Author Topic: Did we just here a bell?  (Read 6603 times)

Kaegi2011

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Re: Did we just here a bell?
« Reply #20 on: March 13, 2020, 11:05:50 AM »
not saying its the bottom, i have no idea, but remember market bottom before the real economy does

Lol the real economy has barely registered the impact outside of travel.  3 weeks is barely enough time to think about a reorg, put aside the uncertainty on whether it's a good idea, how much to cut, etc.  We're about to see a lot worse when the movement of people stops. 


Kaegi2011

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Re: Did we just here a bell?
« Reply #21 on: March 13, 2020, 11:07:00 AM »
Separately, I work with retail clients and no one is selling which leads me to ask, who is? Are the machines selling?

Clearly it's just the democrats selling and the republicans buying!!  :)

ERICOPOLY

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Re: Did we just here a bell?
« Reply #22 on: March 13, 2020, 11:09:16 AM »

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.


Don't inflation expectations drive interest rates down?  Don't inflation expectations also drive P/E for the markets?

P/E of 15x == 6.67% earnings yield
P/E of 20x == 5% earnings yield

So if future inflation expectations are (hypothetically) 167 basis points lower, then isn't a 15x multiple the same as a 20x multiple in real terms?

hyten1

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Re: Did we just here a bell?
« Reply #23 on: March 13, 2020, 11:10:25 AM »
haha, i understand, as we all know market is forward looking, it obviously has price in something, you can argue its hasn't price in a recession or what the levels of recession will be, no one knows. many stocks are down over 50%.

the point of this is, market bottom before the actual economy, you can be hearing bad news from the economy while the market goes up.

i have no idea

not saying its the bottom, i have no idea, but remember market bottom before the real economy does

Lol the real economy has barely registered the impact outside of travel.  3 weeks is barely enough time to think about a reorg, put aside the uncertainty on whether it's a good idea, how much to cut, etc.  We're about to see a lot worse when the movement of people stops.

chrispy

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Re: Did we just here a bell?
« Reply #24 on: March 13, 2020, 02:29:04 PM »
This situation is unique in that there is a good chance in 1-2 weeks things will seem more grim then they do today (unless the ace of spades vaccine comes about)

TwoCitiesCapital

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Re: Did we just here a bell?
« Reply #25 on: March 13, 2020, 04:21:51 PM »

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.


Don't inflation expectations drive interest rates down?  Don't inflation expectations also drive P/E for the markets?

P/E of 15x == 6.67% earnings yield
P/E of 20x == 5% earnings yield

So if future inflation expectations are (hypothetically) 167 basis points lower, then isn't a 15x multiple the same as a 20x multiple in real terms?

Agreed. Inflation is far more important than nominal rates. But it's not linear.

Top multiples tend to be found when inflation is 1-3% (regardless of what nominal rates are T that time). If inflation falls sustainably below, or above, that range is when P/Es start collapsing dramatically.

Also, found some of the data I was looking at on Japanese companies. They were actually using earnings relative to Enterprise value since Japanese companies tend to hold so much cash while U.S. companies were far more levered. The difference was stark!

mcliu

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Re: Did we just here a bell?
« Reply #26 on: March 13, 2020, 06:33:57 PM »
I think you might have to factor in both growth and inflation/interest rate.
They're linked since low growth implies low inflation/interest rate, but not always. With globalization, there's possibility of importing deflation from other countries.
In Japan/Europe, you have negative growth, negative inflation/interest rattes, hence low multiples.
In US, you have low-medium growth but also low inflation/interest rates, hence high multiples.
I dunno, not an economist, so just a guess.

Spekulatius

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Re: Did we just here a bell?
« Reply #27 on: March 14, 2020, 05:20:16 AM »
I think you might have to factor in both growth and inflation/interest rate.
They're linked since low growth implies low inflation/interest rate, but not always. With globalization, there's possibility of importing deflation from other countries.
In Japan/Europe, you have negative growth, negative inflation/interest rattes, hence low multiples.
In US, you have low-medium growth but also low inflation/interest rates, hence high multiples.
I dunno, not an economist, so just a guess.

Low or negative interest rates mean that the economy tends to be very slow growing and fragile. This also means that profits donít grow a d may be fragile, which doesnít support high equity multiples. If Europe and Japan is any guide, the multiples for equity wonít go up if interest rates in the US go negative, because this wonít occur in isolation, there will be other factors that negate higher discount rates (crappy profit growth, fragile profits etc).

At least thatís how I think about this, but I am not an economist. I do think that multiples for real estate, especially residential RE will go up if interest rates go negative, because borrowing costs  is the largest cost factor except in very high tax states.
Life is too short for cheap beer and wine.

TwoCitiesCapital

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Re: Did we just here a bell?
« Reply #28 on: March 16, 2020, 06:11:15 PM »

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.

Going to change my tune here. The last two business days have been filled with clients wanting to change to less volatile asset allocations (a la sell equities and buy bonds....).

Still not seeing people say sell everything yet, but we're getting closer.
« Last Edit: March 16, 2020, 10:02:13 PM by TwoCitiesCapital »

no_free_lunch

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Re: Did we just here a bell?
« Reply #29 on: March 16, 2020, 07:49:26 PM »
Financials and cyclicals are getting hit hard right now. So many banks down 50%.   It makes sense if there is an extended downturn.  Small businesses and average joe won't be able to make their mortgage payments and will certainly delay spending.  It could be really ugly.

If you think all of this will happen I just don't see how it won't impact other industries more downstream.  If it is this bad then it has to ripple through. I think it will make its way through to tech.  Still very bubbly there.  Perhaps tech spending will get cut by smaller businesses and ad spending will be put on hold.

If I'm wrong I just don't see the banks going under and they are a bargain now.

Just some random thoughts.