jeudi 9 avril 2020


I honestly don't see any reason to be optimistic about the market for now. For the very long term, yes, we should be optimistic. But for the next year or so, I think things be will be ugly and stinky.

One million persons recently fired in Canada plus 2000 more deaths due to Coronavirus each day in the USA (that number will surely continue to grow for some time). Governments investing a crazy amount of money to support an economy which is in coma for now. People like me getting paranoiac about the virus and about every people at the grocery. And breathing as little air as possible while I'm with strangers at the grocery.

I really believe that this crisis will have significant impacts in our mind, our shopping habits, our public finances and international relations (probably on many other levels which I don't think about right now). For instance, Trump will probably want to crush China after what happened.

Personnaly, I can't refrain to use the word "fucking" before the word "China" these days. Because what's happening is all the fault of these fucking bat-eaters. How come all the fucking bullshit we've faced over the recent years comes from China? What's wrong with them? Germs and virus are not supposed to be in India instead of China?

I'm a much more moderate person than Trump... So, let's imagine what that big mofo's gonna do and say after the crisis. I believe that relations with China will be much more complicated.

So, tell me, how come does the market is so optimistic these days? Anticipation of a better future? Yes. But since when does the market is optimistic about something that will happen so far away and after so many problems?

7 commentaires:

  1. i just went long again on this dip. to answer your question, why is the market doing so well? one word. liquidity. when you replace the lack of demand with many trillions of dollars and actually get into the money supply (the latter is to be seen), the value of $1 erodes, the costs of a cup of coffee doubles, and DOW 100,000 will seem like a good value.


    1. You guys are all geniuses so I will not disagree with either one of you. I am not sure though whether excess liquidity is the main reason for the recent stock rally.

      There has been so much money dumped onto the financial system since 2008 and it has barely caused any economic inflation anywhere and in Europe there are still sick banks now, 12 years later. The liquidity injection needs to be viewed in the context of the financial sector.

      For example, RBC's total bank assets are ~1.5 trillion CAD while Canadian economy as a whole is just ~2.1 trillion. Is 82 billion stimulus really going to make that much difference? That's about 4% GDP (or 2 weeks worth of) and just under 5.5% of financial assets of just one Canadian bank.

      For a normal person, these are just unimaginably huge numbers but we live in a world of too-big-to-fail financial sector with countries like Iceland having 10x their GDP in bank assets in 2007 and UK even now having more than 4x their GDP in bank assets. Do you really think there will not be more than a 4% shrinkage in the number of new loans, valuation of houses, etc. if the economy is put on the ice for a year and 10-25% working age people will be unemployed? Are you personally super eager to go to a bidding war for a bigger house, lease a new car, remodel your kitchen, or go on a family holiday right now? If so, are you expecting to pay the same price as this winter or get some super discounted deal?

      The fiscal stimulus is there to prevent rapid deleveraging which would cause a self-feeding depression spiral. I am no economist but we all know that debt = money. Bank assets are everyone else's liabilities. Our economic system only works if there exponential growth of debt, otherwise it must default. If there is less debt, there is less money, which will cause less demand, which will cause less wages and fewer employed people, which will feed on itself. If the whole system is levered up to the ears, it does not take a lot to make the whole house of cards crumbling down since leverage amplifies more down than up. That is why I think the mismanagement of the economic shut down has potential to be much worse than the pandemic itself.

      Furthermore, USD is the world's reserve currency and thus the fed is not bailing out the deflationary spiral just for the US economy but also the entire world, including all of the resource-reliant countries and emerging economies with USD-denominated debt. Their liquidity injection is thus not just in the context of their economy (10% or a month) but the whole world economy (2.5% or 9 days). Even their unprecedentedly huge promise of support in this context appears small.

      I do not have access to any relevant data, but I would be curious about the volume that is being traded and what it would be after stripping all of the momentum algos. Thin trading might be the reason for a relief rally combined with some short squeezes. I am sitting on my hands not doing anything and so are many people right now.

      After a month, I finally got paid some extra money this Wednesday and by now all of the things I wanted to buy are 20-40% higher than a week ago. I am not buying anything now and waiting for another pullback. Worst case, I will just save the money for next year's TFSA contribution.

  2. Here is an interesting and insightfull memo from Howard Marks about market timing and on how to invest when you want to strike the bottom of the market. The bottom line is a good buy is better than a perfect buy, don't go all-in with your cash load but go piece by piece.

    1. That's the only rational way. Because nobody knows when the real bottom is, you should just buy stocks when you know that they're at a good price. Maybe not the best price, but a very interesting price nonetheless. I defy anybody to propose a better approach than that.

  3. I like when there is a lot of volatility like now. I stay 100% invested, but when the market is not a bargain I am more invested in BRKB which is rock solid and not too expensive, so I am confortable having up to 25% of my money in it. And when there is a lot of bargain, I switch some of the money from BRKB to very cheap great and solid companies, like KMX, NVR and FIVE. And if the rebound seams too quick, I go back to BRKB. The idea is that when BRKB makes 20% moves, the others more volatiles companies makes 50% moves. So I try to have the 20% down with BRKB when stocks are not cheap and the 50% up when stocks are cheap. Maybe I have been lucky but I was able to do that in 2008-2009 and now.

  4. Whatever to Howard Marks. Takes him 9,000 words to tell us no can pick the absolute bottom. Geez, thanks. At least less honourable people like Bill Ackman state their call in real time in 12 words or less.