The 2020 Stock Market Crash Thread

Arado

Pelican
Gold Member
As a recent realvision video pointed out (with Mr. Dillian) "Don't Hate the Fed, hate the Game"

We will see deflation for many reasons, for the time being, by far the brightest minds have spoken. The inflation worry warts of the last decade are too short sighted on their predictions and are essentially ideologues on these matters (the best examples are guys like Peter Schiff). I don't think they are fundamentally wrong about what makes a healthy economy, but they miss out entirely on how to actually invest with the changing game of global analysis and central bank patterns. Yes, eventually we will get to an inflationary environment but you'll know why, and when this is going to happen if you are paying attention. Until then, don't limit yourself to not making money in literally decades + time periods just because you don't like that the game is manipulated by central banks and out of control governments.

I'm far past the point of getting angry at the Fed. There's no point in worrying about bankster corruption and moral hazard. You have to just take a cool calm perspective and structure your portfolio in proportion to the probabilities of the most likely scenario. That doesn't mean not accounting for the growing chance that this whole thing may still come crashing down.

It's an active debate between the inflationists and the deflationists. There are some really smart people like Luke Gromen and Lynn Alden (and not just goldbugs like Peter Schiff) who are in the inflationist camp - they think that the Fed is going to do whatever it take to prevent deflation, prop up asset prices, and relieve dollar shortages abroad. While they acknowledge that there's likely to be a scramble for dollars once the economic damage and debt overhang becomes clear, there's just too much political pressure for the Fed to let the bad debt go bankrupt and will likely monetize it and keep funding huge deficits and bailouts, especially in an election year. Print first and ask questions later.

The deflationists say that there is simply too much debt in the system and money velocity will remain too low in the near future, and low/negative interest rates exacerbate it because it forces baby boomers to save even more. There is too much debt that will have to be defaulted on, especially outside the US (dollar milkshake theory), and will lower the money supply. No one is spending money - everyone who can is saving and paying down debt, so how can prices go out of control?

Not to mention that we're seeing huge disconnects in different industries - price inflation in food and consumer staples and PPE equipment while cruise tickets and used cars are on sale. As Tail Gunner mentioned above, inflation/deflation manifests differently in different sectors.

Telemedicine/online learning and AI may actually bring down costs in healthcare and education if disrupters were allowed to smash the status quo, and these sectors had the highest inflation in the last decade due to corruption/collusion and government interference (regs on insurance companies, subsidizing elderly/obese medical care, brainwashing students that college was necessary and subsidizing their loans). So not everything is a monetary phenomenon.

Urban penthouses may go on sale while cabins in the woods and farmland get multiple bids. So while this inflation/deflation debate is playing out we'll have some industries going bankrupt while others are capitalizing.

Both sides have valid arguments and the question is will there be sufficient warning and lead time before the dollar collapse to reposition your portfolio into fixed rate debt and precious metals just right before debt monetization starts? If you wait in cash now will you still be able to get physical precious metals and a 30 year low fixed rate mortgage at that point? Or, by going all in on the inflation argument are you giving up the opportunity to buy some quality assets on the cheap in the next few years? Should overvalued large cap equities still be a core component of an inflation hedge strategy?

What if gold rises during deflation alongside a rising dollar? What role does bitcoin play in all this?

Curious to hear comments.
 

Blade Runner

Kingfisher
If you wait in cash now will you still be able to get physical precious metals and a 30 year low fixed rate mortgage at that point?

First off, good post. The answer is yes. But I'm buying cheap-ish commodities right since I think the rush is starting and people sense it.

Or, by going all in on the inflation argument are you giving up the opportunity to buy some quality assets on the cheap in the next few years?

Yes, but you can always cost average down. I think it's pretty clear there will be a period of deflation that we can track, fairly easily. But we're on top of it and as I said above, the maneuvers that really cause inflation will be obvious.

Should overvalued large cap equities still be a core component of an inflation hedge strategy?

Tough question, but at this point it's equally as likely that after a pullback here there is a V shaped recovery vs. a languishing, longer period. As for me, I am not long (5 year hold) any equities. 2-3 year holds? Sure. Then re-evaluate.
 

Arado

Pelican
Gold Member
First off, good post. The answer is yes. But I'm buying cheap-ish commodities right since I think the rush is starting and people sense it.



Yes, but you can always cost average down. I think it's pretty clear there will be a period of deflation that we can track, fairly easily. But we're on top of it and as I said above, the maneuvers that really cause inflation will be obvious.



Tough question, but at this point it's equally as likely that after a pullback here there is a V shaped recovery vs. a languishing, longer period. As for me, I am not long (5 year hold) any equities. 2-3 year holds? Sure. Then re-evaluate.

Thanks - yeah I think now is the time to start buying commodities which are a good inflation hedge and have been beaten down.

What do you think is the key trigger for inflation that will end the deflation period? Most of the macro guys seem to converge around the idea of mass debt jubilee/MMT/helicopter money and I would argue that that's already going on to some degree since the Fed is monetizing the entire deficit. Basically they mean any policy that will get newly printed money flowing in the real economy and not holed up in reserve accounts at the Fed or savings accounts of responsible people.

The question is will you (retail investor without Fed connections) be able to see the signs soon enough before physical gold is unavailable (which kind of happened in March, though there are debates as to what the hiccup was in the gold supply chain) and banks charge much higher rates for 30 yr fixed rate mortgages?
 

Blade Runner

Kingfisher
Really quickly, QE has inflationary leakage, so to speak, in that its an indirect way of MMT. It gets there using [somewhat] controlled, more drawn out, mechanisms. A debt jubilee will just destroy money, so it would indirectly increase the velocity of money, and in my view wouldn't change all that much (but create moral hazard and confidence loss, though those will add up). MMT is the real issue of the future in that it seems likely (if you are paying attention and are cynical, or maybe even more realistic given trends). The small amounts of helicopter $ won't do that much but show you MMT is coming, or is more likely to occur when Powell is out as Chair.

The answer to your question is that I will, and many others will too, but we are in the minority. I really don't mean to sound annoying or arrogant but it is just a feature of this society --- most people don't even have 5% of the understanding on economics that we do, let alone other subjects. The good thing for these still can be that they are somewhat skeptical or curious and question things, then they might be able to see the obvious trends. The problem with that hope is that if they are like this, they would already be on forums like this. And let's face facts, most aren't.
 

Arado

Pelican
Gold Member
Really quickly, QE has inflationary leakage, so to speak, in that its an indirect way of MMT. It gets there using [somewhat] controlled, more drawn out, mechanisms. A debt jubilee will just destroy money, so it would indirectly increase the velocity of money, and in my view wouldn't change all that much (but create moral hazard and confidence loss, though those will add up). MMT is the real issue of the future in that it seems likely (if you are paying attention and are cynical, or maybe even more realistic given trends). The small amounts of helicopter $ won't do that much but show you MMT is coming, or is more likely to occur when Powell is out as Chair.

The answer to your question is that I will, and many others will too, but we are in the minority. I really don't mean to sound annoying or arrogant but it is just a feature of this society --- most people don't even have 5% of the understanding on economics that we do, let alone other subjects. The good thing for these still can be that they are somewhat skeptical or curious and question things, then they might be able to see the obvious trends. The problem with that hope is that if they are like this, they would already be on forums like this. And let's face facts, most aren't.

I'm not too worried about competing with the average Joe for investments, since most of them don't even have 1K in their emergency fund (hence the lines at food banks). There's a very grey line between true MMT and Fed normal buying of government debt. However, getting physical gold and bank loans may be difficult as those assets are controlled by smart money.

Right now, pretty much all of the deficit is being funded by the Fed printing money. That's a kind of MMT - indirect, as you mention above. For now, it's not causing inflation because velocity is super low and everyone is hoarding cash.

Are you sure that a debt jubilee will destroy money? For example, for student loans, the Fed will print up money and buy government debt, and the government will take that borrowed money and make the student loan lenders whole. Right now the Fed is buying junk corporate bonds - that means cash is going onto the balance sheet of the original lenders (through various intermediaries), who don't have to take the losses. Doesn't sound like money destruction - it's just debt monetization, no?

I don't think we need a policy announcement to will mark the transition to full-on MMT. The deficit will be enormous for the next few years as welfare payments continue and various debts get forgiven and the Fed will purchase most of the newly issued treasuries, therefore monetizing the debt. Is there a certain level of egregious federal spending (all Fed monetized) that will change popular psychology and stoke mass inflation fears? I don't know.

We want to make sure that we don't wait too long before getting into assets like crypto, gold, commodities, fixed rate real estate (in areas somewhat separated from civil unrest) and (maybe?) equities before the inflation starts. For now, there still should be time to buy dips but the clock is certainly ticking and I'd still want to see a much larger stock decline before the equities look attractive (vs. gold or rural real estate). Maybe that time will come but I don't know, especially if the Fed ends up buying equities directly.
 

Blade Runner

Kingfisher
I tend to think that even in the current case, it still happens slower than most people expect, but rest assured that I am already doing what you are doing and will be well solidified in my positions for the long term by the end of this year. The good thing is that we both know which investments are winners in the deflationary and inflationary environments to come. Lucky us. :cool:
 

mbare

Woodpecker
Gold Member
What are the forums thoughts on buying stock right now in the airline industry, considering their prices are cheap right now? Thoughts on the industry getting going in 2 to 3 years, or was Buffet pretty much signaling that this is their new high and that they'll maybe go even lower?
 

Tail Gunner

Hummingbird
Gold Member
What are the forums thoughts on buying stock right now in the airline industry, considering their prices are cheap right now? Thoughts on the industry getting going in 2 to 3 years, or was Buffet pretty much signaling that this is their new high and that they'll maybe go even lower?

Warren Buffet dumped 100% of his airline stock, in four different airlines, during a likely bull-trap bounce. What more is there to say?

After seeing what happens to the food supply during a pandemic, I would prefer to invest in a company that manufactures meat-processing robots:


BTW: Only a handful of companies manufacture meat-processing robots. It looks like the wave of the future -- and perhaps the set of a horror film.

 

Dallas Winston

Ostrich
Gold Member
I think we're looking at a 10% + pullback soon. The S & P is near it's 200 DMA which is the range I expected a pullback. This V shaped recovery can not abide. We're not just going to see it keep going up. I don't think we're even going to see it go sideways. We have to back and fill. This doesn't necessarily mean re-testing the lows (though it could) but it does mean downside in the near future.

With today's sudden 400+ point dump at the close (obviously the work of institutions letting this rally keep drifting slowly up like a helium balloon approaching the ceiling but running out of buoyancy, then waiting until the final minutes and hitting the dump button) this may be the beginning of a new correction.
 

Arado

Pelican
Gold Member
What are the forums thoughts on buying stock right now in the airline industry, considering their prices are cheap right now? Thoughts on the industry getting going in 2 to 3 years, or was Buffet pretty much signaling that this is their new high and that they'll maybe go even lower?


A ton of airline revenue comes from business class travelers. How many corporations are going to pay for travel when Zoom is getting everything done now?
 

Tail Gunner

Hummingbird
Gold Member
Warren Buffet sold more bank stock. His recent sales seem to equate the health of banks to the health of airlines. Not a good sign.

Buffett's Berkshire Sells Half a Million Shares of US Bancorp
By Newsmax Finance Staff | Thursday, 14 May 2020 08:53 AM

Billionaire investor Warren Buffett’s Berkshire Hathaway reportedly has recently dumped a substantial amount of U.S. Bancorp.

Subsidiaries of Berkshire Hathaway (BRK.B ) sold a total of 497,786 U.S. Bancorp shares (USB) on May 11 and 12 for $16.3 million, Barron’s reported.

According to a form Buffett filed with the Securities and Exchange Commission, Berkshire Hathaway now has overall ownership of 150.5 million shares of the bank.

Buffett indicated in the filing that Berkshire Hathaway’s stake in U.S. Bancorp is now under 10%. Buffett and his company are no longer obligated to report trades in the stock, though they must disclose their holdings as of the end of each quarter, Barron’s reported.

U.S. Bancorp stock has been hard-hit by coronavirus-induced volatility. Shares closed at $29.45 on Wednesday for a 50.3% year-to-date loss.

Berkshire Hathaway didn’t immediately respond to a request for comment, Barron’s said.

This is the latest move by Berkshire which has caught the market by surprise.

Earlier this month, shares of the top four U.S. airlines dropped after Berkshire said it offloaded its entire stake in the carriers last month, adding to the sense of crisis around the industry, Reuters reported.

U.S. airlines posted considerable losses in the first quarter, and are on track for a dismal second-quarter, as travel restrictions and government-mandated lockdowns across the world have brought demand to a virtual standstill.

"The world has changed" for the aviation industry," Buffett said at Berkshire Hathaway's annual meeting earlier this month.

American Airlines has posted a $2.2 billion net loss, its first quarterly loss since emerging from bankruptcy in 2013, while United Airlines reported a loss of $1.7 billion for its first quarter.

Shares in Delta Air Lines, American Airlines, Southwest Airlines and United Airlines all plunged in the wake of that news.

Berkshire Hathaway had held an 11% stake in Delta, 10% in American, 10% in Southwest and 9% in United at the end of 2019, according to its annual report and company filings.

 

Arado

Pelican
Gold Member
The bond market is pricing in negative interest rates...welcome to the twilight zone! Kicking the can down the road...keeping zombies afloat and piling on debt.

 

Blade Runner

Kingfisher
I shook my head when I heard the support for negative rates. I understand the reasoning, but this one is a structurally bad move based on both principle and the way it works out in the real world.
 

Jestx

Robin
Powell was on 60 Minutes of Liberalism tonight. Full link below with some key quotes.

PELLEY: In the early days of the crisis in this boardroom, you and the committee lowered interest rates essentially to zero. Would you lower them further into negative territory, which the president has suggested is a good idea?

POWELL: So around this table during the last crisis and during the recovery, we looked at negative interest rates. And it's something we decided not to do. We used other tools instead. And those tools involved forward guidance about the federal funds rate and also lots of asset purchases or quantitative easing as it's often referred to.

I continue to think, and my colleagues on the Federal Open Market Committee continue to think that negative interest rates is probably not an appropriate or useful policy for us here in the United States.

PELLEY: And why not? The President seems to think it would help.

POWELL: The evidence on whether it helps is quite mixed. And the issue is people would be depositing money in the bank and that money would be shrinking. They'd be paying interest to put their money in the bank. So it's not a particularly popular policy, as you can imagine.

But in addition, it can also tend to depress the profitability of banks, which makes them likely to lend less, which weighs on economic growth. So I would just say it's not at all settled in, you know, in economic analysis that negative rates really add much value.

PELLEY: I think the idea of negative interest rates is something that a lot of people have a difficult time getting their head around. Would you explain it to me?

POWELL: Well, rather than being paid interest on your cash, you pay interest to the bank -- or if you borrow money, they pay you to borrow money. And if you lend them money by putting it in a bank, then they pay you money.

PELLEY: So the banks would pay people to borrow money, essentially?

POWELL: Yes.


PELLEY: And that would conceivably cause more business and commerce to happen?

POWELL: It would. But, you know, this has been tried. We have negative policy rates in many countries around the world as a result of the financial crisis. And there's no clear finding that it actually does support economic activity on net. And it introduces distortions into the financial system, which I think offset that.

There're plenty of people who think negative interest rates are a good policy. But we don't really think so at the Federal Reserve. And I think it's an area of real uncertainty in the central banking world.



https://www.cbsnews.com/news/full-t...-economic-recovery-from-coronavirus-pandemic/
 

gework

Ostrich
Gold Member
What are the forums thoughts on buying stock right now in the airline industry, considering their prices are cheap right now?

The only thing I might touch is some junior gold miners. They are still cheap and I might risk some considerable down-side to hold them for the next gold bull. Airlines are high on my list of buying options on the other side, but I am definitely not looking now. Most should bounce back over a few years. Air travel is a strong trend going into any future. It's also likely that some airlines won't survive, allowing others to bulk up. I think the best pick may be AirAsia, which is down 80% from highs reached in 2018.

-------------

On the market I think the key window is the end of July. That's when the stimulus money is going to be out. And the first Q2 GDP (US) estimate is released on 30 July. Estimates are putting it at about -25%. That corresponds with the green arrow here.



So far The Fed have been light with their touch in the market. If they go heavy it's going to be around that point. But whatever is done I don't think there is going to be anything to stop a huge leg down when the GDP number come out. I think the S&P will drop to about 1,700 in the fall, which will be a 50% drop.

I think The Fed know that without their intervention the market is heading minus 70 to 80 percent. I think they see their role as limiting that to 50%.
 
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Tactician

Kingfisher
Gold Member
I'm a bit late to post this, but Raoul Pal published a report on March 30 about his macro picture going forward. He feels it is his most important piece & has made it free to everyone. You can have it emailed to you by entering your info on this site: Real Vision link or you can view it directly via Google Drive by clicking this link: Google Drive link.

While the report is 120 pages, it is mostly charts & is a fast read. It attempts to show how our present day mirrors The Great Depression, and, to a lesser extent, 90s Japan. Near the end of his report, Raoul suggests the USD & gold will take off & Bitcoin may moon as well. He says his liquid asset allocation is 25% USD, 25% trading investmends, 25% gold, and 25% Bitcoin, which is a very aggressive amount of Btc by most standards.

A notable suggestion by Raoul is a mass exit from US equities by Baby Boomers in the coming years. I find this remarkable if you combine it with Federal Reserve statistics as shown here: Wealth Stats sorted by Age (this is a really fun page to play with). In 2019, only 6.1% of wealth was owned by those under the age of 40, and only 21.1% was owned by the 40-54 age bracket. This suggests the younger crowd does not have the resources to prop up the market.

Recently, retail investors have shown extreme willingness to start trading & buy the dip (Chart of retail trades*). Combining these two ideas suggests that if a prolonged bear market comes over the next few years, you'll see the biggest generation of bag holders ever.

Anyway, here are some slides from the report which may pique your interest. I think the report has some great ideas to think about further & any thoughts about when/where/how/why inflation & deflation will strike are very useful in this climate. Cheers.




*Chart of retail trades stolen from this article: https://macro-ops.com/the-no-sense-algorithm/
 

Tail Gunner

Hummingbird
Gold Member
Oops:

Syed Shah usually buys and sells stocks and currencies through his Interactive Brokers account, but he couldn’t resist trying his hand at some oil trading on April 20, the day prices plunged below zero for the first time ever. The day trader, working from his house in a Toronto suburb, figured he couldn’t lose as he spent $2,400 snapping up crude at $3.30 a barrel, and then 50 cents. Then came what looked like the deal of a lifetime: buying 212 futures contracts on West Texas Intermediate for an astonishing penny each.

What he didn’t know was oil’s first trip into negative pricing had broken Interactive Brokers Group Inc. Its software couldn’t cope with that pesky minus sign, even though it was always technically possible -- though this was an outlandish idea before the pandemic -- for the crude market to go upside down. Crude was actually around negative $3.70 a barrel when Shah’s screen had it at 1 cent.

Interactive Brokers never displayed a subzero price to him as oil kept diving to end the day at minus $37.63 a barrel. ...
It was only later that night that he saw on the news that oil had plunged to the never-before-seen price of negative $37.63 per barrel. What did that mean for the hundreds of contracts he’d bought? He frantically tried to contact support at the firm, but no one could help him. Then that late-night statement arrived with a loss so big it was expressed with an exponent.
Yeah I don’t think you have to pay bills like that. If you get a statement demanding so much money that they can’t print the amount of money on the statement, just throw it out. This is not legal advice or anything; it is more, like, dream logic. If you’re day-trading on your computer at home and you spend a few thousand bucks buying cheap oil and then you get a bill for $9 million, just take a deep breath and remember that you are probably having a nightmare and soon you will wake up and everything will be fine.

 

username

Ostrich
Gold Member
Lots of resistance reaching 3,000 again on the S&P 500. Will be interesting to see where it goes once it breaches 3,000.
 
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