Sell

[flyer]

Gotta love the market over the past several years. Great day, today! As long as Joe and Pfizer keep the rallies coming, I’m (albeit cautiously) in.

Caveat is that they still don’t know how long the vaccine protection will last–that has not yet been determined– and a few other issues–but, at least, it looks hopeful.

[Snick]

SARS-CoV-2 antibodies provide lasting immunity

“Many concerns have been expressed about immunity against COVID-19 not lasting. We used this study to investigate that question and found immunity is stable for at least five months.”

https://medicalxpress.com/news/2020-10-sars-cov-antibodies-immunity.html

[davelj]

[quote=sdrealtor]So Im curious if the recent events change anything about the position of the OP or Rich on a sell now call? Or does it still stand?[/quote]

My position hasn’t changed. The fundamentals remain awful. I talk to bankers on a regular basis and their balance sheets are filled with land mines that don’t have to be revealed until well into 2021. These folks live in the real economy, and they know they’re getting propped up big time.

Since Covid cropped up I’ve always thought that the real market disaster was going to occur after the vaccine was widely available because until then, market participants can fantasize about how great things will be afterward (the tech bubble version of “sure, they lose money now, but who knows how much they’ll earn one day!!??”). Once the vaccine is available and reality sets in – that things are in Turdville and that although there will be some improvement at the margins, they’re not going to improve sufficiently quickly to justify current valuations… then it’s look out below. Having said that, if this doesn’t happen before the end of next year, then it likely won’t happen… and we’re looking at a decade of sideways-ish low single-digit returns for stocks just based on valuations. Either way – epic crash or crap returns for a decade – it’s not good from current levels. In this elegant chaos, I choose not to participate in this particular brand of silliness. Although, full disclosure, in a bout of pure underserved serendipity, I’m actually participating in my most successful investment ever, as the craziness has allowed one of my VC investments to go public (STTK) and I’m up 32x over ~2.5 years. Problem is… it could all go in the toilet as I’m locked up for another two months… so, I’m not counting any coin from that one (yet). So, how much can I really complain about this insanity.

Anyhow, I think the thing to always keep in mind is that the prices we see each day in the public markets are set by the marginal buyers and sellers. And this group isn’t “investing” as we think of it; they are trading, guessing what the other guessers are going to guess a couple of weeks (or hours or minutes) into the future. High or low or in-between, don’t trust that price – it’s probably lying to you.

[davelj]

[quote=svelte]

To really be making an insightful prediction, one would need to add a time frame “in the next 6 months…”[/quote]

I agree. Although this is not the time frame anyone would like from a prediction, I’ll say before the end of 2021 or it’s unlikely to pass. My crystal ball is generally a bit hazy.

[sdrealtor]

First thanks for responding to a serious question with a serious answer. The thing that comes to mind first is that we are playing a different game than you. We dont have access to VC investments and the like so we do what we can as retail investors.

I take a call like you made in June seriously. It was like running into a room screaming fire. Im confused now by your comment that you always thought the real market disaster was going to occur after the vaccine was widely available. It was well accepted that was at least 1 year away. Then following up with if it doesnt come by end of next year it may not come at all. Thats a pretty different position then “Sell” and kinda incongruent to me

As a retail investor and someone deeply involved in RE, Ive seen how powerful the passage of time can be. In 07/08 most around here were saying we would never see bubble prices again in our lifetime locally. It was nearly unanimous that the coast was not immune and the infamous “Bugs Butterfly” call that eventually all areas would get decimated equally. I think I may have been the only one here to reject that call with the exception of Docteur. Things that seemed obvious to a lot of very bright people were proven very wrong.

Through my life Ive learned that not only is the passage of time of great value but that timing is the key to above market returns be it stocks or homes. Sometimes you get lucky and sometimes you get it right intentionally.

That brings us back to today. So yes valuations are high but selling early one can miss out on the bulk of the gains. Had I sold in early June I would have foregone nearly 70% of my YTD gains. Many of these gains have been locked in as they are in my momentum trading funds now sitting in cash again but ready for next opportunity

I think those marginal buyer/sellers you reference have a bigger impact on flavor of the day stocks than tried and true long term value/total return stocks. I dont think those marginal buyers have as much impact as you do. When prices drop strong hands come in just like they did when real estate plummeted with the bubble burst. Remember those blue chip homes along the coast? The ones so many were salivating they would pick up on the cheap? Most were not highly leveraged and few got liquidated as they were in strong hands to begin with.

In another year or two its hard to predict what the next macro trend could be and how our lives could be altered good or bad. Until then I’ll stick with what has served me well.

I beleive retail investors can manage risk by staying mostly away from the silliness. Thats why I dont beleive in a sell all risk assets call except in obvious extreme cases like Spring of 07. Back then I went all cash/fixed income with my non-RE assets. I stayed that way a couple years and started getting back in the markets late 2009 slowly and went all in during late 2010/early 2011 when I could see early signs the worst was behind us.

I dont hold much in the way of flavor of the day stocks. Most of my money (70%) is in hard assets (real estate) or old school blue chip dividend/value stocks. As long as they keep paying dividends at scale I dont care if prices drop as I reinvest at lower prices. Someday I’ll start taking the dividends as income but the stocks will mostly go to the kids someday. This is the formula I used managing my mother’s estate (i.e. parent gets the stable income off total return investments made for the kids).

The remaining is 20% in growth tech that I let run and 10% I actively trade based upon momentum. This 10% is in cash now waiting for the next correction or overshoot I can play.

As an insider you play your game and it works for you. Just the same some of us plays ours as retail investors and maybe its not quite the game you may have thought.

[sdrealtor]

Well that was sure a humdinger of a month. Glad I didnt miss that

[sdrealtor]

[quote=davelj]In my view…

The good news is that the banks are *much* better capitalized than they were going into the Financial Crisis. The bad news is that they’re going to need every dime of that capital to stave off a crushing wave of bad commercial and CRE loans. Drive down whatever street near you has a lot of strip malls. I live in Mexico now but I drove down Broadway in Chula Vista the other day and just looked on either side of the street – restaurants, nail/hair salons, small hotels, miscellaneous services and retail… at least 1/3 of these businesses will fail by year-end. They simply do not have the wherewithall to survive. And the others will limp along for years afterward. Virtually all restaurants are fvcked. Even if they can seat using social distancing guidelines, only a small percentage can break even. It could be 18 months before there’s a “normal” restaurant business.

Drive around your town or city. Look around. Think about the businesses that aren’t coming back. Think about the folks whose jobs aren’t coming back for a long time. Think about how behavior is going to change even after things begin to normalize. Think about the leverage and how the banks are going to cope with all of this. Think about what this means for corporate profitability – short-term and long-term and then what that means for nosebleed-level stock valuations.

Meanwhile, our fair-haired Nero fiddles while Rome burns.

Discretion is the better part of valor. Sell.

I could be wrong. But I doubt it.[/quote]

So I just drove down El Camino Real in Encinitas which is basically a mile of strip malls. Pretty much everything is still there. There’s a J Crew that closed up and a Burger King that shut down but everyone else is making it so far. Drove through Downtown Carlsbad and Encinitas a few days ago and same story.

The stock market sits at record highs 7 months later. We have a vaccine and more stimulus coming. Homes around here are selling for insane prices with piles of offers coming in Christmas week. Not just near me but lots of places. Yes Im sure there’s plenty of work and years to clean up but it looks like we are gonna be fine from where I sit. Maybe Im missing something?

So here’s my follow up question for the OP. What happened that you did not foresee? What is the takeaway learning moment here?

[Reality]

[quote=sdrealtor][quote=davelj]In my view…

The good news is that the banks are *much* better capitalized than they were going into the Financial Crisis. The bad news is that they’re going to need every dime of that capital to stave off a crushing wave of bad commercial and CRE loans. Drive down whatever street near you has a lot of strip malls. I live in Mexico now but I drove down Broadway in Chula Vista the other day and just looked on either side of the street – restaurants, nail/hair salons, small hotels, miscellaneous services and retail… at least 1/3 of these businesses will fail by year-end. They simply do not have the wherewithall to survive. And the others will limp along for years afterward. Virtually all restaurants are fvcked. Even if they can seat using social distancing guidelines, only a small percentage can break even. It could be 18 months before there’s a “normal” restaurant business.

Drive around your town or city. Look around. Think about the businesses that aren’t coming back. Think about the folks whose jobs aren’t coming back for a long time. Think about how behavior is going to change even after things begin to normalize. Think about the leverage and how the banks are going to cope with all of this. Think about what this means for corporate profitability – short-term and long-term and then what that means for nosebleed-level stock valuations.

Meanwhile, our fair-haired Nero fiddles while Rome burns.

Discretion is the better part of valor. Sell.

I could be wrong. But I doubt it.[/quote]

So I just drove down El Camino Real in Encinitas which is basically a mile of strip malls. Pretty much everything is still there. There’s a J Crew that closed up and a Burger King that shut down but everyone else is making it so far. Drove through Downtown Carlsbad and Encinitas a few days ago and same story.

The stock market sits at record highs 7 months later. We have a vaccine and more stimulus coming. Homes around here are selling for insane prices with piles of offers coming in Christmas week. Not just near me but lots of places. Yes Im sure there’s plenty of work and years to clean up but it looks like we are gonna be fine from where I sit. Maybe Im missing something?

So here’s my follow up question for the OP. What happened that you did not foresee? What is the takeaway learning moment here?[/quote]

Even though I’m not the OP and didn’t make any predictions I’ll weigh in. What does 7 months prove? We were in a housing bubble for years until it popped.

[Escoguy]

I’ll try to assess a few takeaways:

1. Policymakers learned from the delayed response in the great recession (08-12)
2. Trillion dollar stimulus is no longer taboo (better too much than too little)
3. The ENTIRE interest rate curve can be controlled (not just short term rates) at least for the time being
4. There is a global backdrop of negative rates (this is actually because govt bonds were bid up too high in Europe) which keeps rates in the US lower than otherwise
5. The supply constraints on housing in markets like SD during the great recession were never lifted and there is a supply gap which has been growing for over a decade
6. Policymakers have failed to incentivize older households to downsize
7. Trump tax changes did not cripple Blue states housing markets
8. US is still a center right capitalist/rule of law country and never will be even remotely close to socialism in the classic sense (a few things here in there may trickle in)
9. There are only a few hundred world class companies with global reach: Apple/Google/Amazon/McDonalds (rising Tesla)
10. China’s internet and manufacturing prowess cannot be ignored (we are still in the game but need to pay attention)
11. Public health will see significant investment going forward (thank God for a functional pharmaceutical industry)
12. There are huge education gaps in the US
13. SD is a world class place to live and will continue to attract high brain power jobs/activity

So in a nutshell, yes prices are high but there are forces at work which only a few can fathom and are bigger than any of our own unique perspectives.

Going into 2020, I had six properties (SFHs), added one this year and another pending. Net gain on the two new ones is roughly 200K of unforeseen gains.

Stock portfolio which was down 400K in March is up 300K YTD.
Needless to say, there is much that needs to be fixed and we can’t tolerate incompetent govt from the right or left. But economically, we have seen a form of the Greenspan put on steroids during Covid. May we never need it again.

Can we ever get back to normal where interest rates are fully market driven, maybe in some years. But in the meantime, it reminds me of a conversation I had with a relative of mine who used to work at Treasury, in summary, the government wants the population to have confidence, with rising home values, so they borrow and spend (ideally even taking out equity to boost the economy).

Yes, there is a risk of a crash as at anytime but don’t look back too much (at past crisis), I think it is prudent to borrow as long as properties cash flow or come close. Keep most money in stocks. Plan on working longer even if you don’t need to. Enjoy life and give to those less fortunate. But keep in mind, your fathers recession/depression is likley not in cards anytime soon.

There may be negative consequences, but I don’t see us going full former USSR anytime soon (and I lived 15 year in 5 former soviet republics). So be vigilant, exchange investment ideas, don’t be afraid to put more skin in the game. And be damn grateful that things worked out as well as they did in-spite of everything.

And if you’re in a position to, get takeout as much as you can, tip generously, and try to be a friend. I do appreciate this forum.

[sdrealtor]

Reality
If you predict something long enough the situation will eventually reach the point where you can claim victory but timing is everything. No one is saying we will never have a correction or down turn again. Of course we will

[sdrealtor]

Great post and sentiments escoguy.

[Reality]

[quote=sdrealtor]Reality
If you predict something long enough the situation will eventually reach the point where you can claim victory but timing is everything. No one is saying we will never have a correction or down turn again. Of course we will[/quote]

I don’t think the OP put a timeframe for the prediction but I think it’s too early to question how the OP’s prediction was wrong (not saying it was or wasn’t). 7 months is too early to declare it wrong. After 2 years sure.

The government has rightfully really propped things up but we can’t exactly look at market performance and consider it “normal”.

Printing money while sometimes needed doesn’t solve anything. It just gives time.

Mortgage forbearance will end at some point. So will eviction moratoriums. What will be the fallout to commercial real estate with so many companies transitioning to remote work? How will remote work affect our housing market? Will more people move here because the weather is nice or leave because it costs too much?

[Coronita]

I’m contemplating selling my SFH in Carmel valley once the lease is up….Im beginning to think maybe larry ellison and elon musk are onto something and maybe retiring in a no/low capital gains state tax state is a smart move….

I wouldn’t mind living in colorado…maybe it wouldn’t be a bad idea to buy a house there as more california take refuge there eventually….

Stock market performance…. I don’t think I can duplicate what I did this year next year…

trading account: 54.13%.
IRA/401k: 14.3%
Kids 529+custodian: 13.1%

Money spent on restoring my old miata…..total loss….lol…

need to find something more normal in 2021.

Happy New Year everyone! I’m thankful for still being alive .

[sdrealtor]

[quote=Reality][quote=sdrealtor]Reality
If you predict something long enough the situation will eventually reach the point where you can claim victory but timing is everything. No one is saying we will never have a correction or down turn again. Of course we will[/quote]

I don’t think the OP put a timeframe for the prediction but I think it’s too early to question how the OP’s prediction was wrong (not saying it was or wasn’t). 7 months is too early to declare it wrong. After 2 years sure.

The government has rightfully really propped things up but we can’t exactly look at market performance and consider it “normal”.

Printing money while sometimes needed doesn’t solve anything. It just gives time.

Mortgage forbearance will end at some point. So will eviction moratoriums. What will be the fallout to commercial real estate with so many companies transitioning to remote work? How will remote work affect our housing market? Will more people move here because the weather is nice or leave because it costs too much?[/quote]

It’s not too early to learn and parts of it most definitely have been proven wrong already. At least 1/3 of businesses have not failed. The year is over.

My ex needed a 3 month forebearance when she got furloughed. It lasted a few months and she’s been back at work for months. Last night she signed loan docs on a refi dropping her rate 0.75% and her monthly payment by $500. I’m sure she’s not the only one who has long remedied her mortgage issue.

Rather than making excuses I’d prefer to see some learning out of this that could help us all going forward

[svelte]

[quote=sdrealtor]Reality
If you predict something long enough the situation will eventually reach the point where you can claim victory but timing is everything. No one is saying we will never have a correction or down turn again. Of course we will[/quote]

The OP did end up putting a time frame on it…see his Nov 10th post where he said:

” Although this is not the time frame anyone would like from a prediction, I’ll say before the end of 2021 or it’s unlikely to pass. My crystal ball is generally a bit hazy.”

[Author]

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