10 Years from now this bear market will likely be viewed as a speed bump. Change my mind
We live in a world where we could look back at previous crashes and say that they were realistically speedbumps. 2008 although massive, can be viewed as a speedbump, Dotcom was also large, but also a speedbump. No crash can permanently impair the US Economy / stock market (closest was Great Depression, however, that will likely never happen again.)
I completely understand the bearish perspective and I understand the bullish perspective, but in the end the bulls always win....sounds cringy but it's true. Even though I'm short-term bearish and don't see this bear market going past 2023.
That being said, it's laughable when we see guys trying to compare this to 2008........this is nothing like it. 2008 was sheer panic and despair. The Financial System was on the brink of collapse, global governments had to intervene to prevent a global meltdown. The FED is simply hawkish in this episode due to inflation.....massive difference. This is more similar to the dotcom than 2008, but it still has large differences.
I'm looking forward to your perspectives, but 5yrs - 10yrs out, This would be a great buying opportunity.
Long the US Economy, Long US Stock Market.
Comments ( 35 )
Not pretending to be an expert. But the thing that looks long term interesting to me here (maybe extending to 10 year horizons or more) is the current very messy geopolitics and its possible implications for reserve currency and global economy. Could China and Russia and a few others start a new major trade axis and could world trade fragment into two big economic sub - communities? Will using the dollar as a weapon backfire and lead to adoption of other standard currencies acceptable as mediums of exchange across nations? These issues will slowly play out over long periods.
But very likely I'm just worried about the wrong things (and either there is nothing to worry about, or it is some other set of issues!).
I think this is interesting but the capacity for reserves is nowhere near as high as in the US and the level of stability is pretty unparalleled too. RMB is only like 1% of reserves right now. My thinking is, if not the US, then who? I don't think Russia represents a marginally attractive place to park your dollars and China is a question mark still. Every country near China hates it. Maybe India parks their dollars there but SK JPY Vietnam no way
I suspect many/most might share your view (I do). But no one wants to step in front of an "almost certain" falling knife where earnings /fundamentals will almost certainly deteriorate from here, and another sell off might happen before the bottom.
^ but if everyone thinks that, the bottom may already be in. We'll just see ;)
A tendency for many investors is to extrapolate from the past and project it into the future. You should def read Howard Mark's "Sea of Change". Productivity is slowing down, population crisis is coming, diminishing returns in tech advancements, there are a lot of macro elements that are happening where the "BRR! Stonks always go up" won't actually happen.
Read it already, great book.
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Learn moreNot sure if serious comment, but for the avoidance of doubt the commenter was recommending Marks' memo from last December (2022) - not one of his books. It's a short memo, and, if it has one primary (and convincing) argument, it is that lower interest rates are a tailwind for asset prices, and that, almost by construction, the amount of money people made from 1980 to today simply because rates went down (and indeed, same argument applies for the post-GFC period, which he also analyzes separately), cannot be repeated.
It is worth understanding the basic financial math of his argument, especially as applied to private equity / LBOs , where declining rates improve present cash flows (lower cost of debt ) and generally improve multiples, giving the equity a double uplift. But, he is generally correct, that declines in rates are good for asset prices universally, and unless you believe that deeply negative real rates are the future, you will not be able to repeat that luck in the next decades to come.
Sometimes I think 'how equity hedge been absolute shit as a strategy this past year' and then this post answers my question: Welp, if there is PM like this, obviously no doubt many equity shops underperform.
We've generated double digit alpha since inception and we expect this to continue.
Don't even try to flex returns with me. Our quant fund has consistently on top of the game and continually make headlines.
You did this by being bullish and long the last 3 years? Were long into covid?
Sorry to pop your bubble but that was beta, not alpha
I don't know why you think your view is so controversial? Almost everyone I know is long SPX
His view is actually very contrarian these days. Sentiment is extremely bearish out there when you look outside of those just passively investing in 401k. Retail investors in particular are extremely bearish and this will turn VERY quickly.
Sentiment is bearish among hedge funds who own 3% of the market. For the other 97% of the market it's business as usual in stocks. 401k allocations barely changed at the end of 2022.
I gotta say, I love the bullish energy you're bringing to the table. But let's be real, comparing the current market situation to a speedbump is like comparing a Fiat to a Ferrari - sure, they both have wheels and an engine, but one's clearly better
As for the Great Depression never happening again, I wouldn't be so sure. Its like saying, "I'm never gonna get hit by a car because I always look both ways before crossing the street" There are just some things that are beyond our control I'm afriad
But hey, I respect your optimism. And I gotta say, your prediction of a bear market ending in 2023 is pretty specific. Did you consult your crystal ball perhaps?
in the grand scheme of time, all of human existence is but a speed bump for the history of the galaxy
So you're predicting the US economy will eventually recover? Very insightful of you…
Nasdaq peak inflation adjusted was dot com bubble… and it was a speed bump?
Absolutely without a doubt, there's been more money lost waiting for bear markets than money lost with market exposure. In the long run, productivity increases, inflation exists, companies get more valuable, etc. It's worth remembering, the benchmark most investors use is the S&P. If you just dump money into the S&P every month that's what most experienced investment professionals would advocate is prudent. Mainly because you are right, odds are if you experience a market crash and stay in the market, you will eventually recover over time. Also, if you put money to work constantly you money invested at lower points of the market will buy more and lower your cost basis.
That said, as I made the point on another forum-the market is up 4.5% this year and by many fundamental analysis standards it appears over valued. Short term treasuries return 5%. If you haven't adjusted your portfolio to accommodate more attractive fixed income conditions, I question the critical thinking ability of an individual. It doesn't mean hoard all money in cash, but rather diversifying your approach and recognizing the attractiveness of cash right now.
There are many companies with what I believe to be unsustainable revenue, EBIT , and NPAT trends. I'll give you an example - Thermo Fisher Scientific (TMO), many people here will know the stock.
According to my Factset numbers between 2017 and 2023e they will just over double revenue, more than triple EBIT , and more than quadruple their NPAT. Mathematically earnings can only grow above revenue for a certain period.
The stock is not necessarily trading on a valuation that requires this be repeatable. But my point is there are many stocks with similar earnings trajectories and the next five years will not be the same as the last five.
10yr chop like the 70s according to Druck and I agree. "buying opportunity" mentality just screams that bottom isn't in yet. Bear consensus screaming its 2008 also doesnt bode well. Seems like decade of chop and stock pickers mkt seems like the contrarian view, so put me in that camp.
That said I think certain sub-verticals are interesting. Offshore, cannabis, uranium, precious metals, LatAm financials, coal, btc miners, and few special sits are my current portfolio so prob dont trust my opinion
There are many things wrong with that thinking. This is nothing like 2008, there's no systemic risk to the system. Banks aren't going under, they're well capitalized, shadow banking is limited, syndicate lending is nowhere near 2006 levels and variable rate mortgages account for less than 15% of total mortgages (50%+ in 2006). The inflation we're facing now is nothing like the inflation we faced in the 70s, which was caused by oil supply shock and a wage price spiral. We have neither and the risk of a wage price spiral is getting lower and lower. Inflation peaked, get used to it. 1 CPI hotter than expected CPI print doesn't mean inflation is going back to 9.1% YoY, despite the FED saying that January is susceptible to seasonal adjustments that distort the data.
The sentiment is extremely bearish, everybody and their dog is predicting a 20% drop in the S&P by EOY and recession is the base case for every economist from LA to NYC . The last time the market was this bearish was in 2009 which was the bottom of the GFC.
I'm betting that the FED is going to get the job done and I'm betting that the US Economy and Stock Market will move past this just like how we moved passed every recession in history and I'm betting that it's not going to take 10yrs to do it either.
Unironically, being even cautiously bullish in this market is considered contrarian.
To piggy back on this, roughly 40% of homes are owned free and clear with no mortgage and 51% of homes WITH mortgages have a mortgage at 4% or lower.
So if my math is correct, approximately 71% of homes are free and clear or owe a mortgage with a rate of 4% or lower. So pending any kind of black swan event , any kind of widespread significant housing downturn is unlikely except maybe in markets that saw the quickest price growth in the last 2-3 years.
I agree with you that its not like 2008, I understand RE and institutions dont have the same leverage in system as back then. Also fading the economist is a generally pretty good idea so I'm not bearish. At the same time, I don't understand how with convergence between div yields vs treasuries, credit spreads, and US equity outperformance vs EM's how much room there is left to run. Over next decade, yeah I might've been hyperbolic and I agree we'll move past it but I think ppl are overestimating how quickly that will occur. I don't think we are at the low point of this bear market, we're like 16% off ATH.
Compared to 70's – Agree with wage part. Disagree about oil supply shock - I think there is risk there. You saw how much pain $130 oil caused and that was with Russian barrels still in market more or less. Russia decreasing production, US refilling SPR, OPEC finally caring about price, US shale decline in production, lack of capital available to space, lack of labor in the industry, commodity shortages. Not saying this happens any time soon and it will fix itself but imo we had things far too good for far too long w/ cheap energy + ZIRP, but those things have fundamentally shifted for foreseeable future. We will figure it out but my guess is that it will take a lot longer than ppl anticipate.
Finally someone with a brain on this site. May be one of the best current macro takes I've read online during this cycle, period. All these CNBC-lover geniuses think the big sell will come when they and every retail normie is positioned for it. The bullish trade is the contrarian position hands down.
I wish you had your actual account on here so I could message you and hear more since you seem to one of the few useful people with a "macro" take online.
Lmao. This is the most consensus and trite line of thinking at this point. I can point to any CNBC guest and get the same take. Yeah I'm not going to put my chips on Druck a guy who got the last decade wrong. The bear will come and it will be far worse than you even think but not when you and every grandmother out there is predicting it based on "macro" headlines.
That's literally always the case dude. Sorry your fund is down so much!
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