1999 again?

[ERICOPOLY]

The market means different things to different people.

 

To me it doesn't mean select individual stocks.

[Broeb22]

Saying you dont know is bullshit.

 

Even Buffett admitted last year that the market may be cheap if interest rates stay low.  We just don't know.

 

https://www.cnbc.com/2019/05/06/warren-buffett-says-stocks-are-ridiculously-cheap-if-interest-rates-stay-at-these-levels.html

 

 

The market means different things to different people. Berkshire Hathaway for instance, is 99% confidence NOT in the bubble. MSFT is possible, but not likely. ZM, most likely is. One can start there, and plan their allocations for the next 3-5 years rather than the next 3-5 months. 80% BRK, 30% MSFT, and short 15% ZM probably works whether the bubble bursts or not. The names and allocations are just examples, so if you disagree, dont get too hung up on them. The one big thing with euphoric markets is that there are too many participants involved that shouldn't be. Their money is there for our taking.

 

Anecdotally, there are a lot of people I know who have never been in the market before but are all about it now. Multiple people in my office asking me what stocks to buy, day trading at work, boasting about huge gains in short periods of time, etc. It definitely feels "different" right now, that's for sure.

[SharperDingaan]

Some things never date...

 

 

“My boy,” said the Great Winfield over the phone. “Our trouble is that we are too old for this market. The best players in this kind of a market have not passed their twenty-ninth birthdays. Come on over and I will show you my solution.”

 

So Adam Smith goes over and finds three new faces in the Great Winfield’s office.

 

My solution to the current market,” the Great Winfield said. “Kids. This is a kids’ market. This is Billy the Kid, Johnny the Kid, and Sheldon the Kid.” The three Kids stood up without taking their eyes from the moving tape, shook hands, and called me “sir” respectfully.

 

“Aren’t they cute?” the Great Winfield asked. “Aren’t they fuzzy? Look at them, like teddy bears. It’s their market. I have taken them on for the duration.”

 

Winfield then describes how much money Billy the Kid is making in computer leasing stocks like Leasco Data Processing and Randolph Computer that he has heavily leveraged with bank borrowing....

 

“The strength of my kids is that they are too young to remember anything bad, and they are making so much money they feel invincible,” said the Great Winfield.

 

“Now you know and I know that one day the orchestra will stop playing and the wind will rattle through the broken window panes, and the anticipation of this freezes us. All of these kids but one will be broke, and that one will be the multi-millionaire, the Arthur Rock of the new generation. There is always one, and maybe we will find him.”...

 

Now this, is my kind of people!

 

SD

 

[thowed]

Yes, as Cigarbutt elegantly expanded on, the quote is from Adam Smith's 'The Money Game', and is one of the best accounts of the late 60s 'Go Go Years' (there is a book actually called 'the Go Go Years' which is decent, but pretty dry reading).

 

George Goodman (who wrote under the name Adam Smith) is one of my favourite financial writers as he achieved the rare combination in his field of being smart AND funny.

 

I don't know if any of you have read the wonderful short stories of Damon Runyon (most famously Guys & Dolls), but his beautiful, wise-cracking prose reminds me of Goodman.

 

The sequel, Super Money, was also enjoyable and I recently read 'Paper Money' (off a tip from someone on this board) which is also great fun and felt quite relevant, covering inflation in the early 80s.

 

Separate to this, I do find the anecdotes of 'non-finance people talking so much about investing' to be interesting - I don't think this has happened properly since the late 90s (though I suppose house-flipping was the mid-00s equivalent), and itwould certainly suggest that we are in a 'late innings', without wanting to offer any more precise thoughts on timing.

 

 

[james22]

I think it was Peter Thiel who wittily replied to the question about "Is it 1999 again?" if it refers the beginning of 1999 or the end? Smart reply, because the Nasdaq index went up ~85% in 1999. The problem with bubbles is timing, since nobody knows how big they can become and when they will pop.

 

I don't know how big this bubble can become or when it will pop, but if the market goes up 85% this year, I'm going to cash.

[Gregmal]

IDK but if "the markets"(to use everyones favorite term) go up 85% this year, why wouldn't it be reasonable for folks who are bearish to still do 30%(which accounts for hedge related drag) and then use a portion of their profits to hedge out next year?

[mattee2264]

The Fed is clearly going to continue supplying the helium so it is difficult to foresee any end to this until we get a strong economy and inflation becomes a worry. But that could be years away. And that would probably still require money printing to control yield curves so that the debt overhang doesn't hamper the recovery. And then the Fed will start worrying whether bursting the bubble could derail the economy and still probably take no action.

 

In fact what the Fed is probably hoping is that day traders take the place of all the displaced jobs and start spending some of their stock gains to reignite the economy. Maybe that will be the thing that bursts the bubble. When people start trying to spend their monopoly money gains and inflation spills into the real economy.

 

So probably financials and commodities and real estate aren't bad ways to play it even though their stock prices are pretty much back to pre-COVID levels. If the economy tanks again the liquidity in the system will probably limit your losses. And if the economy recovers then there is still some further upside and the liquidity adds a kicker. And if inflation is the end game and yield curve control fails then you will do pretty well. And if yield curve control works then probably gold isn't a bad place to be.

[Simba]

All assets have become distorted. It's not just stocks and crypto. It's literally everywhere.

 

I'm even skeptical if this "gambling" market even dies out. Why would WSB end?

 

 

[dpetrescu]

Here’s an interesting interview with Grantham. He thinks there a 50% crash coming. Not only that but he is confident it will happen in months not years.

 

[DooDiligence]

Here’s an interesting interview with Grantham. He thinks there a 50% crash coming. Not only that but he is confident it will happen in months not years.

 

 

I'm all in on VLGEA.

 

No more extra FOMO cash.

Severe downturn 100% assured.

 

:-[

 

 

 

I will not burn my dry powder,

I will not burn my dry powder,

I will not burn my dry powder,

 

unless I see something irresistible on WSB  :o

[TwoCitiesCapital]

Here’s an interesting interview with Grantham. He thinks there a 50% crash coming. Not only that but he is confident it will happen in months not years.

 

 

I hope he's right. Things are getting crazy. Not just Hertz in bankruptcy anymore. It's everywhere you look.

 

 

 

[mattee2264]

 

The thing that worries me is the S&P 500 does not actually look that expensive at around 25x pre-COVID earnings. And post-COVID earnings could be a lot higher because more of those earnings are coming from Big Tech who are having blockbuster years and if there is a V shaped recovery non-growth stocks may be able to recover a good amount of their earnings power. And with interest rates a lot lower and the quality of the tech component a lot higher doesn't seem unreasonable to exceed the 1999 P/E multiples especially if high savings rates persist and the government continues with all the handouts. So you could imagine the S&P 500 going 50% higher perhaps over the next year or two unless the Fed starts tapering or the economic weakness starts to affect the results of the tech companies and unwinds the recovery trades.

 

 

[wabuffo]

The thing that worries me is the S&P 500 does not actually look that expensive at around 25x pre-COVID earnings.

... And with interest rates a lot lower

....So you could imagine the S&P 500 going 50% higher perhaps over the next year or two unless the Fed starts tapering or the economic weakness starts to affect the results

 

... or marginal tax rates on capital gains go up + the corporate Federal tax rate increases.....  but I haven't heard any plans for something like that happening,...  8)

 

wabuffo

[mattee2264]

  I can't really see the Fed tapering for at least a few years. Last time round they didn't start talking about it until 2013. And difficult to turn off the taps when you have all of Biden's trillions to fund. They've already said they will let inflation run hot and won't tighten until we approach full employment.

 

Tax rates probably won't go up until next year. And I think most wealthy individuals and corporations will be able to avoid most of the impact.

 

A weaker than expected recovery coupled with a re-opening is probably the main risk. In that scenario cyclicals would suffer and probably Big Tech too as consumers will probably spend less on consumer goods and entertainment so they can go out more and businesses might try and economise on software and cloud etc. And while you'd expect a weaker economy to lead to more fiscal stimulus it might be harder to push through without tax increases.

 

[ERICOPOLY]

 

The thing that worries me is the S&P 500 does not actually look that expensive at around 25x pre-COVID earnings.

 

Japan's market has traded in the range of 25x for a couple of decades now.

[Xerxes]

Here’s an interesting interview with Grantham. He thinks there a 50% crash coming. Not only that but he is confident it will happen in months not years.

 

 

I hope he's right. Things are getting crazy. Not just Hertz in bankruptcy anymore. It's everywhere you look.

 

Thanks for posting. i saw it last night and was thinking about posting as well on this very thread.

Highly relevant. I loved his description of the Dot.com burst and how it was in slow motion. First the junk got shot down, then the less junk, then better quality ... then the whole thing start rolling like an iceberg for the next 2 years.

 

I liked his comment that he is not saying you should sell everything, but to re-allocate to value and outside the U.S.

And that best time to sell/trim, is when you can sell but you dont want to sell as oppose to you want to sell but you cannot sell because its prices has come down.

 

I also recommend his letter released in Jan 2021.

https://www.gmo.com/americas/research-library/waiting-for-the-last-dance/

 

I think they key point is that most of Grantham's interview was focused on technology names so that is why he was bearish. Fun facts: he drives a Tesla.

If he were to the an interview on his views on cyclical/value names, i am sure he would sound far more bullish overall.

 

I also highly recommend reading/viewing views from Mike Wilson from Morgan Stanley (not fully on bubble territory for him). Somehow he seems to get it right.

His latest interview with Bloomberg, he describe how the overall market is broadening compared to how narrow (i.e. FANG) it was in Q2 and Q3 and how that is a good thing. So saying that while S&P500 might not move a lot in 2021, underneath the hood, the other 495 companies, will have good things happening to them. I recall back in March-April, in the midst of the mayhem, he was saying this is the foundation of a new bull market (i hope i remember correctly and that i am not misquoting). Now he sees a new economic cycle, which naturally lags the bull market, which started in March-April 2020. no disagreement there.

[EdWatchesBoxing]

If there really is a crash coming, I'm ready to jump into semiconductor stocks post-crash.

[wabuffo]

Tax rates probably won't go up until next year. And I think most wealthy individuals and corporations will be able to avoid most of the impact.

 

The point is that tax rates matter and the market won't wait until the legislation goes in effect to react to them.  The market will handicap their passage and begin to react before they are enacted (say this summer or fall).

 

So then, what is $1 of pre-tax constant annuity-like earnings worth at a 21% federal corporate tax rate and a 3% long-term risk-free discount rate? 

Answer = ($1 x (1 - .21))/.03 = 26x

 

What is $1 of pre-tax constant annuity-like earnings worth at a 29% tax rate and same discount rate?  Answer = ($1 x (1 - .29))/.03 = 23x  so 12% lower. 

 

Add in a slight backing up of long-term rates (discount rate goes to 4%) and it could be 30% lower (17x). 

 

For large domestic payers of US federal taxes like BRK or banks or railroads, this could be bad news (all other things being equal).

 

wabuffo

[sarganaga]

Saw some recent click bait inviting you, yes you, to join Sarah Palin for the American Prosperity Summit. There you can learn how she has been able to make as much in two weeks as investment professionals might make in two years.

 

Not exactly stock tips from the shoeshine boy, but still...

 

Also, my auto mechanic has gotten interested in day trading.

[dpetrescu]

Thought it was interesting Grantham still sees electrification investments as lucrative. He also talked about how The SPAC craze is a sign of the top. But at the same time he is investing a large amount in Quantumscape which is both a battery maker and went public via a SPAC.

 

It seems tough to imagine a ~50% correction this year, with 2T in stimulus likely to come in the next few months and promises of low rates for years, and as we’re about to exit the pandemic and see a rush to concerts, restaurants, etc that might be like the reincarnation of the booming 1920s after being locked up for more than a year.

 

But at the same time, when I read through the craziness of WSB, large inflow of Robin Hood accounts, people I know that suddenly are interested in Bitcoin and investing in tech, and buying without any regard of value. Trading (not investing) is gambling which is addictive. It tough to imagine all the new Robin Hood accounts no longer interested after the reopening. Imagine someone getting into investing and seeing 200% gains a year not realizing that 10% would be a good year.

 

I can’t reconcile those two things. My hunch would be this could overhear into something much bigger, then something like a taper tantrum could trigger a rush to the exits.

 

Here’s an interesting interview with Grantham. He thinks there a 50% crash coming. Not only that but he is confident it will happen in months not years.

 

 

I hope he's right. Things are getting crazy. Not just Hertz in bankruptcy anymore. It's everywhere you look.

 

Thanks for posting. i saw it last night and was thinking about posting as well on this very thread.

Highly relevant. I loved his description of the Dot.com burst and how it was in slow motion. First the junk got shot down, then the less junk, then better quality ... then the whole thing start rolling like an iceberg for the next 2 years.

 

I liked his comment that he is not saying you should sell everything, but to re-allocate to value and outside the U.S.

And that best time to sell/trim, is when you can sell but you dont want to sell as oppose to you want to sell but you cannot sell because its prices has come down.

 

I also recommend his letter released in Jan 2021.

https://www.gmo.com/americas/research-library/waiting-for-the-last-dance/

 

I think they key point is that most of Grantham's interview was focused on technology names so that is why he was bearish. Fun facts: he drives a Tesla.

If he were to the an interview on his views on cyclical/value names, i am sure he would sound far more bullish overall.

 

I also highly recommend reading/viewing views from Mike Wilson from Morgan Stanley (not fully on bubble territory for him). Somehow he seems to get it right.

His latest interview with Bloomberg, he describe how the overall market is broadening compared to how narrow (i.e. FANG) it was in Q2 and Q3 and how that is a good thing. So saying that while S&P500 might not move a lot in 2021, underneath the hood, the other 495 companies, will have good things happening to them. I recall back in March-April, in the midst of the mayhem, he was saying this is the foundation of a new bull market (i hope i remember correctly and that i am not misquoting). Now he sees a new economic cycle, which naturally lags the bull market, which started in March-April 2020. no disagreement there.

[SharperDingaan]

Just to throw a related POV out.

 

Almost every treasurer, the world over, will tell you that money is ridiculously cheap - and will continue to be for quite some time.

If you did NOTHING MORE than simply roll notes as they came due, most would save millions/yr in interest. Savings that could be used to 1) greatly lengthen maturity terms on the replacement notes, 2) pay the interest on a NEW (and large) note issue, or 3) simply be allowed to flow to the bottom line.

 

At a time of significant technological change, newly constructed long term assets are subject to heightened obsolesce risk. It is far smarter to use the capital in industry consolidation, to extract greater production efficiencies and economies of scale - closing old plant along the way, by assigning work to your now most efficient plants, operating at a now higher capacity. But not good for employment.

 

But if you consolidated in the minerals sectors (o/g, metals, etc.), the outcome is very different. Obsolesce risk is minimal, opex savings from scale are immediate, and write downs on stranded assets ensure little/no tax for some time. Better still, as cheaper mineral deposits exhaust (& technologies improve) over time, the stranded asset becomes viable again, and the write downs reverse.

 

Point? Once Covid settles down, there will be a growing and enormous wall of money going into industry consolidation, And it will go to the minerals sectors first, where job-loss is more uncertain.

 

Skate to where the puck is going .. not where it is right now.

 

SD

   

 

 

 

 

[mattee2264]

Grantham loves the green energy theme so probably has an unconscious bias so is refusing to recognize the froth in that area the market.

 

I think the new bull market thing is confusing. I think we are still in the same bull market and it has been extended by the promise of lower interest rates for longer and a reinvigoration of the growth prospects for tech due to much faster adoption and the potential for broadening as cyclicals have a lot of room to run in a strong economic recovery.

 

A lot of the speculative mania shows we are in the late inning. But could be another year or two before tapering and withdrawl of fiscal stimulus result in both Big Tech and cyclicals seeing significant price declines. I think so long as there is concern about the real economy the Fed is going to be very accommodating and so long as COVID continues to linger around there will be a lot of remote working and home entertainment and online shopping which will keep growth expectations high.

[Xerxes]

^^^

Agreed on comment on electrification. That is why i found him to be credible and highly refreshing.

I like investors who have specific point of view and dont just say "the world will come to an end, i saw it in 1999, everything sucks". He is actually giving nuggets and i think is 100% on the money on renewables (though doesn't take a genuis to say that). The pandemic in fact accelerated it.

 

On the comment about BRK and potential in changing tax structure, perhaps, BRK needs a large pivot into being a global player -- outside his comfort zone but cheaper on valuation work with. ala pivot into bonds in the late 1990s.

 

 

[stahleyp]

So, two relatives reached out to me talking about investments. One wanted to buy "growth funds" and the other (who I probably haven't talked to in 3-5 years) wanted to "make some fast money." Then today, at Costco, I hear two employees talking about investing. I'm still not in the "feels like 1999" club but it's probably more so than anytime since.

[Gregmal]

Yea my 23 year old brother, super edjukated, UPenn grad student in biomedical engineering, told me over the weekend that all his friends(of similar backgrounds) are on the WSB forums chasing options and making small fortunes in their Think or Swim accounts. Its always amazed me how the markets can seduce people of all intelligence levels. I remember having an SMA client some time ago, guy worked for a similar type of company as Edward Snowden did, was a US Navy Seal with a Harvard education, must have ACAT-ed in a half dozen accounts with clean energy themed penny stocks....intelligence does not always equate to one's success in the markets. Sometimes the smarter you are, the more the market can play tricks on you. In the case of my brother and his friends, these are all kids who are going to be making 7 figures one day so getting a school of hard knocks education now is probably a worthwhile investment, but I'd imagine that isnt the case for everyone. Definitely a sign of the times though.