- This will strike some as a silly argument, but I don’t think it’s a coincidence that the modern focus on entertainment marketing for financial risk products began in the Great Recession and its aftermath. When the financial ground isn’t steady underneath your feet, fundamentals don’t matter nearly as much as a fresh narrative. Why? Because the fundamentals are scary. Because you don’t buy when you’re scared. So you need a new perspective from the puppet masters to get you to buy, a new “conversation”, to use Don Draper’s words of advertising wisdom from Mad Men. Maybe that’s describing the price quote process as a “name your price tool” if you’re Flo, and maybe that’s describing Lucky Strikes tobacco as “toasted!” if you’re Don Draper. Maybe that’s a chuckle at the Mayhem guy or the Hump Day Camel if you’re Allstate or GEICO. Maybe, since equity markets are no less a financial risk product than auto insurance, it’s the installation of a cargo cult around Ben Bernanke, Janet Yellen, and Mario Draghi, such that their occasional manifestations on a TV screen, no less common than the GEICO gecko, become objects of adoration and propitiation.
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Look - I know that for the majority of you guys'n'gals, this stuff is boring AF. I know that stock shit is dreadfully uninteresting. But Ben Hunt is pretty readable and he's starting to get strident. And I'm in no position to give anybody investment advice and my crystal ball is no clearer than anyone else's but here's the narrative that's shaping up:
1) It's becoming really hard to make money in the stock market. Articles such as this point out that "fundamentals" - those things that companies do to earn money - are increasingly divorced from "valuations" - those prices that stocks are set at because people are paying them.
2) People are doing other things to make money. mk and I have talked about CoCo Bonds in the past. Commercial real estate is currently selling at GRMs between two and six. In 2010 it was closer to 12-18. What that means, basically, is that people are willing to make half to a third as much on their real estate investment than they were back when things were sane... either because the money is easier to come by or because their need for profit (any profit) is greater.
3) nobody paying attention thinks this shit can continue. Ben Hunt, a financial planner and fund manager, is basically advocating people to get the hell out of the stock market. Bloomberg reported this morning that even though the S&P500 is up $2 trillion in the past few months, short interest is over a trillion dollars. That means HALF the people who own stock in an S&P500 company right now are expecting it to go down.
4) It is not in the interest of the broader financial community to make you pay attention. Bank of America, for their part, figures that half of the S&P being short means that there'll be a humungous rally soon because everyone is going to have to sell their shorts rather than pay interest and dividends on it.
It's a common trope that no one could have predicted the crash of 2008. It is not, however, an accurate assessment. The truth is that lots of people predicted it, but only a very select few were in position to profit greatly. Lots of people saw the writing on the wall. I was one of them. It probably saved me thirty grand.
- 'It is difficult to get a man to understand something, when his salary depends on his not understanding it.'
- Upton Sinclair
Nobody at the Fed is making money predicting doom, and nobody at the banks are getting rich denying mortgages. Keep your powder dry. The guys that ran things in 2008? They're largely still running things.
I'm interested in this, if I only understood something like 25% of it. I'm reminded Warren Buffett's maxim to never invest in something that you don't understand. It's why he avoids Silicon Valley-like tech companies, because their valuations never made any sense to him, despite everyone else throwing money at them like mad men. It sounds like there's still a hungry giant pool of money with an army of twitchy investment managers looking for something to invest in. But there just aren't as many good investments as there are investment dollars. I sense from this guy that their will be ugly downstream ramifications of all this stupid money being thrown around. And his prescription for making it to the other side is good old fashioned value-investing. But, and I can't quite tell, it seems like he's also wary of some larger, systemic failure. Which I, for one, am not looking forward to trying to wade through. Is there anything that a young person with next-to-zero capital can do to get through this? Because it sounds like he's shitting on S&P 500 indices, which I thought was the one sure-fire thing I could do.
One of the arguments made in the article is that "value investors" such as Buffett are having a much harder time making money at the moment because the Fed is basically acting like an insurance company to protect the companies that aren't valuable. This, in turn, drags down the value of the ones that actually make money: Continuing: https://fortunedotcom.files.wordpress.com/2015/02/buybacks1.gif Have a steady job, a rainy-day fund and as low a burn rate as you can manage. What he's saying is that the money you'd get from ETFs isn't what it used to be, and probably won't ever be again, and everything else is worse. That's pretty much the big point he's been hammering on lately: passive income is becoming much harder to come by no matter what form of investing you want to try on. I know this: I follow a lot of blue chips and they rarely move. Most of them are sort of floundering towards negative. Yet the stock market is up like 2 trillion in the past three months. And when you look at the stocks that are popping, it's all tiny shitty biomeds you've never heard of, pharmas that jump from $3 to $4 because something or other made it through a trial. Me? I invested in a birth center.I'm reminded Warren Buffett's maxim to never invest in something that you don't understand. It's why he avoids Silicon Valley-like tech companies, because their valuations never made any sense to him, despite everyone else throwing money at them like mad men.
"Where do the Fed’s policies most prominently insure against financial risk? In low quality stocks, of course. It’s precisely the companies with weak balance sheets and bumbling management teams and sketchy non-GAAP earnings that are more likely to be bailed out by the tsunami of liquidity and the most accommodating monetary policy of this or any other lifetime, because companies with fortress balance sheets and competent management teams and sterling earnings don’t need bailing out under any circumstances. It’s not just that a quality bias fails to be rewarded in a policy-driven market, it’s that a bias against quality does particularly well! The result is that any long-term expected return from quality stocks is muted at best and close to zero in the current policy regime. There is no “margin of safety” in quality-driven stock-picking today, so that it only takes one idiosyncratic stock-picking mistake to wipe out a year’s worth of otherwise solid research and returns."
It sounds like there's still a hungry giant pool of money with an army of twitchy investment managers looking for something to invest in. But there just aren't as many good investments as there are investment dollars. I sense from this guy that their will be ugly downstream ramifications of all this stupid money being thrown around.
Which I, for one, am not looking forward to trying to wade through. Is there anything that a young person with next-to-zero capital can do to get through this?
Because it sounds like he's shitting on S&P 500 indices, which I thought was the one sure-fire thing I could do.
This is where the smart money is anyway. Not a birth center, per se, but in building a business. Passive income is great if you can get it, but going out and creating something from nothing is the real way to build capital (the thing capitalism is supposed to be built on). Small businesses create ALL the jobs in the last several decades, and their the only places left who think of people as people and not as employee ID numbers. Passive income is a great supplement if you can get it, but we should never forget what the engine of the economy is. Fuck the Fed right now. That emperor lost his clothes long ago.Me? I invested in a birth center.
Stop telling young men to go to college and instead tell them to get invested in a trade they can excel at. A computer is not going to drive across town at 2AM to fix a leaking toilet. A robot is probably not going to be able to rewire existing buildings, and someone is going to have to do the welding and metalwork when the robots break down. One we got that world problem solved, tell the same young men to stop watching television and stop buying shit you don't need. Save, buy property, live cheaply and invest in your skills, get certs, etc. The more I read about the markets, the more I think you are the one who is going to come out the other side with your bankroll still intact.Have a steady job, a rainy-day fund and as low a burn rate as you can manage.
Me? I invested in a birth center.
It isn't really a "fix" thing. The system doesn't care. The problem is that when markets turn bear things get tougher and when the people attempting to manage the economy are doing their damnedest to calm the cyclical nature of finance, the eventual downturn is likely to be either deeper or longer or deeper and longer. "Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist." - Ken Boulding Here's another good one: "In a bear market, money returns to its rightful owners." - Wall street proverb The problem is that the markets are all of the opinion that a bear market can't be borne so all the regulators are doing their damnedest to forestall one. If they can, they'll kick the can out past where it'll bite them. Lots and lots and lots of people got filthy rich ahead of the crash last time. The cautious, clever ones stayed that way. This time around, the "filthy rich" part is harder but the crash is just as inevitable. Shit like this.