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User Info Yes, Rates Are STILL Going Higher in forum [Market-Ticker]
Rangeishot
Posts: 173
Incept: 2021-11-18

FL
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@Proverbs16.33 I was buying Jeep parts from a lady yesterday, who was excitedly telling me their plan to sell everything at fire-sale must-go prices, then move into a big fifth-wheel RV on some land further south so they could cash-in on this hot housing market... next month.

Didn't have the heart to tell her (a) her little house in BFE probably wasn't a hot commodity even when the market was up, (b) that bubble has burst, or (c) with current and soon-coming diesel prices, especially if the "President" signs that NOPEC disaster, that RV is going exactly nowhere.

Makes me wonder how many people are making the same mistake. (Not that I have room to talk, we downsized thinking the market collapse would lead to lower prices -- but combined with inflation I'm starting to think it will be quite the opposite.)
Magus
Posts: 3407
Incept: 2008-05-04

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TG - With the recent drop, S&P 500 P/E ratio on a TTM is about 18x and forward is 17x. Both are higher than the 15x average long term but no longer massively so. Dropping 2/3 more from here would be 6x multiple. Possible - Sure, but likely? Not IMO. And yes, the E may drop but then investors start focusing on forward multiples post expansion - its why the typical stock bear market is 35% drop with really bad ones in the 50% range- getting to the level you are talking about is not much worse than the great depression level correction. I think the fed will have long since gone back to accommodative in that circumstances as that is a highly deflationary environment and 401k contributions today are far more supportive of the stock market in general than 1929-1930 when there wasn't a retirement vehicle that folks put $ in every week or every other week.

Crappy stocks like BROS and SG, to name two from my space, with no cash flow are going to continue to get clobbered. Many will go bankrupt. But the larger firms have real earnings and the interest cost, even at 5x where it is today - which would never happen in a deflationary recession - would still only put a modest dent in their earnings. And many may actually benefit from a a bit of deflation as their input and labor costs crash. The company I was with in 2007-2010 actually had its best year ever on the bottom line in 2009 even with -2.5% SSS because costs fell of a cliff (gaap net income jumped 90% vs 2008 and 60% vs 2007).

Long story short, we agree in general on the principal argument, just not the magnitude.

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"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."

-~~Ludwig Von M
Tickerguy
Posts: 183848
Incept: 2007-06-26
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You still think what drove that expansion in "E" over the last 30 years can and will continue, despite knowing mathematically it cannot.

This is very definition of insanity.

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Civil Society requires 99%+ consent.
Stop consenting and it is forced to stop. Always.
No violence required.
Magus
Posts: 3407
Incept: 2008-05-04

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No, that is not what I'm arguing. I think its extremely likely we have a lost decade or two of stock appreciation, similar to 1974 where we it took 19 years to break even in real $.

I'm simply arguing that that normal bear markets drop 30-35%, really bad ones 50%. 75% drop has only happened exactly once in a stupidly deflationary environment. Stock market average p/e ratio is 15x over the very long term and usually bottoms around 10-12x from pre-recession earnings. Going down to 6x just seems highly unlikely, especially since if we get any signs of deflation I think the fed will reverse and go the other direction again in a heartbeat. I'm not making an argument for earnings growth at all, simply historical POV.

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"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."

-~~Ludwig Von M
Tickerguy
Posts: 183848
Incept: 2007-06-26
A True American Patriot!
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@Magus -
Quote:
No, that is not what I'm arguing

Yes it is. The non-financial corporate debt level has DOUBLED in the last 10 years. https://fred.stlouisfed.org/series/BCNSD....

Since the interest rate trend established in the early 1980s it is up by a factor of twelve.

Nobody's paying off anything in the corporate world. Ever. You know ******ned well that's exactly what's being done because your general industry is arguably THE WORST ABUSER in that regard. It's not "debt"; it's being repeatedly rolled over time and time again and, in the last two years its up 20% alone. This is where the "E" expansion has come from. All of it.

Tell me how much "E" you got when six trillion has to be paid off rather than rolled over the next five years or so. The bet you're making is that that exponential expansion can and will continue into a higher-rate environment and if attempted won't drive rates even higher.

I'll take the other side of that one.
Quote:
I'm simply arguing that that normal bear markets drop 30-35%, really bad ones 50%. 75% drop has only happened exactly once in a stupidly deflationary environment.

Really?

1576 -> 666 = 42% of where it was, or a loss of 58%. And that wasn't where it was headed either; it was a LITERAL threat from Congress to FASB that either they permit FRAUD (outright fraud!) on balance sheets or they'd legislate it that stopped the decline.

The problem with fraud is that its still fraud. Eventually it comes out. Is anyone surprised that telling people that they could literally run a cash furnace and not go to prison for it would result in more of it?

Does that change the essence of it -- that its all a chimera? Nope. And whatever enabled that chimera (in this case ever-decreasing interest rates) must continue or the chimera ends.

Now the PRICE of that chimera is here since the sequestering of dollars via trade deficits has ended -- by our own hand. It will not come back -- ever -- because nobody will believe for a generation (or more) that doing so is safe, if you're a producer outside the US. Oh well. This means that any attempt to play that game again (never mind that rates are STILL pinned near zero) instantly reflects back into consumer prices and horse****s those who have the least. You can't make that up with welfare for the same reason; it disproportionate reflects back on THEM, so trying to do that ruins them instead of helping them.

The "roll it over at a lower coupon" game HAS ENDED.

You're simply refusing to admit it but just like Wile-E you can deny gravity but not evade it.

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Civil Society requires 99%+ consent.
Stop consenting and it is forced to stop. Always.
No violence required.

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