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Frequent Contributor

Stock's Big Gains & Bigger Questions

"A powerful rally during drastically deteriorating economic conditions has left the market richly valued and facing great uncertainty", according to an article in today's NYT.

Comments and opinions are appreciated:

https://www.nytimes.com/2020/07/10/business/stocks-big-gains-bigger-questions.html?action=click&modu...

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Re: Stock's Big Gains & Bigger Questions


@fred495 wrote:

"A powerful rally during drastically deteriorating economic conditions has left the market richly valued and facing great uncertainty", according to an article in today's NYT.

Comments and opinions are appreciated:

https://www.nytimes.com/2020/07/10/business/stocks-big-gains-bigger-questions.html?action=click&modu...


Do you really think the NYT is going to publish anything positive about stock investments during this election Cycle?

I am back to where my assets were on March 1 because I shifted my focus to FAANGM, QQQ, recovery stocks and large cap growth. Yes there is a risk that the Economy may decline over the next 6 -9 months but my bet is that the sectors I am invested in have the best probability of longer term growth As the economy recovers. I see no future for fixed income investing while fed  keeps interest rates at 0 for the foreseeable future which will result in Bond yields below the 1.3% rate of inflation.

One reason to question the assumptions in the article is the statement that the SP 500 is overvalued because it went up 20% in QTR 2. As any intelligent investor knows the 20% increase was powered by the 5 FAANGM  stocks that account for 21% of SP 500 market cap and 21% of the Earnings of all SP 500 co . Investors who only own the FAANGs and MSFT dont have to worry about their stocks being overvalued because their high prices are supported by higher earnings.

Its crappy articles like this that make me wary of relying on any financial information Published in the mainstream media.

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Participant ○○

Re: Stock's Big Gains & Bigger Questions

Here's a question; how sure are you that the market is "richly valued" ?

The NYT's article makes that claim and the OP has repeated it, but is that really the current situation?

Current forward earnings forecast for the S&P 500 depending on what source you use is between 4.0 to 4.6%.

5 year treasuries are 0.3%, 10 Year treasuries are 0.65% and 30 year are 1.33%.

Baa's are 2.25%.

5 year future inflation expectations is currently 1.57%.

So, why would anybody really think the market is "richly" valued? 

If anything is looking stupid right now, it's long term bonds.

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Participant ○○○

Re: Stock's Big Gains & Bigger Questions

The PE of our equity allocation = 18.8. NOT richly valued.

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Re: Stock's Big Gains & Bigger Questions

 

Given covid-specific focus on telehealth and telecom, my portfolio is way up there, but overall PEs are fine.

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Explorer ○○○

Re: Stock's Big Gains & Bigger Questions

Brilliant analysis. 

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Explorer ○○○

Re: Stock's Big Gains & Bigger Questions

How often is the NY TIMES accurate? Their credibility is gone with the wind.

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Re: Stock's Big Gains & Bigger Questions


@galeno wrote:

The PE of our equity allocation = 18.8. NOT richly valued.


VFIAX(SP500) PE=22.5

QQQ PE=67

VGIDX(Div growth) 23.5...VVIAX(SC index)=16.6

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Devil take the hindmost

By Colin Twiggs
July 11, 2020

I am fond off quoting Jesse Livermore's maxim "You don't argue with the tape" but Livermore was a keen student of market conditions and based his decisions on far more than just price action on the ticker tape.

We are witnessing a spectacular stock market rally, driven by retail investors and hedge funds piling into the market while institutional investors are sitting on the sidelines.

The Nasdaq 100 broke through resistance at 10,000, new highs signaling a fresh primary advance. Bearish divergence on Twiggs Money Flow index may warn of selling pressure but it is hard to argue with the tape. Only a fall below 9500 would signal another decline and that seems unlikely at present.

Nasdaq 100

Even retail sales (ex food) have recovered sharply, from -15.3% in April to -1.4% in May (annual % gain).

Retail Sales (ex Food)

Light vehicle sales are more sluggish but June sales of 13.05 million are still a sizable bounce.

Light Vehicle Sales

So why are many old investment hands acting with such caution?

We know that the efforts to contain the COVID19 outbreak are struggling, with over 60,000 new cases per day, but the economy still seems in good shape.

COVID19 Daily Cases

Source JHU CSSE

Let's look at where the money is coming from.

Federal Debt

Treasury debt has expanded by more than $3 trillion in the last four months (March 9 - July 9) as the government does everything in its power to cushion the economy from an unprecedented shutdown. Rescuing airlines, bailing out Boeing, emergency business loans, job preservation schemes, and supporting Fed purchases of a wide variety of financial assets to keep the plumbing of financial markets open. Every way they can, government has been flooding the market with money and some of that has found its way to the stock market. Whether through boosting stock purchases, enabling companies to raise debt or boosting consumer spending to buoy up sales, the market is flying on borrowed money.

Steep up-trends like this typically end in a blow-off. A trend is self-reinforcing if rising prices attract more investors who in turn bid up prices even further. A steady influx of new investors is required to sustain the trend, else it dies.

Similar self-reinforcing cycles are evident in nature, where they expand violently outward at an exponential rate until they run out of fuel. The fuel driving the event may differ, from dry tinder in a forest fire, warm ocean temperatures in a hurricane, consumable vegetation in a locust plague, .....or exposed population in a virus outbreak. The cycle expands, feeding on itself, until the fuel is exhausted.

A stock market blow-off is no different. The up-trend will continue for as long as rising prices are able to attract new investors. It will stop when the source of new money dries up. In this case, when Treasury tries to slow the unsustainable growth in federal debt. Then it becomes a case of devil-take-the-hindmost as a preponderance of sellers attempt to offload their stocks on a rapidly shrinking pool of buyers.

"Nobody can catch all the fluctuations. In a bull market your game is to buy and hold until you believe that the bull market is near its end. To do this you must study general conditions and not tips or special factors affecting individual stocks. Then get out of all your stocks; get out for keeps! You have to use your brains and your vision to do this; otherwise my advice would be as idiotic as to tell you to buy cheap and sell dear. One of the most helpful things that anybody can learn is to give up trying to catch the last eighth-or the first. These two are the most expensive eighths in the world."

~ Jesse Livermore

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Re: Stock's Big Gains & Bigger Questions


@fred495 wrote:

"A powerful rally during drastically deteriorating economic conditions has left the market richly valued and facing great uncertainty", according to an article in today's NYT.

Comments and opinions are appreciated:

https://www.nytimes.com/2020/07/10/business/stocks-big-gains-bigger-questions.html?action=click&modu...


         Some say yes and some say no. So don’t tell me your going to market time based on that. My last really big purchase of an overvalued high PE stock was AMZN 10-12 years ago. I ignored even a bank crisis. The world is going to muddle along at an unknown pace like it always has until the next big thing. 
       
           Echoing others ignore the wall of woe and think 5-10 years down the line. You really think the odds favor the DOW still being in the 20 thousands? 

            Here’s a couple grabbers I’ve seen since the 70’s, remember sex and fear sell everything, “the market is fully valued (priced for perfection, richly valued etc.), “market direction is forever an unknown, duh (facing great uncertainly, highly educated double duh). The game is the same the players, characters and verbiage change. The investments I made at DOW 750 without any concept of valuation plus all the excuses not to invest and never look at are now worth thousands.

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Re: Stock's Big Gains & Bigger Questions


@steelpony10 wrote:

Echoing others ignore the wall of woe and think 5-10 years down the line. You really think the odds favor the DOW still being in the 20 thousands? 

           


I don't know your personal circumstances, @steelpony10, but I am a retired investor and apparently have a somewhat different perspective. I don't know where I will be in 5 or 10 years, never mind where the market will be. I have pulled in my horns at this precarious time and forsaken the equity market until we find a better way to manage this pandemic by at least "flattening the curve", and getting people back to work in a reasonably safe manner.

But, I am afraid that the second half of this year may see significant economic and political dislocations such as numerous bankruptcies, high unemployment, continuing/escalating conflicts with China, and perhaps even a second wave of the corona virus pandemic.

Hence, at this time, I consider it my top priority to preserve the value of my portfolio. I am no longer in the accumulation phase and consider annual total returns of 2-3% above the rate of inflation quite satisfactory. At my age, sleeping well at night is also quite an important consideration.

Good luck,

Fred

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Re: Stock's Big Gains & Bigger Questions

Hence, at this time, I consider it my top priority to preserve the value of my portfolio. I am no longer in the accumulation phase and consider annual total returns of 2-3% above the rate of inflation quite satisfactory. At my age, sleeping well at night is also quite an important consideration.”

Inflation was 2.3% in 2019 and 0.1% currently. Let’s call it 1% for the year. That means you’re looking for a sleep-easy 3-4% with no equity, hence all bonds and other non-equity alternatives.

“Sleep easy” to me means VBIRX / SWSBX or more conservative. VBILX / VBTLX / FXNAX and their peers are not “sleep easy” in my opinion. MS funds as a whole are also certainly not sleep easy, as March demonstrated.

I think you’ve set a challenge not easily or certainly achievable. 

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Re: Stock's Big Gains & Bigger Questions


@fred495 wrote:

@steelpony10 wrote:

Echoing others ignore the wall of woe and think 5-10 years down the line. You really think the odds favor the DOW still being in the 20 thousands? 

           


I don't know your personal circumstances, @steelpony10, but I am a retired investor and apparently have a somewhat different perspective. I don't know where I will be in 5 or 10 years, never mind where the market will be. I have pulled in my horns at this precarious time and forsaken the equity market until we find a better way to manage this pandemic by at least "flattening the curve", and getting people back to work in a reasonably safe manner.

But, I am afraid that the second half of this year may see significant economic and political dislocations such as numerous bankruptcies, high unemployment, continuing/escalating conflicts with China, and perhaps even a second wave of the corona virus pandemic.

Hence, at this time, I consider it my top priority to preserve the value of my portfolio. I am no longer in the accumulation phase and consider annual total returns of 2-3% above the rate of inflation quite satisfactory. At my age, sleeping well at night is also quite an important consideration.

Good luck,

Fred


Just what Non equity investments will annually return 2-3% more than fed inflation, currently 1.3% ,which will preserve the value of your portfolio without risk? 10 year treasury is  returning 0.7% , 30 yr 1.32%

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Re: Stock's Big Gains & Bigger Questions


@Intruder wrote:

@fred495 wrote:

I have pulled in my horns at this precarious time and forsaken the equity market until we find a better way to manage this pandemic by at least "flattening the curve", and getting people back to work in a reasonably safe manner.

 


Just what Non equity investments will annually return 2-3% more than fed inflation, currently 1.3% ,which will preserve the value of your portfolio without risk? 10 year treasury is  returning 0.7% , 30 yr 1.32%

 

@Intruder@chang, please note that I have not permanently forsaken the equity market, only, as I said, until "we find a better way to manage this pandemic by at least "flattening the curve".

I think the equity market is currently quite overvalued. A fund manager from TCW was quoted in the above NYT article as follows: "Unemployment is going to remain elevated. That will affect business behavior, consumption, savings. The economy will disappoint the optimistic assumptions largely built into asset prices."

I was also out of the equity market, and in Treasury notes and bonds, from September 2007 until April 2009. I may have exited the market too soon and re-entered it a few weeks too late, but I avoided significant damage to my portfolio. I may not be that lucky again, but feel quite comfortable at present to invest primarily in high quality intermediate core/core-plus bond funds. Obviously, I am not a buy-and-hold type of investor and may trade them at any time.

Good luck, we certainly live in interesting times.

Fred

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Re: Stock's Big Gains & Bigger Questions


   @fred495   I was commenting not knowing your circumstances either. My opinion is after 40 years of investing experience articles like the one you mentioned are boilerplate wall of woe fodder. Without any factual news most reporting these days seems to me to be revising history, opinion or somehow foreseeing the future. As a financial writer how many stories can be written each day that the market is going to go up or down but long term will be up just based on inflation alone?

    Investing just to stay ahead of your personal inflation rate with no long term growth in portfolio value may work out fine. But if your expenses suddenly take a permanent jump up things can get dicey.

    We stopped investing when we believed we had enough to cover the worst outcomes for awhile. I see many amateur investors become fearful for reasons I can’t comprehend at times like these while we follow the thinking of professionals but invest only during corrections or sales like this as retirees. Before that we were all in all the time compounding returns. 

     

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Re: Stock's Big Gains & Bigger Questions


@fred495 wrote:

@Intruder wrote:

@fred495 wrote:

I have pulled in my horns at this precarious time and forsaken the equity market until we find a better way to manage this pandemic by at least "flattening the curve", and getting people back to work in a reasonably safe manner.

 


Just what Non equity investments will annually return 2-3% more than fed inflation, currently 1.3% ,which will preserve the value of your portfolio without risk? 10 year treasury is  returning 0.7% , 30 yr 1.32%

 

@Intruder@chang, please note that I have not permanently forsaken the equity market, only, as I said, until "we find a better way to manage this pandemic by at least "flattening the curve".

I think the equity market is currently quite overvalued. A fund manager from TCW was quoted in the above NYT article as follows: "Unemployment is going to remain elevated. That will affect business behavior, consumption, savings. The economy will disappoint the optimistic assumptions largely built into asset prices."

I was also out of the equity market, and in Treasury notes and bonds, from September 2007 until April 2009. I may have exited the market too soon and re-entered it a few weeks too late, but I avoided significant damage to my portfolio. I may not be that lucky again, but feel quite comfortable at present to invest primarily in high quality intermediate core/core-plus bond funds. Obviously, I am not a buy-and-hold type of investor and may trade them at any time.

Good luck, we certainly live in interesting times.

Fred


I understand your point. But there are sectors in the equity markets such as FAANGS , recovery stocks, stay at home stocks and QQQ which are not over valued based on earnings which will provide better returns than cash and fixed income as the economy recovers.

 

 

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Re: Stock's Big Gains & Bigger Questions


@Intruder wrote:


I understand your point. But there are sectors in the equity markets such as FAANGS , recovery stocks, stay at home stocks and QQQ which are not over valued based on earnings which will provide better returns than cash and fixed income as the economy recovers.

 

 


Thanks for the suggestions, @Intruder.

I don't invest in stocks directly, only in funds. But, I have QQQ on my short watch list, along with APGAX and VLAIX, for whenever I feel comfortable returning to the equity market again.

Good luck,

Fred

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Re: Stock's Big Gains & Bigger Questions


@steelpony10 wrote:

   @fred495   My opinion is after 40 years of investing experience articles like the one you mentioned are boilerplate wall of woe fodder. Without any factual news most reporting these days seems to me to be revising history, opinion or somehow foreseeing the future. As a financial writer how many stories can be written each day that the market is going to go up or down but long term will be up just based on inflation alone?

    Investing just to stay ahead of your personal inflation rate with no long term growth in portfolio value may work out fine. But if your expenses suddenly take a permanent jump up things can get dicey.

   

     


I agree with your general statement about financial writers, @steelpony10.

However, I also agree with the quote in the NYT article by Steve Kane, a fund manager at TCW, that: "Certain businesses just are not going to have the opportunity to get back to where they were. Unemployment is going to remain elevated. That will affect business behavior, consumption, savings. The economy will disappoint the optimistic assumptions largely built into asset prices."

Hence, my reluctance to invest in equities at this time. Luckily, I have sufficient sources of income to defray all my living expenses without needing to withdraw funds from my portfolio. This also allows me to be a conservative investor and focus on capital preservation, and not take unnecessary chances during this difficult time.

Good luck,

Fred

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Re: Stock's Big Gains & Bigger Questions

@FD1001 : "Nobody can catch all the fluctuations. In a bull market your game is to buy and hold until you believe that the bull market is near its end. To do this you must study general conditions and not tips or special factors affecting individual stocks. Then get out of all your stocks; get out for keeps! You have to use your brains and your vision to do this; otherwise my advice would be as idiotic as to tell you to buy cheap and sell dear. One of the most helpful things that anybody can learn is to give up trying to catch the last eighth-or the first. These two are the most expensive eighths in the world."  ~ Jesse Livermore.

It seems to be timing the market smartly.  I know you are able to practice that.  But: (1) How does a common investor know the timing of "until..."?  (2) What does it mean to "get out for keeps"?  Better yet, how does one know when to come back? and (3) How does a common investor know the timing of the last eighth-or the first?  

Do all these apply only to a skillful stock trader or to the general investors with mutual funds in their portfolio? 

Thanks.

 

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Re: Stock's Big Gains & Bigger Questions


@fred495 wrote:

@steelpony10 wrote:

   @fred495   My opinion is after 40 years of investing experience articles like the one you mentioned are boilerplate wall of woe fodder. Without any factual news most reporting these days seems to me to be revising history, opinion or somehow foreseeing the future. As a financial writer how many stories can be written each day that the market is going to go up or down but long term will be up just based on inflation alone?

    Investing just to stay ahead of your personal inflation rate with no long term growth in portfolio value may work out fine. But if your expenses suddenly take a permanent jump up things can get dicey.

   

     


I agree with your general statement about financial writers, @steelpony10.

However, I also agree with the quote in the NYT article by Steve Kane, a fund manager at TCW, that: "Certain businesses just are not going to have the opportunity to get back to where they were. Unemployment is going to remain elevated. That will affect business behavior, consumption, savings. The economy will disappoint the optimistic assumptions largely built into asset prices."

Hence, my reluctance to invest in equities at this time. Luckily, I have sufficient sources of income to defray all my living expenses without needing to withdraw funds from my portfolio. This also allows me to be a conservative investor and focus on capital preservation, and not take unnecessary chances during this difficult time.

Good luck,

Fred


       Short term that may turn out to be true or not. You can find opposite takes side by side every day.
       
        I myself learned not to put any faith in financial gypsies and their crystal balls. I only see amateurs market time from fear like now while the smart money loads up on equity sales. I follow the managers who make a living doing this not writing about it or worse yet what I think.

        This all goes away someday to be replaced by something else meanwhile I just compound cheap fractional shares with growth potential, the reason to invest in the first place, at a greater rate then MM fund interest to have a better chance of preserving purchasing power long term.

 

 

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Re: Stock's Big Gains & Bigger Questions


@steelpony10 wrote:


       Short term that may turn out to be true or not. You can find opposite takes side by side every day.
       
        I myself learned not to put any faith in financial gypsies and their crystal balls. The standard headlines are all fear tactics it seems. I only see amateurs market time from fear like now while the smart money loads up on equity sales. Even when markets seemed to be perfect last year “Goldilocks” appeared  probably in an attempt to turn a great situation for many in the U.S. to a fable. Everything's covered now, overvalued, corrections, recessions, or not great really a fantasy.

        This all goes away someday to be replaced by something else meanwhile I just compound fractional shares rather then lose purchasing power in a MM fund.

 

 


What I am trying to say, @steelpony10,  is that I agree with Steve Kane's assessment of current market conditions long before he expressed them in this NYT article. I have been out of the equity market since early March when I became more aware of the threat of the corona pandemic to the US economy and way of life.

@chang  expressed my personal attitude towards the market quite succinctly on another thread when he said: "I don’t really need a lot more money—but I certainly don’t want to lose a lot. I need to remind myself to err on the side of caution."

I also don't need financial writers, or "gypsies" as you call them, to help me form an opinion. But, sometimes, as in the case of Steve Kane, they are more skillfull in expressing my opinion than I am. Hence, I thought it would be worthwhile to bring the NYT article, which seemed fairly balanced, to the attention of other posters on this forum.

Fred

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