OT: Let's talk about the financial markets, again.
Is it just me, or are the financial markets completely divorced from reality and the economy at large?
Right now, the NASDAQ Composite is actually 400 points higher than it was on the same date last year. The DOW and S&P 500 are lower, but not really by that much.
At this time last year we had unemployment under 4%, robust consumer spending, and an economy functionally normally. Now? We have something like 20% unemployment and a total collapse in consumer spending for some (many) industries.
What am I missing here? Is everyone just expecting things to go back to normal soon?
I believe the market feels confident that government relief packages will persist.
In short: don't fight the Fed.
Slightly longer: the Treasury Dept is pumping so much money into the economy, so quickly (much more so than the response to the last recession), that the stock market is one of the few places to put in money rationally. Keeping cash on the sidelines will soon become a losing proposition. Even if the details on the ground are bad for stocks fundamentally - they are still a better option. Plus, the market is a forward looking tool and, at some point in the not distant future, things will be better.
I do not see how prices can stay at these levels. The markets are driven by earnings in a broad sense, correct? First quarter earnings were only slightly effected since shutting down the economy really didn't take hold until mid-March. But the second quarter? Ouch. There is no way consumer spending returns to past levels for the foreseeable future. Who will be traveling? Who will be eating out? Who is going to make major expenditures for their home or a new car with all this uncertainty? Losses in the energy sector will be enormous. We have deliberately turned off the economy (for good reason) with no real idea how exactly to turn it back on.
The market reached an all time high in mid-2016. The Dow peaked at 15,847. Can I see the market returning to it's then all-time high of 2016. Hell yes. And likely more.
FWIW I see things exactly the same Robbie. Before the shit hit the fan I was 55% equities, 43% bonds and 2% cash. About a month ago, at about 22,000 Dow I repositioned to 40% cash, 40% bonds and 20% equities.
I think once Q2 financials start reporting the market's going to have a significant correction and my plan is to start moving back into equities when it hits 18,000 projecting a floor around 15,000.
If I'm wrong and the economy recovers faster I'll miss out on some gains but that means nothing but good news for our world as a whole. But I listened this morning to a two hour lecture from the US Commerce department about their two year projections and and at the end the only question was "Is there ANY good news you can share? Anything at all?" It was pretty grim.
The issue is that markets are *typically* driven by normal factors such as earnings. However, in unusual times (such as now) other factors (emotion, the Fed, geopolitical conflict, etc.) can have even more influence.
Eventually things will return to normal, but not for a while.
Honestly, this was my summer for spending. I moved a lot around and was planning on making some major home/recreational investments. If everybody would stop losing their minds I still would but that is looking less likely by the day. I want to spend, I do, but I can’t right now. There are people like me who were just about the double down on this country, political divisions or not, and this has completely upended that. I think we need to all work, actually and rhetorically, to bring this country back. It was too fundamentally good to throw away like this.
What happens when every small business and individual starts defaulting in about 2 weeks?
Govt can’t save everyone.
Agree. But this is first crisis where every over 6 trillion in government relief has been provided. I am excluding other countries/ central banks for the title
this is one of the reasons for a positive rebound in the equities market
Where do you get over $6T? The two bills that passed total ~$2.7T. Yes, the Fed has opened up the borrowing windows, but I don't believe that prints money for handouts - it merely makes paper loans available for very little in equity.
As I mentioned, 6 Trillion includes the world
Umm, read it again
"...I am excluding other countries/ central banks"
Couple that with "...every over 6 trillion...", and I have no idea what you're talking about here! Perhaps edit that post to add some clarity?
Ha, my mistake.
the fed has been buying up securities for a while now.
"Interest rates have been taken to zero, and unlimited quantitative easing, or QE, is in effect. The central bank then raised the ante with daily trillion-dollar engagements in repo markets, and its QE program is growing its balance sheet by about $625 billion per week. For context: one bout of QE post-2008 financial crisis was $600 billion over the course of eight months. "
I mean, the markets have always been a little disconnected from reality. It's one piece of the economy, and in a lot of ways can be a lagging indicator of bigger gains or losses.
Just the opposite: the market is a leading, not a lagging indicator. Doesn't mean it will play out that way but the market is suggesting there will be a significant recovery in the next 6-12 months,
Shoes, you’re joking, the market is almost always a lagging indicator, it’s just the one people most follow. When one looks back on a recession, the Markets are usually the last to react.
https://en.m.wikipedia.org/wiki/Economic_indicator
Stock market returns are a leading indicator: the stock market usually begins to decline before the economy as a whole declines and usually begins to improve before the general economy begins to recover from a slump
So, it is a lagging indicator as the Market is usually catching up with news, such as Lehman Bro’s being too leveraged, WaMu being over extended and a industry rife with bad debt. My point is that, when one has the gift of hindsight, the market is lagging. But when you are looking at it in real time, it tells you almost nothing predictive.
With respect it's actually the exact opposite. Markets started the huge bull market of the last ten years in March 09 when we were in the throws of the Great Recession, and went down prior to the actual crash. and there are tons of similar examples--not that they are always right, they are not, but they are usually ahead
If they were a lagging indicator we could all make a lot more money. Fact is by the time we realize what’s happening, the market has already taken it into account. The algorithms are too sensitive.
I think the financial markets are guessing but I still think you're seeing them respond too optimistically. Most large corporations are reporting drops in expected revenue and spending in Q3 and beyond, and so a lot of smaller companies are already starting to cut down on salaries and expenses in anticipation. If that comes to pass (and it's basically a given that will occur at this point), then a lot of people will be further out of work/reduced pay, which will depress consumer spending, increase bankruptcies, etc. Now, maybe in 12-18 months that won't be the case, but while financial markets have roiled since the lockdown came into effect the actual pressure of COVID on the economy has been pretty consistent - most sectors are struggling and there isn't a ton of relief in the near future.
I agree with your take, bronxblue. I was surprised to see the S&P 500 rebound from 2400 to 2800 and essentially hold there. That's about 15% below the 3300 mark it was at for a while before the crisis. With the idea of a quick V-shaped recovery seemingly unlikely now, 15% down strikes me as somewhat overly optimistic given the continuing pain a lot of sectors are going to be experiencing for at least the next 6-12 months.
So the downside was represented in a 3 weeks selloff. Come on. People are out of work everywhere, nobody is spending, and im on calls daily with small businesses saying none of them can get to the money out there because the banks are too jammed up.
Its a bigger mess then even the most pessimistic poster here thinks. Right now big money is fine and dandy. Problem is when the peasants run out of food (literally and figuratively) there will be hell to pay.
Just a question did 2008/2009 effect you and your families and friends spending like this? Did you not go out for essentials only for two months plus? This isnt just a blip on the old dow jones chart folks.
My favorite is when they announced 6+ million filed for unemployment a few weeks ago and the markets surged!
The financial markets are never looking at what happens now, they discount what happens now and are always trying to predict what happens 6-12 months from now. Currently they believe that companies like Amazon and Microsoft etc, not to mention Zoom, are actually benefitting from the Covid lockdowns and are in even better long term shape than they were before CV. This accounts for a lot of the NASDAQ rise. Separately there is a guarded consensus in the markets that the economy will bounce back next year to something near the previous level. That may be wrong, but that's the current consensus behind the rally. Lastly the Fed actions have again, like in 08, made stocks attractive to investors relative to bonds or other financial instruments.
Tech giants are only getting bigger. You thought Facebook was big before? Now millions of churchgoers are flocking to it because it's the primary way many churches communicate, including mine. You thought Amazon was huge? Now it's the only way people can shop for many things, and small retail that was already hurting is going to be ravaged.
I'm quite far from an anti-corporate type. I think it's good that there are large companies that can harness economies of scale to provide good products to people at cheap prices. But I noticethat disruptions such as excessive regulation and this kind of trauma always winds up hurting them less. And I remember.
I'm a capitalist, but when companies get big they often like regulation, because that keeps smaller companies from growing into competitors. That's what they call crony capitalism, and it needs to stop, along with other reforms.
Regulatory capture is a huge problem these days.
I'm not a huge fan of regulation, but sometimes it's necessary. We've seen it in many industries where consumers start seeing less and less choices, higher costs, and they have no other alternatives because all the companies start doing the same thing. Without some regulation, banking would just cause another financial crisis.
I'm a small business owner. Last year we did 5m in sales, this year, probably 3.5m. We'll close 2 of our 5 retail operations, try to renegotiate lease deals, and trim our staff by 20%. We applied for the PPP loan on April 7th (2nd day Chase's loan app was live) and did not have our application submitted to SBA before funds ran out. Love for the economy to be robust and grow, but the market is "completely divorced from reality". Big companies who are allowing employees to work from home have also cut salaries, some by as much as 20%. Entire sectors like the flower market have crashed. It's an election year. Having a strong stock market will benefit some.
Hopefully you are reapplying for the next round that they just approved. All the best to you and your employees
Stay strong, JM3. I am rooting for all the small business owners.
Many banks such as Wells Fargo, Chase, BoA, etc. shut down applications by their smaller customers so they could focus on their larger customers (the reason I left the big banks in the last recession and will only bank with small local banks). Here are four banks that are accepting loans from non-customers: ReadyCap Lending, Centric Bank, Radius Bank, and Kabbage. Click the following links to apply. Note that you can submit multiple PPP applications, but you can only accept one loan offer. To the victors go the spoils. First one back with approval paperwork wins is what I have told my clients.
ReadyCap Lending
Centric Bank
Radius Bank
Kabbage
My midsized bank got about 200 applications before the money was gone. We only took applications from existing customers due to CIP requirements. We can't give you money if we don't know who you are.
That’s strange, CIP is a a single form filled out by the RM or PM with basic Borrower information...weird that would prevent new Customer lending for PPP. Fifth Third Bank is taking new PPP Customers FYI to all. 166% better! Ha
My answer was a little short. It wasn't just the CIP. My bank hasn't invested much in technology (too busy returning equity to the shareholders!), so even getting an account open without physically being at a branch is damn near impossible for us. I was stunned that they were able to move the whole company to home offices so quickly.
I almost took a job at a different bank back in February, but I'm damn glad I didn't now. Probably would have been the first to get laid off.
That’s strange,
Yeah. I'm not in finance at all (in Advisory at my Firm) but as I mentioned in the other post, I'm augmenting one of the big banks to help clear the backlog of applications...
Anyway, I viewed the existing account requirement as load balancing... bank 1 doesn't want to receive 800,000 applications when bank 1 and bank 2 can split that volume by existing customers.
As far as "knowing who they're giving money to", why would that matter? There's no risk to the bank; the gov't is guaranteeing the loans -- at least that is how it was explained to me.
Since there's such a rush right now to get money into people's hands, so they don't lose their business, and people can still pay their rent, all we are really doing is looking at a 1040C, 940, or 941, calculating the monthly avg payroll from that, multiplying by 2.5 and approving the loan. Of the normal credit checks, AML, or fraud procedures... very little of that is being followed right now so the money can get out the door quicker.
Many banks such as Wells Fargo, Chase, BoA, etc. shut down applications by their smaller customers
Absolutely not true.
How do I know? Because I'm working one of those staff augmentation gigs where our Firm (Big 4) got hired by the bank help process the backlog. We have 1,500 staff (from all service lines across Tax, Audit, and Advisory) working 24/7 in rotating shifts (virtually) alongside bank staff to process PPP loans.
The bank I'm supporting is in your list above but they have NOT shut down applications by account size. In fact, most of the loans I have processed so far are only around $40-$50K.
They did shut it down when the first round of money ran out as reported last week. We did hear today that the bank is anticipating taking new apps REGARDLESS of account size, as early as Monday due to more gov't funds becoming available.
The only restriction is you had to have a previous DDA opened by January 2019. In other words, been an existing customer. NOT based upon account size.
I'm not a math/economics person, but I wonder why (aside from pure politics) the smaller businesses didn't get the relief money first. Smaller businesses need less than larger businesses so if you're giving $20 mil to Ruth Chris, why not break that down and give $1 mil to 20 businesses? I don't think companies the size of Ruth Chris should be left out completely but it seems you can get more help for your buck if you start at the bottom and spread it around more broadly, then spread the rest out to the next tier up.
Banks collect fees proportional to the size of the loan. So, bigger loans, bigger fees. There's supposed to be some investigating to make sure loans were really FIFO vs. Big to Small.
I think you're right as a matter of policy, but logistically it's far easier to distribute (and qualify, etc.) one $20mil loan than 20 x $1mil. I assume that was a big driver.
but I wonder why (aside from pure politics) the smaller businesses didn't get the relief money first
From what I have seen, they are.
This notion that the little guy is getting screwed or small business are losing out needs to go away. I approved a PPP loan for $2,800 the other day. Nobody said anything to me other than "good job".
How Ruth Chris or Steak Shack got loans is beyond me. And it wasn't from the bank I'm supporting. According to the letter of the legislation, they shouldn't have got the money... and how Ruth Chris got $20MM when by law the max loan amount is $10MM, I'd like to see the Attorney General get involved.
I also hope nobody patronizes those crooks ever again.
I agree... I am completely confused. I have been very actively trading since this thing began.
After the Gilead Drug seems likely to fail or have limited effect, I have lost hope for a quick recovery.
I went back to almost all cash again. I just can't see the angles anymore. Hoping some smart Michigan graduates have some good advice. Looking forward to this discussion.
I'm also basically all cash at the moment, outside of retirement investments that I don't even look at. I suppose the optimism is due to the massive federal spending and the federal reserve buying up securities like there is no tomorrow. I suspect these actions will continue at least until the election.
But then again I thought markets would drop when McConnell said that states should just go bankrupt and that he's worried about spending all of a sudden.
The only thing I am confident in is Amazon, and even that seems a little over valued.
Companies like google and twitter should do well in the long run.
I personally think the market will decline some.... except for maybe the fed making rates negative
If I hear more rumors of rates going negative I will jump back in on stocks like Goldman Sacks and Google.
If rates go negative bank stocks are going to get hammered, especially regional banks that depend on commercial lending for most of their revenue.
I think a lot depends on the election. Depending on the outcome we'll either keep spending, or all of a sudden there will be "concern" about the deficit.
Protip: don't trust financial advice from a guy who can't spell Goldman Sachs.
ha ha, you are correct! (I made handsome profits on that in March and I should know how to spell it)
I also thought we'd beat PSU and win out this year. Don't listen to me on anything.
I am here more to seek advice, not give it
All I am hearing is stay the course
April 24th, 2020 at 10:09 PM ^
Amazon stock is the most over-inflated of any inflated stock in today's market. Not sure how $2300/share is justified. I understand the growth since COVID because people are afraid to go to the store, but it's been heavily inflated for years.
Maybe someone more savvy than I can explain it.