Investments Trade Log

[Lucky C]

Margin debt has now declined by a percentage that looks to me, eyeballing the charts in the link below, to be equivalent to when the markets started their steepest declines after the 2000 and 2007 peaks. Sample size of 2, but based on those last two bear markets, the S&P500 in March may have only been 1/3 to 1/2 of the way to its eventual bottom. That much more of a downward trajectory would leave us at a more historically average valuation too.

https://www.advisorperspectives.com/dsh ... 2-in-march

On the other hand you have to wait a while for this data and there may be a huge rebound in April margin debt. But during the last two bottoms margin debt was pretty flat for a few months before rising again. With this steep downward trajectory, I don't know if the odds are very good for a V-shaped margin debt recovery.

[Seppia]

Maybe I’m reading this wrong (I’m not smart enough to understand) but intuitively, wouldn’t the causation be the other way around?
Ie when things are going bad, people flee to cash and take in less debt.

[Lucky C]

Yes that's right, sorry I didn't mean to imply lower margin debt causes market drops, because of course risk aversion and margin calls happen because of big drops.

But when wondering where we are in the business cycle, margin debt is at a very steep decline as of last month's data, and still at levels more than double where it landed at the previous two bottoms. Again N = 2 is not a good sample size but it seems premature to think the bear market is over and a new bull market had begun, especially with margin debt coming down from the higher levels than the previous two bubbles and the latest data being the steepest descent of this cycle.

If you reduced risk at the start of a bear market and then waited until margin debt increased for maybe 4 or 5 months before increasing S&P500 allocation, you would be late to catch the bottom but still capture most of the next bull market. This would have also worked if you reduced US stock exposure during the 2016 not-a-recession, to wait to increase US stock exposure and still capture the 2016-2017 run. If instead you went all in after the steepest decrease in margin debt during previous bear markets, you would still have a lot of losses ahead.

Not the best economic indicator but when taken along with consumer confidence/expectations, PMIs, etc... there is a lot of data that lines up with the very start of recessions, and it is typically not a good idea to be bullish right at the start of a recession.

[Seppia]

Thanks for the explanation.
I read an interesting thought from Ben Carson (Team Ritholtz).
He speculated that usually bear markets/huge panics are caused by the uncertainty ahead (thing GFC), while in this case everybody know exactly what's causing the markets to drop, the scale of the damage and the fact that it is transitory.
So maybe this is why there has been such a quick recovery.

Of course nobody knows, but I still found it an interesting point of view.

[Mister Imperceptible]

It has been interesting to watch in nearly every single one of Trump’s press conferences (and I have not watched many) is that he makes sure to reinforce the idea that the economy was the greatest we ever had prior to the virus and downturn.

This is not just the administration, it is CNBC and the whole banking-governmental complex pushing that idea.

So the “idea” that central banks can perpetuate prosperity independent of the economy is still alive and well. Ignoring the fact that after tomorrow, we will likely have seen 30 million newly unemployed in the US (not counting gig workers and small business owners not eligible for unemployment and getting stonewalled by PPP application process). Ignoring the fact that people still employed have taken pay cuts.

Unemployed people cannot buy houses and vehicles and big ticket items with credit contracting. People who are worried about becoming unemployed will not buy big ticket items. It took 5 weeks to wipe 11 years of weak job growth.

https://wolfstreet.com/2020/04/23/week- ... or-market/

All the new money has pushed the mega caps higher. Are we in a new era where 5 companies control everything? Or is this a bear market rally?

https://markets.businessinsider.com/new ... 1029133505

[Bankai]

Are we in a new era where 5 companies control everything? Or is this a bear market rally?

I wouldn' say that 5 companies control everything. Rather, investors are still oblivious to the economic reality - we're heading for the sharpest & deepest recession on records in the UK (records go 3 centuries back); the rest of the world is probably not in much better shape. The idea is that the internet stocks are immune to the meltdown & equities are still better than cash, however:

- Google & Facebook generate the majority of revenue from ads - struggling companies looking for cost cuts and savings will start from marketing budget;
- Apple model is based on selling the same item in new packaging but many of the usual customers are either unemployed or about to be, or quite afraid to be so unlikely to upgrade an item that doesn't need upgrading
- Amazon should do well while physical stores are shut, but ultimately the same consumer squeeze is going to hit them
- Netflix will do well. That's 1 out of 5

Bear markets are long and this looks like just the beginning. V-shaped recovery is not coming for the rescue.

Having said all of that, I actually opened a few long positions over the last couple of weeks but with tight stops and only using a small %age of NW so the total risk is small.

[Mister Imperceptible]

@Bankai

Thanks for adding nuance. What is being overlooked by most is that AMZN and NFLX already have price-to-earnings over 100. I suppose that could go over 200 since everyone already agreed the current number does not matter.

I think this has been a great opportunity for the big money to get out slowly. If you have billions it is hard to sell all at once. Need a sustained bear market rally so that stocks can be offloaded methodically to the public pension funds (bag holders), before the next leg lower.

Watching the Jerome Powell press conference now and he is saying the same thing. “There was nothing wrong with the economy whatsoever, greatest labor market ever, this is entirely attributable to an exogenous event.”

COVID-19 is the best scapegoat they could have ever asked for.

Powell: “The government debt is a longstanding concern but now is not the time to address it.”

Never let a good crisis go to waste.

[Lucky C]

Prior to COVID-19, we were on the path toward a recession beginning in the first half of 2020 anyway, based on the yield curve inversion, a year of flat-to-rising weekly unemployment claims, slower earnings growth, and a YoY contraction in manufacturing (with services slowing too).

COVID-19 health impacts might come in waves, but on the other hand the impact could certainly be V-shaped looking at the optimistic news that has come out lately. Regardless, COVID-19 caused a deliberate/known recession on top of our economic trajectory that was already heading toward recession. Like hitting the brakes when you're about to crash your car. Now we might be trying to accelerate again but the crash may be unavoidable.
If we do crash then everyone's going to blame it on hitting the brakes.

[Lucky C]

Cool, S&P500 total return is still positive over the past year.

[slowtraveler]

My direct, equal weight investment is beating the S&P by a percentage point or so. It is definitely more volatile.

Top performers are not the tech giants but they are doing well.

[guitarplayer]

Wow reading this thread for the past two months really makes me want to buy some shares/be more active, only I don't know how! Again, probably better to stick to my (very simple) plan for now until I learn more stuff.

Thanks all for disclosing your thought processes, lots of material to learn from.

[Seppia]

Interesting that Buffet did zero buying during this pullback.

[classical_Liberal]

@seppia
I thought that too, but remember how quickly everything happened? It's not like BH can just place a 20 billion limit order and click accept, like we can. These things take time at the levels of money he's dealing with.

[thedollar]

@seppia

Yes. He only sold (airlines).

I guess if you look at the financial crisis the down trend lasted a little over a year. Guess he thought more was to come (and it might still).

[Jason]

Seems like anything related to sea or air is getting killed. I have a small holding in SPCE and was happy to read they had their first successful air test only to find out the next day major investors are flocking out of it. Now that Buffet is completely out of airlines I'm thinking my foray into BA is just a lost cause.

[elegant]

Took advantage of the recent downturn to start investing in individual dividend paying stocks for the first time in my investing career (started in 2013). After years of extreme Boglehead indoctrination It almost feels like picking up smoking or some other bad habit. However I feel it is more of a (hopefully prudent) exercise in risk management. I don't plan to sell my (accumulating) index funds but I will divert new cash to dividend stocks. So far I initiated positions in GD, ADM, CAH, TD, PM, UPS and STAG.

[Mister Imperceptible]

Trimmed GDXJ OTM calls by 5% as miners trade at top of range. Used proceeds to buy more SPY OTM puts with VIX at 30 and SPY trading around 61.8% Fibonacci retracement.

GDXJ calls expire Jan 2021 and SPY puts expire Dec 2021 so this also reduces theta bleed. Open interest on GDXJ 2022 calls is much lower and spreads are wider. I prefer to trade deeper and more liquid markets.

[Adamski]

US stocks lot more resilient than rest of the world. S&P 500 1 year down 1% compared to UK FTSE 100 down 19%. Recent experience has confirmed my view that best not to be country bias as need large US exposure through a US or Global tracker.

[Lucky C]

More like US P/E multiple expansion has been more resilient than the rest of the world recently
A bit like if you said in 2008 that emerging markets are more resilient than the US (followed by emerging markets crashing harder than the US and 12 years of EM underperformance, so far).

There's also the concentration into large cap stocks, and even more so into popular tech stocks. On the other end of this divergent market, small caps have been doing worse than international stocks. Over the past year, S&P500 does beat the international and emerging market indices, but international and emerging markets beat the Russell 2000.

Sorry if I sound too negative. I just see a lot of warning signs.

[Lemur]

Go figure as soon as I buy a SPY put the market rallies back up lol....I bought a PUT for June 30 $260 at $7.70. Trying to sell at $8.00 for some quick turnaround if the market tanks. A small hedge.

I sold PUTS on AMD, SQ and will not be assigned; I made a quick premium for this week but did note had I just owned the shares, I would've been up more. There is the downside of my strategy.