Coronavirus/Economy/Stock Market

[svelte]

You two!

Go to your corner!

And don’t come out until you can talk nicely to each other!

[FlyerInHi]

Flu, you said “predictable” yet you didn’t predict.

You follow with long invectives and assignments to character. You even drag ZK into something he had nothing to with. Your words speak for themselves.

[zk]

[quote=TheBrianNarrative]not all Brian. You are 100% bullshit. In fact you are more like trump and different from him[/quote]

Good god, flu. You’ve devolved from a troll who wasn’t funny or entertaining to a troll who couldn’t read well (and still wasn’t funny or entertaining) to a troll who is completely incoherent (and still isn’t funny or entertaining).

[Rich Toscano]

Back to the OP (for the love of all that is holy… this Brian-vs-various-people pissing contest is profoundly tedious and I’m embarrassed that it’s on my website).

Anyway back to the OP: when you buy stocks, you are buying a VERY long-term stream of earnings. Like, decades. This recession looks to be very severe, but it is short term by its very nature (at some point we contain the virus, or everyone has gotten it… this can’t go on for all that long).

So as bad as this recession may be, it’s hard to see it moving the dial all that much on the DECADES worth of earnings that determine what stocks are actually worth.

I should note here that I think the US stock market started out very overvalued, which complicates things. But assuming stocks were starting out reasonably valued (as many international stock markets were, imo) — then I think a 30%+ decline is a huge overreaction.

Whether the stock downturn gets worse before it gets better, I have no idea. But I think there’s a good chance that several years hence, people will look back at this as having been a good time to be investing in what everyone else was panicking out of. (Again, assuming it hadn’t started out very overvalued to being with).

Here is a very good (though pretty finance-y) piece examining the potential impact on long-term value of stock markets: https://www.gmo.com/americas/research-library/asset-allocation-covid-19-update

[FlyerInHi]

“Miserable” ,“loser”, “liar”, are the go to insults for flu. Following a legitimate comment or question with an insult or diminutive is reminiscent of who exactly? Humm… I do wonder.

But back to “predictable”. Don’t we have the best intelligence agencies in the world? The US military is supposed to be prepared for pandemics and biowarfare. Yet Mark Esper couldn’t answer a simple question on how we missed this.

[Rich Toscano]

PS see how I brought this conversation back on track? Now don’t anyone bring it off. My patience is wearing very thin.

[Rich Toscano]

[quote=Rich Toscano]PS see how I brought this conversation back on track? Now don’t anyone bring it off. My patience is wearing very thin.[/quote]

Haha, before I even had a chance to hit submit, Brian had already started the pissing contest back up.

This is a good question zk asked, and an interesting conversation. So — trying again here — I’m bringing it back on track.

If you absolutely must continue with your insipid pissing match, please do it elsewhere (a different website would be good!).

[sdduuuude]

Home Depot was somewhere between busy and crowded this morning. They had a very large man keeping the lines organized keeping people 6 feet apart. His name was Mark. He was awesome. He was authoritative enough to keep people organized but also friendly.

Home improvement stock ETF anyone?

[sdduuuude]

[quote=zk][quote=Coronita]Both you and ZK are so obsessed with trump… [/quote]

Let’s see. I’m obsessed with trump, an extremely powerful man who is a great danger to our country and to my family.

You’re obsessed with Brian.[/quote]

Yes. Yes he is.

[Anonymous]

[quote=Rich Toscano][quote=Rich Toscano]PS see how I brought this conversation back on track? Now don’t anyone bring it off. My patience is wearing very thin.[/quote]

Haha, before I even had a chance to hit submit, Brian had already started the pissing contest back up.

This is a good question zk asked, and an interesting conversation. So — trying again here — I’m bringing it back on track.

If you absolutely must continue with your insipid pissing match, please do it elsewhere (a different website would be good!).[/quote]

If you would perform the good service of removing Brian from the site just as you did years ago and for which he should’ve stayed banished I’d gladly return to my hiatus

[Rich Toscano]

[quote=TheBrianNarrative][quote=Rich Toscano][quote=Rich Toscano]PS see how I brought this conversation back on track? Now don’t anyone bring it off. My patience is wearing very thin.[/quote]

Haha, before I even had a chance to hit submit, Brian had already started the pissing contest back up.

This is a good question zk asked, and an interesting conversation. So — trying again here — I’m bringing it back on track.

If you absolutely must continue with your insipid pissing match, please do it elsewhere (a different website would be good!).[/quote]

If you would perform the good service of removing Brian from the site just as you did years ago and for which he should’ve stayed banished I’d gladly return to my hiatus[/quote]

Is that what you consider staying on topic?

[Anonymous]

Honestly I don’t know why he wasn’t banished when it was obvious he had returned and immediately began repeating exactly the same behavior that got him banished in the first place. Please go ahead and banish me if you like. I’m not obsessed with him or this blog just let him go with me

[zk]

[quote=Rich Toscano]
I should note here that I think the US stock market started out very overvalued, which complicates things. But assuming stocks were starting out reasonably valued (as many international stock markets were, imo) — then I think a 30%+ decline is a huge overreaction.

[/quote]

Goldman Sachs predicts a 24% contraction in the second quarter followed by growth of 12% (3rd quarter) and 10% (fourth quarter).

I can see how the decades-long earning stream you described (and thus stock prices) would be minimally affected (or at least not 30%) in the long run by such a thing.

I guess I was under the impression that these things (huge contractions) had more…I don’t know, momentum or long-term effects than that. Or residual effects or ripple effects or indirect negative effects.

https://www.cnbc.com/2020/03/20/goldman-sees-an-unprecedented-stop-of-economic-activity-with-2nd-quarter-gdp-contracting-by-24percent.html

[Rich Toscano]

[quote=TheBrianNarrative]Please go ahead and banish me if you like.[/quote]

OK

[Rich Toscano]

[quote=zk][quote=Rich Toscano]
I should note here that I think the US stock market started out very overvalued, which complicates things. But assuming stocks were starting out reasonably valued (as many international stock markets were, imo) — then I think a 30%+ decline is a huge overreaction.

[/quote]

Goldman Sachs predicts a 24% contraction in the second quarter followed by growth of 12% (3rd quarter) and 10% (fourth quarter).

I can see how the decades-long earning stream you described (and thus stock prices) would be minimally affected (or at least not 30%) in the long run by such a thing.

I guess I was under the impression that these things (huge contractions) had more…I don’t know, momentum or long-term effects than that. Or residual effects or ripple effects or indirect negative effects.

https://www.cnbc.com/2020/03/20/goldman-sees-an-unprecedented-stop-of-economic-activity-with-2nd-quarter-gdp-contracting-by-24percent.html%5B/quote%5D

I just want to be clear that I am not denying that the economic effects could be brutal — as bad as GS predicts, or worse. My whole argument revolves around the idea of what stocks are, and what you are buying — if you view them as buying a long term stream of earnings (which is really an objectively true definition of what they are!), then even a brutal slowdown shouldn’t have that much effect on long-term fair value.

There are some caveats. One is that it will reduce the long-term earnings stream to some degree. There will be a bounceback, but not enough to offset the decline (eg, people aren’t going to go out to dinner twice in a day just because they stopped going out now). So that reduces long term earnings, but not to anywhere near the degree that markets have fallen.

The second caveat is bankruptices, which could wipe out shareholder equity. But even in the Great Depression, the bankruptcies weren’t enough to have a huge effect on long-term value. See this chart in this article for more (in the section called “Why value investing works”, which explains the chart in more detail):

So, I’m not denying that it’s going to get economically ugly. (It is). But I do think it’s important to focus on what stocks are, what you are paying for, and what impact this ugliness will have on their underlying long-term value.

Again, with the disclaimer that US stocks went into this already well above their fair value (in my view). US stock prices may revert to their long-term fair value, but the underlying value itself has probably not changed all that much due to the virus shock.

Those are two different mechanisms and it’s important to distinguish them, because if a stock market started out reasonably valued (as did international and especially emerging market stocks, in my view), then they are now very underpriced vs. their long-term fair value.

zk, did you get a chance to read that Ben Inker piece I linked to in the last post? It’s written for finance nerds so not very accessible, but it does a great job of assessing long-term stock value, including looking back at history. Check it out… if there is any jargon or concept you have questions about, post it here, I’ll be happy to try to answer.

Here’s the link again: https://www.gmo.com/americas/research-library/asset-allocation-covid-19-update

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