 yr... that might be cheapish, considering the market for the past 100 years has averaged 16x but with a 6% 10 yr.

Yes, but I've hammered on and on again about how low interest rates do NOT support high multiples b/c they also imply low growth.

Just like Europe and Japan weren't trading @ 20x earnings even with lower rates. But people were allowed to conveniently ignore that b/c U.S. stocks kept rising and we had to find a way to justify it. Every bubble has a grain of truth - me thinks the "low interest rates = higher equity multiples" will be the main contributor to this one.

Japan has traded above P/E 20 for a very long time:

https://www.ceicdata.com/en/indicator/japan/pe-ratio

Thanks for pointing this out. Going to have to research the discrepancies. It's been awhile since I looked, but had previously seen data that Japanese companies traded cheap to earnings (like 12x) and even cheaper compared to assets.

Will need to dig in to determine the differences in how this is being measured to respond.

tradevestor

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Re: Did we just here a bell?
« Reply #15 on: March 13, 2020, 09:29:14 AM »
How does low interest rates imply low growth?

TwoCitiesCapital

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Re: Did we just here a bell?
« Reply #16 on: March 13, 2020, 09:41:41 AM »
Because 1% yields don't exist in a world of 5% growth - at least not more than temporarily. And if they do, you get massive inflation which would then drive the yields back up.

tede02

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Re: Did we just here a bell?
« Reply #17 on: March 13, 2020, 10:29:14 AM »
It's agonizing trying to balance buying what looks very attractive against keeping dry powder. I've been nibbling on a few things I already own. On one hand, feel like I've been too aggressive adding. On the other, if this is the bottom, I'll regret not having bought way more. It's very difficult.

Separately, I work with retail clients and no one is selling which leads me to ask, who is? Are the machines selling? Perhaps all the buyers just disappeared which has caused the huge blow out on bid/asks.


LC

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Re: Did we just here a bell?
« Reply #18 on: March 13, 2020, 10:36:29 AM »
It's agonizing trying to balance buying what looks very attractive against keeping dry powder. I've been nibbling on a few things I already own. On one hand, feel like I've been too aggressive adding. On the other, if this is the bottom, I'll regret not having bought way more. It's very difficult.

I think a lot of people are having the same problem.

One potential solution, estimate the level at which you'd start buying hand-over-fist, on margin. Is it SP500 at 2000? 1800? Then you can create a curve from here to that terminal point and invest a portion of your dry powder along that curve.

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Cigarbutt

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Re: Did we just here a bell?
« Reply #19 on: March 13, 2020, 10:51:41 AM »
How does low interest rates imply low growth?
If you have time to waste and don't mind circular arguments, you can think about cause and effect and directionality of cause.
Somebody looked at correlations and interest rates (real or expected) tend to correlate with growth.
https://seekingalpha.com/article/4169837-what-is-relationship-interest-rates-growth-and-inflation
There's been some "progress" since the article was published.

That's unlikely to be useful for stock picking but you may realize that the widening disconnect between lower growth rates and personal "wealth" has been correlated to lower discount rates used.
It's interesting because once (if?) rates go negative, your financial calculator will keep producing error messages and somebody may suggest: "Anybody herd a bell?"
I read Uccmal's post above and realized (again) how irrelevant my entry points are and I'll just go back to sleep.