Down goes the Dow

If your risk is too high for your tolerance or time horizon, you should not waste this bounce.

Johannes wrote:

Ghost of Igloi wrote:

I don’t house them.

Ok. Again I misunderstood.

So what are your recommendations for them with regards to saving to buy a home when they are currently paying rent for their current living space? That can be quite challenging, so I would love to hear your advice. Especially for someone like your son who also owns a business.

Modest life style and good savers. They don’t travel the world for experiences. When our daughter got married they went to a courthouse rather than a destination wedding. My son drives a 21 year old vehicle and services it himself. Both kids have more than 20% in savings for an average priced home.

GOI,

I'm not holding my breath for housing values to fall. For one thing, who is selling for the foreseeable future? Nobody is being evicted in the coming months. People are going to get

money from this $2 trillion stimulus bill. They can't spend that money on much else except the roof over their head. Meanwhile, nobody is building new homes thereby constraining supply. The Federal Reserve is embarked on an absolutely massive bond buying binge including mortgage bonds.

I'm not saying a deflating housing market isn't coming sometime in the future. I'm just not counting on it the near term.

I'm more curious about the commercial property market in the coming weeks. That could be somewhat of a disaster in the near term. I saw an interview with CNBC's Kevin O'Leary who runs a business in New York. He was asked how his business is getting by with the shutdown. He was surprisingly candid and blunt. He said he is simply not going to pay his rent and that the commercial landlord can sue him if they want. And its not like he is some collapsing hedge fund. He just runs a conservative, profitable business in New York.

I'm looking to the first couple weeks of April when rents come due to see how the whole system holds up. However, I have a standing rule not to underestimate what the Fed will do to prop up any market.

Ryan,

The timing is the question, the housing prices are outrageous. For example, in our area a $350,000 house five years ago is now $500,000. That is not normal. I believe like the stock market driven by large amounts of debt seeking a home, and low interest rates. I am assuming no V-shaped recovery, and a severe recession. Of course if the magic of the Fed and stimulus saves the inevitable pain, then it is postponed a few years. I just don’t see that outcome as likely.

Commercial real estate has been a bubble for some time. More so than residential. The system that feed the growth was the belief in a bond like proxy. Investors viewing it as above market income secured by property deed. Now that rents are in jeopardy the investment collapses under its own weight.

Again, looking from a purely valuation perspective I see the vulnerability. Of course you have plenty of posters here that have disagree with that view. I am of the mindset that we are not even half way through the valuation re-set for many assets.

Igy

What is driving this buying? What information has been presented in the last three days that hasn't been glaringly obvious in the last several weeks? Was the stimulus bill ever really in question?

So what if people get a $1200 check? Their savings will still get hammered throughout this period, and aggregate demand will be in the sh***er for months. Are people just super anxious to get a perceived discount after such a long bull market?

Fuzzy nipples wrote:

What is driving this buying? What information has been presented in the last three days that hasn't been glaringly obvious in the last several weeks? Was the stimulus bill ever really in question?

So what if people get a $1200 check? Their savings will still get hammered throughout this period, and aggregate demand will be in the sh***er for months. Are people just super anxious to get a perceived discount after such a long bull market?

Institutional trading desks, pension and insurance fund rebalancing. Largely technical moves that drive the big swings. Look at charts of 2000-2002 and 2007-2009 and you will see similar patterns. A technician would argue totally predictable, with re-test of 2,180 coming soon.

In the near term a sizable segment of the population will be having fire sales to stay liquid. It already happened with local restaurants. This will ripple though the economy, just a little slower than restaurants.

Fuzzy nipples wrote:

What is driving this buying? What information has been presented in the last three days that hasn't been glaringly obvious in the last several weeks? Was the stimulus bill ever really in question?

So what if people get a $1200 check? Their savings will still get hammered throughout this period, and aggregate demand will be in the sh***er for months. Are people just super anxious to get a perceived discount after such a long bull market?

The market, when not convulsing in panic, looks out into the future. It sees a resumption of profits out in the 3Q and 4Q and beyond. In a discounted cash flow model, the next quarter or two aren't all that important.

Think of yourself in the year 2025. Would you be glad you bought in 2020? That's the question the market is working through. Right now, many feel yeah that sounds pretty good.

But the panic had to receed first.

And people are stocking up on ammo, big time.

https://www.cnn.com/2020/03/19/business/coronavirus-gun-sales/index.html

Ghost of Igloi wrote:

Johannes wrote:

Ok. Again I misunderstood.

So what are your recommendations for them with regards to saving to buy a home when they are currently paying rent for their current living space? That can be quite challenging, so I would love to hear your advice. Especially for someone like your son who also owns a business.

Modest life style and good savers. They don’t travel the world for experiences. When our daughter got married they went to a courthouse rather than a destination wedding. My son drives a 21 year old vehicle and services it himself. Both kids have more than 20% in savings for an average priced home.

That’s great. Not many young people are traveling the world though. Also wondering if you made a donation to your daughter’s house savings with the money you saved on her wedding. Anyway it sounds like they have their down payments ready. Good for them.

Fuzzy nipples wrote:

What is driving this buying? What information has been presented in the last three days that hasn't been glaringly obvious in the last several weeks?

That the plague of doom is no deadlier than flu after all.

Johannes wrote:

Ghost of Igloi wrote:

Modest life style and good savers. They don’t travel the world for experiences. When our daughter got married they went to a courthouse rather than a destination wedding. My son drives a 21 year old vehicle and services it himself. Both kids have more than 20% in savings for an average priced home.

That’s great. Not many young people are traveling the world though. Also wondering if you made a donation to your daughter’s house savings with the money you saved on her wedding. Anyway it sounds like they have their down payments ready. Good for them.

We paid a off 2/3rds of daughter’s law school student loans.. She was married at the time. She and her husband have paid off the remaining. We did pay for a plane ticket a couple years later for a vacation. We fortunate to have good kids.

Just in case you think stocks are a good value based on falling PEs.

https://twitter.com/NorthmanTrader/status/1243315989175046152

the idiot wrote:

the idiot wrote:

+1

That said, I'm not sure if I should worry more about the opposite and missing the boat...

Several stocks I watch gave bullish Bollinger Band signals today. After watching to make sure they would close above the Bollinger Band mid-line, I went long in a few stocks about 15 minutes before the closing bell. I still think this trend could reverse soon so this might not be a long term investment.

GOI,

I live in Portland OR. So I've seen the outrageous housing prices first hand. I think we generally agree. As you say, its about the timing. But I don't foresee housing prices going down for at least another several months if not a lot longer. Other crises are going to come up before housing prices. Again, if nothing else nobody is going to be selling houses for the forseeable future so how can prices be going down?

However, after the Fed injects the $7-10 trillion into the economy buying all the bonds they can. It will be interesting to see where things stand. We could finally be at the tipping point of a liquidity trap where rates all the way up to 30 year bonds are at zero. Then there is not much the Fed can do when asset prices decline. At the point it will require more direct welfare (and it is welfare) from elected representatives. At that point there could be revolution. Or maybe not. But the whole situation is becoming a dark comedy here in Portland with housing prices going up and up while people are increasingly forced into smaller living spaces, and the homeless population is booming.

sub sub elite local hobby jogger wrote:

I find it boggling that the market continues to rally based on this stimulus. Unemployment, GDP, and earnings numbers will be brutal for months to come and continue to drag afterwards during the recession.

Although a financial adviser I run with has been spot on with his predictions. He says the 18,000 level for the Dow pretty much priced in all the turmoil. Thinks that will be the bottom.

But this isn't a normal recession. Entire sectors of the economy will be shut down for months. At least during a typical recession, people are doing things and buying stuff, just to a lesser degree. Things are completely shut off for an indefinite period of time. I find it hard to believe the market won't drop more.

I was kind of the thinking the same today. Even in the worst of 2008-2009, activity was still happening; it was just slower. We've never seen anything like what we're dealing with now where large parts of the economy are being taken literally to zero. I don't think anyone really knows what the effects of that are going to be.

At this point, there's really no predicting the market with any confidence, but I would think that once official reports of profit losses and debts and unemployment numbers start rolling in, the market will drop again. Maybe not to new lows, but magnitude of the rally this week doesn't make sense to me. I think it's probably being driven more by FOMO than confidence in the economy at this point.

Ryan,

At some point folks will realize Fed policies have worked against most Americans for the benefits of the wealthy and corporations. If you look at Fed policies the investor reaction is different this time. Investors are shunning risk assets for cash/money market. That is why the Fed continues to comes in to Repo Operations. Credit default swap costs are rising for Treasuries. Therefore, the market is pricing the increasing chance of Treasury defaults, or monetization of our debts. You see this in the gold market as well. Bizarre experimental monetary policies will have negative unintended consequences, it will just be difficult deciphering what those factors will be.

Igy

Ghost of Igloi wrote:

Johannes wrote:

That’s great. Not many young people are traveling the world though. Also wondering if you made a donation to your daughter’s house savings with the money you saved on her wedding. Anyway it sounds like they have their down payments ready. Good for them.

We paid a off 2/3rds of daughter’s law school student loans.. She was married at the time. She and her husband have paid off the remaining. We did pay for a plane ticket a couple years later for a vacation. We fortunate to have good kids.

Congratulations on your lovely family.