Is the coming pain really "priced in"?

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

Post by UpsetRaptor »

The trillion dollar question is how temporary vs long-term this is. A few months from now, are the vast majority of the currently shuttered businesses and their employees mostly right back at it, or not? Seems like the market is currently expecting the coming pain to be mostly temporary.
WhiteMaxima
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Re: Is the coming pain really "priced in"?

Post by WhiteMaxima »

I don't know. But the more down, the more close I would think. Don't underestimate the US economy, the more market down , I am more optimistic. I increase my DCA and pull the rebalance trigger. Good investing.
bikechuck
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Re: Is the coming pain really "priced in"?

Post by bikechuck »

squirm wrote: 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.
I think that there will be severe deflation on housing prices. After the economic hit that so many families are experiencing and have yet to experience anyone with real estate to sell is going to have to price it much lower than they would have just 2 months ago. Houses that came on the market in March in my neighborhood that would have sold in less than a week have been on the market for several weeks and remain unsold going into April. I know this is anecdotal but I suspect that it is true throughout the U.S. and beyond.
TN_Boy
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Re: Is the coming pain really "priced in"?

Post by TN_Boy »

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 market does not know what will happen. Nor do I, but I can ramble on as well.

I agree with the folks that think the economy is in for a massive, 2008/09 or worse type beating. A lot of people will be without jobs. Many small businesses (and larger ones) are going to fail. This will not go well. And I wasn't that impressed with the form of the stimulus package (not that anyone, including economists, really know what the right thing to do here is).

Okay, so this random internet poster is worried. The epidemic itself? Looks like it is going to be a very ugly couple of months in the US. The virus will burn through more areas as it is burning through NY. But I think we will, at a large cost, contain the spread to where it becomes a manageable crisis by early summer. Then I look ahead to the fall. By then, the US supply problems in protective gear, test kits and ventilators should be largely fixed. We won't have a vaccine by then, but we might have effective treatments that reduce the number of deaths and ICU stays.

So in this mildly rosy scenario, by late fall 2020 we are in a position to start rebuilding the economy and manage the virus within the health care system and the larger economy. If that comes to pass, maybe the current level of the market (or one 10% or so lower ...) is about right. Or the flip side, maybe the virus mutates and becomes more lethal, and no treatment proves effective......

This is the "problem" as I see it. Nobody can predict how long it will take us to have some control over the epidemic, and that constrains how fast we can really get the economy moving again. There is additional uncertainty in how fast and well the rest of the global economy manages the crisis. So the market crashed a lot, but not a whole lot. So far.

And the range of opinions in this thread is interesting. Some posters are concerned about inflation due to the large government intervention. This didn't happen in 08/09 and seems extremely unlikely going forward, due to likely high unemployment and lower consumer demand (certainly the bond market isn't worried about inflation right now). Some posters are concerned about civil unrest. I don't have an opinion on that; I note it hasn't happened in the countries hit hard by the virus yet.

In 2022, it will be obvious what the market pricing "should" have been in 2020. It is not so obvious now.
Rosencrantz1
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Re: Is the coming pain really "priced in"?

Post by Rosencrantz1 »

I've mentioned this in another thread - a bit surprised I haven't seen it here. Alex Gorsky (J&J CEO) was recently interviewed. He says J&J has selected a candidate vaccine and based on their work and selection, he sees human trials starting this September - should have preliminary results by end of calendar year. Here's the thing... Gorsky apparently has such confidence in their selected candidate vaccine, that J&J is already ramping up for production of it. For a publicly held mega corporation like J&J to do this makes me thing they (J&J) have some confidence in the direction they're going. I think a vaccine for the current strain of coronavirus will happen - but, it'll take some time to have it be available to the world. /0.02 cents

EDIT to add: OP: is the coming pain priced in? It's very hard to say. If I were to guess, I'd say not. I think there will be BOATLOADS of business horror stories and human tragedy stories coming out in the next 8-12 weeks.
dbadalam
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Re: Is the coming pain really "priced in"?

Post by dbadalam »

I’m coming to realize we found bottom a week ago. It’s all priced in!
illumination
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Re: Is the coming pain really "priced in"?

Post by illumination »

A vaccine or really effective treatment changes sentiment instantly, even if it can't be deployed instantly. Markets are forward looking.

I think a big part of why it's not lower is that expectation is there. It's basically humanity's number one goal right now, to figure out how to beat this thing. So I tend to think that happens.
Turbo29
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Re: Is the coming pain really "priced in"?

Post by Turbo29 »

Rosencrantz1 wrote: Wed Apr 01, 2020 12:34 pm I've mentioned this in another thread - a bit surprised I haven't seen it here. Alex Gorsky (J&J CEO) was recently interviewed. He says J&J has selected a candidate vaccine and based on their work and selection, he sees human trials starting this September - should have preliminary results by end of calendar year. Here's the thing... Gorsky apparently has such confidence in their selected candidate vaccine, that J&J is already ramping up for production of it. For a publicly held mega corporation like J&J to do this makes me thing they (J&J) have some confidence in the direction they're going. I think a vaccine for the current strain of coronavirus will happen - but, it'll take some time to have it be available to the world. /0.02 cents

EDIT to add: OP: is the coming pain priced in? It's very hard to say. If I were to guess, I'd say not. I think there will be BOATLOADS of business horror stories and human tragedy stories coming out in the next 8-12 weeks.
Interesting show on PBS last night about Polio and the development of the polio vaccine. Polio was a horrible disease with a large human toll but, just like now, there was a lot of unwarranted hysteria. There were big egos involved with the scientist developing competing vaccines also.

It's available to watch online.

The Polio Crusade
Film Description

In the summer of 1950 fear gripped the residents of Wytheville, Virginia. Movie theaters shut down, baseball games were cancelled and panicky parents kept their children indoors — anything to keep them safe from an invisible invader. Outsiders sped through town with their windows rolled up and bandanas covering their faces. The ones who couldn’t escape the perpetrator were left paralyzed, and some died in the wake of the devastating and contagious virus. Polio had struck in Wytheville. The town was in the midst of a full-blown epidemic. That year alone, more than 33,000 Americans fell victim — half of them under the age of ten. ...

https://www.pbs.org/wgbh/americanexperi ... lms/polio/
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sd323232
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Re: Is the coming pain really "priced in"?

Post by sd323232 »

i think dow jones hitting 18k couple weeks ago was the bottom.
tesuzuki2002
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Re: Is the coming pain really "priced in"?

Post by tesuzuki2002 »

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.

This is exactly what I have been saying... The dates don't mean anything... lockdown could be 3, 4, 5, ... 12 months... Until we have a massive supply of ventilators and bed ready to handle the symptoms we can't just let it run rampant... Other factors would be a vaccine or drugs good enough that can really combat the virus. Those are 12-16 months out the experts have said...

I have factored in that events of all kinds will be canceled thru all of 2020... It seems crazy we will will have resurgence and hot spots that will blow up in a matter of 2 weeks and our medical staff is not able to handle such activity as of now.

Most people think this is going to a fun short little activity... just wait until it is Thanksgiving and you are doing a zoom Turkey day...
plumberboy
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Re: Is the coming pain really "priced in"?

Post by plumberboy »

abner kravitz wrote: 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.
+1
Rosencrantz1
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Re: Is the coming pain really "priced in"?

Post by Rosencrantz1 »

Turbo29 wrote: Wed Apr 01, 2020 12:47 pm
Rosencrantz1 wrote: Wed Apr 01, 2020 12:34 pm I've mentioned this in another thread - a bit surprised I haven't seen it here. Alex Gorsky (J&J CEO) was recently interviewed. He says J&J has selected a candidate vaccine and based on their work and selection, he sees human trials starting this September - should have preliminary results by end of calendar year. Here's the thing... Gorsky apparently has such confidence in their selected candidate vaccine, that J&J is already ramping up for production of it. For a publicly held mega corporation like J&J to do this makes me thing they (J&J) have some confidence in the direction they're going. I think a vaccine for the current strain of coronavirus will happen - but, it'll take some time to have it be available to the world. /0.02 cents

EDIT to add: OP: is the coming pain priced in? It's very hard to say. If I were to guess, I'd say not. I think there will be BOATLOADS of business horror stories and human tragedy stories coming out in the next 8-12 weeks.
Interesting show on PBS last night about Polio and the development of the polio vaccine. Polio was a horrible disease with a large human toll but, just like now, there was a lot of unwarranted hysteria. There were big egos involved with the scientist developing competing vaccines also.

It's available to watch online.

The Polio Crusade
Film Description

In the summer of 1950 fear gripped the residents of Wytheville, Virginia. Movie theaters shut down, baseball games were cancelled and panicky parents kept their children indoors — anything to keep them safe from an invisible invader. Outsiders sped through town with their windows rolled up and bandanas covering their faces. The ones who couldn’t escape the perpetrator were left paralyzed, and some died in the wake of the devastating and contagious virus. Polio had struck in Wytheville. The town was in the midst of a full-blown epidemic. That year alone, more than 33,000 Americans fell victim — half of them under the age of ten. ...

https://www.pbs.org/wgbh/americanexperi ... lms/polio/
Thank you. I'll have to look at that. I know a woman who is horribly crippled by polio - got the disease just before vaccines became widely available.
mac808
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Re: Is the coming pain really "priced in"?

Post by mac808 »

Ocean77 wrote: Wed Apr 01, 2020 10:54 am 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.
You are describing what happens once herd immunity is achieved and the majority of people are walking around with antibodies in their blood. All of the work to "flatten the curve" extends the length of time needed to achieve herd immunity. At the current pace I would expect to see "intermittent quarantines" and a general slow down of economic activity for the next 12 months or until a vaccine is produced. China has struggled to reopen parts of their economy and just today had to re-quarantine a county with 600k residents because of a new outbreak.
Last edited by mac808 on Wed Apr 01, 2020 12:58 pm, edited 1 time in total.
tesuzuki2002
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Re: Is the coming pain really "priced in"?

Post by tesuzuki2002 »

sd323232 wrote: Wed Apr 01, 2020 12:49 pm i think dow jones hitting 18k couple weeks ago was the bottom.

this could be a local bottom yes... but only to a much bigger fall off... The numbers are trending up... +16K NEW cases in the US +490 deaths in just the last 11 hours...

In another week, those numbers are likely to get very bad.
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DualCitizen
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Re: Is the coming pain really "priced in"?

Post by DualCitizen »

.....
Last edited by DualCitizen on Thu Jul 16, 2020 4:31 pm, edited 1 time in total.
TN_Boy
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Re: Is the coming pain really "priced in"?

Post by TN_Boy »

tesuzuki2002 wrote: Wed Apr 01, 2020 12:50 pm
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.

This is exactly what I have been saying... The dates don't mean anything... lockdown could be 3, 4, 5, ... 12 months... Until we have a massive supply of ventilators and bed ready to handle the symptoms we can't just let it run rampant... Other factors would be a vaccine or drugs good enough that can really combat the virus. Those are 12-16 months out the experts have said...

I have factored in that events of all kinds will be canceled thru all of 2020... It seems crazy we will will have resurgence and hot spots that will blow up in a matter of 2 weeks and our medical staff is not able to handle such activity as of now.

Most people think this is going to a fun short little activity... just wait until it is Thanksgiving and you are doing a zoom Turkey day...
Right, so tesuzuki2002 and shelanman think the US will be locked down for maybe 4 to 6 months. TN_Boy thinks it will be more like another six weeks, with perhaps additional more localized shutdowns to come. And full normalcy (stadiums full of people) maybe longer than that.

And that's the point. TN_Boy's opinion is no better than tesuzuki2002 and shelanman's opinion. And vice-versa.

But none of us know, and the market has chosen right now to price in a scenario more like TN_Boy's (though I think when we get a couple of rounds of terrible earnings reports the market will take another beating).
Valuethinker
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Re: Is the coming pain really "priced in"?

Post by Valuethinker »

Rosencrantz1 wrote: Wed Apr 01, 2020 12:55 pm
Turbo29 wrote: Wed Apr 01, 2020 12:47 pm
Rosencrantz1 wrote: Wed Apr 01, 2020 12:34 pm I've mentioned this in another thread - a bit surprised I haven't seen it here. Alex Gorsky (J&J CEO) was recently interviewed. He says J&J has selected a candidate vaccine and based on their work and selection, he sees human trials starting this September - should have preliminary results by end of calendar year. Here's the thing... Gorsky apparently has such confidence in their selected candidate vaccine, that J&J is already ramping up for production of it. For a publicly held mega corporation like J&J to do this makes me thing they (J&J) have some confidence in the direction they're going. I think a vaccine for the current strain of coronavirus will happen - but, it'll take some time to have it be available to the world. /0.02 cents

EDIT to add: OP: is the coming pain priced in? It's very hard to say. If I were to guess, I'd say not. I think there will be BOATLOADS of business horror stories and human tragedy stories coming out in the next 8-12 weeks.
Interesting show on PBS last night about Polio and the development of the polio vaccine. Polio was a horrible disease with a large human toll but, just like now, there was a lot of unwarranted hysteria. There were big egos involved with the scientist developing competing vaccines also.

It's available to watch online.

The Polio Crusade
Film Description

In the summer of 1950 fear gripped the residents of Wytheville, Virginia. Movie theaters shut down, baseball games were cancelled and panicky parents kept their children indoors — anything to keep them safe from an invisible invader. Outsiders sped through town with their windows rolled up and bandanas covering their faces. The ones who couldn’t escape the perpetrator were left paralyzed, and some died in the wake of the devastating and contagious virus. Polio had struck in Wytheville. The town was in the midst of a full-blown epidemic. That year alone, more than 33,000 Americans fell victim — half of them under the age of ten. ...

https://www.pbs.org/wgbh/americanexperi ... lms/polio/
Thank you. I'll have to look at that. I know a woman who is horribly crippled by polio - got the disease just before vaccines became widely available.
From memory it was 1956 or 1957 before the polio vaccine was widely available. My parents had friends who had one leg shorter than the other, etc. Post polio syndrome (at the other end of life) is a very real thing.

The English National Health Service has only recently decommissioned the heart-lung machines that the worst hit victims of the epidemics lived on.

Before the era of mass vaccination, epidemics routinely shut down schools or public places for weeks or months. And tragic early death by disease was a common feature of life.

With the decline of vaccination and (separately) the rise of superbugs which are antibiotic resistant, we are very close to that era again.

The arrival of another mass epidemic was almost certain. And the most likely source - a place where live animals and humans interact - was identified. What was unknown was what it would be. This one is a particular son-of, because you are infectious for so long before you show symptoms. And it's so damned easy to infect others.
PVW
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Re: Is the coming pain really "priced in"?

Post by PVW »

The market has priced in the average future pain as predicted by the willing market participants. The market has also priced in the average prediction of error in the prediction of future pain. And so forth.

The average prediction is wrong most of the time.
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TheTimeLord
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Re: Is the coming pain really "priced in"?

Post by TheTimeLord »

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"?
So you see it as a given that this is going to be on of the biggest crises in U.S. history?
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csmath
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Re: Is the coming pain really "priced in"?

Post by csmath »

tesuzuki2002 wrote: Wed Apr 01, 2020 12:57 pm
sd323232 wrote: Wed Apr 01, 2020 12:49 pm i think dow jones hitting 18k couple weeks ago was the bottom.

this could be a local bottom yes... but only to a much bigger fall off... The numbers are trending up... +16K NEW cases in the US +490 deaths in just the last 11 hours...

In another week, those numbers are likely to get very bad.
The numbers for the virus getting worse and whether the market already knows that or not are two completely different things. Literally 100% of people should already know that the spread, recovery, and death curves are exponential. Because everyone knows this, those numbers alone are irrelevant to the markets. The real question is what the recovery will look like and how long it will take.

Virus numbers getting "higher" has nothing to do with "markets continuing to go down" because it is already expected. Early in the development of the virus the containment level and countries response to the spread where unknown. At this point everyone knows it isn't contained and we have seen what developed countries are willing to shut down in response.
Valuethinker
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Re: Is the coming pain really "priced in"?

Post by Valuethinker »

mac808 wrote: Wed Apr 01, 2020 12:57 pm
Ocean77 wrote: Wed Apr 01, 2020 10:54 am 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.
You are describing what happens once herd immunity is achieved and the majority of people are walking around with antibodies in their blood. All of the work to "flatten the curve" extends the length of time needed to achieve herd immunity. At the current pace I would expect to see "intermittent quarantines" and a general slow down of economic activity for the next 12 months or until a vaccine is produced. China has struggled to reopen parts of their economy and just today had to re-quarantine a county with 600k residents because of a new outbreak.
We still don't know if "herd immunity" is a thing. i.e. that exposure conveys immunity, and if so, for how long?

I agree with your outlook re economy with one caveat "12 months". I don't think we can have any confidence about that - although it is probably the feasible lower bound of a working vaccine available in quantity.

If a vaccine is not found then a real recovery is dependent upon herd immunity.

So I think we come out of lockdown, gradually, but then go back in - with the authorities acting very quickly - from time to time. Maybe, then, in 12 months time we have a vaccine and/ or working anti-viral.

In the meantime the economic news, and earnings news, is going to be lousy. Companies are suspending giving any guidance, and dividends are coming under question.

Is this is the price? I do not know. I do know I made stock investments today - so I suspect not.
rossington
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Re: Is the coming pain really "priced in"?

Post by rossington »

TN_Boy wrote: Wed Apr 01, 2020 1:01 pm
But none of us know, and the market has chosen right now to price in a scenario more like TN_Boy's (though I think when we get a couple of rounds of terrible earnings reports the market will take another beating).
Or, the markets have already priced in those expected terrible earnings and if they are not as bad as "expected" the market will rally.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.
garlandwhizzer
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Re: Is the coming pain really "priced in"?

Post by garlandwhizzer »

I think the most important thing for investors to keep in mind during a crisis like this is: don't make predictions about when it will end and how low it will go and then act on those predictions. Uncertainty doesn't sit well with us but for the near/intermediate term future that's all we have. To put it simply, no one knows with actionable reliability how long it will last or how deep it will go in the near/intermediate term. Everyone seems to have an opinion but those opinions are all over the place and most of them will turn out to be wrong. We're going into a recession now, that much is clear IMO. How deep it will go and when it will be over depends on the interplay of a significant number of factors (course of COVID-19, future of oil market, global self-reinforcement of worldwide synchronized recessions, unexpected geopolitical upheavals, etc.,). None of these factors are accurately predictable now and their interaction will add another measure of uncertainty.

What we do know based on past history which is likely our best guide, is that at some point, certainly in the long run, probably in the intermediate term, the pandemic will abate, the energy market will recover, quarantines will cease and consumer and investor confidence will return. The market which is a future discounting mechanism will foresee these events months before they happen and it will rally. Up to this point market rallies have been fake-outs whose positive direction quickly changed. At some point a rally will gather steam and power rather than quickly losing it in response to the latest headline. Most who try to predict which rally will be fake and which real, and act on that intuition by market timing asset moves are likely to be wrong IMO. Now in a crisis is the time to take the long view, to worry as little as possible about the day to day unfolding of this bear market, to ignore financial media headlines, and to focus instead on the fact that you have a well constructed balanced portfolio of quality assets of broadly diversified equity and quality bonds which in the end will shine again as it always has in the past. This is also a time when the utility of an emergency fund may become apparent to many.

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

Post by squirm »

PVW wrote: Wed Apr 01, 2020 1:04 pm The market has priced in the average future pain as predicted by the willing market participants. The market has also priced in the average prediction of error in the prediction of future pain. And so forth.

The average prediction is wrong most of the time.
it's probably also pricing in more fed action, perhaps the fed buying equities.
TN_Boy
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Re: Is the coming pain really "priced in"?

Post by TN_Boy »

rossington wrote: Wed Apr 01, 2020 1:15 pm
TN_Boy wrote: Wed Apr 01, 2020 1:01 pm
But none of us know, and the market has chosen right now to price in a scenario more like TN_Boy's (though I think when we get a couple of rounds of terrible earnings reports the market will take another beating).
Or, the markets have already priced in those expected terrible earnings and if they are not as bad as "expected" the market will rally.
This prediction thing is really hard, isn't it :-)

But yes, if earnings come out that are not absolutely dismal (along with matching forward looking outlooks) then I would expect a rally.

But were I betting (and I'm not) I think there will be many catastrophic earnings reports (hotels, airlines, restaurants .... the list goes on) and the reality (versus likelihood) of those reports will drive the market lower. But perhaps the market has priced that level of doom into the pricing.
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Re: Is the coming pain really "priced in"?

Post by MotoTrojan »

Pencilskirt wrote: 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.
I don't have a direct quote handy but Fauci said several times he thinks we can do better than 100K, and even model better than that if improved data arrives. It was not my understanding that these values were the best case scenario in the sense that everyone follows the guidelines perfectly; these models assume the guidelines are being followed as well as they have in other nations and the US based on the data of improvement, and from what I have heard anecdotally many places (even hot-spots) are not taking this seriously at all. The model is not assuming China level's of dedication to the quarantine.
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Re: Is the coming pain really "priced in"?

Post by MotoTrojan »

squirm wrote: Wed Apr 01, 2020 1:24 pm
PVW wrote: Wed Apr 01, 2020 1:04 pm The market has priced in the average future pain as predicted by the willing market participants. The market has also priced in the average prediction of error in the prediction of future pain. And so forth.

The average prediction is wrong most of the time.
it's probably also pricing in more fed action, perhaps the fed buying equities.
This makes no sense to me frankly. Long-term systemic economic issues I can see a little boost helping (Japan), but using the fed to prevent shorter-term drawdowns when they are warranted is unfathomable and just upsets me as it reduces the risk-premium.
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Re: Is the coming pain really "priced in"?

Post by squirm »

MotoTrojan wrote: Wed Apr 01, 2020 2:03 pm
squirm wrote: Wed Apr 01, 2020 1:24 pm
PVW wrote: Wed Apr 01, 2020 1:04 pm The market has priced in the average future pain as predicted by the willing market participants. The market has also priced in the average prediction of error in the prediction of future pain. And so forth.

The average prediction is wrong most of the time.
it's probably also pricing in more fed action, perhaps the fed buying equities.
This makes no sense to me frankly. Long-term systemic economic issues I can see a little boost helping (Japan), but using the fed to prevent shorter-term drawdowns when they are warranted is unfathomable and just upsets me as it reduces the risk-premium.
Look what it did over the years with them buying bonds. It pushed many retirees/seniors into divvy stocks. Those have blown up, maybe they'll blow up even more as more companies stop or reduce dividends. Many years ago it was fashion to use the divvy stocks and utilities and leverage to "get yield" because of TINA. Now their pushing retirees down into the gutter buying LQD, so retirees have to buy HYG.
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Re: Is the coming pain really "priced in"?

Post by MotoTrojan »

squirm wrote: Wed Apr 01, 2020 2:14 pm
MotoTrojan wrote: Wed Apr 01, 2020 2:03 pm
squirm wrote: Wed Apr 01, 2020 1:24 pm
PVW wrote: Wed Apr 01, 2020 1:04 pm The market has priced in the average future pain as predicted by the willing market participants. The market has also priced in the average prediction of error in the prediction of future pain. And so forth.

The average prediction is wrong most of the time.
it's probably also pricing in more fed action, perhaps the fed buying equities.
This makes no sense to me frankly. Long-term systemic economic issues I can see a little boost helping (Japan), but using the fed to prevent shorter-term drawdowns when they are warranted is unfathomable and just upsets me as it reduces the risk-premium.
Look what it did over the years with them buying bonds. It pushed many retirees/seniors into divvy stocks. Those have blown up, maybe they'll blow up even more as more companies stop or reduce dividends. Many years ago it was fashion to use the divvy stocks and utilities and leverage to "get yield" because of TINA. Now their pushing retirees down into the gutter buying LQD, so retirees have to buy HYG.
TINA?

Makes me glad to hold some factor tilts; at-least if they reduce the beta-premium I can get some extra expected return elsewhere :twisted:.
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Re: Is the coming pain really "priced in"?

Post by Enganerd »

garlandwhizzer wrote: Wed Apr 01, 2020 1:19 pm I think the most important thing for investors to keep in mind during a crisis like this is: don't make predictions about when it will end and how low it will go and then act on those predictions. Uncertainty doesn't sit well with us but for the near/intermediate term future that's all we have. To put it simply, no one knows with actionable reliability how long it will last or how deep it will go in the near/intermediate term. Everyone seems to have an opinion but those opinions are all over the place and most of them will turn out to be wrong. We're going into a recession now, that much is clear IMO. How deep it will go and when it will be over depends on the interplay of a significant number of factors (course of COVID-19, future of oil market, global self-reinforcement of worldwide synchronized recessions, unexpected geopolitical upheavals, etc.,). None of these factors are accurately predictable now and their interaction will add another measure of uncertainty.

What we do know based on past history which is likely our best guide, is that at some point, certainly in the long run, probably in the intermediate term, the pandemic will abate, the energy market will recover, quarantines will cease and consumer and investor confidence will return. The market which is a future discounting mechanism will foresee these events months before they happen and it will rally. Up to this point market rallies have been fake-outs whose positive direction quickly changed. At some point a rally will gather steam and power rather than quickly losing it in response to the latest headline. Most who try to predict which rally will be fake and which real, and act on that intuition by market timing asset moves are likely to be wrong IMO. Now in a crisis is the time to take the long view, to worry as little as possible about the day to day unfolding of this bear market, to ignore financial media headlines, and to focus instead on the fact that you have a well constructed balanced portfolio of quality assets of broadly diversified equity and quality bonds which in the end will shine again as it always has in the past. This is also a time when the utility of an emergency fund may become apparent to many.

Garland Whizzer
Good post. For those in the accumulating phase, over 10 years from retirement this could be considered a opportunity for good ROI. If one can hold onto decent income they can buy through recession and be rewarded for buying while FUD is spreading alongside the virus pandemic (which we will recover from). However, IMO boglehead investing is much easier if one dismisses the risk of permanent loss of capital in the long run even with a well diversified global portfolio. I doubt it is prudent to ignore the risk but it definitely made the behavioral economics aspect of aggressive investing easier for myself. I could always buy with a grin because at worst I thought I might get lousy 1% real ROI in the long run.

However, many thought there were issues with market before the coronavirus first broke the species barrier. There seems to be some credibility to the perma-bear claim that central bank policies, increasing debts and etc have been big factors in returns for decades. Causing an 'Everything Bubble.' And these manipulations, if you will, tend to reward non-productive forms of capitalism. https://medium.com/incerto/corporate-so ... 31a67bff4a The ever increasing wealth inequality trend that accelerated after the last recession may become an even more of a sore subject if there is extreme and extended unemployment. There has been increasing populism in global politics which will probably continue if many are desperate. I do not fool myself to thinking I understand these issues at play or if there is even any credibility to the doom and gloom talk. I do feel that ignoring the some of the nuanced perspectives because it is easier that way or because it hasn't happened in recent (ever?) history does not feel adequate.

In short, I am still heavily invested in global equities and a small % in bonds. I am just less confident with every purchase than I was when I first started investing.
Last edited by Enganerd on Wed Apr 01, 2020 2:54 pm, edited 1 time in total.
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Re: Is the coming pain really "priced in"?

Post by ge1 »

DualCitizen wrote: Wed Apr 01, 2020 1:01 pm ...

One difference between 2008 and now is that in 2008 it was a systemic problem, for which there might not be a solution except for a complete unraveling of the system. This time, there is no real problem except for a temporary virus which will eventually go away, or having the virus around might just become the "new normal". If I didn't know anything and had to choose between 2008 and 2020, I would still choose 2020.
Interesting (I honestly mean that, no sarcasm). I worked in the Financial Industry during the 2008/09 crisis and while the events were terrifying, the problems were concentrated on one area (US housing and all the related financial products) and it was clear that once prices were reset and banks re-capitalized, growth would resume.

What we are going through now seems much less clear with a very wide range of possible outcomes plus it's a truly global crisis. 2008/09 was bad but this one - at least for me - is much more unsettling.

Edited to add from a NYT article today, that's pretty much how I see it:

“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.”
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Re: Is the coming pain really "priced in"?

Post by ReformedSpender »

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.
Certain markets are already there or worse

Small Caps - early 2016 levels
Dow Industrial - late 2016
International - late 2016
Energy - early 2000's. Nearly 20 years!
Market history shows that when there's economic blue sky, future returns are low, and when the economy is on the skids, future returns are high. The best fishing is done in the most stormy waters.
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Re: Is the coming pain really "priced in"?

Post by JoMoney »

The "pain" is priced in... it's the coming V recovery that's not priced in :D :mrgreen: :greedy
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Re: Is the coming pain really "priced in"?

Post by mrwalken »

I would say No, but there are two big wildcards:

1. The US government can print virtually limitless amounts of $$$. We don't know how far they will go to prop up the market. An additional massive infusion will cause the market to shoot up.

2. If an antiviral or combination of antivirals is discovered to be highly effective, the market will also shoot up fast.

So, odds are we will trend down quite a bit more as the deaths per day number rises over coming weeks, but don't be surprised if either (1) or (2) causes a massive rapid reversal at any point.
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Re: Is the coming pain really "priced in"?

Post by raidman »

Keep in mind 2 things:

1) The medical severity does not necessarily reflect the economic severity. Tons of people may be dying a month from now, but if the economy is somehow restarting (antibody test, herd immunity, robot factories, whatever), its the economic expectation that matters.

2) The government can intervene (and already has) in ways that will boost stock prices. Stock prices may simply stop reflecting any "reality" or "expectation" or anything whatsoever! If govt starts casually purchasing equities, then effectively they can price the market wherever they want it.


I would have said that the severity of this debacle is NOT priced in. But that's under the "old" rules. After multiple rounds of govt intervention, I no longer think the market reflects reality well enough to be predictable. You thought market timing was hard before?!?
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Re: Is the coming pain really "priced in"?

Post by rich126 »

No one knows for sure what the ultimate pain will be. I think most are still assuming a quick recovery because they believe (falsely IMO) that the economy was strong prior to the virus. I think this will show how vulnerable most companies were, how many were over leverage and how the house of cards will collapse.

The stimulus is a short term attempt to calm the panic and can't fix the problem of people without jobs who then can't pay rent and other bills and it just ripples through the economy. There is virtually no chance that this will go back to normal quickly. This is a long slow process to healing. Companies are quick to fire people but slow to rehire.
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Re: Is the coming pain really "priced in"?

Post by Enganerd »

rich126 wrote: Wed Apr 01, 2020 3:19 pm No one knows for sure what the ultimate pain will be. I think most are still assuming a quick recovery because they believe (falsely IMO) that the economy was strong prior to the virus. I think this will show how vulnerable most companies were, how many were over leverage and how the house of cards will collapse.

The stimulus is a short term attempt to calm the panic and can't fix the problem of people without jobs who then can't pay rent and other bills and it just ripples through the economy. There is virtually no chance that this will go back to normal quickly. This is a long slow process to healing. Companies are quick to fire people but slow to rehire.
Did you bet on it, change AA, buy puts?
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Re: Is the coming pain really "priced in"?

Post by adave »

Market just reacting to Fauci saying we need to be prepared for 100k - 200k deaths.... that took many by surprise I imagine. It sounds terrible but it is the reality of the situation and a dose of reality was needed.
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Re: Is the coming pain really "priced in"?

Post by watchnerd »

If I don't market time, and I'm investing for a 10 year period, and why does speculating about what is or is not priced in matter?

There is no decision tree for a random walk on Wall Street.
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Re: Is the coming pain really "priced in"?

Post by nisiprius »

Just to emphasize, a random person interviewed in a random article today said:
What’s driving the market?

The uncertainty about when the U.S. can return to usual business has unnerved investors struggling to ascertain the ultimate economic impact of social curbs put in place amid the COVID-19 outbreak. Without a clear view on the timeline of a U.S. recovery, volatility was likely to remain heightened in the coming weeks, said market participants.

“Everything hinges on how long we are in this shutdown,” said Anwiti Bahuguna, head of multiasset strategy at Columbia Threadneedle Investments, in an interview. “We don’t know how long the shutdown may last, so it’s hard to predict what U.S. growth will look like.”
Last edited by nisiprius on Wed Apr 01, 2020 5:39 pm, edited 1 time in total.
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Re: Is the coming pain really "priced in"?

Post by bck63 »

shelanman wrote: Wed Apr 01, 2020 1:59 am 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 any citations or references for this? It seems reasonable to assume that humans will develop a herd immunity over time - albeit at great cost. This will likely also be buttressed by a vaccine.

Any citations to what you state above would be appreciated. I'd be anxious to read them.
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Re: Is the coming pain really "priced in"?

Post by bluquark »

Enganerd wrote: Wed Apr 01, 2020 2:32 pm However, many thought there were issues with market before the coronavirus first broke the species barrier. There seems to be some credibility to the perma-bear claim that central bank policies, increasing debts and etc have been big factors in returns for decades. Causing an 'Everything Bubble.'
Japan was in an "everything bubble" in the late 80s and they never recovered to that level so this is a valid thing to worry about. I think this is a valid criticism of purely passive buy-and-hold dogma and I agree with Schiller that investing history also teaches we should look at valuations.

Fortunately, we don't have to live in vague fear of this -- there are many valuation metrics we can use to see how severe the "everything bubble" is. Although they are too noisy to be useful in the normal range of P/E 10-30, Japan actually reached an average market P/E of 150. At such extreme levels, anyone with a valuation-informed AA plan would've bailed out in 1988 or so and missed out on some gains but not suffered the bubble pop. My plan is to keep an eye on the data and keep ignoring the "everything bubble" bears as long as it doesn't get too crazy (which it hasn't in the US since the dot com era), but bail out when it *really* gets crazy.
And these manipulations, if you will, tend to reward non-productive forms of capitalism. https://medium.com/incerto/corporate-so ... 31a67bff4a The ever increasing wealth inequality trend that accelerated after the last recession may become an even more of a sore subject if there is extreme and extended unemployment. There has been increasing populism in global politics which will probably continue if many are desperate.
As for this stuff, it is bad but I would question whether any of it is relevant to investing strategy. We are talking here narrowly about what is good for a portfolio, not what is bad for society or GDP.
I do feel that ignoring the some of the nuanced perspectives because it is easier that way or because it hasn't happened in recent (ever?) history does not feel adequate.
The reason I ignore them is the opposite, much worse has happened already in recent history. The 1919 pandemic was barely a blip amidst two world wars, global deflation, and localized instances of hyperinflation and confiscation. It was all just volatility for the world's stock markets. Bernstein's book Deep Risk is a great book I would recommend directly tackling this question.
Last edited by bluquark on Wed Apr 01, 2020 5:03 pm, edited 7 times in total.
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Re: Is the coming pain really "priced in"?

Post by bligh »

JoMoney wrote: Wed Apr 01, 2020 2:47 pm The "pain" is priced in... it's the coming V recovery that's not priced in :D :mrgreen: :greedy
I think those who are anticipating a V shaped recovery are being too optimistic in my opinion. It is possible, but highly unlikely. Once the virus is no longer a major health concern, we are likely to see continued muted spending by consumers and businesses as they look to rebuild their savings and cash reserves as well as attempt to recover from their steep losses. My guess is that the recovery will be gradual and take a couple of years.

The longer the economy stays impacted by the pandemic, the greater the damage and the longer the recovery time. Even if the governments lift the lock down, panicked consumers will still avoid flocking to stores right away (same goes for restaurants, hotels, gyms, concerts, cinemas, etc. etc.)

The only thing that I see restoring consumer and business confidence quickly is either a strong and effective vaccine, or a reliable and effective cure. Both of those look like they are many many months off. In the meantime, the economy continues to rack up damage.
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Re: Is the coming pain really "priced in"?

Post by Enganerd »

bluquark wrote: Wed Apr 01, 2020 4:50 pm
Enganerd wrote: Wed Apr 01, 2020 2:32 pm However, many thought there were issues with market before the coronavirus first broke the species barrier. There seems to be some credibility to the perma-bear claim that central bank policies, increasing debts and etc have been big factors in returns for decades. Causing an 'Everything Bubble.'
Japan was in an "everything bubble" in the late 80s and they never recovered to that level so this is a valid thing to worry about. I think this is a valid criticism of purely passive buy-and-hold dogma and I agree with Schiller that investing history also teaches we should look at valuations.

Fortunately, we don't have to live in vague fear of this -- there are many valuation metrics we can use to see how severe the "everything bubble" is. Although they are too noisy to be useful in the normal range of P/E 10-30, Japan actually reached an average market P/E of 150. At such extreme levels, anyone with a valuation-informed AA plan would've bailed out in 1988 or so and missed out on some gains but not suffered the bubble pop. My plan is to keep an eye on the data and keep ignoring the "everything bubble" bears as long as it doesn't get too crazy (which it hasn't in the US since the dot com era), but bail out when it *really* gets crazy.
And these manipulations, if you will, tend to reward non-productive forms of capitalism. https://medium.com/incerto/corporate-so ... 31a67bff4a The ever increasing wealth inequality trend that accelerated after the last recession may become an even more of a sore subject if there is extreme and extended unemployment. There has been increasing populism in global politics which will probably continue if many are desperate.
As for this stuff, it is bad but I would question whether any of it is relevant to investing strategy. We are talking here narrowly about what is good for a portfolio, not what is bad for society or GDP.
I do feel that ignoring the some of the nuanced perspectives because it is easier that way or because it hasn't happened in recent (ever?) history does not feel adequate.
The reason I ignore them is the opposite, much worse has happened already in recent history. The 1919 pandemic was barely a blip amidst two world wars, global deflation, and localized instances of hyperinflation and confiscation. It was all just volatility for the world's stock markets. Bernstein's book Deep Risk is a great book I would recommend directly tackling this question.
Japan is a good story to keep in mind. However, it is relatively easy to dismiss for US investors. Although it's market cap was pretty big, because of scale it was obviously not the same global player as USA. And as you point out, the valuations were crazy. The risk implied to me from perma bears is that the world will lose faith in the USD as reserve currency and then.... all global equities and bonds are not safe....? This is the jump I never have seen clearly explained. If the USD loses status as world reserve currency would that mean US and International equities go to zero or would your share of ownership just now be represented in the new currency? Obviously speculating on what most would consider a very slim possibility to start with, but I think it is interesting that even though I have seen quite a bit of stuff from Taleb, Schiller, btc promoters I haven't seen that particular detail addressed.

Thanks for the book recommendation! I will see if my library has it after it opens back up.
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Re: Is the coming pain really "priced in"?

Post by New Providence »

UpsetRaptor wrote: Wed Apr 01, 2020 11:39 am The trillion dollar question is how temporary vs long-term this is. A few months from now, are the vast majority of the currently shuttered businesses and their employees mostly right back at it, or not? Seems like the market is currently expecting the coming pain to be mostly temporary.
That's a good question. If you survived the first wave of infections thanks to social distancing, are you going back to work next month knowing that there's no vaccine yet?
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Re: Is the coming pain really "priced in"?

Post by Enganerd »

bluquark wrote: Wed Apr 01, 2020 4:50 pm
Enganerd wrote: Wed Apr 01, 2020 2:32 pm And these manipulations, if you will, tend to reward non-productive forms of capitalism. https://medium.com/incerto/corporate-so ... 31a67bff4a The ever increasing wealth inequality trend that accelerated after the last recession may become an even more of a sore subject if there is extreme and extended unemployment. There has been increasing populism in global politics which will probably continue if many are desperate.
As for this stuff, it is bad but I would question whether any of it is relevant to investing strategy. We are talking here narrowly about what is good for a portfolio, not what is bad for society or GDP.
I guess my concern, not sure if it is justified as I admit there is plenty I do not understand about the market, is that investing heavily kind of puts one in the same boat as "rent seekers." Therefore the investor has the same incentives and gains from an obvious flawed system that privatizes gains and socializes losses. I feel like with the internet this type of illogical and unfair system will be exposed and ended. What happens to the equity owners then I don't know. Hopefully a diversified portfolio does even better because the equity risk premium.
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Re: Is the coming pain really "priced in"?

Post by Enganerd »

deleted - duplicate
Last edited by Enganerd on Thu Apr 02, 2020 6:27 am, edited 1 time in total.
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Re: Is the coming pain really "priced in"?

Post by anoop »

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.
So how are you choosing to play?

I agree with most of what you say except...

There's actually much more at play here than just the fed. There's congress and treasury with their series of damage control and stimulus bills. And there's what's going on with all of the other central banks and governments.

I'm not fully convinced that education and healthcare are tapped out as avenues for increased inflation.
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Re: Is the coming pain really "priced in"?

Post by investingdad »

The pandemic is bad, yes...but the world survived the Spanish flu.

I don't think doomsday is upon us just yet.
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Re: Is the coming pain really "priced in"?

Post by Robertscz »

the way that almost every single person on this thread is talking does not sound very promising.

do all of you have very low stock percentages in your AA?
is anyone holding 70-80% right now and plunging through "holding the course"

this doesnt sound like a boglehead thread to me right now
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