Stock scream room

Discussion of the Stock portion of the Permanent Portfolio

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Cortopassi
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Re: Stock scream room

Post by Cortopassi » Fri Feb 28, 2020 12:15 pm

pmward wrote:
Fri Feb 28, 2020 12:01 pm
This will not last forever, but it will take the Fed painting themselves into a corner before that correlation breaks. For now they still have all the firepower they need.
I got you. But I'm thinking if anything breaks this trend it is this virus.

Financial crisis, internet bubble, irrational exuberance, wars, all those were reasonably contained events. 90+% of the world continued with their lives, shopping, spending, etc.

If the Fed and other central banks can navigate quickly out of this one, I will tip my hat to them.

This got me looking at stats. Amazing that 150,000 people die in the world each day. 385,000 born.
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Re: Stock scream room

Post by pmward » Fri Feb 28, 2020 12:30 pm

Cortopassi wrote:
Fri Feb 28, 2020 12:15 pm
pmward wrote:
Fri Feb 28, 2020 12:01 pm
This will not last forever, but it will take the Fed painting themselves into a corner before that correlation breaks. For now they still have all the firepower they need.
I got you. But I'm thinking if anything breaks this trend it is this virus.

Financial crisis, internet bubble, irrational exuberance, wars, all those were reasonably contained events. 90+% of the world continued with their lives, shopping, spending, etc.

If the Fed and other central banks can navigate quickly out of this one, I will tip my hat to them.

This got me looking at stats. Amazing that 150,000 people die in the world each day. 385,000 born.
There is only one thing that can break this trend. Inflation. Until inflation takes hold the Fed can print this all away. The Fed can especially print away a deflationary virus. They can print this away before Powell could even get the words "hold my beer" out of his mouth. They still have 6 possible 25bp rate cuts, infinite QE, and this is not even to mention the government's potential for providing emergency fiscal stimulus. Not to mention the fact that this will be a globally synchronized effort, not just here in the U.S. The firepower is there to rebound easily.

Now, we here get to laugh all the way to the bank. Because as long as this trend continues we have both long bonds and stocks. And when the correlation finally does violently break, we have gold and cash. The sad thing is when the trend breaks it will catch the majority of people off sides in very violent fashion.
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Re: Stock scream room

Post by I Shrugged » Fri Feb 28, 2020 5:02 pm

And remember, the important thing is to do better than most others. That sounds crass, but it is the reality of successful investing over a long run.
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Re: Stock scream room

Post by pmward » Mon Mar 02, 2020 10:02 am

Another interesting stat to look at, that also kind of limits stocks downside.... yield.

Current 10 year yield: 1.06%.

SPY 30 day SEC yield: 1.94%

SPY now has almost double the yield as the 10 year. SPY is also positive vs inflation where bonds are negative. Can we really have a lasting 40-50% or more correction from this standpoint? That would be what, a ~4% stock yield vs what would likely be 0% or even negative yield in bonds at that point??? Bonds are now capitol appreciation instruments. Cash, money markets, short term treasuries or any other cash proxy/derivative are now fixed expense vehicles. I would argue that stocks are actually safer than bonds at this point in time (though I still believe from a speculation standpoint that the bond blowoff top still has further to go). This not to even account for the negative yields throughout Europe and Japan, where their investors also make more yield holding U.S. stocks vs local or foreign bonds.
Last edited by pmward on Mon Mar 02, 2020 10:19 am, edited 1 time in total.
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Re: Stock scream room

Post by Cortopassi » Mon Mar 02, 2020 10:19 am

pmward wrote:
Mon Mar 02, 2020 10:02 am
Another interesting stat to look at, that also kind of limits stocks downside.... yield.

Current 10 year yield: 1.06%.

SPY 30 day SEC yield: 1.94%

SPY now has almost double the yield as the 10 year. SPY is also positive vs inflation where bonds are negative. Can we really have a lasting 40-50% or more correction from this standpoint? Bonds are now capitol appreciation instruments. Cash, money markets, short term treasuries or any other cash proxy/derivative are now fixed expense vehicles. I would argue that stocks are actually safer than bonds at this point in time (though I still believe from a speculation standpoint that the bond blowoff top still has further to go). This not to even account for the negative yields throughout Europe and Japan, where there investors also make more yield holding unhedged U.S. stocks vs local bonds.
There is now a case in our local hospital (Northwest Community) and a note sent out to the elementary school district (where my kids went) about contact between that person and at least three school staff/students.

It is only a matter of time until the economy grinds to a halt, whether for days or months. There will be a burst happening now/shortly, as everyone goes to Costco to stock up (we did). But after that, good luck.

2+% yield isn't going to help much when the underlying has dropped way more.

https://www.arlingtoncardinal.com/2020/ ... irus-risk/
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Re: Stock scream room

Post by pmward » Mon Mar 02, 2020 10:24 am

Cortopassi wrote:
Mon Mar 02, 2020 10:19 am

2+% yield isn't going to help much when the underlying has dropped way more.
When the underlying drops, the yield goes up further. In a time when bonds yield will continue going downward, making the gap wider and wider. This causes more and more money to flow into stocks, padding their downside potential. Stocks are much more protected than you think. Forget about the economy, because stocks have not been correlated to the economy in 10 years. Matter of fact, a 50% haircut in stocks, which would bring their yield to ~4%, at a time when bonds would have to be 0% or negative is precisely the type of environment that would get me to sell all my bonds for stocks... and I know I'm far from the only one that would do so. Stocks at S&P ~1500-1800 with a ~4% yield compared to 0% in bonds.... I'm all in! Not only that, I'm levering up!
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Re: Stock scream room

Post by Cortopassi » Mon Mar 02, 2020 3:59 pm

Insanity in both directions.
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Re: Stock scream room

Post by pmward » Mon Mar 02, 2020 4:36 pm

Yeah, the bond bubble is real, haha. Rates and liquidity are driving everything these days. At 1% nominal (~-1% real) on the 10 year, stocks deserve to be highly valued. As long as central banks keep rates suppressed this will continue. That's why I said earlier, inflation is really the only thing that can break this cycle. Right now, there's no fear of inflation, so they can just keep lowering rates, keep doing QE, keep deficit spending, keep cutting taxes, and even go to full scale MMT. Eventually they will test the limits of that and break the system (as they always do). I don't think we are at the limits yet though. This virus, if it becomes pandemic, will be deflationary, which actually is supportive of the current craziness. All things considered, demand still way outstrips supply for U.S. dollars, debt, and their derivatives. There's no doubt it's insane, there's no doubt it makes no sense, and there is also no doubt how this eventually will end. But the time it will end is not now. If inflation stays tame and they manage things well, this insanity could go on for another 5, 10, ... maybe even 20 years. It all comes back to inflation. Who would have ever thought the bond bull market could go on this long or to this extreme? When is it going to end? When is inflation going to return? I have no clue personally. But I would be willing to bet that when the bond bubble finally bursts it will spill over into a stock bust as well.
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Re: Stock scream room

Post by vnatale » Mon Mar 02, 2020 6:18 pm

Cortopassi wrote:
Mon Mar 02, 2020 10:19 am


It is only a matter of time until the economy grinds to a halt, whether for days or months. There will be a burst happening now/shortly, as everyone goes to Costco to stock up (we did). But after that, good luck.
When I walked into my local Stop & Shop tonight (anyone else reading this have one where you live) there were almost no shopping carts. My immediate thought was that it's happening here. But once I walked into the main aisle I looked down to see that there were no lines at the checkouts. And, there really were not that many people in the store. I guess the real story was that they were just slow on bringing the shopping carts back in from outside.

Me? This was a shopping trip to just buy perishables as nothing I generally stock up on was on sale and I'm already fairly stocked up on my items I buy many at a time.

Vinny
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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Re: Stock scream room

Post by mathjak107 » Tue Mar 03, 2020 8:03 am

people are afraid it will get contaminated and the cootie killers wont work on the virus.. not a problem with well water but contamination is always a problem with municipal water supplies . no one knows much about this virus and is it like the cooties that live in water like legionnaires disease
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Re: Stock scream room

Post by sophie » Tue Mar 03, 2020 8:21 am

People are nuts.

My coop sent out a bulletin about "coronavirus preparedness" where they talk about what they'll do in the event that many of the staff can't come to work. Something about halting all renovations and asking residents to help with things like taking out the trash. Good that they have a policy worked out, but announcing it like this just fans the flames of panic.

So I wondered what the odds were. Wuhan has 11,000,000 population, and China (the entire country) has had 80K coronavirus cases. Making the ridiculous assumptions that 1) they are all sick at once, 2) twice as many people would actually test positive and be quarantined or hospitalized, and 3) they were all in Wuhan, that's an infection rate of 1.4%. The chance of *any* of the 16 staff members in my coop getting coronavirus would then be 28% (likely an overestimate). It would probably take at least 3 or 4 of them getting sick to seriously disable normal function.

it really helps to be able to do math, ha.
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Re: Stock scream room

Post by pmward » Tue Mar 03, 2020 9:09 am

And just like that 50 bp emergency rate cut https://www.federalreserve.gov/newseven ... 00303a.htm
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Re: Stock scream room

Post by Cortopassi » Tue Mar 03, 2020 9:38 am

Too soon to tell, but the market seems lukewarm to it, but gold likes it. ;)
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Re: Stock scream room

Post by pmward » Tue Mar 03, 2020 9:50 am

Yes, not surprisingly. I think the market looks happy. But there is some hesitation with the Fed meeting in two weeks. That meeting matters a lot, in how they communicate what they are going to do with their liquidity injections. They were signaling as soon as last week that they wanted to roll off starting next month. My guess is they announce another 3 months of repo operations, as well as term adjustments on the prior to the long end of the curve (meaning, real QE), and project forward that they will provide any liquidity or rate cuts needed to "protect the expansion". I think that would be enough to bring volatility back in line. I also think the big plunge in the dollar over the last couple weeks (99.50 down to current 97.51) also helps a ton. I was really getting worried a couple weeks ago about that dollar breakout, and whether or not the Fed would try to fight the market a'la Q4 2018, but the virus kind of put a damper on any lingering stubborness they had. We are now back to full blown dovishness.
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Re: Stock scream room

Post by pmward » Tue Mar 03, 2020 10:56 am

Yeah and after I said that we definitely have gotten some buy the rumor, sell the news action going on today. Not really worried about that on a one day thing. It is amazing though how the pattern of volatility has gone since 2017. Volatility completely dries up and intraday swings are super tight while the market trends up. Then volatility returns with a vengeance, and intraday trading ranges become dizzying. Volatility is kind of the tail that wags the dog these days. VIX is still at 34.
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Re: Stock scream room

Post by pmward » Tue Mar 03, 2020 11:14 am

And Trump adding more fuel to the fire hammering the Fed both more rate cuts and QE. I'm telling you, stimulus the likes of which we have never seen is going to be unleashed, and it's all going to wind up in stocks:

"The Federal Reserve is cutting but must further ease and, most importantly, come into line with other countries/competitors. We are not playing on a level field. Not fair to USA. It is finally time for the Federal Reserve to LEAD. More easing and cutting!"

https://twitter.com/realDonaldTrump/sta ... gr%5Etweet
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Re: Stock scream room

Post by Cortopassi » Tue Mar 03, 2020 11:28 am

pmward wrote:
Tue Mar 03, 2020 11:14 am
And Trump adding more fuel to the fire hammering the Fed both more rate cuts and QE. I'm telling you, stimulus the likes of which we have never seen is going to be unleashed, and it's all going to wind up in stocks:

"The Federal Reserve is cutting but must further ease and, most importantly, come into line with other countries/competitors. We are not playing on a level field. Not fair to USA. It is finally time for the Federal Reserve to LEAD. More easing and cutting!"

https://twitter.com/realDonaldTrump/sta ... gr%5Etweet
And, yeah, all you retired 60 and 70 and 80 year olds living on a bit of interest from your savings and bonds, because you're trying to be safe, sorry. The market is way more important than you.
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Re: Stock scream room

Post by dualstow » Tue Mar 03, 2020 11:37 am

Cortopassi wrote:
Tue Mar 03, 2020 11:28 am
And, yeah, all you retired 60 and 70 and 80 year olds living on a bit of interest from your savings and bonds, because you're trying to be safe, sorry. The market is way more important than you.
Are you saying the fed should prop up interest rates for retirees who shun stocks?
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Re: Stock scream room

Post by pmward » Tue Mar 03, 2020 12:59 pm

Apparently the stock selloff is due to some comments by Powell that ruffled some feathers. He said that they have not yet discussed anything other than the rate cuts, and that at the moment this seems adequate. Of course, last week they were sounding hawkish so they will capitulate more. Either way, Powell sometimes is better off not speaking, as people try to read too much into it.
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Re: Stock scream room

Post by dualstow » Tue Mar 03, 2020 1:01 pm

pmward wrote:
Tue Mar 03, 2020 12:59 pm
Either way, Powell sometimes is better off not speaking, as people try to read too much into it.
It's funny- he's so calm and reasoned in my opinion, but yes, people almost want to read weird things into his words. Any words.
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Re: Stock scream room

Post by Cortopassi » Tue Mar 03, 2020 1:26 pm

dualstow wrote:
Tue Mar 03, 2020 11:37 am
Cortopassi wrote:
Tue Mar 03, 2020 11:28 am
And, yeah, all you retired 60 and 70 and 80 year olds living on a bit of interest from your savings and bonds, because you're trying to be safe, sorry. The market is way more important than you.
Are you saying the fed should prop up interest rates for retirees who shun stocks?
I am saying if the economy has been as good as everyone has been saying for the last few years, we never even got close to normalizing interest rates (I assume "normal" is closer to 5%) and we started cutting last year when the economy was apparently humming along on the surface. Why is that?

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Re: Stock scream room

Post by Libertarian666 » Tue Mar 03, 2020 1:35 pm

sophie wrote:
Tue Mar 03, 2020 8:21 am
People are nuts.

My coop sent out a bulletin about "coronavirus preparedness" where they talk about what they'll do in the event that many of the staff can't come to work. Something about halting all renovations and asking residents to help with things like taking out the trash. Good that they have a policy worked out, but announcing it like this just fans the flames of panic.

So I wondered what the odds were. Wuhan has 11,000,000 population, and China (the entire country) has had 80K coronavirus cases. Making the ridiculous assumptions that 1) they are all sick at once, 2) twice as many people would actually test positive and be quarantined or hospitalized, and 3) they were all in Wuhan, that's an infection rate of 1.4%. The chance of *any* of the 16 staff members in my coop getting coronavirus would then be 28% (likely an overestimate). It would probably take at least 3 or 4 of them getting sick to seriously disable normal function.

it really helps to be able to do math, ha.
If there's a lily pond in a lake that doubles in size every day, and it covers the lake at the end of day 30, when did it cover half the lake?
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Re: Stock scream room

Post by Cortopassi » Tue Mar 03, 2020 1:37 pm

The old give me one penny, then two pennies then four pennies thing for a month.... :D
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Re: Stock scream room

Post by pmward » Tue Mar 03, 2020 1:37 pm

dualstow wrote:
Tue Mar 03, 2020 1:01 pm
pmward wrote:
Tue Mar 03, 2020 12:59 pm
Either way, Powell sometimes is better off not speaking, as people try to read too much into it.
It's funny- he's so calm and reasoned in my opinion, but yes, people almost want to read weird things into his words. Any words.
Yeah, you really cannot make this kind of stuff up. The temper tantrum both Trump and the market throw every time they are demanding more stimulus is ridiculous. It's a circus show!
Cortopassi wrote:
Tue Mar 03, 2020 1:26 pm

I am saying if the economy has been as good as everyone has been saying for the last few years, we never even got close to normalizing interest rates (I assume "normal" is closer to 5%) and we started cutting last year when the economy was apparently humming along on the surface. Why is that?
The reason is apparent. The economy is not as good as everyone thinks. Under the surface things are bad. But the rate cuts, QE, deficit spending, tax cuts, etc distort the big picture. This is why I say the stock market is divorced from the economy these days. The economic data is clear as day that growth has been horrendous the last 10 years. They've just kept easing to higher multiple expansions, and the easing has allowed companies to buy back shares to distort the P/E picture. It's all one giant distortion. But, everyone who knows anything recognizes this. However, what are you gonna do? As long as the music is playing, you have to continue to dance. They can keep this going for a long time to come. Common sense left the building ages ago.

Side note: it would be interesting to hear what Harry's thoughts would have been on the current environment.
Last edited by pmward on Tue Mar 03, 2020 1:38 pm, edited 1 time in total.
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Re: Stock scream room

Post by Libertarian666 » Tue Mar 03, 2020 1:38 pm

dualstow wrote:
Tue Mar 03, 2020 11:37 am
Cortopassi wrote:
Tue Mar 03, 2020 11:28 am
And, yeah, all you retired 60 and 70 and 80 year olds living on a bit of interest from your savings and bonds, because you're trying to be safe, sorry. The market is way more important than you.
Are you saying the fed should prop up interest rates for retirees who shun stocks?
"Not keeping rates on the floor by heroic means" != "propping up interest rates".

But of course we know they can never let rates reach their natural levels because that would add at least $1 trillion to the deficit almost instantly.

It's pretty hard to see how this ends without some sort of financial disaster.
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