Opinions on a possible perfect storm

HCIMbtw

I think you are kind of wrong and right. 

CPI/RPI figures are kinda BS, accurate for what they cover, but not suitably accounting for real life impacts 

More people will feel pressure to invest and will capitulate when they see paper losses 

But this bubble rhetoric I don't agree with at all. When you consider the amount of recent QE and money printing increases in asset prices is inevitable if currency is worth less. 

Would be interested to see growth in value of S&P compared to US money printing 

Thrugelmir

HCIMbtw said:

Would be interested to see growth in value of S&P compared to US money printing 

https://www.currentmarketvaluation.com/posts/2021/07/Fed-Balance-Sheet-vs-SP500.php

Michael121

https://twitter.com/MacroAlf/status/1515300177170599937

tebbins

I think the idea that inflation and interest rates are inversely correlated mechanically really hasn't held true lately, if ever. I agree there are obviously bubbles, but I don't agree you can attribute it entirely or decisively down to state policy decisions. The chart from Thrugelmir only goes back to 2010, a period of secular and historically unusual QE. The main vehicle by which QE => stock valuations is buybacks. QE buys treasuries and lowers treasury yields - encourages investors into higher risk investing to chase higher returns, as do the cash flows, as do the capital gains on treasuries - corporate debt becomes a cheaper capital source than equity - companies leverage this and prefer buybacks as a means of value extraction for execs and insiders, there is ample evidence of inverse correlation between buyback volumes and corporate bond yields.

BrockStoker

As adindas mentioned above, many sectors are not in bubbles. Biotechnology is a great example. The iShares biotechnology ETF is a good gauge of the sector - look how it's done over the last year.

Big pharma are taking advantage of the current situation to bolster their ageing pipelines - today Regeneron bought out Checkmate for example, and we know that trend is likely to continue with Big Pharma having record levels of cash on their books.

Thrugelmir

BrockStoker said:

As adindas mentioned above, many sectors are not in bubbles. Biotechnology is a great example. The iShares biotechnology ETF is a good gauge of the sector - look how it's done over the last year.

May well continue to fall further until there's certainty as to the level that US interest rates are going to settle at. Investors are again going to demand a higher risk premium when subscribing for equity.  Ten year US Treasuries are now yielding close to 3%.  

BrockStoker

Thrugelmir said:

BrockStoker said:

As adindas mentioned above, many sectors are not in bubbles. Biotechnology is a great example. The iShares biotechnology ETF is a good gauge of the sector - look how it's done over the last year.

May well continue to fall further until there's certainty as to the level that US interest rates are going to settle at.

That is what I'm expecting. But it is getting a bit extreme already in the biotech sector. For example, here is a snippet of commentary from the Biotech Growth Trust February fact sheet.
"We estimate that 1 in 6 biotech companies now trade at
market caps below the net cash value on their balance sheets, the most depressed
valuations we have observed in the sector in 20 years by this metric."
Sooner or later the "elastic" will snap back. I continue to hold back some cash for the moment so as to hedge my bets, but also "nibbling" at the dips.

adindas

BrockStoker said:

Thrugelmir said:

BrockStoker said:

As adindas mentioned above, many sectors are not in bubbles. Biotechnology is a great example. The iShares biotechnology ETF is a good gauge of the sector - look how it's done over the last year.

May well continue to fall further until there's certainty as to the level that US interest rates are going to settle at.

That is what I'm expecting. But it is getting a bit extreme already in the biotech sector. For example, here is a snippet of commentary from the Biotech Growth Trust February fact sheet.
"We estimate that 1 in 6 biotech companies now trade at
market caps below the net cash value on their balance sheets, the most depressed
valuations we have observed in the sector in 20 years by this metric."
Sooner or later the "elastic" will snap back. I continue to hold back some cash for the moment so as to hedge my bets, but also "nibbling" at the dips.

Biotech stocks are high risks, high reward play. They might fall more than 70% but when they recover they might regain that in less than a month. Let alone of there is a major catalyst such as successful drug / treatment trials, Authority approval, they could rise 2x or even 10x in a day.

This is just one example VERU when there is a new Catalyst. This is not triggered by P&D or short squeeze, but from successful COVID-19 drug trials. It just happened this month and happened in a single day while many of other high grow stocks are in free falling.

I think one of the the key point here is to investigate here is what is suggested by Peter Lynch. For a potentially good stock in term of potential return, it is also good to see whether they have enough cash or if possible, very little to no debt at all. If they are running out of cash to stay afloat, they will need to raise cash by doing share offering, diluting their shares. For the stocks with price close to $1 listed in NASDAQ, they might also do a reverse split to avoid to get de-listed. All of these options is bad for the share holders.

BrockStoker

adindas said:

BrockStoker said:

Thrugelmir said:

BrockStoker said:

As adindas mentioned above, many sectors are not in bubbles. Biotechnology is a great example. The iShares biotechnology ETF is a good gauge of the sector - look how it's done over the last year.

May well continue to fall further until there's certainty as to the level that US interest rates are going to settle at.

That is what I'm expecting. But it is getting a bit extreme already in the biotech sector. For example, here is a snippet of commentary from the Biotech Growth Trust February fact sheet.
"We estimate that 1 in 6 biotech companies now trade at
market caps below the net cash value on their balance sheets, the most depressed
valuations we have observed in the sector in 20 years by this metric."
Sooner or later the "elastic" will snap back. I continue to hold back some cash for the moment so as to hedge my bets, but also "nibbling" at the dips.

Biotech stocks are high risks, high reward play. They might fall more than 70% but when they recover they might regain that in less than a month. Let alone of there is a major catalyst such as successful drug / treatment trials, Authority approval, they could rise 2x or even 10x in a day.

This is just one example VERU when there is a new Catalyst. This is not triggered by P&D or short squeeze, but from successful COVID-19 drug trials. It just happened this month and happened in a single day while many of other high grow stocks are in free falling.

I think one of the the key point here is to investigate here is what is suggested by Peter Lynch. For a potentially good stock in term of potential return, it is also good to see whether they have enough cash or if possible, very little to no debt at all. If they are running out of cash to stay afloat, they will need to raise cash by doing share offering, diluting their shares. For the stocks with price close to $1 listed in NASDAQ, they might also do a reverse split to avoid to get de-listed. All of these options is bad for the share holders.

I keep seeing them too, but have yet to own/hold a 200+%-in-one-day stock while it went up. I think AXSM was the closest @ ~100% in one day, if memory serves.

Perhaps I do have a potential candidate (or two) in my portfolio though, with SYRS which I bought 4K worth of shares @ an average price of around $1.025. A few days back an analyst underscored just how oversold SYRS was and reiterated a price target of $20. It's been rallying since then, and today it was easily the best performing stock in my watch lists (~100 stocks). Will it last? Who knows, but a single good trial result could do something similar to VERU, so I'll continue to hold and see how it plays out.

hallmark

hallmark said:

My take FWIW, interested to hear what other's think. All opinions welcome good bad or ugly.

I think almost everything is in a bubble.  Bonds in a bubble. US shares (which tend to drive all other share markets IMO) in a bubble.  Property in a neverending bubble. Crypto nothing but a bubble.  Commodities in a bubble. Even the stuff that isnt especially bubble-like (PMs.......) is at highs.

I subscribe to the view "when everything is in a bubble, it's the currency that's the bubble".  I think the insane money printing by the Fed, the MPC etc all has caused most of the above and most of the eye-watering inflation.

I also think this is far worse inflation than is reported officially.  The way the CPI/RPI are calculated is as dodgy as IMO.  But even if you believe inflation is 7-9% that's astronomically higher than the base rates.  Previously, when we had inflation at those levels or higher, base rates were maybe a couple points lower, maybe a bit more but it certainly wasn't anything like 7-9% inflation vs 1% base rates.

All of which means anybody relying on Savings (retirees mainly) is facing a horrendous set of options.  Cash is losing real value somewhere between 10-20% a year (and accelerating).  It's an awful option.    But all of the other options are at frothy bubble valuations.

What will happen? I don't know.  But I wonder if the above is going to lead to a situation where millions of natural SAVERS are forced to become INVESTORS in a desperate attempt to avoid their future being inflated down the drain.  And that that could happen just as one, more, most or all of the above bubbles burst.

As I say, all thoughts welcome, as I'd rather like to be persuaded I'm wrong

Thought I'd update with a quick & dirty trawl of how prices in the various asset classes have done since this post. This isn't a perfect representation of the classes, I've chosen these as with the exception of Bitcoin I own most of them so it's easy for me to grab the prices:

BND Vanguard Total Bond Market ETF $77.00 > $75.59 -1.83%

S&P500 4392 > 3991 -9.13%

Nasdaq 13351 > 11623 -12.94%

FTSE100 7600 > 7216 -5.05%

FTSE250 21100 > 19306 -8.50%

iShares UK Property £6.61 > £5.74 -13.16%

iShares EU Property £32.56 > £29.20 -10.31%

Bitcoin $40549 > $31824 -21.51%

L&G All commodities £12.59 > $12.78 +1.50%

iSHares physical gold £29.34 > £29.43 +0.30%

iShares physical silver £18.64 > £16.97 -8.95%


Bonds, which as pointed out had already fallen lots have continued down.  Shares and Crypto have done very badly.

Property it's hard to quantify what's happening with actual house prices although there seems to be a lot of nervousness out there.  But in general the above seems to support the theory that if the actual bubble was currency, then QT could potentially cause a drop across all asset classes.  Even the suggesting it's coming seems to have had that effect already.

Commodities and PMs more mixed (Silver has done badly but that's not so much of a pure PM play as gold as it's partly an industrial play therefore more susceptible to recession).