Is the coming pain really "priced in"?

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DualCitizen
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Is the coming pain really "priced in"?

Post by DualCitizen » Wed Apr 01, 2020 1:01 am

The S&P 500 is currently at early-2019 levels. That doesn't seem that disastrous, for one of the biggest crises in U.S. history.

So is the coming pain really priced in at current levels? The coming pain will be: even more massive debts than before, small businesses defaulting on loans and shutting down, reduced consumer spending, etc.

Is the market lagging behind the coming "reality"?

Ocean77
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Re: Is the coming pain really "priced in"?

Post by Ocean77 » Wed Apr 01, 2020 1:13 am

Just be patient. The market is working as fast as it can! In just about one month, it already retraced back one entire year. In my view, it will have to go back at least to 2016 levels. At the current pace (one month/year), we may get there by June or so.

stocknoob4111
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Re: Is the coming pain really "priced in"?

Post by stocknoob4111 » Wed Apr 01, 2020 1:47 am

There will be several ups and downs before we find a bottom

shelanman
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Re: Is the coming pain really "priced in"?

Post by shelanman » Wed Apr 01, 2020 1:59 am

Nobody knows nothin'

But, speculating is fun, so I'll speculate for ya. (Don't trade on my speculations -- even I don't do that)

Most people seem to expect the lockdowns to end in 2-3 weeks. People today seemed freaked out that California extended theirs through May 3rd.

But, if the lockdowns work at all, they will have to continue for at least 4-6 months, or the virus will come right back in only a few weeks just as bad as before -- and even 4-6 months might not be enough. The powers that be are already talking about 18 months and maybe doing it again for a few months every year *forever*, and that we can never return to what we used to call normal, *ever*.

Nobody even knows whether it is possible to order everybody to stay at home and be unemployed for 6 months, let alone 18+. Nobody knows what the economic fallout would be, but nobody also has any idea what the social, cultural, and political fallout would be.

But most market participants think we are just a couple weeks -- a month at most -- away from the return of basic freedoms, and they're probably very wrong.

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bluquark
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Re: Is the coming pain really "priced in"?

Post by bluquark » Wed Apr 01, 2020 2:17 am

VIX is still at 53 and put options are expensive. So a lot of people are shorting the market right now for the obvious reasons you stated. Presumably there are a lot of rose-tinted-glasses-wearing people that are convinced the crisis is overblown and going long really hard to counter them. The market right now is an emotional battlefield and it's hard to say it's really priced anything in, rather it's at the midpoint between wild guesses.

The S&P500 as a whole is behaving like Tesla stock in other words. My gut feeling was that Tesla was bound to crater and if I had traded, it would've been as a short. For some reason I still don't understand, it skyrocketed instead. Not sure what common sense gets you in volatile situations.
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DonIce
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Re: Is the coming pain really "priced in"?

Post by DonIce » Wed Apr 01, 2020 3:10 am

bluquark wrote:
Wed Apr 01, 2020 2:17 am
The S&P500 as a whole is behaving like Tesla stock in other words. My gut feeling was that Tesla was bound to crater and if I had traded, it would've been as a short. For some reason I still don't understand, it skyrocketed instead.
What don't you understand? They succeeded beyond anyone's wildest expectations, passed through all the risks that naysayers claimed would doom the company, and are now poised to print money from the Model Y, which will have insatiable demand as it is in the CUV segment.

mac808
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Re: Is the coming pain really "priced in"?

Post by mac808 » Wed Apr 01, 2020 3:20 am

The economy will get worse, perhaps much worse over the next few quarters.

The worse it gets, the more money the Fed will print.

The more money the Fed prints, the more inflation will be created. Over the past decade inflation has been “hidden” in sectors like health care, education, housing, and financial assets (stock prices). My guess is that health care and education are tapped out so that leaves housing and financial assets as our surviving inflation sponges.

In other words, we are in the midst of a great tug-of-war between an underlying economy that is rapidly worsening and a Fed that will inject infinite amounts of capital to try and keep the system functioning. The backdrop is a global pandemic of unknown severity and duration (that will massively accelerate certain existing trends and therefore leave the world a different place even after it has vanished.) I don’t know who will win but at least I feel like I know the game being played.

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Noobvestor
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Re: Is the coming pain really "priced in"?

Post by Noobvestor » Wed Apr 01, 2020 3:32 am

DualCitizen wrote:
Wed Apr 01, 2020 1:01 am
The S&P 500 is currently at early-2019 levels. That doesn't seem that disastrous, for one of the biggest crises in U.S. history.

So is the coming pain really priced in at current levels? The coming pain will be: even more massive debts than before, small businesses defaulting on loans and shutting down, reduced consumer spending, etc.

Is the market lagging behind the coming "reality"?
Your username is dual citizen, so maybe this will help. Sure, US stocks aren't down a ton (large-caps in particular), but global stocks are way down overall. So what do you think: is the US stock market representative of the world? Is the international market worth less than it was a decade ago? Because once you zoom out of the S&P 500 you'll find that things are down pretty far, which might help reframe your perspective. /2 cents
shelanman wrote:
Wed Apr 01, 2020 1:59 am
People today seemed freaked out that California extended theirs through May 3rd.
I can't speak for every Californian, but when I learned schools were shut down for the year I wasn't at all surprised. We've been on lockdown for weeks, and those of us who follow the news are expecting extensions across the board. Is the rest of the world not tuned in?!

But to go back to your question, OP: probabilities are what get priced in. No one knows the outcome of this global scenario. It depends a lot on a variety of variables that are yet to be filled in these coming days, weeks, months. I don't know better than the market.
Last edited by Noobvestor on Wed Apr 01, 2020 3:51 am, edited 1 time in total.
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scintillator
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Re: Is the coming pain really "priced in"?

Post by scintillator » Wed Apr 01, 2020 4:00 am

DualCitizen wrote:
Wed Apr 01, 2020 1:01 am

The coming pain will be: even more massive debts than before
The Fed/Treasury/Trump triumvirate will back lenders and guarantee all loans, so you can go as deep in debt as you want and just keep taking out new loans.
small businesses defaulting on loans and shutting down
See above.
reduced consumer spending, etc.
Stimulus checks. And you can plunder your 401k with no penalty. And people's 401k's will be at ATHs soon when the triumvirate starts printing even more money to buy stock ETFs and pushes prices to whatever number they decide is sure to get them re-elected.
Is the market lagging behind the coming "reality"?
Depends what you think the coming reality is. Sure, the virus will crush our productivity, but you don't need to produce when you can just print infinite money.

minimalistmarc
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Re: Is the coming pain really "priced in"?

Post by minimalistmarc » Wed Apr 01, 2020 4:05 am

Ocean77 wrote:
Wed Apr 01, 2020 1:13 am
Just be patient. The market is working as fast as it can! In just about one month, it already retraced back one entire year. In my view, it will have to go back at least to 2016 levels. At the current pace (one month/year), we may get there by June or so.
May do. May not do.

What are you actually doing with your investments?

If you are mostly in cash with your view, then it is important to realise that you are being controlled by fear, and likely to make huge behavioural mistakes.

Choose an asset allocation (lowish equities for you as you have low risk tolerance) then either lump sum or DCA over a few months

goblue100
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Re: Is the coming pain really "priced in"?

Post by goblue100 » Wed Apr 01, 2020 6:12 am

shelanman wrote:
Wed Apr 01, 2020 1:59 am

But, if the lockdowns work at all, they will have to continue for at least 4-6 months, or the virus will come right back in only a few weeks just as bad as before -- and even 4-6 months might not be enough. The powers that be are already talking about 18 months and maybe doing it again for a few months every year *forever*, and that we can never return to what we used to call normal, *ever*.
Do you have sources for these statements? China has opened back up without a resurgence of an outbreak. I do believe there could be a second wave this fall, during "cold and flu season", but forever? We seemed to survive after the 1918-1919 pandemic even though we didn't know what a virus was back then.
Financial planners are savers. They want us to be 95 percent confident we can finance a 30-year retirement even though there is an 82 percent probability of being dead by then. - Scott Burns

fennewaldaj
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Re: Is the coming pain really "priced in"?

Post by fennewaldaj » Wed Apr 01, 2020 6:32 am

goblue100 wrote:
Wed Apr 01, 2020 6:12 am
shelanman wrote:
Wed Apr 01, 2020 1:59 am

But, if the lockdowns work at all, they will have to continue for at least 4-6 months, or the virus will come right back in only a few weeks just as bad as before -- and even 4-6 months might not be enough. The powers that be are already talking about 18 months and maybe doing it again for a few months every year *forever*, and that we can never return to what we used to call normal, *ever*.
Do you have sources for these statements? China has opened back up without a resurgence of an outbreak. I do believe there could be a second wave this fall, during "cold and flu season", but forever? We seemed to survive after the 1918-1919 pandemic even though we didn't know what a virus was back then.
Yeah. We might have to keep our borders closed to foreign travel for much longer but if we suppress it within our borders we should be able to keep it down.

Blue456
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Re: Is the coming pain really "priced in"?

Post by Blue456 » Wed Apr 01, 2020 6:39 am

DualCitizen wrote:
Wed Apr 01, 2020 1:01 am
The S&P 500 is currently at early-2019 levels. That doesn't seem that disastrous, for one of the biggest crises in U.S. history.

So is the coming pain really priced in at current levels? The coming pain will be: even more massive debts than before, small businesses defaulting on loans and shutting down, reduced consumer spending, etc.

Is the market lagging behind the coming "reality"?
The US total death is predicted to be $200,000. This needs to be priced into the market. So I keep on saying for the past few weeks. We are not anywhere near the peak of infection rate and the market is not anywhere near the bottom. Once the curve starts flattening I think the market will respond with optimism -- even if the economy is at compete bottom.

livesoft
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Re: Is the coming pain really "priced in"?

Post by livesoft » Wed Apr 01, 2020 6:42 am

The coming price will be really pained in.
Wiki This signature message sponsored by sscritic: Learn to fish.

fennewaldaj
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Re: Is the coming pain really "priced in"?

Post by fennewaldaj » Wed Apr 01, 2020 6:45 am

Blue456 wrote:
Wed Apr 01, 2020 6:39 am
DualCitizen wrote:
Wed Apr 01, 2020 1:01 am
The S&P 500 is currently at early-2019 levels. That doesn't seem that disastrous, for one of the biggest crises in U.S. history.

So is the coming pain really priced in at current levels? The coming pain will be: even more massive debts than before, small businesses defaulting on loans and shutting down, reduced consumer spending, etc.

Is the market lagging behind the coming "reality"?
The US total death is predicted to be $200,000. This needs to be priced into the market. So I keep on saying for the past few weeks. We are not anywhere near the peak of infection rate and the market is not anywhere near the bottom. Once the curve starts flattening I think the market will respond with optimism -- even if the economy is at compete bottom.
I don't think the market actually cares about the actual death toll except to the extent it affects consumer confidence and how long the shut down is.

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JoMoney
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Re: Is the coming pain really "priced in"?

Post by JoMoney » Wed Apr 01, 2020 6:56 am

The "Waffle House Index" is already at code RED, does it get worse?
Non-essential things are already closed, I think the financial question at this point, is how long do we stay closed?
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

bitdocmd
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Re: Is the coming pain really "priced in"?

Post by bitdocmd » Wed Apr 01, 2020 6:59 am

Anyone else smell a circuit breaker trip today?

Chicken Little
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Re: Is the coming pain really "priced in"?

Post by Chicken Little » Wed Apr 01, 2020 7:01 am

It's a tricky question, and then what would you even do with the information, so I'll answer it...

1. I doubt > 100K deaths are priced in. That's the governments current prediction (Is that a violation, moderators, to copy and paste the current projection from our government from a "neutral" source like the AP? Let me know, and I can go ahead and delete it for you).

https://apnews.com/6ed70e9db88b80439a087fdad8238009

2. I don't think the "lag" after a restart is priced in.

The U.S. economy works well when many people buy many things. On this forum, we routinely chastise them for using all of their money to buy things, and not having emergency funds. The bridge funding from the government will help, but I do not know if that will make the transition back to full employment seamless.

Certainly there are particular industries that will have enduring struggles. I don't know when the psychology of getting on an airliner (forget cruise ships) will become favorable. If (if) there are 200k+ U.S. deaths, I expect the national psyche to remain damaged long after the threat has passed. In other words, if there are > 200k deaths, I bet a large swath of the population will continue to isolate after the crisis is over.

Also, there have been a litany of restaurateurs on TV explaining that when the lockout is eventually lifted, they don't start serving; they have to bring their people back, buy food etc.

3. Oil

From a personal standpoint, low oil prices seem good, especially if the price of gas goes down. Counterintuitively, low oil prices are one of the primary indicators of a "bad" economy. Our shale industry is in pretty serious trouble, and if it gets decimated to the point that it is no longer really "there" after another month of lockdown, that's a strike against a rapid return to normalcy.

What's actionable?

I don't know. I don't know if I'm allowed to have a tactical asset allocation, but I do. I rotated from stocks to bonds around Dow 19K. The rest is targeted for rotation at something more like 15-17k. We'll see if we ever get there. No benchmark, just sleeping very well. I do that because I agree with this guy;

https://www.msn.com/en-us/finance/marke ... r-BB11Zf8i

The virus is taking a horrible toll, but these rolling financial crises are just as bad. Next financial crisis is due to arrive in 10-15 years, for whatever reason. Not a recession, another financial crisis.

Good luck everybody.

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Cyclesafe
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Re: Is the coming pain really "priced in"?

Post by Cyclesafe » Wed Apr 01, 2020 7:03 am

This uncertainty is reflected in violent market volatility. Each new piece of (credible and incredible) information encourages the different camps of investors to act. If a large enough camp strongly believes - based on the new information - that the market isn't reflective, they will drive equities up or down. Therefore, one shouldn't be surprised if markets settle much higher or much lower than they are right now.

The market indicates a weighted consensus of opinion, nothing more.
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JoMoney
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Re: Is the coming pain really "priced in"?

Post by JoMoney » Wed Apr 01, 2020 7:04 am

bitdocmd wrote:
Wed Apr 01, 2020 6:59 am
Anyone else smell a circuit breaker trip today?
To make this relevant to this thread, I suppose the futures market would answer "yes", they've already priced in the coming "pain" today.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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JonnyDVM
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Re: Is the coming pain really "priced in"?

Post by JonnyDVM » Wed Apr 01, 2020 7:10 am

Since the coming pain is all projections that are constantly changing it’s impossible for it to accurately be priced in. Everyone is guessing.
I’d trade it all for a little more | -C Montgomery Burns

MathWizard
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Re: Is the coming pain really "priced in"?

Post by MathWizard » Wed Apr 01, 2020 7:15 am

No.

The average person understands linear behavior, but not exponential behavior, which is what a pandemic is.

A few of our most densely populated cities have become hot spots, but there will be more hot spots in lower density areas.

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Re: Is the coming pain really "priced in"?

Post by abner kravitz » Wed Apr 01, 2020 7:17 am

I don't think it is priced in. I moved a lot of money to stable value a couple of weeks back (not nearly at the top by any means) and won't re-deploy it until the S&P is at 2,000 at most. I may well lose money in the long run, but it has removed a lot of my anxiety about the market. If I was not retired I might not have done the same thing.

FoolMeOnce
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Re: Is the coming pain really "priced in"?

Post by FoolMeOnce » Wed Apr 01, 2020 7:19 am

I doubt it. But I also don't want to be out of the market the day news hits that some course of antivirals shows a marked reduction in severity and duration of symptoms. That will probably lead to a huge rally, I would guess one that is bigger than deserved.

Chicken Little
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Re: Is the coming pain really "priced in"?

Post by Chicken Little » Wed Apr 01, 2020 7:39 am

FoolMeOnce wrote:
Wed Apr 01, 2020 7:19 am
I doubt it. But I also don't want to be out of the market the day news hits that some course of antivirals shows a marked reduction in severity and duration of symptoms. That will probably lead to a huge rally, I would guess one that is bigger than deserved.
Or another massive, unanticipated, intervention.

If anybody is contemplating making a move, just remember, you can be 100% correct and get destroyed by helicopter money.

Hard game to play. Shouldn't be necessary for the average joe's that have money to invest which makes them unaverage, but there we go.

cableguy
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Re: Is the coming pain really "priced in"?

Post by cableguy » Wed Apr 01, 2020 7:45 am

There is, and will only be, one place to put your investment money. Stocks. If you need the money in the next 2-3 years, use money market or CD and take your 1-2%. But longer than that...its stocks. Stocks can go down another 5-10% overall....but 2+ years from now we are reaching new highs. I personally think its crazy, and rates are too low, but you can't fight it. BTW....my AA is 35% stocks and 65% fixed so I'm not a stock pumper. But the system is set up so stocks is where the returns are and will be.

ge1
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Re: Is the coming pain really "priced in"?

Post by ge1 » Wed Apr 01, 2020 7:47 am

DualCitizen wrote:
Wed Apr 01, 2020 1:01 am
The S&P 500 is currently at early-2019 levels. That doesn't seem that disastrous, for one of the biggest crises in U.S. history.

So is the coming pain really priced in at current levels? The coming pain will be: even more massive debts than before, small businesses defaulting on loans and shutting down, reduced consumer spending, etc.

Is the market lagging behind the coming "reality"?
I don't think the pain is priced in at all. The market seems to assume right now that we will have a disastrous 1-2 quarters of economic activity, but then a very quick bounce back to pre-crisis levels. This is supported by some of the earning projections from the Investment Banks, which I find astonishingly optimistic. I'm not a economist, but I think there is a high likelihood of

- Mass events (ball games, concerts, conventions) will not happen for a long time, at least 6 months
- Travel will be very weak
- A LOT of small business will unfortunately have to close - and they won't just reopen when the virus is finally under control
- For the consumer psyche, what is going on is monumental and people won't just revert to their old days once this is over. Similar to the financial crisis, an entire generation will be scarred by this and change their behavior in ways which will not be positive for the economy.
- As you mentioned, all governments are taking on very significant amounts of debt right now, which will have to be dealt with somehow (e.g., higher taxes, inflation etc)

So looking at all this, I find it exceptional that the S&P is where it is right now. As reference, the 2008/09 bear market bottomed at 8x peak earnings, that would take the S&P to 1100-1150. I fully expect the S&P go down to 1500, probably lower.

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timboktoo
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Re: Is the coming pain really "priced in"?

Post by timboktoo » Wed Apr 01, 2020 7:51 am

The knowledge of market participants is always reflected in market pricing. However, that doesn't mean that participants know the future.

The market is forward-looking, though. What do prices today say about the expected future? I have no idea. The good thing about investing as a Boglehead is that I don't have to guess at all. I just stick to my plan.

Peace

- Tim

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SimpleGift
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Re: Is the coming pain really "priced in"?

Post by SimpleGift » Wed Apr 01, 2020 7:55 am

Event-driven bear markets don't (and really can't) price everything in within just a few weeks — which is where we are today. Over the year ahead, expect several false rallies, some steep multi-day plunges, and long meandering slides sideways before this market selloff is all over.

For a visual perspective on the daily, real-life course of two recent bear markets, see this Forum thread.

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nisiprius
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Re: Is the coming pain really "priced in"?

Post by nisiprius » Wed Apr 01, 2020 8:31 am

It is what it is. Publicly available information about the pandemic and its economic effects is not like publicly available information about a company's last quarter's earnings. The market is not omniscient and does not know the future perfectly looking forward forever. Asking whether the coming pain is priced in today is exactly the same sort of question as asking whether this particular pandemic was priced in last year, before it occurred.

The ever-changing projections for the number of deaths presented at the daily briefings is, let's say, officially, a range of 100,000 to 240,000. A figure of 2.2 million "if nothing is done" is often bruited about. 675,000 is the historians guess about the number who died in the 1918 epidemic. The brutal arithmetic of exponential growth means that small changes in model inputs produce large changes in forecasts, so 240,000 is only a little more pessimistic than 100,000.

At the moment, all the numbers (cases, deaths, etc.) are roughly doubling every 3 days.

For comparison, the fastest rise I see in "modern" bitcoin history is from about 3,000 in 9/2017 to 20,000 in 12/2017, which works out to about a 30-day doubling time. Venezuela's 54,000,000% inflation rate (since moderated to "only" five digits, I think) which works out to about a 19-day doubling time.

The pandemic is growing faster than asset bubbles, faster than hyperinflation. No, that won't continue indefinitely, but it does represent something unusual in most peoples' experience,

Furthermore, again because of exponential growth, everything about the pandemic is lumpy. If there are ultimately 83,404 deaths it does not two in every zip code. Even something as the luck of where the hot spots turn out to be, relative to the locations of specific key industrial plants, could matter.

Accurate quantitative information is lacking--numbers of cases are limited by testing, for example--and is changing daily.

Unemployment is just as uncertain. A recent Planet Money episode, American Unemployed, said this:
DUFFIN: ...just last week, labor economist Heidi Shierholz with the Economic Policy Institute sent out a tweet in all caps with this prediction - the coronavirus shock will likely claim - all caps - 3 million jobs by summer. It was so shocking that she repeated it three times.

SMITH: That was last week's worst-case scenario, 3 million by June, which of course we've already passed this week in March..., Fourteen or 15 million jobs lost by summer, by June - that's worse than during the financial crisis a decade ago. And everybody just take a deep breath because that is the conservative mainstream estimate. It does get worse. The head of the St. Louis Fed said this week that unemployment could be worse than in the Great Depression. He was predicting up to 30% of American workers out of a job.
No idea if "the head of the St. Louis Fed" can be written off as a doomer.

No, the market does not know the answer in advance. That doesn't mean "the market is too optimistic," it means "the market does not know." As events unfold and look better or worse than they do today, the market will rise and fall. And the course depends on events that have not occurred yet.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

huskerfan1414
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Re: Is the coming pain really "priced in"?

Post by huskerfan1414 » Wed Apr 01, 2020 8:42 am

shelanman wrote:
Wed Apr 01, 2020 1:59 am
Nobody knows nothin'

But, speculating is fun, so I'll speculate for ya. (Don't trade on my speculations -- even I don't do that)

Most people seem to expect the lockdowns to end in 2-3 weeks. People today seemed freaked out that California extended theirs through May 3rd.

But, if the lockdowns work at all, they will have to continue for at least 4-6 months, or the virus will come right back in only a few weeks just as bad as before -- and even 4-6 months might not be enough. The powers that be are already talking about 18 months and maybe doing it again for a few months every year *forever*, and that we can never return to what we used to call normal, *ever*.

Nobody even knows whether it is possible to order everybody to stay at home and be unemployed for 6 months, let alone 18+. Nobody knows what the economic fallout would be, but nobody also has any idea what the social, cultural, and political fallout would be.

But most market participants think we are just a couple weeks -- a month at most -- away from the return of basic freedoms, and they're probably very wrong.
If what you say comes true then the stock market will not matter.
We will literally be doomed. The market will literally be doomed.
I do not think it comes to this, not in the slightest.
The more I learn, the dumber I feel.

Blue456
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Re: Is the coming pain really "priced in"?

Post by Blue456 » Wed Apr 01, 2020 8:46 am

fennewaldaj wrote:
Wed Apr 01, 2020 6:45 am
Blue456 wrote:
Wed Apr 01, 2020 6:39 am
DualCitizen wrote:
Wed Apr 01, 2020 1:01 am
The S&P 500 is currently at early-2019 levels. That doesn't seem that disastrous, for one of the biggest crises in U.S. history.

So is the coming pain really priced in at current levels? The coming pain will be: even more massive debts than before, small businesses defaulting on loans and shutting down, reduced consumer spending, etc.

Is the market lagging behind the coming "reality"?
The US total death is predicted to be $200,000. This needs to be priced into the market. So I keep on saying for the past few weeks. We are not anywhere near the peak of infection rate and the market is not anywhere near the bottom. Once the curve starts flattening I think the market will respond with optimism -- even if the economy is at compete bottom.
I don't think the market actually cares about the actual death toll except to the extent it affects consumer confidence and how long the shut down is.
But the market does care when death rate is accelerating and there is no treatment for the virus. This means unpredictability how long lock down will last. Once the peak in death rate is reach there is some predictability when lock down will be over. With the current prediction of 200,000 dead (at best case scenario), it is easy to assume we are nowhere near even a middle of this unpredictability. Hence I don’t think at all we are at the bottom yet. Again nobody knows nothing but one can make as educated guess as possible. And I maybe 100% wrong. There is also a wild card. We can find a treatment at any moment in which case the market should respond favorably since there is predictable end.

Pencilskirt
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Re: Is the coming pain really "priced in"?

Post by Pencilskirt » Wed Apr 01, 2020 9:02 am

I see the 100,000-250,000 deaths prediction referenced often. However, the caveat is the is Dr. Birx said this is the “best case scenario” numbers if everyone in the US gets on board now. The media keeps leaving that crucial bit out. Several states still don’t have stay at home orders so it is not a reliable figure to go by.

I don’t know if the market has that under consideration but it seems that many Americans don’t.

Quote from Birx:

“Birx said the projections by Dr. Anthony Fauci that U.S. deaths could range from 1.6 million to 2.2 million is a worst case scenario if the country did "nothing" to contain the outbreak, but said even "if we do things almost perfectly," she still predicts up to 200,000 U.S. deaths.“

I’ll leave it to your judgement whether Americans will do things almost perfectly.

Jeff Albertson
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Re: Is the coming pain really "priced in"?

Post by Jeff Albertson » Wed Apr 01, 2020 9:07 am

Another opinion - https://www.nytimes.com/2020/04/01/busi ... ssion.html
The abrupt halt of commercial activity threatens to impose economic pain so profound and enduring in every region of the world at once that recovery could take years. The losses to companies, many already saturated with debt, risk triggering a financial crisis of cataclysmic proportions.

“I feel like the 2008 financial crisis was just a dry run for this,” said Kenneth S. Rogoff, a Harvard economist and co-author of a history of financial crises, “This Time Is Different: Eight Centuries of Financial Folly.”

“This is already shaping up as the deepest dive on record for the global economy for over 100 years,” he said. “Everything depends on how long it lasts, but if this goes on for a long time, it’s certainly going to be the mother of all financial crises.”

squirm
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Re: Is the coming pain really "priced in"?

Post by squirm » Wed Apr 01, 2020 9:12 am

mac808 wrote:
Wed Apr 01, 2020 3:20 am
The economy will get worse, perhaps much worse over the next few quarters.

The worse it gets, the more money the Fed will print.

The more money the Fed prints, the more inflation will be created. Over the past decade inflation has been “hidden” in sectors like health care, education, housing, and financial assets (stock prices). My guess is that health care and education are tapped out so that leaves housing and financial assets as our surviving inflation sponges.
Very good points. There was very little discussion about the huge rise in housing prices during the past few years.

rob65
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Re: Is the coming pain really "priced in"?

Post by rob65 » Wed Apr 01, 2020 9:13 am

I don’t know anything, but you asked.

I think the market is pricing in, or trying to price in, a return to some level of normalcy by summer or early fall at the latest, with a vaccine within a year. It’s expecting something like a U-shaped recession.

If it’s worse than that, then, no I don’t think that is priced in.

finite_difference
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Re: Is the coming pain really "priced in"?

Post by finite_difference » Wed Apr 01, 2020 9:15 am

scintillator wrote:
Wed Apr 01, 2020 4:00 am
DualCitizen wrote:
Wed Apr 01, 2020 1:01 am

The coming pain will be: even more massive debts than before
The Fed/Treasury/Trump triumvirate will back lenders and guarantee all loans, so you can go as deep in debt as you want and just keep taking out new loans.
small businesses defaulting on loans and shutting down
See above.
reduced consumer spending, etc.
Stimulus checks. And you can plunder your 401k with no penalty. And people's 401k's will be at ATHs soon when the triumvirate starts printing even more money to buy stock ETFs and pushes prices to whatever number they decide is sure to get them re-elected.
Is the market lagging behind the coming "reality"?
Depends what you think the coming reality is. Sure, the virus will crush our productivity, but you don't need to produce when you can just print infinite money.
You cannot print infinite money:

1. Literally, printing infinite anything is impossible.
2. If you print too much, eventually inflation will become an issue, which the Fed will not want to allow.
3. In the short term I think stimulus can and will work. But if it was so easy to keep an economy going as your “printing Infinite money” suggests, then I’m pretty sure every country in the world would be in tip-top economic shape including the despotic ones.
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh

squirm
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Re: Is the coming pain really "priced in"?

Post by squirm » Wed Apr 01, 2020 9:17 am

SimpleGift wrote:
Wed Apr 01, 2020 7:55 am
Event-driven bear markets don't (and really can't) price everything in within just a few weeks — which is where we are today. Over the year ahead, expect several false rallies, some steep multi-day plunges, and long meandering slides sideways before this market selloff is all over.

For a visual perspective on the daily, real-life course of two recent bear markets, see this Forum thread.
good point. the previous bear markets i looked at, took several quarters to play out.
down days are interesting, because when the market gets to a critical support level, i expect the fed to announce some sort of program, just like they did during the financial crisis and scare the bears to cover. but they have pretty announced all the big programs, so perhaps their next big announcement will be to start buying SPY.

i wonder how long it takes to loss confidence in the dollar. that would be bad.

alfaspider
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Re: Is the coming pain really "priced in"?

Post by alfaspider » Wed Apr 01, 2020 9:17 am

The market can only price in facts that are known. It can't see the future- only the aggregate best guess about the future. Right now, market participants are guessing that we will have a few more weeks of lockdown before things start normalizing and/or that the pain in the real economy will not precipitate a financial crisis. They may or may not have guessed wrong.

squirm
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Re: Is the coming pain really "priced in"?

Post by squirm » Wed Apr 01, 2020 9:18 am

finite_difference wrote:
Wed Apr 01, 2020 9:15 am
scintillator wrote:
Wed Apr 01, 2020 4:00 am
DualCitizen wrote:
Wed Apr 01, 2020 1:01 am

The coming pain will be: even more massive debts than before
The Fed/Treasury/Trump triumvirate will back lenders and guarantee all loans, so you can go as deep in debt as you want and just keep taking out new loans.
small businesses defaulting on loans and shutting down
See above.
reduced consumer spending, etc.
Stimulus checks. And you can plunder your 401k with no penalty. And people's 401k's will be at ATHs soon when the triumvirate starts printing even more money to buy stock ETFs and pushes prices to whatever number they decide is sure to get them re-elected.
Is the market lagging behind the coming "reality"?
Depends what you think the coming reality is. Sure, the virus will crush our productivity, but you don't need to produce when you can just print infinite money.
You cannot print infinite money:

1. Literally, printing infinite anything is impossible.
2. If you print too much, eventually inflation will become an issue, which the Fed will not want to allow.
3. In the short term I think stimulus can and will work. But if it was so easy to keep an economy going as your “printing Infinite money” suggests, then I’m pretty sure every country in the world would be in tip-top economic shape including the despotic ones.
BoJ has tried just about everything and nothing really seems to work there. I think their central bank balance sheet is well over their GDP.

squirm
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Re: Is the coming pain really "priced in"?

Post by squirm » Wed Apr 01, 2020 9:22 am

The market isn't some skynet system. It's just a collection of investor wisdom- some smart, some not so smart and some dumb as rocks. of course there's all the algo systems that play on everything in between.

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Re: Is the coming pain really "priced in"?

Post by ValuationsMatter » Wed Apr 01, 2020 9:23 am

Valuations linger just above their modern trend lines. The best I think we can do is acknowledge that at this CAPE (sub 25) and this Buffett indicator (~119) the market can fall a long way and it can go up a long way and remain in either position for a long time. So, I don't think one wants to be out of the market entirely anymore, as I almost was in December through February (3% VTSAX/97% VMMXX). Now, I'm at 50/50, because I want to be there for a potential V shaped recovery. It is my belief that the recent P/E (TTM) reflects the potential of the current market if we decide to get back to work. Long-term GDP loss is very likely to be less than the % loss in our population (very small). Short term GDP will obviously suffer greatly. So, what time period are you investing for?

Given the uncertain & unstable times, and a tendency for valuations in past bear markets to shoot below their longer term trend lines (not means, mind you), I suspect we have further to fall. I believe we will retest the lows we've achieved thus far and possibly exceed them. In the near term (1-2 months, but perhaps within a couple weeks), I will resume a somewhat standard AA there of 110 - my age in stocks (72%). If I come to the conclusion beyond that point that equities are undervalued, I'm not afraid of going right back up in increments to the 100% stock AA I maintained from 2008 through mid-2018. I'm not trying to time a bottom. I'm just trying to get my money in at what I believe are reasonable long-term valuations. I will be 'greedy' if the markets drop significantly below trends.

As mentioned, the Fed and the gov are all over this crisis, and the likelihood of a short duration recession, instead of a systemic collapse, is high. The closure of the economy is more severe than '08, but banks and RE are not levered to the degree that they were and are much more robust (unlike European Banks). Corporate debt is the biggest threat, but again it appears mitigated on the large scale by bailout loans. Without a systemic collapse, I think if we retest the lows, we'll see that in the next couple of weeks at the height of virus worries. If I'm wrong and the system collapses, then all bets are off, and I'll just be happy I avoided the first 20-30% of the drop.

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Re: Is the coming pain really "priced in"?

Post by HomerJ » Wed Apr 01, 2020 9:25 am

DualCitizen wrote:
Wed Apr 01, 2020 1:01 am
The S&P 500 is currently at early-2019 levels. That doesn't seem that disastrous, for one of the biggest crises in U.S. history.

So is the coming pain really priced in at current levels? The coming pain will be: even more massive debts than before, small businesses defaulting on loans and shutting down, reduced consumer spending, etc.

Is the market lagging behind the coming "reality"?
Look, it's not that hard of a concept.

The market has certainly already priced in a certain amount of pain. If the actual pain, or even future predictions of pain, is worse than that, then the market will go down.

If the actual pain, or future predictions of pain, are better than that, then the market will go up.

What makes it hard, is we don't know the exact level of pain the market has priced in.

So you don't know where YOUR prediction of pain comes in on the scale, and, of course, YOUR prediction of pain could be wrong.
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”

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Re: Is the coming pain really "priced in"?

Post by Prudence » Wed Apr 01, 2020 9:27 am

Coming expected pain is priced in.

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HomerJ
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Re: Is the coming pain really "priced in"?

Post by HomerJ » Wed Apr 01, 2020 9:29 am

JonnyDVM wrote:
Wed Apr 01, 2020 7:10 am
Since the coming pain is all projections that are constantly changing it’s impossible for it to accurately be priced in. Everyone is guessing.
This. It really is just this.

The projections of pain is constantly changing.
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”

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Re: Is the coming pain really "priced in"?

Post by tombonneau » Wed Apr 01, 2020 9:31 am

ge1 wrote:
Wed Apr 01, 2020 7:47 am
- For the consumer psyche, what is going on is monumental and people won't just revert to their old days once this is over. Similar to the financial crisis, an entire generation will be scarred by this and change their behavior in ways which will not be positive for the economy.
This what I'm very curious to see when things start to nudge back to normal in 4-6 months. Will we see a shift in the entire consumer culture where after six months of hardly buying anything an entire generation of people slowly realize "Hey, maybe I actually don't need to buy so much crap?"

As you surmise, that indeed will not be good for the economy given that capitalism is at its core a system dependent on people buying crap they don't really need.

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Re: Is the coming pain really "priced in"?

Post by rustymutt » Wed Apr 01, 2020 9:46 am

mac808 wrote:
Wed Apr 01, 2020 3:20 am
The economy will get worse, perhaps much worse over the next few quarters.

The worse it gets, the more money the Fed will print.

The more money the Fed prints, the more inflation will be created. Over the past decade inflation has been “hidden” in sectors like health care, education, housing, and financial assets (stock prices). My guess is that health care and education are tapped out so that leaves housing and financial assets as our surviving inflation sponges.

In other words, we are in the midst of a great tug-of-war between an underlying economy that is rapidly worsening and a Fed that will inject infinite amounts of capital to try and keep the system functioning. The backdrop is a global pandemic of unknown severity and duration (that will massively accelerate certain existing trends and therefore leave the world a different place even after it has vanished.) I don’t know who will win but at least I feel like I know the game being played.
Inflation has me worried. It hits the poor hardest. Or De-inflation just as bad. It hits everyone hard.
Even educators need education. And some can be hard headed to the point of needing time out.

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Re: Is the coming pain really "priced in"?

Post by Valuethinker » Wed Apr 01, 2020 10:27 am

tombonneau wrote:
Wed Apr 01, 2020 9:31 am
ge1 wrote:
Wed Apr 01, 2020 7:47 am
- For the consumer psyche, what is going on is monumental and people won't just revert to their old days once this is over. Similar to the financial crisis, an entire generation will be scarred by this and change their behavior in ways which will not be positive for the economy.
This what I'm very curious to see when things start to nudge back to normal in 4-6 months. Will we see a shift in the entire consumer culture where after six months of hardly buying anything an entire generation of people slowly realize "Hey, maybe I actually don't need to buy so much crap?"

As you surmise, that indeed will not be good for the economy given that capitalism is at its core a system dependent on people buying crap they don't really need.
That's partly an American thing - you have bigger houses than Europeans or Japanese.

Capitalism these days is much more about a family in China buying their first car. The world our parents and grandparents lived in post 1945, when they could buy their first car, their first house. America is still the world's largest economy but Chinese growth has been driving world growth.

My impression of the younger generation of Americans (say born post 1990) is that they have:

- too much student debt
- careers repressed by the slow growth of the economy since 2008 (except if you happened to graduate with an MSC in software engineering from Stanford or CMU in which case you make more money than any programmer dreamed of in 1986)
- still living in rented accommodation and sharing with friends (Friends was apparently Netflix's most popular show with Millennials, maybe that is why)
- much great focus on life online, and thus they have expensive smartphones but a lot less possessions in general

So they might spend money on coffee, or smartphones, but they don't, generally, have garages full of "stuff" the way we Boomers do (stuff = books in my case).

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Re: Is the coming pain really "priced in"?

Post by Ocean77 » Wed Apr 01, 2020 10:54 am

shelanman wrote:
Wed Apr 01, 2020 1:59 am
But, if the lockdowns work at all, they will have to continue for at least 4-6 months, or the virus will come right back in only a few weeks just as bad as before -- and even 4-6 months might not be enough. The powers that be are already talking about 18 months and maybe doing it again for a few months every year *forever*, and that we can never return to what we used to call normal, *ever*.
Listen to this guy, Dr. Price. He is the front line Doctor at NY top hospital in charge of Covid 19. So unlike us, he actually knows what he is talking about. The video is lengthy (about an hour). The relevant part for this discussion: Dr. Price says the current reaction and death rate are so violent because the human body has not encountered this virus before. From next season on, the reaction will get milder with every year. Eventually, getting Covid 19 will be same as a mild cold. People who had it before may still get it again because the virus will mutate. But the general signature of the virus remains, and the human immune system will be trained to deal with it quickly.

https://vimeo.com/399733860

I think this year will be very bad, both with respect to the human toll as well as the market. But I don't believe in any permanent damage to society or economy, let alone any doomsday scenario.

Ocean77
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Re: Is the coming pain really "priced in"?

Post by Ocean77 » Wed Apr 01, 2020 11:31 am

minimalistmarc wrote:
Wed Apr 01, 2020 4:05 am
Ocean77 wrote:
Wed Apr 01, 2020 1:13 am
Just be patient. The market is working as fast as it can! In just about one month, it already retraced back one entire year. In my view, it will have to go back at least to 2016 levels. At the current pace (one month/year), we may get there by June or so.
May do. May not do.

What are you actually doing with your investments?

If you are mostly in cash with your view, then it is important to realise that you are being controlled by fear, and likely to make huge behavioural mistakes.

Choose an asset allocation (lowish equities for you as you have low risk tolerance) then either lump sum or DCA over a few months
Good question, and I appreciate the advice. My asset allocation has been 70/30. This was set based on the view that the worst one year performance of such a portfolio can be expected to be about -30..-35%, which I have found in several sources. I'm comfortable with that risk and I've stuck with this through the previous crisis in 2008, albeit at a more modest portfolio size and more time to retirement.

This risk assessment however does not cover a once in a century event such as the great depression of 1929. I think we may have such event now, though hopefully it will not last a decade as it did then. However if it does come to pass, then a 70/30 portfolio will do a lot worse than -30%. In the current crisis, I think the best case scenario is that we saw the bottom already and will be back at an ATH in a year or two. The worse case scenario will be a drawdown of -80%, close to the 1929 type of bear market. A more likely one may be something in the middle, at -50..60%.

Based on this, I have changed my AA to 40/60, which would achieve the same risk level I was comfortable with (about -30%), even in the worst case scenario I envision for this crisis. If this doesn't come to pass, so much the better. I made this change last week, taking advantage of the stimulus rally. It was not pleasant to shift some money out of stocks, realizing some losses. But I think it was the right move for me.

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