Stock scream room

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pmward
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Re: Stock scream room

Post by pmward » Fri Feb 28, 2020 8:28 am

To be clear... I'm not saying today is the bottom. This is not a market timing call. I'm simply saying this is a dip to be bought. The governments across the world are hell bent on trying to avoid another major recession, and they will do whatever it takes. Could stocks drop another 10% from here (20% total)? Absolutely, I think a 20% correction given the extended nature of the market prior to the virus would be healthy. Could it drop another 20% from here (30% total)? If the worst fears of the global pandemic come true, yes. However, something temporary like a virus will not warrant a 40-50% correction. This will not be another 2008. Moreover, the governments will stimulate like mad to prevent that. I'm talking rate cuts, QE, helicopter money... you name it. Especially in the U.S. with Trump's re-election bid. If Powell doesn't want to play his game, in the wake of the virus Trump could use his favorite excuse to do what he wants, ie "national emergency", to fire Powell and put in someone willing to be a puppet. I don't think it will come to that though. I fully expect that in the worst case scenario Powell will take rates to 0 and unleash a massive wave of QE, including but not limited to rolling the terms in the short term liquidity we've provided since Oct to the long end of the curve. I also would not be surprised to see Trump unleash emergency tax breaks aka helicopter money if the worst fears materialize. They will juice the market in any way possible. It's no secret that I'm not a fan of Trump. But let's be real, Trump is not the kind to sit on his hands. He is the type to do whatever it takes. He is the type to act quickly and act decisively, and that's exactly what will happen should things really start to get out of hand. So we in the U.S. have a massive Fed PUT and Trump PUT under us.

The EU is obviously a bit trickier since Germany has been stubborn... but I would be willing to bet that they undo their fiscal belts as well in the wake of the virus. I'm fully expecting a big fiscal stimulus package of some kind out of the EU. China and Hong Kong are already stimulating. Japan will follow suit. That would have a global synchronized stimulus... something we didn't even have back in the financial crisis. I don't know about you, but I'm personally not going to bet against that. We are talking stimulus the likes of which we have never seen before.

I have a bonus from work that hit today and that's going into my GB as was already planned, and obviously that will all be going into stocks. I'm also going to harvest some losses today in shuffling IJS into VBR. I'm going to hold out a bit on harvesting my ITOT losses in case we get another leg down. Either way, I'm not going to get caught off sides. I have 0 fear that this is the big one. The odds are highly probable that this is just a short term correction. I'm personally putting my money where my mouth is on that one.
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Re: Stock scream room

Post by Cortopassi » Fri Feb 28, 2020 8:47 am

pmward wrote:
Fri Feb 28, 2020 8:28 am
However, something temporary like a virus will not warrant a 40-50% correction. This will not be another 2008.
The market went up nearly 30% last year. Why do you think it can't fall 40-50%?

If this gets out of control in the US, and everything right now points to that, I don't care what kind of stimulus is out there, if people are staying home, schools are closed, travel is limited, etc, isn't going to make one bit of difference to me if interest rates are at 0% or if Trump gives me $1000 to spend. I'm not leaving my house!
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Re: Stock scream room

Post by flyingpylon » Fri Feb 28, 2020 9:04 am

Cortopassi wrote:
Fri Feb 28, 2020 8:47 am
If this gets out of control in the US, and everything right now points to that...
Where did you read that?
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Re: Stock scream room

Post by Cortopassi » Fri Feb 28, 2020 9:10 am

flyingpylon wrote:
Fri Feb 28, 2020 9:04 am
Cortopassi wrote:
Fri Feb 28, 2020 8:47 am
If this gets out of control in the US, and everything right now points to that...
Where did you read that?
I just figured that was obvious. I could be wrong. No way draconian travel restrictions like China is able to do will fly here, until it's too late to stop the spread.
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Re: Stock scream room

Post by pmward » Fri Feb 28, 2020 9:14 am

Cortopassi wrote:
Fri Feb 28, 2020 8:47 am
pmward wrote:
Fri Feb 28, 2020 8:28 am
However, something temporary like a virus will not warrant a 40-50% correction. This will not be another 2008.
The market went up nearly 30% last year. Why do you think it can't fall 40-50%?

If this gets out of control in the US, and everything right now points to that, I don't care what kind of stimulus is out there, if people are staying home, schools are closed, travel is limited, etc, isn't going to make one bit of difference to me if interest rates are at 0% or if Trump gives me $1000 to spend. I'm not leaving my house!
If they could out stimulate the financial crisis, without even having the global synchronized stimulus, they can out stimulate the virus with global synchronized stimulus. Especially since they are going to stimulate much quicker and more aggressively now than they did in 08 when it was still an untested strategy. Your point about last year just places an exclamation point on this. Why was the market up 30% last year? Because the Fed cut rates and started providing liquidity to the Repo markets (let's not also forget that the year started down almost 20%). There is no other reason. They have the power to out stimulate this easily.

By the way I have now officially put my money where my mouth is. My full bonus (10% of my yearly salary) was just put into the market since it was my lowest asset in my GB. This feels panicky and overdone in the short term (and from a dark arts perspective, we are bouncing off an important support line so far this morning), and while things could get uglier in the medium term, in the long term I know this will be a blip on the radar. I fully believe we will be back at all time highs by the election.
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Re: Stock scream room

Post by Cortopassi » Fri Feb 28, 2020 9:48 am

flyingpylon wrote:
Fri Feb 28, 2020 9:04 am
Cortopassi wrote:
Fri Feb 28, 2020 8:47 am
If this gets out of control in the US, and everything right now points to that...
Where did you read that?
Mick Mulvaney, a little while ago:

"Are you going to see some schools shut down? Probably. Maybe see impacts on public transportation? Sure, but we do this. We know how to handle this," Mulvaley said while speaking at the Conservative Political Action Conference (CPAC) outside of Washington on Friday.

Mulvaney also slammed the media for painting a narrative that the Trump administration is "scrambling" to contain the virus, noting that he briefed Congress along with top health officials six weeks ago. He accused the media of ignoring coronavirus until now, according to The Hill.

"Why didn’t you hear about it?" Mulvaney asked the audience while sitting down with Heritage Foundation economist Stephen Moore. "The press was covering their hoax of the day because they thought it would bring down the president."

"Is it real? It absolutely is real," Mulvaney said. "But you saw the president the other day — the flu is real."

Mulvaney then downplayed the risk of the new coronavirus, saying that people should be focusing on the mortality rate which is currently, officially, between 2 and 3%.
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Re: Stock scream room

Post by dualstow » Fri Feb 28, 2020 9:51 am

• A lot of professionals have to sell stock this week, while long-term individual investors don't. (WSJ)

• Some trading machines are also mindlessly selling per limit orders.

Perhaps the market is not just correcting, but oversold. I look forward to buying more stock shares this season.
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Re: Stock scream room

Post by Ad Orientem » Fri Feb 28, 2020 10:12 am

The late great Jack Bogle's advice when the markets look scary...

"A lot of folks who find themselves in a crisis shout 'don't just stand there, do something!.' My advice in a financial panic is don't do anything. Just stand there."
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Re: Stock scream room

Post by pmward » Fri Feb 28, 2020 10:15 am

FWIW, VIX just hit 48. For comparison, in December 2018 it peaked at 38. In Jan 2018 it peaked at 50. It was above our current level of 48 from October 08-March 09.
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Re: Stock scream room

Post by Cortopassi » Fri Feb 28, 2020 10:23 am

After this current drop, the market is back to where it was.... in October, 4 months ago.

Maybe the performance up and to the right that started right around there is clearing itself out? It was a bit crazy.

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Re: Stock scream room

Post by pmward » Fri Feb 28, 2020 10:35 am

That is nuts, isn't it? It feels like such a violent correction, but we literally only went back 4 months in time. S&P is still at 2920. It wasn't that long ago we were all cheering when the S&P was at 2920.
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Re: Stock scream room

Post by Vil » Fri Feb 28, 2020 10:51 am

pmward wrote:
Fri Feb 28, 2020 8:28 am
I'm talking rate cuts, QE, helicopter money... you name it.
Do tend to fully agree that such measures are to be taken. However (I do not want to oversimplify things, nor to exaggerate things) seeing people in the markets buying more packets of flour, sugar, few more stacks of water (one get used with the normal amounts people use to buy) is just another layer of our reality - one that does not have too much common with rate cuts and QE. Simply its all fear driven (fear of unknown, not necessarily the fear of COVID).
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Re: Stock scream room

Post by pmward » Fri Feb 28, 2020 11:00 am

Vil wrote:
Fri Feb 28, 2020 10:51 am
pmward wrote:
Fri Feb 28, 2020 8:28 am
I'm talking rate cuts, QE, helicopter money... you name it.
Do tend to fully agree that such measures are to be taken. However (I do not want to oversimplify things, nor to exaggerate things) seeing people in the markets buying more packets of flour, sugar, few more stacks of water (one get used with the normal amounts people use to buy) is just another layer of our reality - one that does not have too much common with rate cuts and QE. Simply its all fear driven (fear of unknown, not necessarily the fear of COVID).
Right, but I'm merely talking about stock asset prices. Rate cuts, QE, and fiscal stimulus all will go directly into inflating stock prices back to where they were. The underlying economy would have some damage sure, but from an investing standpoint we will get the triage we need to survive until the economic storm fully passes.
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Re: Stock scream room

Post by pmward » Fri Feb 28, 2020 11:22 am

Let's also keep in mind that stock indexes have not been correlated to the economy for over a decade now. They have purely correlated to liquidity. After the virus fears started there has been a liquidity squeeze, and when liquidity gets tight volatility surges and stocks go down. Once that liquidity the market is screaming for is provided volatility will disappear and stocks will march right to where they were in surprisingly short accord. Just like in October with the repo market quake, the Fed won't just provide the liquidity needed to stabilize the crisis, they will go above and beyond to be safe.
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Re: Stock scream room

Post by Cortopassi » Fri Feb 28, 2020 11:42 am

pmward,

I'm still not getting it. If, say, Apple comes out with projected earnings that are less than last year, in a normal world, would that not mean their stock price should be less than last year? What does QE or rates or stimulus have to do with that, unless the govt is directly buying stock?

What does stimulus do? Are you saying that will create demand? Why do I want Apple stock in this case if the earnings will be less? Why am I enticed to buy the stock?

Same question for rate cuts. I understand that a rate cut might make someone buying a house more open to it because of lower payments, but if the overall economy makes me want to hold cash and wait, all I see, again, is deflation and price cutting.

I understand you believe this will pass. And it will. But everyone is so accustomed to these things passing so quickly, what if this time it just doesn't and continues for decades like Japan?
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Re: Stock scream room

Post by pmward » Fri Feb 28, 2020 12:01 pm

Cortopassi wrote:
Fri Feb 28, 2020 11:42 am
pmward,

I'm still not getting it. If, say, Apple comes out with projected earnings that are less than last year, in a normal world, would that not mean their stock price should be less than last year? What does QE or rates or stimulus have to do with that, unless the govt is directly buying stock?

What does stimulus do? Are you saying that will create demand? Why do I want Apple stock in this case if the earnings will be less? Why am I enticed to buy the stock?

Same question for rate cuts. I understand that a rate cut might make someone buying a house more open to it because of lower payments, but if the overall economy makes me want to hold cash and wait, all I see, again, is deflation and price cutting.

I understand you believe this will pass. And it will. But everyone is so accustomed to these things passing so quickly, what if this time it just doesn't and continues for decades like Japan?
Like I said, the market is not correlated to the economy anymore. It is correlated to liquidity. It doesn't matter whether or not it should. This is the way it is in this day and age, like it or not, sensical or not. 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. By easing that money goes straight into the stock market. Just look back to the liquidity they started providing the Repo markets in October. Where did that money wind up? In the stock market. Were there economic reasons for this? Not really. Sure, after the market started going up a lot of market pundits started talking "global reflation", but was it economic data that caused this talk? Or was the talk there simply because the stock market was going up? And the stock market going up just because it was getting liquidity? Some day the market will re-correlate to the economy, but that day is not today.

Look at how quick the U.S. dollar shot up a couple weeks ago. While there were economic scares abound, the dollar was surging, gold was surging, bonds were surging, economically sensitive commodities were falling off a cliff... sounds like a bleak economic picture. But what happened? The stock market was still hitting new highs every single day relentlessly. So what changed this week? Liquidity finally started to get tight, when liquidity gets tight it leads to an increase in volatility. Then we get in a viscous cycle where liquidity squeeze causes selling, which causes tighter liquidity, which causes more selling... This same story played out in Dec 2018, Jan 2018, 2016, 2012, etc. Same story, liquidity dried up and stock market corrected, liquidity will be provided and stock market will recover, regardless of what the underlying economic data says.
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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.

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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.

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