[davelj]

Columbia is a university (and perhaps a few towns in the US of the same name), but in Colombia, the country, I rent to expats whose rental rate is tied to the dollar. My cash yield net of expenses and vacancies is 11% with no leverage. That seems ok to me. Risk and the perception thereof are two different things – many folks confuse the two. Nevertheless, I wouldn’t put all of my eggs in that one basket, but as part of a quasi-diversified portfolio of assets, I suspect it will play its part. Also, I’m in Medellin a fair amount as it is (well, pre-pandemia) so it’s a local asset to me.

[davelj]

Not from where I sit.

[davelj]

I’m a landlord… in Colombia. I wouldn’t touch anything in CA right now.

[davelj]

Sorry, I literally haven’t read anything on this thread since I first posted. Market’s up a bit but don’t be fooled… bubble insanity almost always lasts longer than anyone thinks it will – that’s its very nature. You’re here so you know this.

Anyhow, great recent interview with Jeremy Grantham. He covers a lot of ground, including the current bubble, environment, Covid, and VC, among other things. Grantham is probably the foremost expert on financial bubbles and hasn’t gotten one wrong in his career. Just something to keep in mind if you watch and think, “This guy’s got it all wrong.”

The current bubble and implications are from roughly 06:00 to 20:00.

Be careful out there.

[davelj]

I’m with Grantham (or he’s with me – take your pick):

https://www.marketwatch.com/story/stock-market-legend-who-called-3-stock-market-bubbles-says-this-one-is-the-real-mccoy-this-is-crazy-stuff-2020-06-17?siteid=yhoof2&yptr=yahoo

[davelj]

[quote=scaredyclassic]

But isn’t that just hubris. Basically you are saying, be smarter than the marketplace, find the opportunity everyone else missed, in a marketplace that adjusts prices by the nanosecond, and which sets prices based on all possible knowable information, including everyone in the world, the smartest, most informed, best capitalized people. There is realistically no way to be smarter than them, is there?

auto investing in an index fund is far more humble and realistic, isnt it?[/quote]

I don’t think there’s a great deal of hubris in dramatically de-risking when valuations are over 2 standard deviations from the historical mean. We have plenty of historical data to back up what happens from these levels.

Arguably… isn’t there just as much hubris in owning stocks at nosebleed valuations and simply assuming that your future return is going to be good because… stocks?

But, yes, most folks should just index and deal with the volatility. Unfortunately, most of these folks can… until they can’t.

[davelj]

[quote=Rich Toscano]

Whoa, hold on. Since I wrote that passage, markets (both US and intl) are up 36%. That changes the situation considerably in terms of what the market is pricing in, and in terms of prospective returns.

To put it in perspective, if we use the historical return of global stocks (5.2% real) — we just got over 6 years’ worth of return in less than 2 months. If you assume, as I do, that markets mean revert over time to deliver something close to the historical average return over the long haul, then the prospects for future returns just got a whole lot worse.

So, my opinion on the markets now is not the same as it was then… I would love to hear Dave’s take on my take, of course, but it’s important to adjust for the fact that my take was written 36% ago. (And for the record, I know and like Dave and he’s a great investor, so I always like hearing his take!).

A second thing I want to note is that Dave is really focused here on the S&P500. There I agree completely. In my view, it came into this very overvalued to begin with, and it is pricing in virtually no uncertainty about the cv19 outcome. I am completely on board with his assessment of the S&P500.

Where we might part ways is in other risk assets. There are areas of the global stock market that — even after this huge rally — are still priced for positive long-term returns. In specific, developed intl value stocks are priced for returns that are slightly under the average stock returns — not great but ok. Emerging value stocks are priced for substantially higher than normal returns.

I know it makes things more complex but I think it’s important not to lump all stocks together. At times, you can, but this is not one of those times. The valuation spread between the S&P500 and value anywhere (including US), and between the S&P500 and international, has literally never been higher. So the prospective returns of those things are very different.

One last note. In the other thread, zk made a very good point, which I will paraphrase here: “ok maybe the underlying value of that long term income stream has not changed, but still, in recessions and other crises, markets tend to drop.” That’s a great point and I totally agree. The thing is, though… you are now in the realm of market timing. When will it drop? How much? When will it stop dropping? When do you buy back in? I don’t know. I don’t think anyone does, really, and I know for sure I don’t. This past 2+ months should show how hard that is… who was expecting a 36% rally from the day I posted that last thing? Not me, that’s for sure.

So I largely focus on fair value and the assumption that markets will get back there at some point. Because that’s what I think I have a handle on, and I have absolutely no handle on timing. (Subnote: with that said, I do think it’s fair to adjust for very heightened medium-term uncertainty as we have now. But the valuation/expected return thing is the main thing for me, and that’s what I have been addressing).[/quote]

Yeah, valuations matter… a lot. When things hit their (first?) bottom a few weeks back I actually thought prices looked pretty reasonable for the first time in several years. I even bought some bank stocks – public stocks! Me! So, very different conversation in April. I got about 25% of my allocation done and… boom… market rocketed away from me and I just thought, That’s it – I’m outta here; this is as nutso as it gets. And I sold (almost) everything. One of the few times in my life I’ve made short-term trades in public stocks. But I feel like it was forced upon me, so… such is life.

Also, in full disclosure, I bought two Asia-Pacific dividend ETFs right as the virus panic was getting started and I’m underwater in those – but I don’t plan on selling those until Asia has a silly bubble, which may or may not ever happen. I also have a few VC investments that have done much better than I thought they would fundamentally (I generally assume I’m flushing the money down the toilet), but… they’re going to need more financing in the next 12-18 months, so, who knows what’s going to happen with that. Sometimes, Great Company + Needs Cash = Toiletville.

So, I’m not 100% bearish on Everything. But I’m 90%+ bearish on pretty much all developed market stocks – especially the big, liquid ones. And very bearish on commercial and SFR real estate. And that comprises the vast majority of the risk assets in the average person’s portfolio.

This is going to be an interesting investment cycle because of the nature of the vaccine and the news, etc. This is an outlier position but it wouldn’t shock me if we didn’t see the real bottom until after the vaccine is available, as that’s when there will be no more excuses for what I think is coming. Similar to the tech bubble, until the vaccine comes out, folks can hope and dream about what the post-covid world will look like – fantasies can run wild. Post-vaccine, the truth will be revealed… a GDP hole and massive, massive leverage accompanied by impaired long-term demand. We’re not Japan, but we’re not *that* far off – it’s not completely different.

But, hey, who knows.

[davelj]

[quote=Coronita]Welcome back, old timer!

Completely unrelated to the question of the economy… I have much more important question to ask you davelj.

Did you ever settle down with a woman and get married or are you still on self-pilot? Sorry if it sounds a bit rude but life is just so full of twists and turns and after decades of being MIA, I’m just curious how things are. Each of the old timer had a unique personality that I remeber and if memory serves me correctly, a long time ago, both you and NeetaT both were pretty adament about marriage… that’s why I was completely floored when NeetaT showed up again after being months MIA and said “if it wasn’t for my wife I would have long moved out of California” or something like that. I know, I was completely floored because this wasn’t the NeetaT that I remember that posted about his Porsche 911 and women dates. I’m totally happy he found the right person and is such a keeper that he would actually remain in CA for her, clearly not the NeetaT that I remember! And if I remember, you had similar viewpoints and shared a few conversations that were interesting and amusing with a few folks. So I’m curious how you’ve been. I hope you are doing well, happy, and healthy.

Man, it’s good to see some of you old timers coming back. I’ve been lonely here holding the fort. You can or believe some of the new freshman piggs. They are just nuts in what they say….

Now, if only Allan from Fallbrook would come back , I would be pretty content. If by chance you’re still in touch with him , hopefully you can convince him to come back, if at most just briefly. I’m dying here.

Stay healthy and happy old friend.[/quote]

I remain legally unencumbered. My views on marriage haven’t changed. But everyone’s wiring is different – different strokes and all.

Thanks for the good wishes – likewise. I don’t know who anyone is anymore – I don’t recognize any of the names. I guess folks changed them?

[davelj]

[quote=scaredyclassic]

I do not believe that any stock price bears any relation to any economic reality.

[/quote]

Perhaps not right now. But they do, occasionally. Your job as an investor is to figure out – roughly – when and where the opportunities lie with the understanding that you’re going to be approximately wrong a lot.

[davelj]

I presume that all talks of slavery reparations are for the purpose of (1) visibility – “I’d like to be seen on a talk show discussing something”; (2) politics – “My constituency likes the idea of reparations”; or (3) virtue signalling – “I care so deeply.” Nothing meaningful will ever happen in terms of cutting checks to individual African Americans because it’s simply too difficult to determine who is owed what and by whom.

Related, most of my ancestors were serfs in Western Europe for centuries. Serfs, while generally not treated as harshly as american slaves, were tied to the land, and bought and sold with such land. They generally had some modest amount of that land and their time – ~15% was typical – that was for their own private use (Why thank you, Mr. Duke!). The rest was owned by the Lord of the manor. So, basically, 85% slaves… better than 100%, that’s for sure, but still. Anyhow, I’m still waiting for a check from the aristocracies of Western Europe for the value of all of that free labor over the centuries (compounded to reflect inflation, of course).

To the victors – often also slaveholders and serfholders – went the spoils. Such is life.

[davelj]

I, for one, and at long last, am moving to Baja. I’ve bought the lot, signed a lease on a rental (to live in while the house is being built), sold one of my two condos here in SD, and the one I’m living in will be for sale shortly. My new house will be a 15 minute drive from the border.

I know it’s going to be hell getting the house built – I expect the full panoply of delays, bribes, shenanigans, etc. But that will eventually come to an end. I’ve already managed my expectations to rock-bottom levels.

Anyhow, I’ll report back (in a year?) when it’s done…

[davelj]

[quote=Rich Toscano]Hardcore INTJ for me… I love the test, it helped me figure out why I get along with some people so much better than others.[/quote]

Me too… of course.

[davelj]

[quote=davelj][quote=sdrealtor]Thanx dave. I’m just a layperson in these matters and wonder where the truth lies. I’m sure plenty others do also.[/quote]

Well, I don’t know where the “truth” lies either. No one does. But, I do have a few numbers that can shed some light on the subject.

Total TARP outlays have been $458 billion to 734 institutions, broken out as follows:

$228 billion to banks and CIT
$110 billion to Fannie/Freddie
$ 70 billion to AIG
$ 50 billion to Auto Companies

Of the BANK-related TARP, here are the stats:

$161 billion has been repaid (including Citi). There are $58 billion of planned repayments via capital raises currently in the works, scheduled to be completed by the middle of 2010. That leaves $9 billion of bank-related TARP that will likely be outstanding for at least a few more years.

Treasury has collected $9.7 billion in interest payments plus profit on warrants sold (which does not include warrants sold in BofA or Citi). Total losses – which won’t be recovered – from failed entities are $2.5 billion thus far. There are also $2.8 billion worth of TARP in which interest payments have been deferred (that is, the banks can’t make them) – so, let’s just call those losses to make things easy. So, $5.3 billion of losses (almost half of which is from CIT alone).

So, barring a cataclysm over the next six months, it’s likely that less than $20 billion of bank-related TARP will be left outstanding by mid-2010 (held by hundreds of small banks, however), and revenues (interest + sold warrants) will have exceeded expenses (charged-off TARP).

I said many moons ago (I’ll try to find the thread) that we’d likely get back 80%-110% of the bank-related TARP. I think I can tighten that band to 90%-110%.

I think the Fannie/Freddie (F&F) TARP will also get paid back, but over a much longer time horizon. Spread lenders, almost no matter how bad off they are, can always fill a hole, the only issue being how long it takes. And it’s going to take F&F a long time. To use an example, lets say that F&F charge off 10% of their portfolio (which would be a big number). Further, let’s say the average yield on the remaining 90% of their book is 5.5% and their funding costs (now borrowing at govt rates) are 2.5%. Add in 100 bps of operating expenses and you have a 200 bp spread. Here, it takes F&F 5.5 years to fill its hole (from losses) with spread income from the performing portfolio. If you assume that F&F’s losses are going to be 20% of its book, it takes them 11 years to fill the hole, and so on. So, while we’re hearing about the big “losses” coming out of F&F – which are real losses – we will get that money back… eventually… but it could be many years. We will lose in real (that is, inflation-adjusted) terms for sure.

Where AIG and the Autos are concerned, I don’t have a good idea as to what’s going to happen with that crap. Do we get back half of our money one day? Maybe. I think the likelihood of getting it all back is not materially different from zero.

So, our financial system made it through the Cat 5 hurricane damaged but not sunk, but the seas are still very choppy and the government continues to wield lots of buckets to bail out water that continues to leak into the boat. I’ll be surprised if we don’t have another tropical storm before 2010 is out, but the threat of all-out collapse has been diminished significantly. But I still see very stormy seas ahead for the next couple of years. It’s not going to be pretty.[/quote]

Read the Fannie & Freddie paragraph above in the context of:

http://news.yahoo.com/fannie-freddie-could-send-179-2-billion-taxpayers-175239683–sector.html

I was slightly too bearish (as I was with TARP).

Raise your hand if you if you agreed with me at the time.

[davelj]

[quote=CA renter] All too often, men take everything of value to a woman, and when it’s his turn to keep his end of the bargain, he backs away from the deal. It’s essentially a deferred compensation agreement, and alimony is a way to make sure that men fulfill their end of the agreement.
[/quote]

This sounds suspiciously like another type of commercial arrangement that occurs between certain men and women, just over a longer period of time…

[davelj]

[quote=The-Shoveler]At bit simplistic If you ask me,
[/quote]

Uh, it’s 30 minutes long. Not a course, but half a class. Can you at least acknowledge that a lot of ground is covered in 30 minutes? Nevermind… that’s a rhetorical question. I almost forgot why I hadn’t posted in six months… now I remember…

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