Stock market thoughts?

[mryan75]

I read an article a little while back where Ron Paul was once again calling for a stock market crash worse than the Great Depression. I never have given his predictions much credence though.

Gee, I can't imagine why not.

 

[FastEddieB]

It feels like a house of cards to me.

A common feeling, one that I’m not immune to. But I remember a fellow selling some gold coins to me in the early 1980’s telling me the market was overpriced to insane levels, and was a fool’s game. I believe the Dow was around 1,000 back then, so there’s that!*

I’m not a savvy investor, but when most here have money in funds, the thing that stops me is that there is a delay between when (if) you decide to get out, to when you get to know the price you got. I kept thinking I was missing some key point, because IF there was a crash, you would want to get out very fast if you even saw it coming slightly ahead of the rest, but the delay is in days. Here when you say sell, you won’t know the price until the day or even two after. A lot can happen in that long a time.

With stocks, a market trade is nearly instantaneous during trading hours. If you want to lock in gains, a stop loss order will immediately sell your position when a certain set price is reached, and as long as a stock is rising you can keep ratcheting that strike price upwards**. I don’t think you have those exact options with mutual funds, but I believe a sell order will execute at the price at the day’s closing. If you’re not comfortable in stocks and mutual funds, fine, but I’m not sure your logic here is sound.


*Those gold coins, which I still have, were purchased for as little as $285/oz or so, so have appreciated to 4 or 5 times, not including inflation. Yay! But the same funds put in conservative stocks or an index fund would have been up about 25 times, again, not counting inflation, but also not factoring in reinvested dividends.

**That strategy can kill huge long term gains in a stock like Tesla, Microsoft, Apple, Netflix, or Amazon for example. “You can never go broke taking a profit”, but selling on every little pullback or consolidation is not the way to big profits, though a pessimist will see that as a strategy to avoid big losses as well.

 

[Groundpounder]

Bingo! Seems to be an entire industry of doomers predicting the next crash. Crash in the US Dollar. Crash in the bond market. Crash in the stock market. Crash in the real estate market. Crash in precious metals. Seems there's enough doomers out there peddling newletters, doing interviews and publishing crap on the net to create a new cult or three. Seems to have been amplified 1000+ times with the advent of social media, Bubblevision, Presidential Twitters and internet self publishing. The noise habitually drowns out the signal these days.

Let's put it this way, my now former boss is someone that could probably start the next crash if he really wanted to. If anyone knows what is going to happen, it was probably him.

Regardless, presidential election years normally have a economic slowdown while people hold their breath to see who is going to get in. I'm not a big fan of our current POTUS, but for the sake of the economy, I sure hope he gets reelected.

 

[tspear]

What worries me is that I think the stock buybacks many, many companies are doing, and that depend on low loan interest rates, inflation of worth, etc, is heading for a huge loss if and when interest rates go up again.
It feels like a house of cards to me.

Last numbers I saw from economists demonstrated that roughly 80% of the tax cut when into stock buybacks and dividends. For lack of a better term; this is paper money which inflates the stock market and feel good feelings without addressing fundamentals.

If you research "zombie companies"; it is a really fascinating area of active research now in academics. Assuming I follow the stuff correctly, a zombie company is often defined as a company which the free cash flow cannot pay the interest on the current debt load if the interest rate increases 4%. From what I recall the 4% number was picked because that is the average increase in interest rates during a recession.
What is most fascinating to me; assuming I follow the research correctly; is it appears that the ratio of companies which are zombie companies has more to do with time than interest rates. The longer a business cycle goes; the higher the ratio of the number of companies will go belly up.
The more companies collapse; the worse the recession; and also the longer/slower the recovery.

Tim

 

[tspear]

I'm not a big fan of our current POTUS, but for the sake of the economy, I sure hope he gets reelected.

Nah, I like my kids. The current administration and the feckless congressional critters two years basically fu**ed the future.
The sugar high the tax cut caused in the stock market did not help any real foundational aspect of the economy. The last couple analysis I have seen show over 80% of the tax cut went to stock buy backs and dividends. It was not "invested". Money is so cheap, that any company that wanted to invest could pretty much do so. Further; the tax cut also largely spent whatever fiscal capability the government has for the next recession.
It all feels good; but is actually super bad for those under retirement age who will have to pay it back (e.g. me and my kids).

A long time ago in economics class; I recall discussions by economists which expressed fear that the level of borrowing by President Reagan's administration would lead to a cash crunch which would cause a crisis in the financial system as there is not enough liquidity. The problem was the academics said this will happen in theory; and could not provide a number or tipping point when this will occur.
Based on the debacle in the repo market since mid September; my question is; have we reached this point?

Tim

 

[LongRoadBob]

Let's put it this way, my now former boss is someone that could probably start the next crash if he really wanted to. If anyone knows what is going to happen, it was probably him.

Regardless, presidential election years normally have a economic slowdown while people hold their breath to see who is going to get in. I'm not a big fan of our current POTUS, but for the sake of the economy, I sure hope he gets reelected.

But there is a slowdown in manufacturing already, and a lot of it due to confidence. current president is all over the place, with things like emission fights, etc. and not listening to auto manufacturers who prefer better standards, so they can plan. Also of course, the tariffs, which the current president has stated many times “China pays the US for” which isn’t at all how that works. So manufacturers have to find other sources, or prices go up. That has to affect the stock market at some point, no?

 

[LongRoadBob]

A common feeling, one that I’m not immune to. But I remember a fellow selling some gold coins to me in the early 1980’s telling me the market was overpriced to insane levels, and was a fool’s game. I believe the Dow was around 1,000 back then, so there’s that!*



With stocks, a market trade is nearly instantaneous during trading hours. If you want to lock in gains, a stop loss order will immediately sell your position when a certain set price is reached, and as long as a stock is rising you can keep ratcheting that strike price upwards**. I don’t think you have those exact options with mutual funds, but I believe a sell order will execute at the price at the day’s closing price. If you’re not comfortable in stocks and mutual funds, fine, but I’m not sure your logic here is sound.


*Those gold coins, which I still have, were purchased for as little as $285/oz or so, so have appreciated to 4 or 5 times, not including inflation. Yay! But the same funds put in conservative stocks or an index fund would have been up about 25 times, again, not counting inflation, but also not factoring in reinvested dividends.

**That strategy can kill huge long term gains in a stock like Tesla, Microsoft, Apple, Netflix, or Amazon for example. “You can never go broke taking a profit”, but selling on every little pullback or consolidation is not the way to big profits, though a pessimist will see that as a strategy to avoid big losses as well.

I’m sure my logic isn’t totally sound, but I did experience getting out of the funds I was in in around 2007 coming up in ‘08 that I didn’t know the price I would get until two days after because though I asked to get out we’d afternoon around 12, they had to wait until Thursday closing to figure out the worth. It worked out ok but it shocked me as I hadn’t realized it could be that uncertain.

 

[FastEddieB]

To be fair, dividends do provide fund to people like me, and pensions funds and the like, that get reinvested or spent. Providing at least some stimulus effect.

And let’s try to avoid a lock by not bringing politics into the discussion.

 

[Shepherd]

In 2007 I unloaded (almost) all my stocks, put my money in tax free municipal bond funds, and regular bond funds. They only pay about 3-4% a year but have never lost a penny and the compounded growth has made me quite a bit of money. The stocks I kept were high yield dividend stocks and I reinvested all the dividends. One of the stocks turned out to be dog, but when Trump took over it zoomed back and has been paying 12% monthly.
This month I will dump all my Blue State municipals, and put them into Red State municipals, just in case the Dems win this month and in 2020. Many Blue states are already talking about defaulting on loans.
Sorry, it's not politics, it's reasoning for how I invested.

 

[Clip4]

Nah, I like my kids. The current administration and the feckless congressional critters two years basically fu**ed the future.
The sugar high the tax cut caused in the stock market did not help any real foundational aspect of the economy. The last couple analysis I have seen show over 80% of the tax cut went to stock buy backs and dividends. It was not "invested". Money is so cheap, that any company that wanted to invest could pretty much do so. Further; the tax cut also largely spent whatever fiscal capability the government has for the next recession.
It all feels good; but is actually super bad for those under retirement age who will have to pay it back (e.g. me and my kids).

A long time ago in economics class; I recall discussions by economists which expressed fear that the level of borrowing by President Reagan's administration would lead to a cash crunch which would cause a crisis in the financial system as there is not enough liquidity. The problem was the academics said this will happen in theory; and could not provide a number or tipping point when this will occur.
Based on the debacle in the repo market since mid September; my question is; have we reached this point?

Tim

When you live in a society where extending high risk credit to support short term gain is the plan, we are always at the tipping point.

 

[mryan75]

This month I will dump all my Blue State municipals, and put them into Red State municipals, just in case the Dems win this month and in 2020. Many Blue states are already talking about defaulting on loans.

Not politics either, but I'm curious: which states and which loans are hey talking about defaulting on?

 

[wilkersk]

Meh, ....I'm planning for the worst, and hoping for the best. I've stayed invested for the last 35 years. My portfolio has been up, up, up, for all but about 2 years, when it was down as much as 30% after the 2009 correction. It regained that 30% and has far surpassed that correction.

I'm ready for another 30-40% correction, I'll stick it out by playing the "bucket strategy". I'll keep the cash bucket ready to deploy. But, I hope I don't have to use it up before the next down cycle turns back up.

...A long time ago in economics class; I recall discussions by economists which expressed fear that the level of borrowing by President Reagan's administration would lead to a cash crunch which would cause a crisis in the financial system as there is not enough liquidity. The problem was the academics said this will happen in theory; and could not provide a number or tipping point when this will occur.
Based on the debacle in the repo market since mid September; my question is; have we reached this point?

Tim

But...... Wait, there's more!

"MMT is a big departure from conventional economic theory. It proposes governments that control their own currency can spend freely, as they can always create more money to pay off debts in their own currency."

https://www.businessinsider.com/modern-monetary-theory-mmt-explained-aoc-2019-3

 

[Shepherd]

Not politics either, but I'm curious: which states and which loans are hey talking about defaulting on?

New York and California are the two most obvious.
Both states are broke. NYS is actually talking about increasing the tax on 401K savings or seizing them completely. The State pension plan is bankrupt, and they are talking about a $1,700.00 "surcharge" per family to fund the pension plan. NY is also the second most expensive state to live in. CT is the worst.
California is just a government resolution away from being Venezuela.
Forty years ago one entire branch of my family picked up and went to California and set up in the construction business. For awhile they were very successful.
For the past 5 years they have been testing the waters East of the Rockies.
Last year, two entire generations, every man woman and child packed up and moved to Texas.

Illinois is is pretty bad shape, and the pension fund in North Carolina is on borrowed time.

 

[wilkersk]

New York and California are the two most obvious.
Both states are broke. NYS is actually talking about increasing the tax on 401K savings or seizing them completely. The State pension plan is bankrupt, and they are talking about a $1,700.00 "surcharge" per family to fund the pension plan. NY is also the second most expensive state to live in. CT is the worst.
California is just a government resolution away from being Venezuela.
Forty years ago one entire branch of my family picked up and went to California and set up in the construction business. For awhile they were very successful.
For the past 5 years they have been testing the waters East of the Rockies.
Last year, two entire generations, every man woman and child packed up and moved to Texas.

Illinois is is pretty bad shape, and the pension fund in North Carolina is on borrowed time.

I seem to have become the "old sage" where I work when it comes to financial stuff. One of the things I've started talking to coworkers about, when they ask for advice about saving for retirement, is whether or not they know how the pension plan works and where and how to check up on the plan's financial status. More than one coworker has told me they were surprised to learn that our state is one of the few that has managed to mostly stay clear of the derivatives mess and has remained fairly close to being fully funded.

I pity anyone who is in a defined benefit pension plan and gets surprised to learn their sure thing retirement plan is bust.

 

[Pilots Of America Management]

Folks, remember that political discussion is not allowed on these boards.