Will S&P 500 Retest Recent Low By End of April

[valueinvestor]

I think people(still) need to calm down with all this market is over/under valued speculation and rampant obsession with calling the next day/week's direction.

 

Some things right now are astoundingly expensive. Some things are astoundingly cheap. There is a lot thats in-between. Look at the Nasdaq vs S&P vs IWM... HUGE valuation disparity.

 

If you want to get speculative, you can, as Bill Miller correctly points out, find some easy home runs if you predicate that investment on a vaccine being found. On the other end, if there is no vaccine, you can also probably find yourself some landmines and thus avoid.

 

OMG 17x is cheap/expensive is stupid to me. I dont buy indexes and that kind of talk is only relevant if you do.

+1

 

It's funny that it has to be said in a value investment board. The level of prediction required would make someone a billionaire if they're right more than once. So not sure why people are focused on the economic backdrop - I understand there is a lot of fear, and it's okay to be fearful (many of the greatest investors of our generation are right now), however for the small investors like us - we can profit depending on your time horizon.

 

Many are pointing towards David Tepper, Stanley Druckenmiller, Howard Marks that they are bearish, but they are still invested to some degree. I get that David is only 10-15% long equities, and Warren hasn't really bought many stocks, but I like to believe that Warren is thinking more about his shareholders and David has better ways than equities to profit either way. They did not say sell everything, but they are also saying to be cautious with names that are fully-to-overvalued.

 

As an investor, I see many secular growth stocks trading at 30x and 40x valuations, but can grow into it - even if economies tank, so my performance will not be terrible over the long term. Secondly, if you are contributing regularly to your portfolio, I think it would be a terrible mistake to try to time the market.

 

There are people on the board who are up for the year, because of the March rally and even if the market tanks by 50%, they will not be in the red. Funny enough, the people who said they are not investing because of the economic backdrop is not wrong, because the economy is definitely down, but markets are still up.

 

As Gregmal said, if you're investing in etfs, then it matters. However, if you really think the market is going down, not that I am advising anyone to do this, but buy puts or outright short ETFs you think are overvalued but also has a good chance of outflows (not that I studied a lot about the subject - but I agree with Ackman's and Icahn's view on etfs).

[UK]

https://www.cbsnews.com/news/full-transcript-fed-chair-jerome-powell-60-minutes-interview-economic-recovery-from-coronavirus-pandemic/

[meiroy]

https://www.cbsnews.com/news/full-transcript-fed-chair-jerome-powell-60-minutes-interview-economic-recovery-from-coronavirus-pandemic/

 

TL;DR:

 

SCOTT PELLEY, CBS NEWS / 60 MINUTES: There's only one question that anyone wants an answer to, and that is: when does the economy recover?

 

JEROME POWELL, CHAIRMAN OF THE FEDERAL RESERVE: It's a good question. And very difficult to answer because it really does depend, to a large degree, on what happens with the coronavirus.

 

[Viking]

https://www.cbsnews.com/news/full-transcript-fed-chair-jerome-powell-60-minutes-interview-economic-recovery-from-coronavirus-pandemic/

 

TL;DR:

 

SCOTT PELLEY, CBS NEWS / 60 MINUTES: There's only one question that anyone wants an answer to, and that is: when does the economy recover?

 

JEROME POWELL, CHAIRMAN OF THE FEDERAL RESERVE: It's a good question. And very difficult to answer because it really does depend, to a large degree, on what happens with the coronavirus.

 

Good interview with Powell. He is very plain spoken. We are in a shit storm. What government does Moving forward matters greatly and will impact the eventual outcome.

[Spekulatius]

https://www.cbsnews.com/news/full-transcript-fed-chair-jerome-powell-60-minutes-interview-economic-recovery-from-coronavirus-pandemic/

 

TL;DR:

 

SCOTT PELLEY, CBS NEWS / 60 MINUTES: There's only one question that anyone wants an answer to, and that is: when does the economy recover?

 

JEROME POWELL, CHAIRMAN OF THE FEDERAL RESERVE: It's a good question. And very difficult to answer because it really does depend, to a large degree, on what happens with the coronavirus.

 

Good interview with Powell. He is very plain spoken. We are in a shit storm. What government does Moving forward matters greatly and will impact the eventual outcome.

 

 

Futures are up. I think TL; DR summary is that he said the Fed has more bullets.

[mcliu]

Since the poll, April ended with markets up 17%, even though 57% voted yes and 12% voted no..  :o

[fareastwarriors]

Since the poll, April ended with markets up 17%, even though 57% voted yes and 12% voted no..  :o

 

Don't fight the  effing Fed...

[Castanza]

Since the poll, April ended with markets up 17%, even though 57% voted yes and 12% voted no..  :o

 

Don't fight the  effing Fed...

 

Recent interview

 

Pelley:"Fair to say you simply flooded the system with money?"

 

Powell: "Yes. We did. That's another way to think about it. We did."

 

Pelley: "Where does it come from? Do you just print it?"

 

Powell: "We print it digitally. So as a central bank, we have the ability to create money digitally. And we do that by buying Treasury Bills or bonds from other government guaranteed securities. And that actually increases the money supply. We also print currency and we distribute that through the Federal Reserve banks."

 

that'll do it...

[Uccmal]

Ok, well... Home Depot just reached an all time high.  Go figure.  Managed to snag a couple of hundred shares a while back but what to do.  Nothing is usually the best course of action. 

[TwoCitiesCapital]

Since the poll, April ended with markets up 17%, even though 57% voted yes and 12% voted no..  :o

 

Yup. And having lived through it, still think it's crazy as it would've seemed weeks ago when the poll started. Economic data is still deteriorating at an enormous clip and the debt corporations/governments are adding is unproductive - merely a means to try to jog in place instead of actually improve future cash flows/earnings.

 

At some point, people will realize liquidity does not solve a solvency crisis, but it seems to me that people are more focused on the day-to-day occurrences with the vaccine/virus instead of the economic destruction that is becoming more clear.

 

 

Since the poll, April ended with markets up 17%, even though 57% voted yes and 12% voted no..  :o

 

Don't fight the  effing Fed...

 

People fought the Fed in 2018/2019 with the inversion of the yield and the collapse in equities. Ultimately, the Fed "lost" in that it was forced to cut rates and remain accommodative long before COVID-19.

 

Also, back in 2008, Fed intervention isn't what marked the bottom for most financial assets, so fighting the Fed worked there too.

 

Ultimately don't fight the Fed is like any other "fool proof" strategy. It works until it doesn't.

 

The Fed doesn't "lead" the markets, it follows them. And if markets tank again, it will react to that tanking, but it won't be proactive in ensuring it doesn't happen.

[mattee2264]

  The clearer the economic destruction gets the more aggressive the Fed and the government are going to be. So I am not convinced bad economic and company data will be enough to sink markets. I think the real danger to markets is inflation. One way this could manifest is if demand recovers but the global economy is unable to quickly get back to full economic capacity as a result of the dislocation caused by the virus as well as high unemployment rates.

[vinod1]

Wild thought (involves no use of bleach).

 

What would happen if suddenly a company finds a miracle vaccine that is 100% effective and can be produced immediately in enough quantities to give to the entire world population?

 

I think the market would tank within a week if this happens today.

 

The psychology would turn on a dime in the population with regard to risk. There would be a surge of travel, spending, etc that would run into a constrained supply chains. Surge in inflation->QT and/or interest rate increases. We will be back to end of 2018 worries. S&P 500 below 2500.

 

Vinod

 

 

[vinod1]

  The clearer the economic destruction gets the more aggressive the Fed and the government are going to be. So I am not convinced bad economic and company data will be enough to sink markets. I think the real danger to markets is inflation. One way this could manifest is if demand recovers but the global economy is unable to quickly get back to full economic capacity as a result of the dislocation caused by the virus as well as high unemployment rates.

 

I agree. Posted above thinking of the same but did not yet read your message.

[widenthemoat]

  The clearer the economic destruction gets the more aggressive the Fed and the government are going to be. So I am not convinced bad economic and company data will be enough to sink markets. I think the real danger to markets is inflation. One way this could manifest is if demand recovers but the global economy is unable to quickly get back to full economic capacity as a result of the dislocation caused by the virus as well as high unemployment rates.

 

I agree. Posted above thinking of the same but did not yet read your message.

 

This is where I see things heading as well. The question then becomes: Will the Fed be forced to raise rates to break the back of inflation? If so, will this be what sends stocks crashing down?

[UK]

41:04

Oaktree's Marks on Fed Support, Credit Market Distress

[Vish_ram]

This kind of thinking is incorrect.

 

The markets will drop if there is unabated inflation that Fed is not able to control. There is a formula where P/E drops when inflation goes up.

 

Moderate inflation is very positive for many stocks.

 

They key is to understand natural rate of interest (Read Bernankes comments on this). (NOI)

If fed rates are below the NOI, then it is quant easing and economy and markets benefit. If demand picks up a lot, then NOI goes up. If it overheats, then NOI goes up still further and Fed raises rates to cool it off. We are a long way off from tightening. The unemp rates have to improve

[mattee2264]

 

Yes should have been clearer. I am talking about more of a stagflation scenario rather than the sluggish low inflationary growth that supported low interest rates and high valuations for much of the bull market. And yeah will depend somewhat on how the Fed reacts. The way things are going they will probably accommodate inflation rather than nipping the problem in the bud.

[SHDL]

Inflation tends to be a slow moving variable and right now there are some deflationary forces in play so it may take a while for inflation to stop the Fed, although that may well turn out to be how this ultimately ends.

 

My guess is that we will first see some political fighting regarding these lending programs if the economy keeps going down and it becomes clear that they are going to lose a significant amount of taxpayers’ money. That will likely make it difficult to keep the programs going in their current form. I am already hearing that some Republicans are starting to get worried about the budget deficit. I also suspect we will sooner or later hear some Democrats raise concerns about bailing out rich investors through these programs.

 

Speaking of which, Powell’s TV remark that “there's really no limit to what we can do with these lending programs that we have” was a real head scratcher for me. Of course there are limits on what they can do. There is absolutely no way he doesn’t know that. So was this just a poor choice of words or an outright lie?

 

[vinod1]

This kind of thinking is incorrect.

 

The markets will drop if there is unabated inflation that Fed is not able to control. There is a formula where P/E drops when inflation goes up.

 

Moderate inflation is very positive for many stocks.

 

They key is to understand natural rate of interest (Read Bernankes comments on this). (NOI)

If fed rates are below the NOI, then it is quant easing and economy and markets benefit. If demand picks up a lot, then NOI goes up. If it overheats, then NOI goes up still further and Fed raises rates to cool it off. We are a long way off from tightening. The unemp rates have to improve

 

That is how it should work. No disagreement there.

 

We are just guessing how the market would likely behave. Not that anyone has a good track record for those predictions. Just a fun guessing game.

 

Vinod

[vinod1]

Inflation tends to be a slow moving variable and right now there are some deflationary forces in play so it may take a while for inflation to stop the Fed, although that may well turn out to be how this ultimately ends.

 

My guess is that we will first see some political fighting regarding these lending programs if the economy keeps going down and it becomes clear that they are going to lose a significant amount of taxpayers’ money. That will likely make it difficult to keep the programs going in their current form. I am already hearing that some Republicans are starting to get worried about the budget deficit. I also suspect we will sooner or later hear some Democrats raise concerns about bailing out rich investors through these programs.

 

Speaking of which, Powell’s TV remark that “there's really no limit to what we can do with these lending programs that we have” was a real head scratcher for me. Of course there are limits on what they can do. There is absolutely no way he doesn’t know that. So was this just a poor choice of words or an outright lie?

 

They are acutely aware of the impact of their words. Just as Buffett mentioned, just spelling out certain scenarios make it more likely it may happen. Or in this case, prevent them from even happening. He knows he can do a lot more and this is just his way of saying it.

 

If you read up all the books that were written by the main players in the GFC, this thing comes up often.

 

Vinod

[SHDL]

Inflation tends to be a slow moving variable and right now there are some deflationary forces in play so it may take a while for inflation to stop the Fed, although that may well turn out to be how this ultimately ends.

 

My guess is that we will first see some political fighting regarding these lending programs if the economy keeps going down and it becomes clear that they are going to lose a significant amount of taxpayers’ money. That will likely make it difficult to keep the programs going in their current form. I am already hearing that some Republicans are starting to get worried about the budget deficit. I also suspect we will sooner or later hear some Democrats raise concerns about bailing out rich investors through these programs.

 

Speaking of which, Powell’s TV remark that “there's really no limit to what we can do with these lending programs that we have” was a real head scratcher for me. Of course there are limits on what they can do. There is absolutely no way he doesn’t know that. So was this just a poor choice of words or an outright lie?

 

They are acutely aware of the impact of their words. Just as Buffett mentioned, just spelling out certain scenarios make it more likely it may happen. Or in this case, prevent them from even happening. He knows he can do a lot more and this is just his way of saying it.

 

If you read up all the books that were written by the main players in the GFC, this thing comes up often.

 

Vinod

 

Right, but this looks like a dangerous game they’re playing if that was the intent. Saying “we can do a lot more, we’ve got a bazooka loaded and ready to fire” is one thing, saying “we have unlimited ammo” when they really don’t is another. They shouldn’t be risking their credibility like this IMO.

[Spekulatius]

Inflation tends to be a slow moving variable and right now there are some deflationary forces in play so it may take a while for inflation to stop the Fed, although that may well turn out to be how this ultimately ends.

 

My guess is that we will first see some political fighting regarding these lending programs if the economy keeps going down and it becomes clear that they are going to lose a significant amount of taxpayers’ money. That will likely make it difficult to keep the programs going in their current form. I am already hearing that some Republicans are starting to get worried about the budget deficit. I also suspect we will sooner or later hear some Democrats raise concerns about bailing out rich investors through these programs.

 

Speaking of which, Powell’s TV remark that “there's really no limit to what we can do with these lending programs that we have” was a real head scratcher for me. Of course there are limits on what they can do. There is absolutely no way he doesn’t know that. So was this just a poor choice of words or an outright lie?

 

They are acutely aware of the impact of their words. Just as Buffett mentioned, just spelling out certain scenarios make it more likely it may happen. Or in this case, prevent them from even happening. He knows he can do a lot more and this is just his way of saying it.

 

If you read up all the books that were written by the main players in the GFC, this thing comes up often.

 

Vinod

 

Right, but this looks like a dangerous game they’re playing if that was the intent. Saying “we can do a lot more, we’ve got a bazooka loaded and ready to fire” is one thing, saying “we have unlimited ammo” when they really don’t is another. They shouldn’t be risking their credibility like this IMO.

 

Powell is playing poker with Mr Market and in some ways bluffing hoping he doesn’t have to show his cards. There is now a perception they the Fed can print aces in this game to now end without consequences and other players refusing to play.. The more he has to show his card and fire his bazooka the greater of a risk of misfire

.

 

I think one bad outcome we are seeing are these crazy bills

that are now being drafted by politicians which assume that money isn’t an issue any more, no matter the sum. The 3T bill proposed now looks like Bernie’s wet dream. Absolutely crazy.

[LC]

Spek, I agree particularly with the 2nd paragraph. We are seeing tragic recklessness from our politicians.

 

Partly I think they get around and groupthink, “well printing money worked in 2009/10, it should work now too!” Without analyzing the differences in scenarios. That’s my 2 cents at least.

[changegonnacome]

Watching a few investors I follow in the past few weeks - Druckenmiller, Gundlach, Marks & Tepper - they've all spoken about the risk/reward in the market being amongst the worst they've seen in their careers......not sure about the low of March but seems to be a probable 20%+ drop hanging out there somewhere between now and year end 2020.

 

Buffet of course wasn't as overt but his bearish tone at AGM + 13F actions point towards him sitting in this group also.

 

In terms of timing Druckenmiller interestingly pointed out that from research his team has done into liquidity flows to year end......it’s apparent that Treasury bond issuances will exceed planned FED QE purchases resulting in a net withdrawing of liquidity into the market beginning in late Q3 into Q4 and beyond.......perhaps 'risk on' sentiment will make come back then to support the bid with a vaccine/therapeutic in phase 3 etc.

[mattee2264]

 

Central banking has increasingly become a confidence game. The economic theory suggests the monetary transmission mechanism is actually fairly slow...at least a year or two before it feeds through to the real economy. But policy announcements and forward guidance can change expectations within seconds.

 

I think Fed liquidity has been a great backstop and should prevent a credit crunch. But it isn't going to prevent a deep and prolonged recession which remains one of the possible economic outcomes of all of this.