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Post by walnut on Jun 6, 2022 12:38:52 GMT
FWIW
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Post by blustnmtn on Jun 6, 2022 14:36:10 GMT
I was going to post this but didn't. How big can the balloon get before the pop? |
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Post by ratty on Jun 7, 2022 12:32:04 GMT
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Post by code on Jun 7, 2022 17:02:32 GMT
I was going to post this but didn't. How big can the balloon get before the pop? Ratty sent me this yesterday, thanks Ratty.
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Post by duwayne on Jun 7, 2022 17:20:40 GMT
In my previous post I noted that I was biased towards a buy/hold strategy and noted the 11%+ stock market returns since 1950. I did that because my view that the current market drop isn’t likely to be like the one in 2008 comes in part from my mindset.
Someone else might be a buy high sell low advocate and they would see things differently. Another person might say they have all the money they need and their risk-taking days are over. Another might say, I never owned stocks because they are risky and unless you can prove they are not risky, I’m not buying. So if turns out that what I say is not what you wanted to hear and/or doesn’t have any value to you in your specific case, I understand. I’m not saying there is no risk and I’m not guaranteeing any outcomes.
One more thing. I say I am biased toward a buy/hold strategy. It so happens that I do end up with some sell high buy low outcomes. My last transaction was at the bottom of the recent “V” low on May 20. This followed a sale near the high in December last year. Previously, I traded the COVID drop. I posted all of these moves here.
My bias is better stated as buy/hold/rebalance. Let’s say you choose to invest 50% of your money in stocks. If the market goes up a lot you have too much stock, like I did in December. I’m in no big hurry to rebalance so I wait for a good time. I said then it seems like a 10% drop is in order. I sold to rebalance but I noted that I wasn’t predicting a market top.
After stocks fell in the first half of this year, I had too little stock. I looked for a buy point and the 20% down point seemed like a good target for me and I noted my purchase here. As I noted, I did not sell all my stock and buy it all back. I post such trades as a way of forcing me to use analysis and judgment in my transactions. I don’t suggest anyone else follow my moves.
The COVID case was a special case as was the 2008 case. Sometimes things just hit you over the head. I discussed the COVID cruise and airline industry peril here before they fell big time. The 2008 case occurred before we were discussing such things on this site so my posts were elsewhere.
With all that as background I’ll describe why I think the current situation may not be like 2008 on the next post. |
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Post by walnut on Jun 7, 2022 21:10:11 GMT
In the same way that QE mechanically inflated financial asset prices to artificially high levels since 2008/2009, QT might mechanically destroy stock and bond valuations over the next period of time as they sell bonds back into the economy and withdraw all that excess liquidity.
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Post by missouriboy on Jun 8, 2022 5:27:42 GMT
Does this guy look a bit like Dr. Strangelove? A space in the lifeboats will become incredibly expensive when the majority perceive it to be necessary. A well-maintained space is another matter. |
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Post by nonentropic on Jun 8, 2022 5:30:16 GMT
He lives in New Zealand what else do you need to know.
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Post by missouriboy on Jun 8, 2022 6:05:26 GMT
He lives in New Zealand what else do you need to know. He doesn't seem to be a relative of Jacinda. |
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Post by duwayne on Jun 8, 2022 15:43:53 GMT
Now for what’s different between 2008 and 2022. If the market fell by 50% in 2008, why won’t it fall that far this year if there is a recession, etc.
The market fell by 50% in 2008 for 1 reason, subprime loans. The fall for typical recessions is generally 20 to 25%.
The market has fallen by 50% 3 times. Why? The Arab Oil Embargo, the Dot.com bubble and the sub-prime loan fiasco in 2008.
Congress in its infinite wisdom decided that everything would be a lot better if the poor bought more houses even if they couldn’t afford them. They successfully created a situation where banks would make loans to people who were in no position to pay them back.
The 2 big credit rating agencies, Moody’s and Standard&Poor somehow fell for the plan. For a long time they have given high credit ratings (AAA) to large companies even if they were having financial difficulty. Small companies which were very profitable got lower ratings B and C, even if they had good balance sheets. What the banks and the feds decided to do was roll the bank loans into very large parcels and the rating agencies gave them triple A ratings even though the individual loans were subprime.
The 2 big government agencies bought these loans from the banks and pension funds etc bought them as well because they met the required high credit rating.
The housing market boomed. The housing prices as we all remember sky-rocketed.
This was a gradual process until speculators got into the act. A builder would announce a new housing development near Las Vegas on Monday and by Friday it would be sold out. The banks supplied the money to the speculators and then bundled and sold the highly-rated loans to others.
Unfortunately, the chart below doesn’t begin early enough to show what the pre-subprime house building rate was, but you can get an idea by looking at the more normal rate on the right. The new house starts climbed rapidly. Even more houses were built than sold because prices were rising and speculators could profit from their inventory.
The housing construction explosion was clearly unsustainable. Look at the chart above and imagine how many jobs were lost due to the bubble burst. Once the inevitable happened and house prices stopped going up and the speculators disappeared, and the foreclosures exploded, the home construction business collapsed and unemployment fed by idle homebuilders and suppliers would cause the overall US unemployment rate to increase from around 4% to 10%.
This outcome was apparent long before it happened. It was described before-hand in many articles. I’m sure they are still available.
Even though I’m biased toward buy and hold, I sold. I was actually too early when I sold but the market did come crashing down. Some of you remember the “Big Short” movie where the short seller also sold too early but made a killing in the end
Stocks fell by 50%. Typical recessions don’t cause the market to fall by 50%. Now, if you say today is like 2008, you’ll need to have a good reason to convince me. A bunch of little things won’t convince me unless you can spell the story out step-by-step with a high level of confidence.
I hear concerns, but I can’t see a clear picture. It might happen but I’ve been fooled before. So I’m stuck here in a situation where I’m expecting to make a decent return over time. I do expect a recession but I’m not able to successfully time the typical recession. I do accidentally time it to some degree because of my buy/hold/rebalancing approach.
I saw a fairly clear picture of the future damage to the cruise and airline industries when COVID struck and I noted that here. So I took action counter to my underlying buy/hold bias.
It’s good to have buy/hold investing, timing from rebalancing and timing of major big drops all working for you. If you can successfully time small drops it gets even better. Walnut says he can help on this.
Now Glennkoks and Missouriboy asked for my comments and I’m sure they will say to themselves that they already knew all of this and I think they probably already did at least in in parts and pieces. |
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Post by walnut on Jun 8, 2022 19:16:22 GMT
Remember how everyone watched in disbelief as the market defied gravity for years and years? Now that the Fed has finally begun reducing their balance sheet, we might see that somewhat in reverse. Many want to wade in, and maybe it will work. But I want to know a little more about the effect of "Quantitative Tightening". The Fed acknowledges that this is new territory and no one knows what effect it will actually have. Possibly, relentless, mechanical wealth destruction.
We are going to continue to trade volatility on a very short term basis.
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Post by walnut on Jun 8, 2022 19:19:36 GMT
QT will put to the test the skeptics constant admonishments that the Fed's "Quantitative Easing" has propped up an artificial market.
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Post by glennkoks on Jun 8, 2022 20:08:01 GMT
duwayne, I love these boards because of the many different views and skill sets. I tend to look for counterpoints to my points to give me a better overall view.
I will say this. I do not think this downturn will look like 2008. The subprime loan crisis was bad, steep but very much V shaped. One major cause with a quick recovery. In my opinion this funk we are in was in part caused by our response to The Great Recession. We fired up QE, threw liquidity everywhere, funded the markets with cheap, easy and darn near free money. Then during Covid we fired up the printing presses and literally dropped money from helicopters at the same time we were choking the economy. We did not fix any of the problems that really causes the downturn in 2008, we just kicked the can down the road.
Personally, I think the current downturn will be much more lasting. I don't think the Fed will be able to reign in inflation and have a "soft landing". I think next year an old term we have not heard in 40 years will become more in vogue. The Misery Index.
Do what you think is best for you and your family's financial security in the future because this advice is probably worth less than you payed for it! But I think this downturn will look much more like the 1970's than 2008. Probably worse than what we saw in the 1970's and possibly much worse. I am not sure that another Great Depression is even possible but we could touch some of marks set in the 1930's. We will see.
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Post by nonentropic on Jun 8, 2022 21:59:56 GMT
OK some contrary views. QE was needed the damage of a full meltdown is to great but its addictive.
We have filled the world with zombie companies able to survive because their leverage has a negative cost if real inflation is considered, its not currently.
I hold the opinion that 4% inflation and consequent interest rates between 5% and 10% reflecting risk and term is good for business.
When we get there, and we will, the M&A market will fire up to reallocate the assets and market share that is currently in play. I predict a lot of opportunity, a fool of a president is probably fine in this mix so long as the Congress and House are blocking everything, remember Bill Clinton great president because he could not do anything, that is, what can be written here.
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Post by Sigurdur on Jun 9, 2022 0:56:09 GMT
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