What's been going on with Amazon all year?

[RGLD]

what does the fed have to do with it?

Isn't the fed inflating asset prices right? That's why everyone is guessing when the fed is going to start tapering? If the fed is inflating asset prices, Amazon is just going along for the ride and earnings just justifies the inflated price later on. That's what I mean.

There is such conflicting information right now. People agree the economy is bad based on inflation, shortages, unemployment etc. So if the economy is bad but the stock market keeps rising, wouldn't that be the work of the fed? Or are those 2 not even correlated?

 

[longandshort]

Isn't the fed inflating asset prices right? That's why everyone is guessing when the fed is going to start tapering? If the fed is inflating asset prices, Amazon is just going along for the ride and earnings just justifies the inflated price later on. That's what I mean.

oh. no the fed is removing liquidity atm via tapering.

when the fed buys assets like treasuries, it moves investors into more risky assets, as an indirect consequence. this drives us the stock multiple. there is a (somewhat complicated) relationship between interest rates and a stock multiple, as interest rates feed into the "discount rate" applied to a stock (value of a security is equal to the sum of all future cash flows discounted to present).

right now, the fed is conducting quantitative tightening by removing liquidity in the market. this should push multiples lower, which would require stocks to have stronger rev/ebitda/earnings in order to see significant rises in their stock price.

e.g. stock is trading at $100 today which is 10x future eps of $10
because of quantitative easing, multiple moves up to 12x, which means at $10 eps, stock price can be worth up to $120. when you have quantitative tightening the reverse occurs, multiple goes down to 8x so the stock now needs to generate $12.5 in eps to still be worth $100. that would be an EPS "surprise" of 25%...

this is a simplistic model but should help you understand the basic relationship between stock prices, multiples, earnings estimates, and fed policy.

 

[RGLD]

oh. no the fed is removing liquidity atm via tapering.

when the fed buys assets like treasuries, it moves investors into more risky assets, as an indirect consequence. this drives us the stock multiple. there is a (somewhat complicated) relationship between interest rates and a stock multiple, as interest rates feed into the "discount rate" applied to a stock (value of a security is equal to the sum of all future cash flows discounted to present).

right now, the fed is conducting quantitative tightening by removing liquidity in the market. this should push multiples lower, which would require stocks to have stronger rev/ebitda/earnings in order to see significant rises in their stock price.

e.g. stock is trading at $100 today which is 10x future eps of $10
because of quantitative easing, multiple moves up to 12x, which means at $10 eps, stock price can be worth up to $120. when you have quantitative tightening the reverse occurs, multiple goes down to 8x so the stock now needs to generate $12.5 in eps to still be worth $100. that would be an EPS "surprise" of 25%...

this is a simplistic model but should help you understand the basic relationship between stock prices, multiples, earnings estimates, and fed policy.

I do understand the relationship somewhat, but I was under the impression the fed was not tapering yet. At least that's based off the last meeting. Maybe they're already doing it and just lying about not starting. Treasuries are down by a lot and this started in Sept.

All 3 news headlines say it's more of a future event.

 

[longandshort]

I do understand the relationship somewhat, but I was under the impression the fed was not tapering yet. At least that's based off the last meeting. Maybe they're already doing it and just lying about not starting. Treasuries are down by a lot and this started in Sept.

View attachment 269949
All 3 news headlines say it's more of a future event.

Treasury yield curve flattens after Fed's Powell underlines inflation risks - MarketWatch

this was all the rage last week

 

[longandshort]

I do understand the relationship somewhat, but I was under the impression the fed was not tapering yet. At least that's based off the last meeting. Maybe they're already doing it and just lying about not starting. Treasuries are down by a lot and this started in Sept.

View attachment 269949
All 3 news headlines say it's more of a future event.

it's going to happen in november. the fed doesn't lie -- they state their goals and the market then tries to guess what will happen.

e.g. fed might say "if employment looks good we'll taper". so the market starts following NFP reports -- if a few go by that are bad, everyone starts to bet that the fed won't taper, and vice versa. you want to distinguish that from what the fed has actually said. i used to cover rates & fx on a trading desk, which meant having to read and parse every fed statement...god that was a bore, but it taught me a lot about how the fed works and how it communicates.

 

[OptionsOptionsOptions]

• AMZN earnings are this Thursday October 28.
• Buying the $150 OTM Calls that expire on Friday October 29 would be a very bold trade.
• Buy-to-open on Thursday October 28.
• Sell-to-close on Friday October 29.

 

[Overnight]

I do understand the relationship somewhat, but I was under the impression the fed was not tapering yet. At least that's based off the last meeting...

Powell had a conference on Friday. He said, pretty much point blank, that the fed IS GOING TO START tapering in November. Sorry you were not privy to that new shit.

Nov 3rd is going to be a turning point in the markets. As will Dec 4th. Yep, Q4 2018 all over again.

 

[RGLD]

it's going to happen in november. the fed doesn't lie -- they state their goals and the market then tries to guess what will happen.

e.g. fed might say "if employment looks good we'll taper". so the market starts following NFP reports -- if a few go by that are bad, everyone starts to bet that the fed won't taper, and vice versa. you want to distinguish that from what the fed has actually said. i used to cover rates & fx on a trading desk, which meant having to read and parse every fed statement...god that was a bore, but it taught me a lot about how the fed works and how it communicates.

Getting back to AMZN, so basically this sort of proves my point about the fed inflating the markets? AMZN is up right now because the fed has been inflating the entire stock market by pumping liquidity like you said. If AMZN crushes it on earnings and the fed says they'll start tapering - like Overnight said it'll be like Q4 2018 all over again. It won't matter how well AMZN did on earnings will it?

Powell had a conference on Friday. He said, pretty much point blank, that the fed IS GOING TO START tapering in November. Sorry you were not privy to that new shit.

Nov 3rd is going to be a turning point in the markets. As will Dec 4th. Yep, Q4 2018 all over again.

Sooo how's the wife and kids?

 

[longandshort]

Getting back to AMZN, so basically this sort of proves my point about the fed inflating the markets? AMZN is up right now because the fed has been inflating the entire stock market by pumping liquidity like you said. If AMZN crushes it on earnings and the fed says they'll start tapering - like Overnight said it'll be like Q4 2018 all over again. It won't matter how well AMZN did on earnings will it?



Sooo how's the wife and kids?

I would avoid using terms like "inflating" -- a lower discount rates generally means a higher market multiple. When rates are low, high duration stocks (growth-y names) tend to outperform because most of their price comes from the multiple (a la expectation of future growth). But value or cyclical stocks underperform. So not all asset prices are inflated -- these relationships are complex.

Amazon has been performing well, but you'll notice in the graph I posted that their revenue forecast is starting to come down. This means that analysts don't expect amazon to grow as much. So beyond tapering, if Amazon will grow less --> it deserves a smaller multiple --> also risk to meeting expectations.

Risk is tilted to the downside for Amazon because of those expectations. However, if you have data that shows Amazon may beat forecasts substantially, which would warrant revisions higher, then you can expect the stock to outperform.

 

[Raheel Shaikh]

There are phases in the market all time, you will never find something that just keeps trending for years

and like maxinger said:
Those who bought it earlier are probably laughing all the way to the bank.
those who bought it now might not be able to laugh at all.
1.5 years difference can make a huge difference.

Timing is everything.