https://www.bloomberg.com/news/arti...-market-has-peaked-as-car-woes-spur-discounts Auto market could have peaked in the US but I'm not too worried about it when it comes to my GM shares because this stuff is already in the price. Automarkers are trading at midish single digit PEs.
Check out the Letters section from the April 1st 2017 Economist magazine. It talks about how 'no army can stop an idea whose time has come'. EU fatigue is real, I will play that in the future, I just want to time it well rather than endure the pain for months/years
http://www.calculatedriskblog.com/2015/06/ecris-admits-incorrect-recession-call.html Interesting post from back in 2015 "As an aside, if investors sold when ECRI first made their recession call in Sept 2011, they would have missed close to a 75% increase in the market! But Kudos to ECRI for admitting their error." GREAT example of what I was talking about recently of how stocks are a forward looking investment with exponential payoffs. The recession callers/perma bears get to be the arrogant folks in the cocktail parties, they got to claim how 'stocks are irrational, this is all crazy, im skeptical of the whole thing' and they also get to miss out GIANT gains, all so they can dodge an uncertain 20-30% drop here and there (given that is uncertain, the expected value is less than -20%/-30%). These skeptical wall street types 'this is all crazy' will go do the media do more harm than armed men on the streets. They get people to harm their savings growth all because they are too STUPID to understand how stocks work. In my younger days I made this mistake, it took me one bull market to learn what was wrong with that approach, but these folks will go on their whole lives saying the same crap and never learning from their mistakes
I'm playing a bit french elections in having increased my long exposure there, as it seems french market has lagged other develloped european markets in part because of election related fears, figuring Le Pen has no chance if going to the second round against more mainstream guys like Macron or Fillon. Weird and worrying stuff is Melanchon making a run up the surveys. How communist is France never stops to amaze me. Fyi Le Pen has been ripping votes for years out of communist leaning parties, and more generaly working class folks, so that for the last decades many of Melanchon and Le Pen voters were similar, it's really not a scene I hang out much in yet hear of people hesitating between Melanchon and Le Pen. So yes, if Melanchon keeps on going up in the surveys and Le Pen stays high, the french stock market might get very edgy.
This nonsense is playing out right now with the Atlanta Fed Q1 GDP projections, or even the hard data vs soft data charts. The healthcare vote also. Stocks are forward looking investment with exponential payoffs, that stuff is mostly irrelevant. A better way to put it perhaps is to say that stocks are a forward looking LONG-TERM investment with exponential payoffs. Once people get that most of the supposed 'irrationality' of stock markets is gone. Zerohedge needs to tatoo that in his foreward before causing more harm to the world
Have you read this book called the battle for investment survival? Worthwhile...i'm gonna dig it out and reread it over Easter.
Yes. Most of the time when these things happen, they involve real and significant shocks that disrupt things in a country. Economic collapses, wars, severe banking crisis, sovereign default etc. To me, these are the true risks. But there are also the fake risks (most of the things that ZeroHedge claims should lead to a correction) Fake risks don't affect the real variables that influence stock market performance (such as earnings, risk premium preferences, etc) they just lead to short-term bursts of people wanting to take money out of stocks. I thought about an analogy to explain these events last year, its what I'm calling the "uber theory of the stock market". Lets say you want to ask for an Uber in the next 30 minutes, you are not in a hurry for it, you can wait, its no big deal as you are not late for anything. Then, lets say it starts to rain. Now the game has changed, if you wait, you know everybody in the region that wants an uber, will request one, this will lead to surge pricing and lack of uber cars. All of the sudden, you not only will have to pay more, you might not get on time as the wait time for the uber to actually arrive might be much bigger than unexpected. As a result, you have to respond by asking for an uber immediatly, the faster you do it, the less problems you will face. Other people will figure that out also, but some will be faster than others. Everybody will be 'rushing' to the same door at the same time I believe that is what causes a lot of the stock market drops with 'fake risks'. Lets say there is an a certain amount of people that are planning to sell stocks, not because they hate the market, not because there is an increase in true risks, simply because they need the liquidity. Perhaps they got a business idea and want to fund them, maybe they want a new TV, maybe a car, maybe its a hedge fund with an withdraw notice from an investor that wants to buy a TV/car/home etc. Doesn't matter, these players need cash as opposed to stocks. But they are also not in a hurry (if they were, they would have already sold). So they are just lurking around, waiting for the best moment to sell (since stocks usually rise, waiting a bit might be a better decision then rushing the sale). Then bad news hits (say one noisy economic data miss or some other 'fake risk' news), all of the sudden that marginal seller (that was just lurking around) might have the same realization that the guy that wanted an uber had, he needs to act now because if he waits, perhaps the market will be lower in the coming days/weeks and more players will be selling (hurting liquidity), people realize that other people will think that and all of the sudden, everybody is rushing to the same liquidity door at the same time. Yet, most if not all of the selling is irrelevant, its simply that uber effect. It doesn't mean that there is some kind of true risk going on (the market might not be 'signaling' anything), its just that the marginal players are rushing to the liquidity door at the same time because they know other people will be doing the same and all of these people are not in for the long-term with that marginal capital, they HAVE to sell soon. Yet pundits will see the SPX down 1% because of this and that news and they think that news matters. This 'trains' them to think in terms of how markets are likely to react to news flows and things like that. This makes them not realize that stocks are a forward looking long-term investment with exponential payoffs. It takes a lot to cause a big drop in the market (and a lot of these drops are just buying opportunities), but if you are 'trained' to care about these little fake risks, you get the wrong impression about how stocks work
Lets say NFP misses, the SPX then drops 1%. Its very hard to tell how much of that represents true risk (the chance that the market is seeing an economic downturn) and how much of that represents the marginal sellers with marginal capital (stock investments that they HAVE to sell soon) playing that uber effect I mentioned earlier Pundits and ZeroHedge vastly overplay the former, they think every drop is signal of this and that. People like Warren Buffett tend to overplay the latter, he ignores everything and thinks all drops are buys as nothing justifies not to be invested in american equities. I believe there is true lies somewhere in the middle. Perma bullishness can also be a problem when true risks appear (and Buffett thought BRK could go bk in 2008 according to Ed Thorp, so the Buffett approach has its risks as well) What I want to get good at is to dissect news and identify true risks and fake risks, then I know when to sell, short, go to cash and when to be invested
When these wall street types with contrarian bugs inside of them are wrong over and over again, at some point some investors question their method and some of them learn the lesson of 'timing the market is a folly, just buy and hold'. That's one lesson one can learn but I think that is dangerous as well. That investor will then start to think that EVERYTHING is a 'fake risk' and every dip is a buy and all news can be ignored. That only works in some countries in some periods of time, that worked in the US in the 20th century and most investment books draw on that experience. But even there you had periods like the depression were stocks tanked by more than 2/3 real and needed more than a decaded to recover. Anyone deeply enamored with that Buffett style mentality could have been hurt big time, especially relative to their wealth expectations (imagine projecting 7% annual gains in stocks for the next 20 years and getting 1% with huge stress instead) And when you consider all countries, you see some NASTY stock drawdowns and bad performances that show that dangers of having that perma bullish ignore all news mentality. So by looking at those skeptical contrarian wall street types, I want to draw the right lesson and to me its that those guys are wrong and look so follish because stocks are a forward looking long-term investment with exponential payoffs and those folks usually bring up backward looking models or do not consider the exponential part of stock returns. They don't consider that if they are wrong they can see a market rise 50-100% without them for years while they were trying to dodge a 20% drop. Also, they dont make the distiction between true risks and fake risks. They 'learn' that stocks drop with bad news so all they need to predict a correction (a series of drops) is to predict bad news flow, but that is wrong because at some point, markets tend to run out of those marginal sellers with marginal capital playing the uber effect and the correction stops. UNLESS the news is truly bad and affects the forward looking part of the market, that will bring new waves of highly motivated sellers They also don't realize that there is a certain level of genious in being bullish by default and needing a high threshold to sell/shorts stocks. If a bias is so beneficial to an investor, its not really a bias but actually, it's the right mentality. Its the contrarian bug skeptic mentally that is downright awful for stock investing