Investments Trade Log

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white belt
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Re: Investments Trade Log

Post by white belt »

thedollar wrote:
Thu May 19, 2022 12:05 am
Even after a 20% drop, the Shiller PE ratio is still above 30. :geek: With the average being 16.94, I can't even imagine the pain if the market drops another 20-50% from here. :?
TSLA PE ratio is 95.87 as of market close today. AAPL is still 22.38. GME is still 33x the price it was in March 2020.

I'd like to just point out that for all of the BTD and "this must be the bottom" talk, QT has not started. Like at all. Starting on June 1st there will be $30 billion a month in liquidity sucked out of the system, which by the way is the fastest rate the Fed has ever started tightening and was also the monthly amount that caused the repo market to blow out last time around. I'm not saying it will immediately cause things to break, I'm just saying it's worth keeping in mind that rate hikes aren't the only thing the Fed is doing.

Related to the above, I've put some skin in the game with the following trades:

-Bought TSLA 600 Put Jul 15 ($3500)
-Bought AAPL 120 Put Jul 15 ($500)
-Bought GME 90 Put May 27 ($500)

The IVOL looked attractive on TSLA and I was able to get my order filled when TSLA popped positive today. I will most likely sell my position 30 days prior to expiration and take profits, or sometime after the next Fed meeting, rather than try to hold longer for a home run. I believe the electric vehicle trend is for real, I just don't think the markets current valuation of TSLA will hold up when market sentiment gets ugly. Retail still thinks this is a good time to buy the dip and TSLA has been such a winner since the COVID crash so most are just holding on to TSLA because it's made them a lot of money so far. They will panic sell when things get ugly just like in every other crash in history.

Pretty much the same story with AAPL. I don't see another WFH trend on the horizon to boost their sales and skipping out on a new macbook/iPhone will be one of the first thing consumers do if budgets get tight. I know Buffett still owns significant long positions. Burry owns significant short positions. I don't doubt that AAPL has a strong business model and will survive through a downturn, I just think their current valuation is still elevated (again look at CSCO and AMD during/after the Dot Com Bust).

I feel the least conviction about GME because it's just behaved so weirdly in the past. I saw the pop today and took it as an opportunity to open something short term. IVOL was elevated for longer term puts so it wasn't worth opening more positions at the moment.

I don't anticipate macro conditions looking any better primarily due to QT and we may get another leg lower when the realization sets in that the Fed will keep hiking to break inflation (Powell said that exact thing in his last public appearance). We are still months away from inflation slowing to a point where the Fed will be comfortably changing their tune because of the lag to the economic data that the Fed looks at.

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Seppia
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Re: Investments Trade Log

Post by Seppia »

Am I crazy to want to start a position in google?

2Birds1Stone
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Re: Investments Trade Log

Post by 2Birds1Stone »

No

sky
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Re: Investments Trade Log

Post by sky »

Put a ridiculously low limit buy order on MMM, equal to 5% dividend return. Going ex dividend in a few days, plus a deep market crash day might make it happen in the next 60 days of the order.

Of course, because I did this, it probably means that now the bulls will run.

white belt
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Re: Investments Trade Log

Post by white belt »

@Seppia

Again, I think it’s just too early to BTD for a lot of these companies. We are not at the point of blood in the streets and/or the Fed flashing their sirens to come to the rescue of asset markets. From a risk/reward perspective, I think you’re better off waiting to buy until the Fed changes its tune rather than trying to catch a falling knife. The Fed is consciously trying to kill asset prices to reign in inflation, so why try to fight it?

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Seppia
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Re: Investments Trade Log

Post by Seppia »

Makes sense. I guess I just like google a lot lol

thedollar
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Re: Investments Trade Log

Post by thedollar »

Only look ing at 2022e P/Es for FAANG, they actually look reasonable by now.

Facebook 16.3
Microsoft 26
Apple 22
Google 19.4
Netflix 17

thedollar
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Re: Investments Trade Log

Post by thedollar »

@white belt

Agree that it could get a lot worse in the next couple of months but the moment there is the slightest indication that inflation is slowing down, stocks will pop back up. I would be careful with those puts!

Consumer confidence is getting slaughtered right now and hopefully it will put a dent in demand and hopefully China will sort the Covid situation so supply can come back online. From what I'm hearing the retail sector is already seeing much lower sales and people expect the construction industry to experience a major slow down within a few months.

Last piece of the puzzle will be energy prices coming back down again.

Humanofearth
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Re: Investments Trade Log

Post by Humanofearth »

@Seppia
You’re not crazy. Could dca in.

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giskard
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Re: Investments Trade Log

Post by giskard »

I started putting lower limit orders on Shopify and Nvidia. I just can't pass them up these prices now. Are people going to stop playing video games, doing machine learning & buying online? No, this is getting silly with the good companies.

prudentelo
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Re: Investments Trade Log

Post by prudentelo »

PE now appears low in general when compared to inflation (= nominal profits will increase rapidly) and cash returns (= very negative due to inflation).

If we take current bond yield as comparator then equities now underpriced 10x or more.

Of course bond yield "should" rise

white belt
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Re: Investments Trade Log

Post by white belt »

Retail flows still near all-time highs for period from February to May 24th: https://finance.yahoo.com/news/retail-i ... 21345.html

This is generally not how bear markets end. They end with retail capitulation. They end with margin calls. They end when everyone stops trying to buy the dip because they keep getting stomped out.

jacob
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Re: Investments Trade Log

Post by jacob »

white belt wrote:
Wed May 25, 2022 10:02 am
This is generally not how bear markets end.
In recent years, bear markets haven't really been bear markets as much as "bear visits". Fed puts have made it a short-lived experience, so most of retail are still in BTD mode. IIRC, in 2008/09 it took about a year of grinding the permabulls down before they showed any loss of confidence.

white belt
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Re: Investments Trade Log

Post by white belt »

@Jacob

Right but inflation also was a non-factor in all those bear visits. I think there will be another Fed put at some point to end this bear market, I just don’t think it is SP500 at 3900.

In the meantime, my trading strategy is to fade everything retail does. I buy short ETFs and puts on rallies, then I wait to sell those things on bottoms. Fed money printer went brrrt on the way up and now it’s running in reverse to go trrb on the way down.

WFJ
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Re: Investments Trade Log

Post by WFJ »

All selloffs since 2010 have been short duration corrections. This is a bear market. The cruel nature of the stock market will always punish the most people, by the greatest magnitude at the worst time. This is a feature of the creative destruction of the equity markets.

I am old enough to remember some aspects of inflation and it's a nightmare that has to be crushed at all costs. Businesses can't function with over 5% inflation and US is around 10% right now.

Bear markets end when people stop calling for the end of the bear and give up on the markets (single digit PE). Retail is still buying ARKK garbage hand over fist, this bear market is years from ending.

I've never heard a single investor ever say something like "My greatest trade was picking the bottom of ____" yet many investors keep trying to do this. The saying is "Never catch a falling knife" but millions are still try and don't understand why.

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Mister Imperceptible
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Re: Investments Trade Log

Post by Mister Imperceptible »

If this is a bear market, will the huge number of zombie firms, including those in the S&P500, be allowed to go bankrupt, and the 401k’s of Boomers allowed to zero out? That is actual creative destruction.

If “businesses” cannot function with 5% inflation (or 16-17% inflation) can they function without perpetual debt issuance, without share buybacks, and with potentially higher corporate tax rates?

I see the stock market going down a certain amount so the Fed can play act at fighting inflation, triggering a few margin calls to wipe out retail and force people to ask for their jobs back at a lower salary, with the Fed responding with QE at that point to push asset prices higher. One way to get retail to stop buying ARKK is to fire them from their jobs. But if the bad debts are not allowed to clear and the zombie companies persist, it is just another bear visit, and there is no creative destruction (except the destruction of labor, which is the true underlying goal).

Have to wonder if a bear market is even possible without entering a full-fledged depression. And if a depression is not acceptable, stagflation is inevitable. Perhaps a stagflationary depression is now inevitable. The folks with 60/40 stock/bond portfolios may be running with scissors.

If you like to watch the world burn, you may enjoy beholding the sight of the Fed trying to demand destruct their way out of supply side inflation.

white belt
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Re: Investments Trade Log

Post by white belt »

Mister Imperceptible wrote:
Wed May 25, 2022 2:42 pm
If this is a bear market, will the huge number of zombie firms, including those in the S&P500, be allowed to go bankrupt, and the 401k’s of Boomers allowed to zero out? That is actual creative destruction.
Yes, that is the "Too Big to Fail" argument that I've heard a few commentators apply to the stock market. I'm not sure.

Here's a possible scenario:

The longer this bear market goes on, the more zombie firms will be destroyed just by the nature of how SP500 (same with NASDAQ, Russell, etc) rebalancing works. The next rebalance for SP500 is June 17th. Due to the large dynamic of passive investing, companies that fall off the index will sell off even more. In other words, a drawn out bear market might be less devastating for boomer 401k's (if they don't sell) than a rapid selloff. Please someone correct me if I'm misunderstanding the market plumbing.

There's another dynamic at play. The millenial generation is now larger than the boomers. Every day that passes, the millenial generation gains more financial and political influence. The boomer generation day by day loses influence since they are no longer members of the workforce, no longer consuming at the same clip as the workforce, and are no longer as large sources of tax revenue. Further, the elderly are generally not rioting in the streets when they get pissed off. Despite the crypto bro and memestock talk, most millenials don't care as much about stock market evaluations since they have so many years until they will need to live off that money. If anything, they view drawbacks as an opportunity to gain some economic value.

There's one more open secret: the wealthy and powerful use actively managed funds. In recent years, many active funds have just been passive funds in disguise. That strategy hasn't worked in 2022, which means the phony active funds are starting to face redemptions. The managers that don't truly have active strategies will be shaken out. Therefore, I would not make the assumption that the ruling class will come to the rescue of indexes as a whole, particularly if their portfolios are still doing well because their managers are generating alpha.

Regardless of the above, stagflation may just be inevitable due to supply side dynamics.

thedollar
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Re: Investments Trade Log

Post by thedollar »

I think everyone (+the market) is being too negative. This could be over in a couple of months, potentially. It doesn't have to be a 1 year recession/bear market.

- A large part of inflation seems to be caused directly and indirectly by energy prices. A lot of companies are forced to raise prices because their energy costs have risen. Oil has stabilized around 110 USD/bbl in recent months and I think it would be farfetched to think it would go higher. OPEC is increasing supply every month.
- China could solve/ease Covid lockdowns within the next few months which would fix shortages.
- The war in Ukraine could end as both parties are under huge pressure (bringing back Russian oil and Ukrainian grain/construction materials)
- Higher interest rates already implemented have hurt consumer/business confidence meaning lower consumption and investments and just the outlook of rising rates in the coming months will do a lot
- Doesn't really seem like wages are increasing as much as inflation, so at some point demand for goods will go lower as people can't afford as much.

white belt
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Re: Investments Trade Log

Post by white belt »

thedollar wrote:
Thu May 26, 2022 8:03 am
I think everyone (+the market) is being too negative. This could be over in a couple of months, potentially. It doesn't have to be a 1 year recession/bear market.

- A large part of inflation seems to be caused directly and indirectly by energy prices. A lot of companies are forced to raise prices because their energy costs have risen. Oil has stabilized around 110 USD/bbl in recent months and I think it would be farfetched to think it would go higher. OPEC is increasing supply every month.
- China could solve/ease Covid lockdowns within the next few months which would fix shortages.
Sure, anything is possible, but I don't think everything is equally probable. I try to be Bayesian with predictions about financial markets. If everyone was in consensus, then there wouldn't be a market.

Oil has stabilized >$110 despite the fact that the 2nd largest consumer of oil in the world (~13% of world share) is shutdown. That is a huge bullish indicator on the price of oil over the coming months.

The idea that OPEC+ has spare production capacity is probably a myth:
Assuming that the group increases production at the same pace it has in recent months, only a handful of countries in OPEC+ will have spare capacity left by the start of the summer, a number that will dwindle as year-end approaches. Thus, the supply gap is expected to continue growing this year with many OPEC+ countries unable to take advantage of the higher production quotas they will receive under the group’s agreement.
Source: https://www.dallasfed.org/research/economics/2022/0419

I don't lose sleep at night over energy prices, but I also have 25% of my portfolio long in commodity producers and have been long commodities for a year and half.


Now back to some trades:

-GME put: looks like I'm getting blown out of this one. Luckily my positioning was small. The GME price action tells me that there are still a ton of retail/institutional treating stocks like a casino, which I perceive as a signal that we have much lower to go in this correction.

-RWM: started to leg into RWM during the nice little rally. If we build on the rally today, I will buy more RWM.

-PSQ: limit order didn't hit, but pretty much the same justification as RWM.

-TSLA and AAPL puts: IV was high today so I didn't increase my positions. We are pretty much re-testing the levels we were at last week for both of these stocks (and the major indexes), so I'm holding off to see if this rally has some legs to it.

thedollar
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Re: Investments Trade Log

Post by thedollar »

@white belt

- OPEC+ can add a bit below 10 mbpd compared to current levels: https://www.spglobal.com/platts/PlattsC ... ovid19.jpg
- US has previously been 2 mbpd higher than current levels and at these prices shale is profitable.
- Iran could probably add 3-4 mbpd.

Anyway, my point is the current market sentiment is that everything is doomed and the interest rate will be 4-6% by the end of the year. Could very likely turn out that everything is fine and back to 'normal' within a few months.

The current inflation is not a permanent 'price hikes leading to wage hikes leading to....' spiral. It's just temporary shortages and higher energy prices that have now stabilized. Wages aren't increasing at inflation levels.

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