mardi 14 avril 2020

Doom and gloom

Let's consider a few datas available:

1- First, some dates from the IMF (International monetary fund):

Growth rate US 2020: -5,9%
Growth rate US 2021: 4,7%
Growth rate Euro 2020: -7,5%
Growth rate Euro 2021: 4,7%
(In other words, at the end of 2021, we'll still be lower than currently if we add the numbers of 2020 to 2021 numbers).

IMF adds that we will probably face the "Worst economic downturn since the great depression"

2- Johnson and Johnson reduces it's estimates for 2020 by 8% (it's a company not that much sensitive to the general state of economy).

3- JP Morgan and Wells Fargo expect a severe recession in the USA with a 20% unemployment rate.

4- JP Morgan latest earnings were 2,9B$ compared to 9,2B$ last year (a drop of 69%).

5- About 5,4 million of canadians are receiving the emergency response benefit.

I'm only writing all that because I believe there should be much more stocks on sale right now. People should panic much more than that. That's why I can't buy anything at the moment because it seems like there's a panic pending... after the momentary lapse of reason we're going through right now.

7 commentaires:

  1. As far as equities are concerned, it is critical to remember that each investment is simply a purchase of future cash flows. Clearly, 2020 earnings expectations have changed dramatically, but companies shouldn’t be valued based only on a single year’s earnings. Investors should be modeling at least the next several years of cash flows to come up with expected returns and then derive reasonable fair value. While 2020 EPS is likely to be down between 15% to 25%, at current prices near 2,500, the S&P is offering investors a nearly 7% annual risk premium, versus just half that level coming into the year. Even on depressed earnings estimates, discounting these cash flows with a normalized risk premium of 3.5% and today’s 1.0% risk-free rates would imply the S&P near 3,500 over the next year or two. If earnings recover more quickly, or the contraction is less severe, the rebound can be sharp. Compelling long-term value is clearly forming in U.S. equites.

    1. Your point of view makes sense. But since when does investors follow that kind of position in a crisis?

    2. 100% agree with this which is why after the initial panic people realize that unlike 2008 when 25% of the markets (financials) earnings went to zero and would take years to recover thus pulling down the markets, in 2020 25% of the markets are FANG and their earning power will be tremendous and grow post pandemic not to mention bank earnings are not permanent impaired like GFC, alot of it is just loan loss provisions, like a one time write off. Bill ackman said in a DCF model one year of earnings being zero only has about a 5% impact on the long term intrinsic value of a business.

  2. Observation: by sector, banks, airlines, utilities making double bottoms.But quality tech, cpg, healthcare not pulling back.

    Its a market of stocks, not a stock market.

    1. Yes, so, in a way, you better own stocks that are not bargains.

  3. If the FED is buying the entire Market with unlimited printing money, then there is nothing that goes down, no bargain even if the EPS drops by 40% ?

  4. the FED apparently is buying junk bonds now, those from businesses directly affected by the current issues. not equities directly yet. they of course send that money through the big banks. clearly, as Penetrator said, the expense stuff which owned by the hedge funds is getting the most liquidity. In my accounts, PYPL, MSFT and today FB very strong relative strength to the market. Also healthcare, JNJ, BDX, NVO.