Opinions on a possible perfect storm

bd10

GazzaBloom said:

bd10 said:

Whether it's the mother of all bubbles or the everything-bubble, we'll be in for a real treat in my opinion.

My base case is as follows: US equities will remain under pressure in H2 when corporate earnings will disappoint. Rallies throughout are likely to be short-lived and mistaken for an end in sight. Not so fast. I'd pitch the S&P 500 at around 3000, give or take. How long it will take to get there, not sure.

Bonds are in a peculiar state. QT will reduce price support from central banks, TIPS may still be popular, but here we have to watch what's going on with inflation. Commodities have come down for a short while now. I am almost tempted to say we're past peak inflation (with grains and oil and gas being the Russian wild card here) but volatility of commodity prices will stay with us. As for nominal bonds, maybe the long dated ones could be a tactical recession play for a while. Corporate credit I'd stay away from when I read that German banks have been asked by the ECB to stress-test their loan books. Floating rate was until now an easy call to ride the wave of hikes, but money market is inverted next year on recession concerns, so that may no longer work.

Elevated levels of inflation will stay with us for quite some time. By elevated I do not mean 7 or 8% but above target levels, so more like 3-4% (ex energy). Households are experiencing a negative wealth effect from decline in asset prices and of course the cost of living crisis. How this can sustain property prices, I do not know. Some countries may even implement rent controls, so yields will be compressed.

UK large cap was a safe haven for a while, a play of relative value (cheap GBP) and commodity/materials/minerals heavy FTSE100 names. I don't think that'll continue much longer.

Finding a hiding place is difficult. Even gold's coming off in USD terms. It worked in GBP terms but that was more of an FX play with Sterling having depreciated 10% YTD. While I am no expert on gold, lower inflation expectation on recession fears could be responsible for its sliding price. As for inflation, I suspect that it will remain more persistent here in UK than US given it's structurally less flexible labour market. As for Eurozone, well, all a function of Putin's gas supply.

This seems like a set of scenarios that are entirely plausible and things may well play out this way. Consider this, if you have come to these conclusions, do you think that many of the professional analysts and fund managers, handing billions of dollars of investors money may have reached their own conclusions on the global economic forward outlook, some of which may align with your views? Collectively, these thousands of professionals and the millions of retail investors will have formed a view already and positioned their portfolio's accordingly, hence forming the hive market "view" already and so their expectations will be already priced into the "market". It's the data that does not match their already baked in expectations that will move the markets up or down from here.

Good question. I've held this view since Q4 last year and made adjustments my end. At the time that was a clear minority view. I am just a humble speculator/investor of very limited means and I cannot possibly claim knowing better than the professionals.

Having said that, I do not think that there is much consensus out there. Whether it's Nick Train and Terry Smith living in denial or Cathy Woods (ok, extreme example) on the one hand and big bears such as Jeremy Grantham on the other, or contrast team SMT.L with CGT.L, I think there's a wide spread of opinions, no herd mentality right now. Take US corporate earnings. From what I understand, Wall Street on balance sees earnings growth in H2, listening to others, they disagree. I would argue that the herd view is that we get a recession next year, pointing to the inverted yield curve. I do not share that view, my point is, we're most likely in one already and that there won't be a soft landing either. So there's mispricing of assets if I'm correct.

How many analysts saw the writing on the wall just before the GFC happened? I was working in the risk department of a bank that was heavily involved with these products at that time, so I posed the simple question: what's the probability of any monolines (bond insurers) to get downgraded or to go belly up? Perfectly reasonable question on 3 accounts: (1) student loans are not AAA (we were all students...), (2) monolines were massively leveraged and (3) in downturns, correlations go to 1. Answer from head of risk: Never happened before, all is insured, we'll be fine. Conclusion: I quit my job a few weeks later, left the industry and 4 weeks after than Lehman's went bust (didn't work for them).

Don't get me wrong, I have zero interest in sounding like a smarty-pants, but I would not put too much stock in what the street says/thinks. They're not smarter than you. They may have 50 PhDs in their teams. Well, we had them too back in the bank as well. Physics PhDs etc, and they designed fancy models, sadly on some very flawed assumptions.

Cus

A lot of 'the street' made a fortune in the GFC. Lehman's went bust due to rivals killing them.
They are smarter than you. ( You being the general retail public, not specifically the poster)

adindas

bd10 said:

GazzaBloom said:

bd10 said:

Whether it's the mother of all bubbles or the everything-bubble, we'll be in for a real treat in my opinion.

My base case is as follows: US equities will remain under pressure in H2 when corporate earnings will disappoint. Rallies throughout are likely to be short-lived and mistaken for an end in sight. Not so fast. I'd pitch the S&P 500 at around 3000, give or take. How long it will take to get there, not sure.

Bonds are in a peculiar state. QT will reduce price support from central banks, TIPS may still be popular, but here we have to watch what's going on with inflation. Commodities have come down for a short while now. I am almost tempted to say we're past peak inflation (with grains and oil and gas being the Russian wild card here) but volatility of commodity prices will stay with us. As for nominal bonds, maybe the long dated ones could be a tactical recession play for a while. Corporate credit I'd stay away from when I read that German banks have been asked by the ECB to stress-test their loan books. Floating rate was until now an easy call to ride the wave of hikes, but money market is inverted next year on recession concerns, so that may no longer work.

Elevated levels of inflation will stay with us for quite some time. By elevated I do not mean 7 or 8% but above target levels, so more like 3-4% (ex energy). Households are experiencing a negative wealth effect from decline in asset prices and of course the cost of living crisis. How this can sustain property prices, I do not know. Some countries may even implement rent controls, so yields will be compressed.

UK large cap was a safe haven for a while, a play of relative value (cheap GBP) and commodity/materials/minerals heavy FTSE100 names. I don't think that'll continue much longer.

Finding a hiding place is difficult. Even gold's coming off in USD terms. It worked in GBP terms but that was more of an FX play with Sterling having depreciated 10% YTD. While I am no expert on gold, lower inflation expectation on recession fears could be responsible for its sliding price. As for inflation, I suspect that it will remain more persistent here in UK than US given it's structurally less flexible labour market. As for Eurozone, well, all a function of Putin's gas supply.

This seems like a set of scenarios that are entirely plausible and things may well play out this way. Consider this, if you have come to these conclusions, do you think that many of the professional analysts and fund managers, handing billions of dollars of investors money may have reached their own conclusions on the global economic forward outlook, some of which may align with your views? Collectively, these thousands of professionals and the millions of retail investors will have formed a view already and positioned their portfolio's accordingly, hence forming the hive market "view" already and so their expectations will be already priced into the "market". It's the data that does not match their already baked in expectations that will move the markets up or down from here.

Good question. I've held this view since Q4 last year and made adjustments my end. At the time that was a clear minority view. I am just a humble speculator/investor of very limited means and I cannot possibly claim knowing better than the professionals.

Having said that, I do not think that there is much consensus out there. Whether it's Nick Train and Terry Smith living in denial or Cathy Woods (ok, extreme example) on the one hand and big bears such as Jeremy Grantham on the other, or contrast team SMT.L with CGT.L, I think there's a wide spread of opinions, no herd mentality right now. Take US corporate earnings. From what I understand, Wall Street on balance sees earnings growth in H2, listening to others, they disagree. I would argue that the herd view is that we get a recession next year, pointing to the inverted yield curve. I do not share that view, my point is, we're most likely in one already and that there won't be a soft landing either. So there's mispricing of assets if I'm correct.

How many analysts saw the writing on the wall just before the GFC happened? I was working in the risk department of a bank that was heavily involved with these products at that time, so I posed the simple question: what's the probability of any monolines (bond insurers) to get downgraded or to go belly up? Perfectly reasonable question on 3 accounts: (1) student loans are not AAA (we were all students...), (2) monolines were massively leveraged and (3) in downturns, correlations go to 1. Answer from head of risk: Never happened before, all is insured, we'll be fine. Conclusion: I quit my job a few weeks later, left the industry and 4 weeks after than Lehman's went bust (didn't work for them).

Don't get me wrong, I have zero interest in sounding like a smarty-pants, but I would not put too much stock in what the street says/thinks. They're not smarter than you. They may have 50 PhDs in their teams. Well, we had them too back in the bank as well. Physics PhDs etc, and they designed fancy models, sadly on some very flawed assumptions.

If you do believe what you are saying with a greater probability why did not you bet that the stock market is going to crash hard, leading to a depression.

You could become multi millionaires by using the following trading strategies utilising high leverage :

- Shorting Individual stocks, Shorting the VIX, Shorting ETF

- Put option, using option trading

- Buy Inverse ETFs.

If you listen to analysts / strategists it is not a good idea to just listen to one extreme opinion what you want to hear. Look for a general consensus. You could get the general opinion if you regularly watch the news, debate in the financial channel like, CNBC, Bloomberg, Yahoo Fiance, CNN finance, Reuters, WSJ, Forbes, etc.

Millyonare

By international benchmarks, the UK is NOT in a bubble. The UK stockmarket is all but dead, house prices abroad are way more expensive (like New Zealand), and wages are not rising at even half the speed of inflation.

Some say the US is in an everything bubble. But the US is by far the world's richest country, and it has become effectively the world's bank. The US attracts a tidal wave of global money, like a magnet. The dollar is (still) king. Everyone with money wants a slice of Wall Street, a slice of Silicon Valley, or a place in New York / California. We pay (and will continue to pay) a premium for US hegemony.

hallmark

hallmark said:

An update, all eleven of the asset classes mentioned above have now fallen, most have fallen further than before.  Thus far at least, what's happening confirms my suspicions outlined originally: an everything bubble caused by insane money printing.

BND Total Bond $77.00 > $75.76

S&P500 4392 > 3753

Nasdaq 13351 > 11036

FTSE100 7600 > 7049

FTSE250 21100 > 18362

iShares UK Property £6.61 > £5.33

iShares EU Property £32.56 > £24.73

Bitcoin $40549 > $19464

L&G All commodities £12.59 > £12.21

iSHares physical gold £29.34 > £28.92

iShares physical silver £18.64 > £15.52

Another update:

BND Total Bond $77.00 > $75.76 > $70.71

S&P500 4392 > 3753 > 3593

Nasdaq 13351 > 11036 > 10844

FTSE100 7600 > 7049 > 6826

FTSE250 21100 > 18362 > 16611

iShares UK Property £6.61 > £5.33 > £4.02

iShares EU Property £32.56 > £24.73 > £19.98

Bitcoin $40549 > $19464 > £19096

L&G All commodities £12.59 > £12.21 > £13.21

iSHares physical gold £29.34 > £28.92 > £29.36

iShares physical silver £18.64 > £15.52 > £16.43

In summary, stocks and bonds all down a lot more. Property funds slaughtered.  BTC having halved since the initial post has gone sideways since.  Commodities/PMs no great moves in any direction overall.

Although they don't currently keep pace with inflation, savings and gilts are starting to at least offer some kind of return which is an extremely good thing.

I've been dripping into various things and will continue to do so (but not crypto).  It looks like the markets have further to fall but I guess that's always the case, including just before they bounce strongly.

A lot of the usual measures (CAPE Schiller, Buffet Indicator & related stuff) seem to suggest US markets are about 20% overvalued compared to historic averages.  Will they fall another 20%? Or Overshoot?  If they're going to I hope it's soon.

hallmark

A little update nearly a year since the most recent post.

Bonds have fallen (sharply lately).  Shares have gone up.  Those property funds have gone sideways mostly (although residential property in the UK seems to be falling). BTC has done very well.  Commodities have fallen.  Gold and Silver have gone sideways.

What's interesting currently (literally in the last week perhaps) is I can't ever remember seeing so many bearish articles all of a sudden.  Essentially the theme of most of them is that the bond market rout is going to cause recession/stock market crash/pension fund turmoil/Biden to lose the election (!!).

As always, not everybody will agree, but it almost feels as if the markets are talking themselves into a crash, I think the next month or two might be colourful.

FWIW I was fully in cash when I started this thread, a position I wasn't comfortable with due to my views on inflation.  I've steadily dripped into all of the above asset classes except Bitcoin (and am currently breakeven before inflation pretty much, so a very average performance) but the majority of my powder is still dry as recently switched to the soft option of sitting in MMFs & the like forra bit.  I'd be a buyer if we see large falls or resume dripping in at some point if not, most likely when MMFs start paying less.

So to summarise, I'm still as bearish as ever, although I know that's my nature. It's been a fairly quiet year for shareprice movement and I'm wondering if that's about to change.  Any other guesses as to the direction of markets?