Economics

[Blitz24]

I actually created an IRA 2 weeks ago and I moved my funds out of my ex-employer's 401k. Right now I have no idea when/what I should focus on buying.

 

[Biggles]

The point was that the best days are more important than the worst.

That being said, it's much easier to predict the worst than the best.

Exactly. That is what my financial advisor has been telling me. As I said earlier, in 2009 I started going back into the market the very day the markets hit rock bottom. Brilliant. But I didn't put much in because of lingering doubt. By the time I had put everything back in, it was too late to really benefit from the steep rebound. In this case the fall in the markets has been faster & more dramatic than even 2008.

You're assuming that any of the market is rational. Or perhaps you're assuming that there will be some emotional impact from these events. Emotions are very difficult to predict, and rationality is in short supply.

No, I'm not assuming that the market is rational. I am assuming that some component of the market is rational - that there are number crunchers somewhere calculating asset worth based on some complex equations. But another part of the market is not rational at all. A great example was the 1990's when there were wildly speculative valuations of tech companies that had no concrete assets & had never made a profit.* People were expecting to make 25-30% a year during those years. I was primarily invested in a "value" fund that was based on "rational" calculations. The fund dramatically underperformed the market as it shot up for two or three years. It still went down a lot when the tech bubble burst.

* Of course, one of those companies was Amazon, which didn't turn a profit until 2001.

 

[Danoff]

No, I'm not assuming that the market is rational. I am assuming that some component of the market is rational - that there are number crunchers somewhere calculating asset worth based on some complex equations. But another part of the market is not rational at all. A great example was the 1990's when there were wildly speculative valuations of tech companies that had no concrete assets & had never made a profit.* People were expecting to make 25-30% a year during those years. I was primarily invested in a "value" fund that was based on "rational" calculations. The fund dramatically underperformed the market as it shot up for two or three years. It still went down a lot when the tech bubble burst.

* Of course, one of those companies was Amazon, which didn't turn a profit until 2001.

I've not really seen anything to suggest that fundamentals really matter when it comes to stock. Maybe somewhere in there it does, but it seems lost in the noise.

 

[Biggles]

I've not really seen anything to suggest that fundamentals really matter when it comes to stock. Maybe somewhere in there it does, but it seems lost in the noise.

It must matter somewhere in there. Isn't it the basis for Warren Buffet's success?

The global economy is totally nuts now. My investment portfolio is propped up a bit because the Canadian dollar (like every other currency) has fallen so much against the US dollar (as everyone goes to US cash) that the portion of my portfolio in US equities is inflating the numbers somewhat. Hard to know what will happen to real estate. Interest rates have tumbled which would tend to prop up house prices, but it's hard to imagine a lot of people running out to buy houses in the current economic climate.

 

[Eunos_Cosmo]

It must matter somewhere in there. Isn't it the basis for Warren Buffet's success?

The global economy is totally nuts now. My investment portfolio is propped up a bit because the Canadian dollar (like every other currency) has fallen so much against the US dollar (as everyone goes to US cash) that the portion of my portfolio in US equities is inflating the numbers somewhat. Hard to know what will happen to real estate. Interest rates have tumbled which would tend to prop up house prices, but it's hard to imagine a lot of people running out to buy houses in the current economic climate.

However, I agree with your point to the extent that I hope I'm one of very, very few. That way it's cheap! However with nearly every other asset falling, I don't see who is rushing to get out of real estate right now.

 

[Danoff]

It must matter somewhere in there. Isn't it the basis for Warren Buffet's success?

It only seems to matter while other people think it seems to matter. As long as there is a sort of fake agreement that the price should be higher because the company is doing the "right things" and both people think this means the price should go up, then the price goes up. But it's not because of the fundamentals, it's because people came up with phony reasons why it should go up and agreed on it.

I'm looking at the stock of a medical device company that makes ventilators globally. Ventilators! Down 30%.

In theory, a company's stock price goes up because the company will profit share at some point. So you're buying a portion of the company in order to share in the profits. In other words, the stock price is based on the expectation of future dividends. If a company is hugely profitable, and the stock price is low, the annual dividend that the company will offer could be 1000% of the stock price. This would cause the stock price to skyrocket.

So ask yourself, how many companies even offer dividends? And how many of them offer good dividends? All that trading on Tesla stock is based on the expectation that tesla will someday be able to offer a good dividend on that stock price. Really?

The other thing that keeps stocks from being completely meaningless is the existence of a controlling portion of the company. Disney stock got so irrationally low after temporary closures of Disneyland and Disneyworld that headlines started floating that Apple was considering acquiring. A hostile takeover is actually feasible if stock prices drop far enough. And of course companies would be fools to turn down the opportunity to acquire a profitable company for pennies on the dollar when the stock price is irrationally bid to the floor. This is part of the reason for buybacks. DIS offers a dividend.

That's basically it. At least as far as I can tell, for connecting fundamentals to stock prices. The rest of it is entirely emotional, and somewhat superstitious.

 

[Tired Tyres]

For the right price, could we have the Tower of London moved to Disneyland?

Sure you can but you'd have the same problem the guy who bought London Bridge had.

 

[Dotini]

Sure you can but you'd have the same problem the guy who bought London Bridge had.

You're right. We'll take Stonehenge instead.

 

[Biggles]

It only seems to matter while other people think it seems to matter. As long as there is a sort of fake agreement that the price should be higher because the company is doing the "right things" and both people think this means the price should go up, then the price goes up. But it's not because of the fundamentals, it's because people came up with phony reasons why it should go up and agreed on it.

I'm looking at the stock of a medical device company that makes ventilators globally. Ventilators! Down 30%.

In theory, a company's stock price goes up because the company will profit share at some point. So you're buying a portion of the company in order to share in the profits. In other words, the stock price is based on the expectation of future dividends. If a company is hugely profitable, and the stock price is low, the annual dividend that the company will offer could be 1000% of the stock price. This would cause the stock price to skyrocket.

So ask yourself, how many companies even offer dividends? And how many of them offer good dividends? All that trading on Tesla stock is based on the expectation that tesla will someday be able to offer a good dividend on that stock price. Really?

The other thing that keeps stocks from being completely meaningless is the existence of a controlling portion of the company. Disney stock got so irrationally low after temporary closures of Disneyland and Disneyworld that headlines started floating that Apple was considering acquiring. A hostile takeover is actually feasible if stock prices drop far enough. And of course companies would be fools to turn down the opportunity to acquire a profitable company for pennies on the dollar when the stock price is irrationally bid to the floor. This is part of the reason for buybacks. DIS offers a dividend.

That's basically it. At least as far as I can tell, for connecting fundamentals to stock prices. The rest of it is entirely emotional, and somewhat superstitious.

I've heard rumours that Charmin is preparing to acquire Apple.

Of course, it helps to be "in the know".

https://www.foxnews.com/media/tucke...ain-reported-1-6-million-stock-sale-or-resign

 

[Tired Tyres]

You're right. We'll take Stonehenge instead.

Can we have the Empire State tower in exchange?

 

[Dotini]

Can we have the Empire State tower in exchange?

No, but when the dollar collapses and John Bull once again rules the world, you can take it by force.

 

[Biggles]

Can we have the Empire State tower in exchange?

It's the Empire State Building. You don't want to make the same mistake the Yanks did with London Bridge.

 

[Danoff]

I've heard rumours that Charmin is preparing to acquire Apple.

P&G is down about 20%.

 

[Tired Tyres]

It's the Empire State Building. You don't want to make the same mistake the Yanks did with London Bridge.

It's a running joke about not quite the right name.

 

[Dotini]

The mortgage market is under serious strain. It may be blowing up.

 

[Tired Tyres]

The mortgage market is under serious strain. It may be blowing up.

Is it 2007 now?

 

[mustafur]

I think the Damage caused by this world stoppage hasn't even touched the surface, Mortgage failures tend to be at the end when the jobs are gone, unless this virus magically disappears in the next few weeks I think the real damage will start and given how many countries have been over leveraged going into this I see much worse then 2008 even possibly 1929, the world is at a complete stop.

 

[Danoff]

I'm disgusted all over again with the current state of economics in this country.

"Give him to me, I need the money", "What about me? I'm broke!"

The lining up for bailouts from the federal government is gross. Absolutely gross. Families, Cities, States, small businesses, big businesses. Farmers, Oil, cruise lines, airlines. Nobody saved any money?!? All of these were going along quite nicely about 3 months ago. In 2008 we were considering a windfall profit tax on oil. Now we're bailing them out? None of that money got set aside for the future?

It seems that every time the subject of bailouts comes up, at least during my lifetime, the number of people lining up to get a taste of that sweet taxpayer money just grows. The reason? Because it happened before. Has it ever gone well? Have we ever really been happy with this? AIG sent bailout money as bonuses to executives. Chrysler turned around and made horrible products for 40 years. GM took bailout money in 2009, and apparently hasn't paid it back.

The slippery slope that nobody was worried about seems to be present. Bailouts go badly, and we do them more and more. To the point where nobody even seems to question that it happens and that it's the right thing to do. It's not the right thing to do. I'm not invested in oil because I know it's a bad industry to get invested in right now. Don't make me invested by taking my tax dollars and handing it to them to help the socialize the downside. The upside is all private (for them). Same for airlines. They're the ones that can't keep their planes clean. They're the ones that did nothing to consider the potential spread of a virus. Cheap air travel lead to a lot of pollution and rushed plane designs.

Bailouts enable and encourage risky, unstable, behavior. As scary as it is, right now a lot of businesses need to fail. They need to signal to the market that savings for a downturn is important to stay afloat. Businesses need to be better prepared for this kind of eventuality.

I say this every time bailouts come around, and we never let companies fail, and the bailouts just get bigger and more widespread, entangling the government with more central control over the economy each time.

 

[Eunos_Cosmo]

I'm disgusted all over again with the current state of economics in this country.

"Give him to me, I need the money", "What about me? I'm broke!"

The lining up for bailouts from the federal government is gross. Absolutely gross. Families, Cities, States, small businesses, big businesses. Farmers, Oil, cruise lines, airlines. Nobody saved any money?!? All of these were going along quite nicely about 3 months ago. In 2008 we were considering a windfall profit tax on oil. Now we're bailing them out? None of that money got set aside for the future?

It seems that every time the subject of bailouts comes up, at least during my lifetime, the number of people lining up to get a taste of that sweet taxpayer money just grows. The reason? Because it happened before. Has it ever gone well? Have we ever really been happy with this? AIG sent bailout money as bonuses to executives. Chrysler turned around and made horrible products for 40 years. GM took bailout money in 2009, and apparently hasn't paid it back.

The slippery slope that nobody was worried about seems to be present. Bailouts go badly, and we do them more and more. To the point where nobody even seems to question that it happens and that it's the right thing to do. It's not the right thing to do. I'm not invested in oil because I know it's a bad industry to get invested in right now. Don't make me invested by taking my tax dollars and handing it to them to help the socialize the downside. The upside is all private (for them). Same for airlines. They're the ones that can't keep their planes clean. They're the ones that did nothing to consider the potential spread of a virus. Cheap air travel lead to a lot of pollution and rushed plane designs.

Bailouts enable and encourage risky, unstable, behavior. As scary as it is, right now a lot of businesses need to fail. They need to signal to the market that savings for a downturn is important to stay afloat. Businesses need to be better prepared for this kind of eventuality.

I say this every time bailouts come around, and we never let companies fail, and the bailouts just get bigger and more widespread, entangling the government with more central control over the economy each time.

Why save money when you can buy back your own shares with your earnings and/or hilariously cheap ZIRP credit, inflate your stock price, and then pat yourself on the back (with executive bonuses) knowing full well you have the backing of the US government in case things get bad?

ZIRP & Buybacks have been pushing the asset price pedal to the floor for way too long and the boardrooms and DC are way too chummy.

Spending money on share buy backs should make any company that does so ineligible for tax payer bailout funds.

 

[Biggles]

Here's what strikes me: the Dow & S&P 500 are back more or less to the levels they were at the time Trump took office. That was a pretty high level after years of steady economic growth from the depths of the 2008 financial crisis. Under Trump the markets shot up with the Dow peaking at over 29,000 in mid February. This is even though GDP growth in the Trump years has been relatively modest, not significantly different from during the Obama years. It's easy to see now that the high valuations were unjustified - a product of "irrational exuberance".

With everything happening now - entire industries shutting down, exploding unemployment & uncertainty about the further economic of the coronavirus - is it reasonable to value the market at where it was 2016 at the end of a long period of growth? My feeling is, even if in the longer-term the economy comes back strongly, at the minute the markets could still fall a lot lower from their inflated highs of 5 weeks ago. Also, I keep hearing what seem like over-optimistic opinions about how quickly the virus will be brought under control - like 2 or 3 weeks. This seems absurdly unrealistic.

 

[mustafur]

They have to be over optimistic otherwise it could create more snowball panic.

I have no doubt the damage from this is going to be much larger, the end isn't in sight yet and people are already losing jobs at an accelerated rate, this is like a long term market crash that just stays in this state, I don't think it can be fully grasped the damage of this yet.

I think its already worse then 2008, because the real damage of that came within a year after the crash, we are still in this crash and its getting worse.

 

[Dotini]

Another cry of distress in the mortgage market.

(Bloomberg) -- Real estate billionaire Tom Barrack said the U.S. commercial-mortgage market is on the brink of collapse and predicted a “domino effect” of catastrophic economic consequences if banks and government don’t take prompt action to keep borrowers from defaulting.

Barrack, chairman and chief executive officer of Colony Capital Inc., warns in a white paper of a chain reaction of margin calls, mass foreclosures, evictions and, potentially, bank failures due to the coronavirus pandemic and consequent shutdown of much of the U.S. economy. The paper was posted late Sunday on online publishing platform Medium.

“Loan repayment demands are likely to escalate on a systemic level, triggering a domino effect of borrower defaults that will swiftly and severely impact the broad range of stakeholders in the entire real estate market, including property and home owners, landlords, developers, hotel operators and their respective tenants and employees,” he wrote.

Barrack said the impact could dwarf that of the Great Depression.

Rescue Plan

Specifically, his paper highlights the fragility of mortgage real estate investment trusts, or REITs, and credit funds and the lenders that provide them with liquidity via repurchase financing. He argues for a rescue plan coordinated by banks and supported by government that includes the following:

$500 billion of taxpayer funds to provide liquidity to the financial system, including for loans and repurchase contractTemporary suspensions of both mark-to-market accounting and certain loan-modification rulesDelaying until 2024 a new accounting rule governing the recognition of credit lossesLeeway for banks to provide loan forbearance without triggering bank-capital rule violations

Barrack, a longtime friend of President Donald Trump, has much at stake in the outcome. Most of Colony’s investments are in or connected to real estate. The Los Angeles-based firm’s year-end financial report lists $3.54 billion of assets in hospitality real estate and $725 million of debt and equity investments at Colony Credit Real Estate Inc., its publicly traded commercial mortgage REIT.

 

[Eunos_Cosmo]

Who wants to take bets on where the Dow will bottom out?

I'm gonna be optimistic and say 17,000!

 

[Dotini]

Who wants to take bets on where the Dow will bottom out?

I'm gonna be optimistic and say 17,000!

IMO, not a bad guess. About two weeks ago I was thinking 17,400, and things are further south now for sure.

 

[Biggles]

Who wants to take bets on where the Dow will bottom out?

I'm gonna be optimistic and say 17,000!

Yeah - that's what I'm thinking ... if everything works out!

 

[Biggles]

Can anybody explain to me where the $2 trillion in extra spending is going to come from?

One thing that I have barely heard discussed in the midst of all this economic trauma is criticism of Trump for ballooning the deficit/debt, something that Obama was pilloried for by conservative pundits. The situation seems pretty analogous to the crisis in 2008. Perhaps it's going to be worse. "Trump's economy" has evaporated in 4 weeks. He may not be responsible for the coronavirus, anymore than Obama was responsible for the financial crisis, but his actions leading up to it - creating bigger deficits while the economy was expanding, pushing for lower interest rates in order to hype economic growth - those have left the US in a worse state to handle the current crisis. Even leaving aside Trump's divisive rhetoric & authoritarian tendencies, who still thinks "Trump is doing great"?

 

[Eunos_Cosmo]

Can anybody explain to me where the $2 trillion in extra spending is going to come from?

One thing that I have barely heard discussed in the midst of all this economic trauma is criticism of Trump for ballooning the deficit/debt, something that Obama was pilloried for by conservative pundits. The situation seems pretty analogous to the crisis in 2008. Perhaps it's going to be worse. "Trump's economy" has evaporated in 4 weeks. He may not be responsible for the coronavirus, anymore than Obama was responsible for the financial crisis, but his actions leading up to it - creating bigger deficits while the economy was expanding, pushing for lower interest rates in order to hype economic growth - those have left the US in a worse state to handle the current crisis. Even leaving aside Trump's divisive rhetoric & authoritarian tendencies, who still thinks "Trump is doing great"?

There are a few "conservatives" with integrity. But the truth is that the GOP is now acting in service of Donald Trump, not conservatism. Donald Trump supporters don't care about much beyond staying employed, nostalgia, and having permission/approval to hate foreign people. Fiscal conservatism? No ****ing way in the Trump era....that's well and truly dead - for most of the GOP that was a ruse anyways...and excuse to hate liberals. Now that's unconditional! We're in Trump's Casino now.

 

[Dotini]

In view of the war on coronavirus and the economic collapse, it would seem peace and prosperity can no longer be the basis for the conservative appeal. However, an even deeper layer of bedrock can be mined in reinforcement of the conservative end of the bench at the Supreme and other courts, and of course the undying quest to fight off communism and socialism.

 

[Eunos_Cosmo]

In view of the war on coronavirus and the economic collapse, it would seem peace and prosperity can no longer be the basis for the conservative appeal. However, an even deeper layer of bedrock can be mined in reinforcement of the conservative end of the bench at the Supreme and other courts, and of course the undying quest to fight off communism and socialism.

I don't really follow your post, but I'm certain conservatives are far more afraid of the words "communism and socialism" rather than the ideas within them. (See farm subsidies for further information). Trump's brand of nationalism veers suspiciously close to communism, only it excludes people that aren't real Americans - anyone that isn't a Trump supporter...

 

[Biggles]

In view of the war on coronavirus and the economic collapse, it would seem peace and prosperity can no longer be the basis for the conservative appeal. However, an even deeper layer of bedrock can be mined in reinforcement of the conservative end of the bench at the Supreme and other courts, and of course the undying quest to fight off communism and socialism.

Everybody likes "prosperity", what's subject to a little more discussion is prosperity for whom? "Peace" has never really been a hall mark of American conservatism & Trump has offered an odd twist on Republicans' traditional bellicose stance. Trump has also offered a twist on "fighting off communism" as he has been quite complimentary about Putin's strong-man persona, apparently liking the authoritarian/cronyism aspect of Putin's perpetual grasp on power.