Speaking of PE, I grabbed this off of twitter.
No, no, no . . . We’re already seeing huge drops in human activity that have not yet worked their way into GDP numbers or corporate earnings. You have to assume big drops in estimates and/or negative earnings surprises, and that the “actual” market P/E is much higher.
Folks, close the excel files and lock your calculators in a drawer. There is much that remains unknown but one thing Is completely certain: We are now in a time when ALL statistical analysis is 100% worthless. It won’t be this way forever. But it is for now.
This is now a time to be managing personal risk, re-evaluating portfolios in light of what we’re learning (Do you have debt-heavy energy companies in your portfolio? Watch out. That’s the emerging 2008-style crisis — the downside there is zero), building/refining watch lists, and monitoring unfolding real-world events and market sentient/activity.
At this time, you should be spending a helluva lot more time in the p123 panels than in the screens, ranking systems, sims, etc. And start looking at the companies you’re holding . . . one at a time.
If you want to use this time productively, use it to study up on the portfolio123 panels and how to customize them. Read Chapter 7 of the A to Z guide that’s under the Learn menu. Do it. The worst thing you can do in a down market is come out with a skill set that is no different from the one you had going in (because each one changes the world in its own way and requires a different knowledge base on the other side). So use this time to learn, learn, learn and then learn some more.
Marc,
I think most of us already get this. But the question is whether the demand will be deferred (obviously not totally). And whether we will see a V-shaped or U-shaped or L-shaped recovery. Or maybe it will trigger a recession.
I agree with everything you say. Can you expand—even with your own alphabet of recovery shapes if you wish;-)
Best,
Jim
As we have become more services oriented, there is a larger portion of the economy in which demand happens or doesn’t happen but cannot be deferred. A year or so after we’ve come out of it, we’ll probably have a sense of the %. But for now, nobody knows (probably because nobody saw a reason to compute it.
V shaped recoveries have been the case lately. I think the market has too much institutional and computer generated activity to allow for a U — unless the downside drives enough algos out of business). Don’t jinx us by thinking about the L . . . We sure as hell don’t want any part of that. But if we get one, unless a lot of institutions and algos vanish, the other side of an L, however long it takes to get there, is liely to be close to 90 degrees up . . . For those who can get to that point. Ultimately, hope for the V but watch out for the R-shaped or W-shaped patterns.
(There is no such thing as an R-shaped recovery — I just wanted to make sure you were awake!)
BTW, don’t forget to watch the election too. Sanders’ diminishing fortunes make for at least one good item of market news . . . But then again, longer term, we will have to be concerned about the strength he has shown among the youngest voters. (Can anybody spell A-O-C?) But if Biden can actually win and stabilize the political climate, that could take a lot of bite out of the extreme left. What we want is a moderate bull market . . . The rise of the extreme left is a direct consequence of all the fundamentals that gave us the super bull — every gain in margin (cost cut) minted a newborn socialist . . . That sort off thing. I hope Andreas is wrong about the degree of his bullishness . . . We won’t be able to get to that without strengthening the post-Sanders “Democratic” Socialist movement and possibly pushing them into dominance and . . . Think of the name of the NFL team in p123’s home city. (If you’re not a football fan, go to Wikipedia.) We badly need and should hope for moderation.
There’ s a lot happening in the word. A lot to watch. A lot to evaluate.
Thanks for sounding the alarm, Marc. I agree with everything you say.
There are all sorts of ramifications. Presidents tend not to get relected after a shock (Ford, Carter, Bush1). Kyle Bass is concerned about another banking crisis overseas like we saw in 1998, as many European and Asian banks remain highly levered. Corporate debt downgrades could spark untold trouble. On the health front, America only has 340,000 empty hospital beds for a population of 340M. The virus could overwhelm that in a hurry. Even if it burns off, there is the second wave to worry about.
With regard to Walter’s chart, 10x PE at 1800 is a possibility. Perhaps within weeks.
Here are some weekly charts showing the 200-week MA and the 10% 78-week MA envelopes.
It’s so hard to guess the market direction now. We don’t know. Like, is it possible for the western world to use the approach China uses to slow down the virus. I’m market natural now but decided to liquidate this week. Too much going on now, fiscal policy, virus news, very difficult apply models in it. Even market neutral I feel it’s hard to control because of the volatility and easy to lose money as well.
However, I did use 1.5 year LEAP to buy a few assets I think it’s definitely under value. For example, TSM.
As Marc suggested, it’s time to study. Maybe use small portion of money to play a few strategy for fun.
Terry
Welp, down 5.9% on the Dow. 4.9% on the S&P.
If the pattern continues, the futures are limit down tonight resulting in a big gap down and early losses tomorrow . . . followed by a rally into the close erasing most of the loss.
PS The press conference with the bankers reminds me of the scene from Animal House:
Miro,
Nice prediction on the market today.
Let’s see if the pattern tonight/tomorrow will also follow history.
Regards
James
I’m doing what I always do every month. “Buy buy buy!” (Jim Cramer’s voice). I have no ability to time the market, so why bother? The only question is, do I buy more stocks, or more bitcoin? Do I use leverage, and how much?
Just out of curiosity, how many of your market timing models correctly predicted this downturn? None of mine did. We don’t exactly have a coronavirus indicator here.
My models where hedged 60-70% gold and bonds and just by dumb luck I liquidated yesterday because the vix was over 50 and gold and bond volatility was extremely high. Basically broke even YTD. When the vix drops below 20 I will get back in slowly. I will probably miss the big recovery but I am sleeping well. I think a good market timer will be the number of new cases reported starts to decrease. Right now they are growing exponentially world wide and there is no chance of volatility getting lower when countries are locking down. I’m happy to sit on the sidelines.
Already 2595 on the S&P futures. Down 5+%.
I think we’re now officially in a bear market, right? The S&P 500 made a high of 3,393.52 on February 19. Today it made a low of 2,707.22. That’s more than 20% from the high. The Dow Jones Industrials are down 20% too. Well, some news writers are only using closing prices, so maybe we have to wait for tomorrow’s close . . .
Yep bear market, classic bear pattern. I’m thinking this turns around when the US gets control of Coronavirus case growth meaning that exponential growth abates. Right now cases are going up 33% each day. My wife and I actually try to guess what it will be the next day. Sounds macabre, but we need to lighten the mood. Tomorrow she guessed 1768 in US and I calculated 1800. I do think this bear market will be shorter than expected just as the fall was quicker than expected. I think when it turns around you won’t have much time to get back in before recovery is priced back in.
Watch this site:
https://www.worldometers.info/coronavirus/country/us/
I think when the cases stop being log linear by rounding off then a good bull case can be made. That will demonstrate that he US is containing and that no more economically choking measures are needed. It’s not to say the economy will be at full steam but it will tell you that the worst is behind.
Jeff
If you’re looking at microcaps the drawdown is now over 30%. IWC is now at 69% of its high (which was in September 2018).
I use as my benchmark an equal-weighted collection of all the stocks above a certain liquidity level which is my personal minimum. The drawdown there is 27.33%. My own portfolio isn’t quite in bear-market territory yet: my drawdown is only 18.67%. Which is no reason to celebrate . . .
It’s pretty clear that the stock market is not moving in inverse proportion to coronavirus cases in the US, which don’t fluctuate nearly as much as the market does. If this does go from correction to bear, then the strongest bull case is the moment when the large majority of investors give up hope. And that could coincide with a spike in coronavirus cases. Remember March 2009? Was anyone saying, “Oh, now it’s over”? No–precisely the opposite was happening. Everyone had given up.
I tend to agree that the turnaround, or at least a Schrodinger Cat Bounce (is it alive or dead???) will happen as soon as traders who capitulated believe that the next six months or so will be better for the market. That doesn’t have to wait for business to resume. It could come as pharma announces effective countermeasures that would allow most movement and business to resume in the near future, at a time when our financial modeling factors would still be clueless. Seems obvious to me that the U.S. has a long way to go before the worst is over, unless a White Swan event (unexpected good event) happens. I’m playing everything by ear now, shooting from the hip.
Today’s thrashing of all assets tempts me to dip a toe into the flood but …
It sounds mean but the dip buyers need to be burned. There are too many dip buyers are there still thinking this will bounce back 2018 style. Only when Mr. Market reminds the dip buyers that there are no free lunches will the bear market subside
Jeff
Expect another circuit breaker tommorrow. Not getting out of the market in my retirement accounts that In not going to need for another 15 years. I liquidated some if my taxable accounts into cash based on moving averages, but still mostly long there too. I have cash on hand to ride things out for a while and I intend to use it preciously.
The virus will run its course and blow through (though I dont mean to minimize the effects on the victims). As an investor, Im more concerned about secondary effects. Are retiring or near retiring baby boomers just going to lose their stomach for risk from this? What becomes of all the public pension plans thatvhave been banking on 7% annual returns? As Buffett says, when the tide pulls out you see who has been swimming naked.
Exactly. I think the advice for people to move out of low yielding bonds into dividend stocks was ill-informed. At least when bonds go down in price yield goes up. The same can’t be said for dividend stocks which go down in yield and value generally at the same time. I’m an advocate for stock investing but when you are close to retirement and need that income even low yielding fixed income is still better than stocks. I suspect many older investors became complacent in the 10+ year bull market.
Just a few weeks ago there were several articles written about how big market drops were a thing of the past with how much the fed managed the markets. I thought that was BS and the market proved them idiots.
Let’s see if value investing is dead as well as the academics have proclaimed…