Looks like "money pump" trumps possible world-wide pandemic

[SteveM]

The virus is a classic trading 101 example of an obvious screaming buy opportunity, due to totally irrelevant news which doesn't affect any of the underlying forces actually driving the bull, but nevertheless causes investors to panic and put stocks on sale.

Quarantining entire cities. Shutting down thousands of daily US international flights to China. Shutting down on hundreds if not thousands of US retail and manufacturing locations in China.

All of these things are negative for corporate earnings, and should drive stock prices lower...

But like you said, "they do not affect the underlying forces actually driving the bull". And what are those forces driving the bull? Hundreds of billions of dollars in liquidity injections by the Fed and PBOC.

Is this prosperity real? No. But we will all play along as if it is.

 

[gaussian]

"pandemic" lol. Minor virus. No real impact. In a few months no one will be talking about Corona other than as a summer beer.

Do you really believe this? A virus that hit just before earnings season won't have any effect. Every earnings transcript I read said "we are monitoring the situation". Which is SEC-speak for "next earnings season is going to be a blood bath". Just about every country and company does business with China. Imagine the massive hit to exports when it turns out 90% of factories were shutdown for months because of the nationwide quarantine.

The classic trading mistake is not thinking about the future. Have you been watching commodities? China's indices? Their pump is unreal because no one wants to hold Chinese paper right now.

 

[Specterx]

Quarantining entire cities. Shutting down thousands of daily US international flights to China. Shutting down on hundreds if not thousands of US retail and manufacturing locations in China.

All of these things are negative for corporate earnings, and should drive stock prices lower...

But like you said, "they do not affect the underlying forces actually driving the bull". And what are those forces driving the bull? Hundreds of billions of dollars in liquidity injections by the Fed and PBOC.

Is this prosperity real? No. But we will all play along as if it is.

Even if EPS for the entire market dropped to zero for one or even two quarters, that's basically irrelevant for pricing a stream of cash flows lasting decades.

Say you own a rental property that you'll be forced to leave vacant for the next six months. Will you sell it to me for 30% off the comp price? Of course not, at most you might take 3% off.

 

[jys78]

Do you really believe this? A virus that hit just before earnings season won't have any effect. Every earnings transcript I read said "we are monitoring the situation". Which is SEC-speak for "next earnings season is going to be a blood bath". Just about every country and company does business with China. Imagine the massive hit to exports when it turns out 90% of factories were shutdown for months because of the nationwide quarantine.

The classic trading mistake is not thinking about the future. Have you been watching commodities? China's indices? Their pump is unreal because no one wants to hold Chinese paper right now.

Yes I do. Who cares even if a quarter or 2 of earnings do get hit? It's not like central banks would allow any meaningful drop anyway. Now if their approach changed, I grant that might be something to take into consideration. Otherwise all this buzz is just meaningless noise - there will always be another pandemic, war, recession, political risk, etc. None of it -really- matters.

 

[jys78]

Quarantining entire cities. Shutting down thousands of daily US international flights to China. Shutting down on hundreds if not thousands of US retail and manufacturing locations in China.

All of these things are negative for corporate earnings, and should drive stock prices lower...

But like you said, "they do not affect the underlying forces actually driving the bull". And what are those forces driving the bull? Hundreds of billions of dollars in liquidity injections by the Fed and PBOC.

Is this prosperity real? No. But we will all play along as if it is.

This is the correct approach. Rather than get sucked into all kinds of meaningless noise, pay attention to what the market itself is telling you and trade accordingly. Basically - would you rather be "right", or make money?

 

[Scataphagos]

The "wild card" on the coronovirus is that we really don't know yet.

Can't trust the Chinese to tell us the truth... EVER!

We'll just have to wait and get a measure on...

Percentage of people who get infected and areas that become infected*
Mortality rate... currently we're being told "2-3%", but I read one source that quoted "15%"..
Length of time to recovery for those who don't die
Likely other metrics...

Until we know more, it's all speculation

*One source says it's been detected in "25 countries" already (including Macao and HK)

Stay tuned....

 

[SteveM]

there will always be another pandemic, war, recession, political risk, etc. None of it -really- matters.

Things you only read during the euphoric stage of a bull market.

 

[jys78]

Things you only read during the euphoric stage of a bull market.

OK let's add market downturn/crash (30-50%+ decline) to the list. Are you telling me you can consistently predict these downturns ahead of time? And/or that news (e.g. hype around coronavirus) allows you to do so? I am genuinely curious.

 

[jys78]

The "wild card" on the coronovirus is that we really don't know yet.

Can't trust the Chinese to tell us the truth... EVER!

We'll just have to wait and get a measure on...

Percentage of people who get infected and areas that become infected*
Mortality rate... currently we're being told "2-3%", but I read one source that quoted "15%"..
Length of time to recovery for those who don't die
Likely other metrics...

Until we know more, it's all speculation

*One source says it's been detected in "25 countries" already (including Macao and HK)

Stay tuned....

This is true. Never trust Chinese numbers about anything - at any time. But it also doesn't really matter either.

 

[gaussian]

Yes I do. Who cares even if a quarter or 2 of earnings do get hit? It's not like central banks would allow any meaningful drop anyway. Now if their approach changed, I grant that might be something to take into consideration. Otherwise all this buzz is just meaningless noise - there will always be another pandemic, war, recession, political risk, etc. None of it -really- matters.

I don't think the BTFD Daddy Fed is here to save us argument is very salient. The market is already not responding as well to repeated interest rate cuts and my favorite marker, "When Joe at the bar says the market is overvalued, its been overvalued for a long time", has never rang louder. Since late 2019 Buffett has been hoarding cash. You don't think other people who have lived through multiple horrible market crashes aren't doing the same?

I'm not attempting to predict a top, I just know the fall will send us into a depression and Daddy Fed and Trump won't be able to save us. We missed our opportunity for a mild recession in 2018-2019. We will be living in Hoovervilles if the fed keeps pumping. I'm not sure you remember 2007-2009 well enough. Everything was fine until one day we all woke up and Goldman was dumping subprime garbage into the market. In fact, I distinctly remember euphoria right up until the day the market went into the floor. Don't believe we don't have a new mortgage crisis on our hands? Check out SLABS. There are too many confounding factors to say the market is "safe" even on a risk adjusted basis. There is no value anymore. If the crash doesn't come at the hands of the banks, the market possessing no value will necessarily price out new blood from the market - meaning less liquidity and far more selling.

OK let's add market downturn/crash (30-50%+ decline) to the list. Are you telling me you can consistently predict these downturns ahead of time? And/or that news (e.g. hype around coronavirus) allows you to do so? I am genuinely curious.

Your GP's criticism is valid. No one is trying to predict a top. We just know when the bottom falls out it will be on a scale we haven't seen since the early 1900s. If interest rates go negative at some point soon not even bonds will be safe.