A dangerous gap: The market v the real economy — The Economist, May 7 2020 edn
lovinghusbandforever
New member
@resjudicata Nope, not really. 
The coastal cities are starting to see sustained reduction in cases... but cases are increasing across the interior of the US. We're not going to see one big peak across the whole nation simultaneosly, but instead a slow burn across with many little flare ups as various municipalities get hit with it. This is basically what Birx and Fauci have been saying the whole time.
The US is (slightly under) twice as large as the EU, but also half as populous (and population centers are heavily concentrated on coasts), so it's going to take a while for the interior regions of the US to ramp up to their peak relative to the coasts and how the EU behaved.
The coastal cities are starting to see sustained reduction in cases... but cases are increasing across the interior of the US. We're not going to see one big peak across the whole nation simultaneosly, but instead a slow burn across with many little flare ups as various municipalities get hit with it. This is basically what Birx and Fauci have been saying the whole time.The US is (slightly under) twice as large as the EU, but also half as populous (and population centers are heavily concentrated on coasts), so it's going to take a while for the interior regions of the US to ramp up to their peak relative to the coasts and how the EU behaved.
@resjudicata I think we are very near the end of the first wave. I would say the second wave starts the moment we start reopening the country on a larger scale.
injesusname78
New member
@resjudicata No, we will just fold the second wave into the first one, then we can pretend there was no second wave and we are all clear.
resjudicata
New member
People are mistaking NYCs timeline as a nationwide timeline. So even though NYC is trending down that doesn’t mean other places well and if they open up too soon they could start their real first wave.
resjudicata
New member
@jabdallah There were a lot of people saying all through 2019 that markets were over-bought and long overdue for a correction. I just can’t understand how that is no longer the case.
@jabdallah "Bourses in Britain and continental Europe, chock-full of troubled industries like carmaking, banking and energy, have lagged behind, and there are renewed jitters over the single currency (see article). In America investors have put even more faith in a tiny group of tech darlings—Alphabet, Amazon, Apple, Facebook and Microsoft—which now make up a fifth of the S&P 500 index. There is little euphoria, just a despairing reach for the handful of businesses judged to be all-weather survivors."
This is overly dramatic and I really hate this kind of thing because it's selling fear and gloom ("there is little euphoria to be found as the grey crowds settled in over the Nasdaq where the little Oliver Twist traders said, "please, sir can I have some Microsoft?" I mean give me a fucking break) rather than a thoughtful, balanced look at what is happening.
Simply, technology was already becoming a larger and larger part of daily life before this. What this has done in many cases is pull forward years of adoption and in some cases that adoption will replace aspects of other industries. Posted an article yesterday talking about Goldman discussing 3 million barrels less oil demand because some business travel will go away and be replaced by virtual meetings. Travel's loss is tech's gain, perhaps to some degree permanently. If there's more remote work being done, how much less miles will be driven? You can really sit and think about all the various things that will be to some degree effected by a rise in remote work. How much less office space will be needed?
When Booking Holdings (aka Priceline) did their pre-announcement in early April, it was a lot of fairly bleak stuff that included this sentence: "If the travel and restaurant industries are fundamentally changed by the COVID-19 outbreak in ways that are detrimental to our operating model, our business may continue to be adversely affected even as the broader global economy recovers." They have to include that probably but it's really something that might be absolutely the case, to some degree.
Telemedicine and virtual meetings have massive demand and anything that has to do with that - not only Zoom or Teladoc but things like Bandwidth and Twilio (up 40% yesterday) - are doing exceedingly well. Docusign (virtual signatures to go along with virtual meetings) doing well. There's plenty of others - RNG, etc.
I invested in Ocado last year with the view of online grocery being a gradual growth theme over the next 5 years. Well, a lot of that next 5 years of adoption just got pulled forward by this and the stock is hitting new all time highs. You're seeing that across a number of things. Paypal on the call predicting that this is the tipping point for the beginning of the end of cash (and not surprisingly; given what's going on, businesses are not going to be eager to handle money during this - Nordstrom said the other day that when it reopens it will be cashless.) Microsoft: Microsoft saw 2 years of digital transformation happen in 2 months: Nadella (https://www.business-standard.com/a...appen-in-2-months-nadella-120043000184_1.html)
You can say that some of these things are ahead of themselves - I've even said it lately - but I really do think that what you're seeing in many cases is a significant pull forward of adoption of things like e-commerce, changes in healthcare (Teladoc, but Livongo's up nearly 100% YTD), virtual meetings, digital payments and more. There are clear winners during this and they're winning big; their are also clear losers during this and people have to consider things like whether some business travel is just going to be replaced by virtual meetings (ZM, DOCU) going forward. How this continues to play out in the short term for the companies involved is going to depend on how the situation plays out, but it is clear medium-to-long term that a lot of tech adoption and consumer change has been pulled forward and that there are clear long-term winners and losers on the other side of this.
" chock-full of troubled industries like carmaking, banking and energy, have lagged behind"
Yeah, people aren't rushing to invest in Ford or GM, which they shouldn't be. Oil has not been a great choice during this and people should have focused on growth instead. Things that haven't delivered in years are getting left behind and if you really look around over what's done well and what hasn't - and despite the market's broad recent rise, if one actually looks underneath there are clear winners and losers - people are running to what they want to own for the years ahead and leaving behind in many cases what hasn't delivered and/or what they don't have confidence in navigating what might be a new normal. The things that benefit are being embraced to an impressive degree, the things that clearly aren't or that people don't have clarity on are being discarded.
"A second hazard to reckon with is fraud. Extended booms tend to encourage shifty behaviour, and the expansion before the covid crash was the longest on record. Years of cheap money and financial engineering mean that accounting shenanigans may now be laid bare. Already there have been two notable scandals in Asia in recent weeks, at Luckin Coffee, a Chinese Starbucks wannabe, and Hin Leong, a Singaporean energy trader that has been hiding giant losses (see article). A big fraud or corporate collapse in America could rock the markets’ confidence, much as the demise of Enron shredded investors’ nerves in 2001 and Lehman Brothers led the stockmarket down in 2008."
Luckin isn't the only one, there's been other discussions of fraud on Chinese stocks recently. Also, LK still halted nearly a month later, lol. There's always the possibility of a big corporate fraud. A big corporate collapse in this country would probably involve something that at this point people probably wouldn't be all that surprised about - there's plenty of dinosaurs, and a lot of things in slow decline that could have lasted for years (hi, department stores and specialty retail) have in some cases seen that decline be suddenly compressed into a much shorter time frame. It's the opposite of some industries seeing adoption being suddenly pulled forward.
"The most overlooked risk is of a political backlash. The slump will hurt smaller firms and leave the bigger corporate survivors in a stronger position, increasing the concentration of some industries that was already a problem before the pandemic. "
I think this is a concern for Target, Walmart, Amazon and maybe a couple of others. Retail in particular is going to be a case of the largest/strongest get bigger/stronger after this and possibly significantly so. A large portion of main street retail going away and leaving people with the option in many cases of going to Walmart or ordering on Amazon is probably not going to go over well.
This is overly dramatic and I really hate this kind of thing because it's selling fear and gloom ("there is little euphoria to be found as the grey crowds settled in over the Nasdaq where the little Oliver Twist traders said, "please, sir can I have some Microsoft?" I mean give me a fucking break) rather than a thoughtful, balanced look at what is happening.
Simply, technology was already becoming a larger and larger part of daily life before this. What this has done in many cases is pull forward years of adoption and in some cases that adoption will replace aspects of other industries. Posted an article yesterday talking about Goldman discussing 3 million barrels less oil demand because some business travel will go away and be replaced by virtual meetings. Travel's loss is tech's gain, perhaps to some degree permanently. If there's more remote work being done, how much less miles will be driven? You can really sit and think about all the various things that will be to some degree effected by a rise in remote work. How much less office space will be needed?
When Booking Holdings (aka Priceline) did their pre-announcement in early April, it was a lot of fairly bleak stuff that included this sentence: "If the travel and restaurant industries are fundamentally changed by the COVID-19 outbreak in ways that are detrimental to our operating model, our business may continue to be adversely affected even as the broader global economy recovers." They have to include that probably but it's really something that might be absolutely the case, to some degree.
Telemedicine and virtual meetings have massive demand and anything that has to do with that - not only Zoom or Teladoc but things like Bandwidth and Twilio (up 40% yesterday) - are doing exceedingly well. Docusign (virtual signatures to go along with virtual meetings) doing well. There's plenty of others - RNG, etc.
I invested in Ocado last year with the view of online grocery being a gradual growth theme over the next 5 years. Well, a lot of that next 5 years of adoption just got pulled forward by this and the stock is hitting new all time highs. You're seeing that across a number of things. Paypal on the call predicting that this is the tipping point for the beginning of the end of cash (and not surprisingly; given what's going on, businesses are not going to be eager to handle money during this - Nordstrom said the other day that when it reopens it will be cashless.) Microsoft: Microsoft saw 2 years of digital transformation happen in 2 months: Nadella (https://www.business-standard.com/a...appen-in-2-months-nadella-120043000184_1.html)
You can say that some of these things are ahead of themselves - I've even said it lately - but I really do think that what you're seeing in many cases is a significant pull forward of adoption of things like e-commerce, changes in healthcare (Teladoc, but Livongo's up nearly 100% YTD), virtual meetings, digital payments and more. There are clear winners during this and they're winning big; their are also clear losers during this and people have to consider things like whether some business travel is just going to be replaced by virtual meetings (ZM, DOCU) going forward. How this continues to play out in the short term for the companies involved is going to depend on how the situation plays out, but it is clear medium-to-long term that a lot of tech adoption and consumer change has been pulled forward and that there are clear long-term winners and losers on the other side of this.
" chock-full of troubled industries like carmaking, banking and energy, have lagged behind"
Yeah, people aren't rushing to invest in Ford or GM, which they shouldn't be. Oil has not been a great choice during this and people should have focused on growth instead. Things that haven't delivered in years are getting left behind and if you really look around over what's done well and what hasn't - and despite the market's broad recent rise, if one actually looks underneath there are clear winners and losers - people are running to what they want to own for the years ahead and leaving behind in many cases what hasn't delivered and/or what they don't have confidence in navigating what might be a new normal. The things that benefit are being embraced to an impressive degree, the things that clearly aren't or that people don't have clarity on are being discarded.
"A second hazard to reckon with is fraud. Extended booms tend to encourage shifty behaviour, and the expansion before the covid crash was the longest on record. Years of cheap money and financial engineering mean that accounting shenanigans may now be laid bare. Already there have been two notable scandals in Asia in recent weeks, at Luckin Coffee, a Chinese Starbucks wannabe, and Hin Leong, a Singaporean energy trader that has been hiding giant losses (see article). A big fraud or corporate collapse in America could rock the markets’ confidence, much as the demise of Enron shredded investors’ nerves in 2001 and Lehman Brothers led the stockmarket down in 2008."
Luckin isn't the only one, there's been other discussions of fraud on Chinese stocks recently. Also, LK still halted nearly a month later, lol. There's always the possibility of a big corporate fraud. A big corporate collapse in this country would probably involve something that at this point people probably wouldn't be all that surprised about - there's plenty of dinosaurs, and a lot of things in slow decline that could have lasted for years (hi, department stores and specialty retail) have in some cases seen that decline be suddenly compressed into a much shorter time frame. It's the opposite of some industries seeing adoption being suddenly pulled forward.
"The most overlooked risk is of a political backlash. The slump will hurt smaller firms and leave the bigger corporate survivors in a stronger position, increasing the concentration of some industries that was already a problem before the pandemic. "
I think this is a concern for Target, Walmart, Amazon and maybe a couple of others. Retail in particular is going to be a case of the largest/strongest get bigger/stronger after this and possibly significantly so. A large portion of main street retail going away and leaving people with the option in many cases of going to Walmart or ordering on Amazon is probably not going to go over well.
asaydworthe
New member
@mcleanch1 It seems like folks are getting increasingly bothered by this reality. Folks want to use the dot-com era as a comparison as to what is happening in tech right now. Although it’s easy to make a blanket comparison, the comparison is illogical.
Pick your tech company though and many will tell you that they are “too expensive”, as if that is supposed to mean something. Amazon was “too expensive” at $200 per share. It was also “too expensive” at $6-7 per share when it bottomed out during the dot-com era. Now it’s “too expensive” at over $2,000. Someone who put in $10,000 between 2000-2001 now has well over $1M, and likely over $1.5M. That’s a 100 to 150x return on investment, over 19 years.
While there is no wrong way to invest, it would help if people would open their minds to other ideas that may not be on the traditional path. Just because Buffett wasn’t into tech stocks until recently, doesn’t mean that tech stocks are inherently bad. It’s simply an opinion from a person who has already made more money than most people ever will and therefore doesn’t need to take the time to understand these new investments. Even billionaire Kevin O’Leary admits that he would have never invested in Tesla, but then he received new information about the company from his son who interned there (his son informed him that Tesla was actually a tech company) and now he loves it. As far as return percentages, It’s been one of the best investments that he has made.
When information changes or when new information is presented to us, it’s worth examining that data to see if it makes sense. I did this years ago when I started learning about alternatives to a 3-fund portfolio, and namely how to shift the risk-reward ratio in my portfolio construction so that I could earn double or triple digit return percentages per year while also ensuring that my drawdowns were never as bad as simply being in a 3-fund or in 100% SPY.
It may vary for everyone, but from my own perspective, the investors that I’ve seen do increasingly well are the ones like yourself who question the available information and adapt to the changes.
Carry on my friend. May your sequence of returns be forever profitable.
Pick your tech company though and many will tell you that they are “too expensive”, as if that is supposed to mean something. Amazon was “too expensive” at $200 per share. It was also “too expensive” at $6-7 per share when it bottomed out during the dot-com era. Now it’s “too expensive” at over $2,000. Someone who put in $10,000 between 2000-2001 now has well over $1M, and likely over $1.5M. That’s a 100 to 150x return on investment, over 19 years.
While there is no wrong way to invest, it would help if people would open their minds to other ideas that may not be on the traditional path. Just because Buffett wasn’t into tech stocks until recently, doesn’t mean that tech stocks are inherently bad. It’s simply an opinion from a person who has already made more money than most people ever will and therefore doesn’t need to take the time to understand these new investments. Even billionaire Kevin O’Leary admits that he would have never invested in Tesla, but then he received new information about the company from his son who interned there (his son informed him that Tesla was actually a tech company) and now he loves it. As far as return percentages, It’s been one of the best investments that he has made.
When information changes or when new information is presented to us, it’s worth examining that data to see if it makes sense. I did this years ago when I started learning about alternatives to a 3-fund portfolio, and namely how to shift the risk-reward ratio in my portfolio construction so that I could earn double or triple digit return percentages per year while also ensuring that my drawdowns were never as bad as simply being in a 3-fund or in 100% SPY.
It may vary for everyone, but from my own perspective, the investors that I’ve seen do increasingly well are the ones like yourself who question the available information and adapt to the changes.
Carry on my friend. May your sequence of returns be forever profitable.
@asaydworthe
Hi - I have been in a three fund portfolio for 5 years. I'm looking to learn more about alternatives to this. What do you recommend reading?
Hi - I have been in a three fund portfolio for 5 years. I'm looking to learn more about alternatives to this. What do you recommend reading?
christianmiguel
New member
@asaydworthe
Where did this meme come from? This is the second time I've seen this exact same statement on this sub.
Of course there are wrong ways to invest.
Where did this meme come from? This is the second time I've seen this exact same statement on this sub.
Of course there are wrong ways to invest.
asaydworthe
New member
@christianmiguel Enlighten us. What are the wrong ways to invest, in your opinion?
christianmiguel
New member
@asaydworthe Where to begin?
- Sell low, buy high.
- SoftBank's $3 billion into WeWork.
- "I'm buying DAL because Warren Buffett bought DAL." And then the corresponding sell/sell case.
- Buying tax-free muni bonds in your IRA. When your marginal tax rate is 12%.
- "I'm opening a restaurant in (place with zero foot traffic) and I'm looking for an investor to make up the other $100k."
- "I'm $10k away from the $100k down I need to buy a house, so ima yolo oil futures to have some extra cash for my man cave."
- Using astrology to forecast the market.
asaydworthe
New member
@christianmiguel I guess I see those as bad investment ideas or poor investing discipline vs than the wrong way to invest. Admittedly, I did laugh out loud at the 12% marginal tax muni bond comment as well as the astrology one. Thanks for your comment!
christianmiguel
New member
resjudicata
New member
@mcleanch1 The increase in usage of Zoom/similar doesn’t come close to counterbalancing the loss of nearly all travel spending.
johnny1217
New member
@mcleanch1 Well said. But aren’t you even remotely concerned with the geopolitical backlash of the US administration seeking retaliation against the Chinese? If that becomes the next dominant media theme it’s going to be tumulus in the markets.
Given that it doesn’t affect the stocks you spoke of or other growth stocks benefiting from COVID, I suppose it’s a buying opportunity more than anything.
Thoughts?
Given that it doesn’t affect the stocks you spoke of or other growth stocks benefiting from COVID, I suppose it’s a buying opportunity more than anything.
Thoughts?
@jabdallah Great post cheers, and agree... A lot of things will back to normal soon, but a lot will be affected for months or years to come
@jabdallah Stocks don't always drop during recessions.
But we will probably see a reckoning in the corporate junk bond market sooner or later; if not this recession, then the next. I hope the Fed doesn't step in too much in that arena - there's way too much risk. All the yield chasing and EBITDA add-backs and CLO hidden from SEC filings that built up leveraged loans is going to unwind sooner or later. The longer it takes to happen, the worse it will be. This is the danger of extended low interest rates, and nobody seems too keen on fixing it.
QE can fix liquidity and keep new lending rolling, but it can't fix the insane risk everyone is taking on these eventually doomed assets.
But we will probably see a reckoning in the corporate junk bond market sooner or later; if not this recession, then the next. I hope the Fed doesn't step in too much in that arena - there's way too much risk. All the yield chasing and EBITDA add-backs and CLO hidden from SEC filings that built up leveraged loans is going to unwind sooner or later. The longer it takes to happen, the worse it will be. This is the danger of extended low interest rates, and nobody seems too keen on fixing it.
QE can fix liquidity and keep new lending rolling, but it can't fix the insane risk everyone is taking on these eventually doomed assets.
@jabdallah Sure, you can dig in all you want to justify the bear case. But the markets will still be making new highs by year end.
The reality is that the US Federal Reserve is extremely powerful and has no true limits to its power (congress will approve whatever it proposes). People who have lost their jobs will be hired back as America surges forward - just as it has always done in the past. Keep it simple like this. The correction lasted only one month and we have already started the new BULL MARKET.
The real money will be made for those who bought in these past few weeks at cheap prices on quality companies such as Netflix Facebook amazon and Shopify. But investors can still make money if they buy in and hold, Warren Buffett style baby.
The reality is that the US Federal Reserve is extremely powerful and has no true limits to its power (congress will approve whatever it proposes). People who have lost their jobs will be hired back as America surges forward - just as it has always done in the past. Keep it simple like this. The correction lasted only one month and we have already started the new BULL MARKET.
The real money will be made for those who bought in these past few weeks at cheap prices on quality companies such as Netflix Facebook amazon and Shopify. But investors can still make money if they buy in and hold, Warren Buffett style baby.