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What Recession? Where’s The Selloff? A ‘Patient Bear’ Answers
Two things you can count on in addition to death and taxes are investor complacency during periods when volatility recedes and frustration at bearish analyst prognostications which aren't borne out in fairly short order.
I shouldn't have to say this, but I occasionally do: Nobody knows anything about economics and markets. Not really. Warren Buffett knows the most precisely because he admits he doesn't know much.
Given that, you shouldn't take anyone's opinion as gospel. Economics is a soft sc
Considering all that’s going on, the current vix level does seem quite low, reinforcing the case for the classic “sell in may and go away” this year.
But then again, and as you rightly point out, who knows?
Well put and a good reminder. Thanks.
I guess a majority of investors and policy makers still believe that economics is a science which can explain and predict the unknowable. Humans crave explanations and order. It can be hard to adopt a more Zen approach but it is liberating if you can do that.
Now I need to hop and write a diatribe about how the market is wrong!!
Maybe I’m crazy, but the lack of a serious pullback doesn’t surprise me. I’d be willing to bet wage inflation for a large chunk of the S&P 500 (by weight) is pretty minimal right now. We’re seeing that in the earnings for the tech giants, and I can say with near certainty that tech wages are headed down across the board unless you are an expert in generative AI. The hiring market in tech is much more competitive for job seekers right now than it has been in quite some time and there will be more layoffs on the way. Add in that big tech companies are still printing money and you get mega-caps exhibiting the best of both the long duration and growth worlds.
The other two dynamics that shouldn’t be ignored are the Fed put and passive investing in index funds. Why shouldn’t expected long-term returns go down if we know that the Fed will step in if things get too hairy or if everyone knows that passive investing is likely to generate the best returns in the long run (unless you are very wealthy)? Wouldn’t it make sense then for PE ratios to reset higher? Volatility is obviously the wild card, but like with the pandemic, I’d expect any large drawdowns to quickly bounce back up for the aforementioned reasons. I’d expect inflation to continue eating away at Main Street, but unless we finally get to the point where something is done politically, I doubt we’ll see any major drawdown or reset at least not for more than a brief period.
Science? Long-Term Capital Management
Thank you for writing this article. As someone who went short today this can be a painful lesson. But I agree about the 4200 level for the SP500 . If it goes beyond that I will have to throw in the towel.
In line with the ever-present “I went for brunch at a place in Belleport and it was jam packed…”
If you happen to use Craigslist, Facebook Marketplace and such, search for “used prom dresses” . Yep, Americans are awash in cash!
So far this S&P 500 earning season, the beat rate has been pretty good, but revenue growth is anemic (+3%) and on a downhill path, earnings growth is negative (-3%) and also on a downhill path, and I’d guess that margins continue to contract.
Also so far this S&P 500 earnings season, the best combination of reports, guides, stock reaction, market cap, and hit rate has been in the mega-techs. Not tech generally – specifically the megas.
So the scenario is a recession in which the best “hiding place” might be the index and consensus owns: GOOG, MSFT, META, AMZN, AAPL, etc.
This isn’t done yet. And I (we) have skin in the game. I don’t believe it will be a soft landing. No, I’m not an economist (and it’s hard to believe sometimes that economists are economists). But I keep looking at what’s coming down the pike and expecting a trigger for something significant.
It’s right to shine light on the words of Hartnett, Wilson, Kolanovic, McElligott, etal, whether the sun is shining or we’re in a blizzard. In a response to Misplaced Optimism, False Fed Optic, Liquidity Blamed for Sturdy Stocks, I noted some economic variables I was seeing, and it’s not getting any better.
Kevin McCarthy’s lack of confidence and false brashness doesn’t inspire confidence, and I really do not like the fact that he runs the House of Representatives at a time when the budget is due and the possibility of default looms. Covid pushed the budget over the edge. We have gone too far into debt: $31 trillion+. We take it for granted that all’s well. But it’s clearly a misperception. After all, how many among us are economists? How many economists are actual economists? Investors truly do need to watch out for themselves.
That said, the timing of the budget with the possibility of real estate loan defaults looming like it’s 2008, and McCarthy’s knack for screwing up do not inspire confidence. No it won’t be 2008 again. But it could be 2008-like. There are large cities across the country, like New York, Chicago, Los Angeles, Houston, Seattle, Jersey City, Minneapolis, etal, with large buildings standing empty. Someone has to pay the rent for those properties. Banks are holding all that paper.
Thanks to Covid, and the hangover it gave to our society, there’s a ugly question here: What could possibly happen? Is this situation secure and nice? Even comfortable? I don’t know. But I thing there’s a reason to doubt and to question.