The Investment Thread (13 Viewers)

[bclemms]

This is the Nasdaq composite. 2018 dip vs today. Any of you think this current dip is just a correction without a crash?

A couple of key differences.
2018-
Fed Rate was near target rate of 2.5% after 4 consecutive rate hikes.
Inflation rate was below the target rate of 3%.
The economy was still expanding.

2022-
Fed Rate is not even half way to tightening.
Inflation is running almost triple the FED target rate.
The economy is slowing.

The 2018 dip was a 3 month correction. We are in month 6 so far of downtrend.

Could be we've hit bottom and will soar from here. Back to PE ratios, they are still high. 19 is still above historical norms. Still triple what they were the last time we had inflation and rate hikes.

I'll be very surprised if this time isn't different than most of the other market breakdowns in the last 23 years because we have been addicted to cheap money and government debt. If the market does turn down and a recession is coming then the FED will can't bail us out without stimulating inflation.

This is not covid related. It dates back to 20 years of really bad fiscal policy. I personally hope we suffer. Not because it is what is best for us now but it is what is best for us moving forward. Get rates up, get inflation down and let the markets work things out. Time to take our medicine, we are sick now. Let's not ignore the disease until it is fatal. It isn't political either. Bush spent far more than any president in history. Obama spent far more than Bush. Trump spent far more than Obama. Biden is on pace to spend more than Trump. In order for regimes to get reelected they have to spend a ton of money because we have a big bloated free market system addicted to free/easy money and that money isn't coming from any real source. If the elected regime doesn't spend like crazy then economy crashes and they don't get reelected.


This could be like 2018 and the markets and American consumer pull victory from the jaws of defeat but quite honestly, I hope it isn't or the bubble will just reinflate again.

 

[Saint_Ward]

Yellen already dismissed this before congress.

Janet Yellen Rejects Idea Corporate Greed Is to Blame for Inflation

Treasury Secretary Janet Yellen rejected the idea that corporate greed is causing the US inflation surge, differing with fellow Democrats who have accused big businesses of price gouging.

www.bloomberg.com

It's a nice populist talking point, but the fact of the matter is we kept printing and printing. That coupled with supply chain, the pandemic, the Federal Reserve's handling of the situation by calling it transitory and not addressing it sooner and our energy policy it was pretty clear to see what was happening if people were being honest with themselves.

My portfolio was up over 40% today because of all my short positions that I entered into last week(I even shorted Tesla).

I just don't have any confidence in those making the decisions right now and it has rewarded me.

What percentage is due to margin increases?

“Demand and supply is largely driving inflation,” Yellen said at a New York Times hosted event on Thursday, when asked about the view that corporate greed is a key cause. She said that it’s true that price-to-cost margins have gone up, but she said that’s not what’s driving inflation.

 

[SaintInBucLand]

What percentage is due to margin increases?

I don't know, I don't have access to every company's exact margins on the products or services they provide.

But I do know that costs on wholesales goods have increased a great deal. In fact I believe we get CPI numbers for the supply side and wholesale side tomorrow.

If companies were making so much money wouldn't their stocks be performing better and not going down across the board like they did today?

 

[B4YOU]

What percentage is due to margin increases?

Per article: Starbucks profits are up 31% after price increases in Oct and Jan. Average company profits are 12.4% which is well above the 11% five-year average.

Some companies are raising prices to keep up with labor and supply costs. Others see an opportunity to make hay.

Consumers keep spending which is a not talked about reason for inflation.
Credit card debt is falling and delinquent % for every debt category except student loans (hoping for Fed forgiveness) is down per Fed report. Wages and saving rates are still climbing. Consumers still have the cash/credit so they are still buying while prices keep rising.

I think we will need to see consumer spending fall to get inflation to drop.

Even as inflation bites, corporate profits remain flush

What’s immune to high inflation

abcnews.go.com

Total Household Debt Increases in Q1 2022, Driven by Mortgage and Auto Balances - FEDERAL RESERVE BANK of NEW YORK

www.newyorkfed.org

 

[bclemms]

I don't know, I don't have access to every company's exact margins on the products or services they provide.

But I do know that costs on wholesales goods have increased a great deal. In fact I believe we get CPI numbers for the supply side and wholesale side tomorrow.

If companies were making so much money wouldn't their stocks be performing better and not going down across the board like they did today?

The amount companies make does not always equate to stock prices and almost never does in a bubble. If it did, then TSLA would have never hit $1200 a share.


Quite frankly, I'm not sure how anyone is surprised about the markets or inflation. I started calling in March of 2020. Said the US was so woefully unprepared for Covid it would result in throwing money at it like it was a teenager begging for gas money instead of a virus. Then as a result of all that spending we would further along a federal deficit that was so stressed already due to the Trump administration running up massive debt (3rd largest increase on record after Lincoln during civil war and Truman during WW2) after the Obama administration ran up massive debt after the Bush administration ran up massive debt. Biden administration was off to the races on debt but it's a sliver of the $30 Trillion but he will get all the blame.

Next, we saw higher price evaluations in the middle of a pandemic. Some companies in the entertainment industry more than doubled their prepandemic stock price by not doing business for more than a year and taking on massive debt. It doesn't get any more bubbly than that.

I even talked about in this thread when auto companies were advertising $15k off trucks and 84 month 0% financing. Said it was a no brainer buy because inflation would make that truck worth more after the 84 months than the equivalent cash value. It only took 26 months.

Wish I had played it better. I bought gold as an inflation hedge, crypto took all of gold's thunder though. I even said whoever is shorting crypto the day the FED start tightening will win. I'm a flat out idiot for not doing it but got scared to short anything after the short squeezes.

This is what happens when corporations don't pay taxes and governments spend everything.

 

[UncleTrvlingJim]

I don't know, I don't have access to every company's exact margins on the products or services they provide.

But I do know that costs on wholesales goods have increased a great deal. In fact I believe we get CPI numbers for the supply side and wholesale side tomorrow.

If companies were making so much money wouldn't their stocks be performing better and not going down across the board like they did today?

A company's stock price in the short term has very little to do with profit margins. In the long term fundamentals win out, but in the short term, general sentiment has more to do with stock prices. Sentiment is negative now, and each bit of bad news makes people believe that things will turn bad, so even if a company is making a lot of profit (which they are right now), b/c peopel believe that the fed is going to over tighten and cause a recession, stock prices fall.

 

[SaintInBucLand]

A company's stock price in the short term has very little to do with profit margins. In the long term fundamentals win out, but in the short term, general sentiment has more to do with stock prices. Sentiment is negative now, and each bit of bad news makes people believe that things will turn bad, so even if a company is making a lot of profit (which they are right now), b/c peopel believe that the fed is going to over tighten and cause a recession, stock prices fall.

I know that and sentiment is why I am currently making returns in a down market. Negative sentiment because we just crossed a $5 a gallon nation wide average on gas(and many more but that one stares us in the face daily). Plus after today we are now officially in a bear market.
I just find it interesting people want to place blame for the recession at the feet of corporate greed as some kind of scapegoat(and this does not mean some are not blameless). It's not better than people who blame presidents exclusively how the economy is performing. It takes a comedy of bad actors to make an economy tank(which I addressed in an earlier post).

You can't simply blame this on one single thing. But to try and omit one of those factors(or many) because it fits your own perceived biases is only going to hurt you in the long run.

 

[Turfie]

I really wish I knew what was all happening behind the scenes. From big banks, hedge funds, brokerages, exchanges, retail inflow/outflow, liquidations, leverages, fed back room talks, mortgage lenders, supply chain…etc

I think it would be absolutely fascinating.

 

[DaveXA]

I really wish I knew what was all happening behind the scenes. From big banks, hedge funds, brokerages, exchanges, retail inflow/outflow, liquidations, leverages, fed back room talks, mortgage lenders, supply chain…etc

I think it would be absolutely fascinating.

Well, it's a lot of moving parts, and they certainly don't all move in the same direction at the same time. I mean, when I was an advisor years ago, we talked about asset allocation, diversification or concentration, risk appetite and rotating sectors. Every few weeks we'd move money from one basket of stocks in a sector to another depending on research, guidance from select asset managers and a small dash of intuition.

Right now, I think headline risk, meaning some big news negatively impacting the markets are fairly well baked in. We've already dealt with a ton of it over the last 2 years, Covid, election mess, several controversies in the marketplace and global crisis with the Russia-Ukraine war. I think obviously there's still some significant risk because we haven't seen any truly shocking numbers, just this steady inflation and with Fed tightening monetary policy, housing bubble could deflate very quickly. Would suck for me in a way because we bought last year probably about 6-8 months before peak prices. I could sell tomorrow and come out ahead 10%, but then, it's where we live and we'd still have to find another place.

I'm pretty sure the banks are going to tighten up their lending practices so the days of not being able to get good rates and easy approval are gonna be gone for a little while most likely.

I'm not optimistic we'll see regulations dealing with the shenanigans of stock prices being somewhat manipulated especially when it comes to shorts and short squeezes. It's been a bit too much business as usual imo.

 

[Saint_Ward]

I don't know, I don't have access to every company's exact margins on the products or services they provide.

But I do know that costs on wholesales goods have increased a great deal. In fact I believe we get CPI numbers for the supply side and wholesale side tomorrow.

If companies were making so much money wouldn't their stocks be performing better and not going down across the board like they did today?

My point is that it shouldn't be so quickly dismissed. I should have clarified that when I posted the video.

But even if we just want to go with pure supply and demand, someone makes a decision on how much to increase the price due to demand.

 

[UncleTrvlingJim]

I know that and sentiment is why I am currently making returns in a down market. Negative sentiment because we just crossed a $5 a gallon nation wide average on gas(and many more but that one stares us in the face daily). Plus after today we are now officially in a bear market.
I just find it interesting people want to place blame for the recession at the feet of corporate greed as some kind of scapegoat(and this does not mean some are not blameless). It's not better than people who blame presidents exclusively how the economy is performing. It takes a comedy of bad actors to make an economy tank(which I addressed in an earlier post).

You can't simply blame this on one single thing. But to try and omit one of those factors(or many) because it fits your own perceived biases is only going to hurt you in the long run.

Right, but you asked the question why stocks are going down if profits are increasing. The stock market is not a direct reflection of the economy. In the short term it's a reflection of what people think is going to happen to the economy in the near term. So, corporate profits are still very healthy, but the fear is that the fed is going to over tighten and cause a recession, which will hurt corporate profits. It doesn't mean they're right, but when you have a market that has been over inflated for a very long time, it doesn't take much to get them spooked.

We also aren't in a recession -- yet. We might not get into a recession, although the odds of that are pretty good. But I do agree, that there are lots of factors that go into the economy. The president probably has some of the least direct influence, since none of the president's executive powers deal directly with the economy. Fiscal policy resides with Congress and from the government side of things.. the President obviously influences congress somewhat, but he can't pass bills unilaterally. Executive order has some influence, but presidential power is somewhat limited there (although there has definitely been a very long creep since Teddy Roosevelt).

As far as corporate greed, I agree that anger is somewhat misplaced -- in terms of moral outrage. A company's job is to make money. That's it's primary responsibility. Getting mad at them for trying to maximize profit is like getting mad at a tiger for eating a cute fluffy animal. To that end though, there is a far bit of evidence from corporate statements and reporting that they are raising prices faster than their costs to maximize profit. That is what they are incentivized to do in the short term. It certainly isn't the only contributor to inflation (and probably isn't even the main contributor), but it is definitely happening. I don't think there is a lot that can be done about that except to make sure there's plenty of competition, which will keep companies somewhat in check.

 

[Turfie]

Anyone doing any daily plays ahead of the 2pm rate hike announcement?

 

[Saint_Ward]

Least surprising data ever

US retail sales unexpectedly drop in May as inflation weighs on spending

U.S. retail sales fell in May as record gasoline and food prices prompted households to cut back spending.

finance.yahoo.com

Unexpected? Lol.

 

[DaveXA]

Least surprising data ever

US retail sales unexpectedly drop in May as inflation weighs on spending

U.S. retail sales fell in May as record gasoline and food prices prompted households to cut back spending.

finance.yahoo.com

Unexpected? Lol.

Ikr, kinda silly to think inflation and higher interest rates weren't going to impact consumer spending and the broader economy. If it's a surprise to anyone, they haven't been paying attention.

 

[bclemms]

Anyone doing any daily plays ahead of the 2pm rate hike announcement?

Loaded up on AAL calls yesterday. Also a couple of TSLA calls.

Sold some APPL puts. Sold DRIP.

Will rebalance before 2pm and have a nice straddle set up.


I'm thinking we bounce, rally fades and then the bear returns. Hard to bet against that until we see a rally really set in.