Well someone should say something... market not doing so well lately. Is it much ado about nothing (e.g. just a short term correction / false alarm) or is this the start of something big?
Questions:
a) What are the driving factors of this? China? Low interest rates? Fear?
b) What's the bottom? When will things improve?
c) Is now a good time to buy?
Anyone want to pull a @Bondarb" and make a bold prediction about the future?
ps here's a funny comment i saw on facebook in reaction to the markets today:
this is long overdue. artificial low interest thanks to federal reserve tactics has forced amateurs into a rigged casino. all planned. pure evil.
Start buying now.
you sound like Jim Cramer
hmm too bad he doesn't post on WSO...
This is nothing like 1987. The market was down over 20% in one day. Think about that for a minute. A truly mind blowing event. A 20 standard deviation event.....something that should never happen statistically. Today is an unwanted peck on the cheek compared to a violent ass rape then.
AndyLouis there seems to be a combination of factors that are playing a role. The obvious being China. As the largest consumer market and purchaser of everything from Old Corrugated Cardboard (Recycled) to various commodities (e.g. Iron Ore, Crude Oil, Gas, etc.) there economy slowing down, stock market crashing, and unsustainable growth is causing turmoil in the market.
I also noticed some opening market activity as odd, namely the large number of odd lot shares being traded which made me wonder flash crash? HFTs?
Take for example Ford Motor, a solid company with no major issues that I know of that was mostly trading flat prior to today. It opens at $12.18 and drops down to $10.44 (52 Week low) but then jumps up to $13.48 before closing out at $13.19.
What gives?
DickFuld any ideas? Do you think HFTs have anything to do with this? Is this similar to what happened in October 1987?
As for the future. I'm not a trader nor do I work in IB (although trying to get there) but I do work for an O&G company and I have been watching the crude prices dip (obviously). Unless the federal government allows exports (not sure why not and I have my own views on this I can share) or there is a major shift in the Middle East I wouldn't be surprised with we hit the $30s in the short terms. Once Iran floods the market $30/bbl crude will no longer be a fantasy.
Despite this I strongly feel that energy stocks (and stocks associated with the O&G industry) are and will be available for some time at a discount similar to financial and major corporate stocks back in the 2007 Financial Crisis.
Wanted to own Exxon? Shell? NOV? Schlumberger? but at a discount...opportunity is knocking do you want to open the door?
Just one opinion:
There is nothing systemically wrong with the U.S. economy. Earnings are strong (although growth may be slowing this long in the cycle), unemployment numbers have been improving, rates are low, balance sheets are well capitalized, and YoY GDP is low but the economy is still generally growing.
This correction is about two things that are somewhat related: market psychology and valuations.
Valuations are high. Too high. We have had 7 years of market growth; some of which was driven by earnings recovery but a large part thru multiple expansion coming off lows of the financial crisis. I work in distressed / turnaround PE, and the multiples that shitty assets trade at these days is insane. 2-5x Ebitda higher than they should. No different in the public markets. So from that perspective, I think a correction here is healthy. Brings multiples back down to earth.
But multiples aren't the catalyst behind this. It's not really China or oil either; it's a crack in investor sentiment as a result of seeing the Chinese equity markets and commodity markets plummet. Not to say that a hard slide of the Chinese economy (not equity markets) and large scale corporate defaults in energy couldn't eventually cause systemic risk to the U.S. economy, but the equity markets are reacting as if this should be priced in (at least partially).
Where these two factors (valuations and sentiment) start to overlap from my perspective is you aren't getting fundamental support. Even with the blood bath in the equity markets, thinks still aren't "cheap" yet (or even at fundamental fair value) so not getting a lot of support.
So if someone put a gun to my head and made me predict where this thing shakes out? In the near term (next month or so), another 5-7% slide in the market before things stabilize. Won't see another 15%+ slide --- Still too much liquidity out there and people are going to take the buying opportunity; especially in large cap stocks with good dividend yields and relatively less foreign exposure (due to strong dollar and international macro weakness).
However, I think we will see a domestic macro recession in the more medium term (6 to 18 months) as we are just getting too long in the business cycle for continued earnings growth. This is when you will see a another big correction in the markets. I just hope when this happens, we have some semblance of fiscal and monetary policy stimulation tools available at our disposal, because currently we don't. Our country is over levered and rates are already at zero. What do you do to stimulate when you can't cut taxes or increase government spend and can't ease with monetary policy? 7 years of growth and still at zero percent interest...
I may stepping outside of the bounds of my knowledge, but i'll give the "What's the bottom?" portion of the question a go. We got to around 13k or so with subprime mortgages and that bad finance propping the market. Since then, the fed has incentivized putting almost all of your money in the stock market and we reached 18k. Everyone who understood finance could count on the fact that the market would go up because less money was going into bonds. The second part is supposedly about to change, and the first is supposed to be done. It could be a LONG way down. If my reasoning is right, and assuming we are taking a ride down, then I'd say we could go below 13k. Would love to hear corrections on my logic though. This is the best way to learn for me.
Random notes that I don't have the knowledge to fit in. I've read we have 20% more in derivatives than we did before the 2008 crash. Housing market in my area at least seem to be pretty swollen in terms of price compared to value. My school just added 2,000 dollars in tuition per students... (around 700 students). If they aren't being greedy (big if), that's hella inflation to be covering, over 11%.
Look here, you can't become a bloody fiscal hermit crab every time the markets undergo a self-correction. The economy has nowhere to go but up.
The stock market is cheap. We are near historical averages with regards to P/E ratios. However, the earnings yield compared to Treasuries is at an enormous spread to averages. The fact that the stock market is within 10-15% of the all time high should mean nothing to you. If you don't buy here, you will regret it in 5 years. All of you kids haven't lived through much turmoil before when you had cash to invest. This is a tremendous buying opportunity.
Buy when all of the pussies say you should sell. Like right now.
Won't that earnings yield reverse when the fed raises rates?
nm
Dick you are again spot on (as most people have been stating). I still think you can wait and let the market panic some more and pickup dirt cheap stocks at deep discounts but then again I am a firm believer that you can never (or rarely) time the markets and pickup shares at its absolute low.
Coming from the O&G industry as I stated earlier I see huge potential in energy players such as ExxonMobil, Shell, and even guys like Continental, H&P, and EOG Resources. I'm young and if I buy now and wait for the next 5 years I'll be up on all fronts.
The companies I mentioned above (with some exception) have survived the highs and lows before and anyone selling out of these and or other stocks (i.e. Ford, P&G, maybe even Apple) are going to be the same people moaning and complaining that they should've held on.
I'm still kicking myself for not taking a dive into stocks back during the 2007 Financial Crisis. Had I invested I would've paid for a decent chunk of my college tuition.
DickFuld do you have any thoughts or opinions on the bond market?
I think it's a little early to say I'm spot on, only time will tell. Regarding my thoughts on the bond market: At this point I would sell most fixed income. I happen to think the Fed will keep rates pretty low for fairly long, but with a 2% ten year, that is wildly unattractive. Still better than most Euro and Yen denominated bonds though.
Caveat: Your personal circumstances may warrant different action blah blah blah......
Or down.
I am looking for a serious market correction in the next 12 - 18 months. Market will be volatile for the next 2-3 weeks until the Fed makes their announcement that they will not raise interest rates. I would not rule out a QE4 of some sort. Economy is not good. Real estate is overvalued in almost every market and being propped up by nothing more then foreign money and 0% interest rates. The governments worldwide dont have any more tricks of their sleeves. Get your big boy pants.
Rising rates man, that's what I've been saying. Looking for discounts on growing yield, same shit different day, Heightened volatility is conducive to getting paid to name your price.
It's a market only supported by cheap money. Made a post for my conclusions/expectations here -http://www.wallstreetoasis.com/forums/dont-blame-china
my thoughts:
my actions:
I realize that my business is very different from the other users' jobs, but I think whether you're handling money for others or just trying to manage your personal account, the takeaways I think are to stick to your strategy, be contrarian (be optimistic in the face of chaos), and remember that the best defense is a good offense.
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