Weekly Market Update

[Jeffreauxdawg]

The S&P 500 is hanging tight up near the double top and wants to climb back up to the top of the late February gap down. There should be some selling if we get there, but who knows at this point.

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If we stay on current trend, the S&P 500 will be at 3670 by election day. That would represent a roughly 14% increase for the year. Seems logical to me.

As I mentioned last week, the market is not going anywhere without the big guys and their earnings were excellent. Facebook, Apple, Amazon, Microsoft, and Google all had great quarters. Amazon in particular.... Of course 4 of the 5 were also sitting in front of Congress the day before in an antitrust hearing. But that didn't matter as the market shook it off quickly. Here's a look at the QQQ's which represent the Nasdaq 100 and you can see the trend here takes it up to 303 by Nov 4th... Just a 42% increase for the year. About right.

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Congress can't agree on how much extra to pay unemployed, how much stimulus to give the employed, or what to do about state and local governments that are heading for trouble with missing tax revenue. So far it seems like there are people who are getting to much help and others that need it aren't getting any help. PPP has been a life line for some businesses and a windfall for others...

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Here's the current look at unemployment. The bottom number is the total.

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The scariest thing I have seen with unemployment to date happened last week. Wal-Mart is laying off several hundred corporate jobs. This is the canary in the coal mine for the white collar workforce. If Wal-Mart, who is likely to put up a record quarter, has to cut... That's not good.

I have no real insights at this point. I think the market is so far disconnected from reality that anything goes. Weak dollar, week employment, China tensions all time highs, antitrust risks, election risk, Hell.... Even a complete second shutdown in the Fall from Coronavirus is becoming a bigger risk...

Market is like the 17ing honey badger..

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[JungRebel]

Do you agree with Burry's analysis that passive investing is driving up the market and would explain the disconnect between 'reality' and the current prices, i.e. people keep contributing to 401ks and IRAs without thinking about it and there isn't a lot of 'true price discovery' going on? That's the best explanation I've seen for what is happening despite the uncertainty.

 

[Jeffreauxdawg]

I have changed my tune quite a bit on it. I was a big fan of index investing prior, but I definitely see the argument now. Price discovery is obviously a part of it, but I would not put it at the top of the list. Number 1 would be Fed actions. Number 2 would be interest rates. Number 3 would be speculation. I will use Apple as the example.

#1. By taking action in 2008, 2018, and now to prop up the stock market (in the name of employment) they have incentivized moral hazard. There is no real risk of anything going to zero or staying in a depressed state. As long as the fed is there to give money to companies that otherwise aren't credit worthy, how will anyone go out of business? Sure some will, but its a hell of a lot harder. Further exasperating this behavior, the Fed is now buying bonds directly from companies, including Apple. There is not a reason in the world for the Fed to need to buy Apple bonds. Hell, Apple hasn't needed debt since the 90's. They currently have over $100Bn in cash and cash equivalents on the balance sheet. Why in the world is the Federal Reserve Bank, AKA the Federal Government, AKA We The People, giving Apple a loan they don't need? We should have our hair on fire about this ****.

#2 With the long term and consistent decline in interest rates, there is no alternative to equities.. at least nothing that can keep up with inflation. You might be a little young to remember this, but as recently as the early 2000's you could get 7%+ returns on a AAA bond fund. Hell, I was getting close to 4% interest in my checking account back in 2008. How much money would you have in the stock market vs a savings account, CD, or bond funds if you could 5-7% more return by saving today vs putting money into stocks? So that creates scarcity of stocks... Just like anything else, when you want to buy an APPL stock, the more that are available, the less you will pay and vice versa. Lower interest rates also allow companies like Apple to borrow money to buy its own shares, driving up prices... Of course, with public money.

#3. At the end of the day buying as stock is just a fractional ownership of a business that entitles you to a portion of its profits. The value of this stock should be based on the fundamentals of what the business is worth today plus the reasonably projected future value of the business. Once that value is calculated anything above is speculation and anything below is value. So even though we know Apple is getting tons of support from the Fed as covered in item 1-2... I dare anyone to logically explain to me why Apple, is currently valued 126% more than it was 12 months ago. Apple who is more reliant on China than nearly any company alive. There is not a rational argument. It's speculation. It's currently selling at double its historic Price to Earnings ratio... That might be okay for a startup or small growth company with hot new technology, but it usually does not end well with the biggest company in the world.

So indexing definitely adds dumb money to the equation, but its just another log on a fire The Fed has started with a torch and rocket fuel.

 

[JungRebel]

If I understand Burry's analysis correctly, the recommendation is to move more money to small and micro cap stocks. I'm trying to figure a good ratio and let it sit. 60% of my 401k is in target date funds that mostly invest in large cap but I currently have 40% in a fund that uses the Russell 2000 for a benchmark, investing about 65% in small caps and 15% in micro. These are unfortunately separate accounts so what all is being invested in is not transparent. I'm just trying to get the best value I can right now with an eye on long term growth. I have read that historically small cap outperform large but that hasn't been true for a while, so I am trying to offset the risk that trend continues by putting the majority of my portfolio in the 'safe' target date fund, while getting in small/micro caps.

The analysis isnt necessarily that there is a bubble, but that the stocks that are just outside the big indexes might be a great value because they are good companies but are not being artificially inflated by passive investing.

 

[Jeffreauxdawg]

I honestly hate 401K plans for the reason you are getting at... There are very few options and they tend to be expensive if it's not tracking a simple index. There are others on the board that might help you navigate it better within a 401k. Here are my thoughts on how I look at it.

The idea of big cap vs small cap doesn't register in my mind anymore. Its more about value vs growth. For instance, lets look at a couple of micro and small caps you know of vs a large cap in the S&P 500 you have probably never heard of before.

Basset Furniture has a market cap of $90m. It's trading for $9.00 per share with a 52 week high of around $18 per share. So i can see potential value, but I don't think we will get a lot of crazy long term growth. It's a 100+ year old company in a stable industry.

Calloway Golf has a market cap of $1.8bn. It's trading for $19.00 per share with a 52 week high of around $24 per share. So there is some value, but again.... What would Calloway have to do to triple its value? Could it happen... sure. But it's not likely anytime soon.


Tyler Technologies provides software and technology to local, state, and federal government entities. They currently have a market cap of $15 billion and are sitting right around their all time high of $380ish. So even though it is much bigger by cap than Calloway or Bassett, its also much more likely to grow significantly in the future as more and more government services embrace technology. Seems like a company that had some nitro injected into the system from Covid 19.

Now bringing it full circle, Tyler is included in the S&P 500 so when you buy and S&P 500 index fund you get some Tyler. But not much. This is because the index and most passive funds are cap weighted. Currently if you buy $100 worth of the S&P 500 you would be putting a combined $23 or so into Apple, Microsoft, Amazon, Google, and Facebook. You would only get $.05 worth of Tyler. How little does the index move the needle? They replaced Harley Davidson on the S&P 500 on June 12th. The CEO didn't even know it was going to happen. The stock price has been relatively flat since then (Up 1.43%) while the S&P and Harley Davidson are both up over 10% in the same time period.


So in my opinion, the worst thing about and index fund is it is creating a bubble in the big cap stocks, not in the entire index.

If you want to find value and growth, market cap doesn't have much to do with it. In fact, the best growth stocks these days are rolling out in IPO's that make them large cap from day 1. Similarly, some of the smallest cap stocks are old names that still offer value.

 

[Quincy A. Wagstaff]

S&P 500 down 36.92% YTD as of 8/5/2020.
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[Shamoan]

is the influx of free trading platforms leading to "stupid money" propping up a weak economy?, and if so, what unforeseen disasters could be a result of this?


is the clueless investor saving america?

 

[Seinfeld]

Thoughts on NKLA and RKT?

So with NKLA, I dove in when it dropped back down below $30 last week, and it’s made me a nice chunk of change in a short period of time. I was also obviously gambling that its Tuesday earnings report was going to wow Wall St, and while it clearly failed to do that, I thought there were several positive takeaways. A few analysts are targeting their stock in the $50-75 range, and I’ll be honest... I also just really like their truck proto. Reminds me of about 10 years ago when I was reading about a Model S from Tesla.

On RKT, I’ll first admit that I don’t have a clue as to what to read into IPO’s, but man has that one crashed(70% today), and it just seems like decent value right now.

Thoughts on either of those?

 

[Jeffreauxdawg]

I'm not up to speed on the electric vehicle manufactures and why valuations are where they are... But here are my thoughts and why I don't touch them.

Vehicle manufacturing is possibly the most competitive sector in the world. There are minefields everywhere between concept and profitability. I feel you can wait a decade and find a better entry point on these companies.

TSLA first hit $185 per share in May of 2013. It also hit that price again in September of 2019. Somehow the market and even some analysts think it's 10x more valuable today than it was less than a year ago.

EV stocks are a casino. It's pure speculation.

ETA. Analysts are useless. Dan Levy is one of the top analysts covering TSLA. From Credit Suisse. He raises his 12 month target every time the market goes up. In October of 2019, he raised 12 month price target on TSLA from $189-$200. I guest he kept raising it until his last update in July where he raised it from $700 to $1400..... Think about that. In October, he felt that it was going to be worth $200 now 7, times more.... They don't have a clue and just follow the herd. I can't think of another job where it's okay to be that bad.

 

[Grove Sh*tter]

Preseason NCAA/sec writers/rank speculators

 

[RocketDawg]

Are you talking about the S&P 500 Index? It's about the same now as it was in February, and higher than it was on the first of January.

 

[Jeffreauxdawg]

Are you talking about the S&P 500 Index? It's about the same now as it was in February, and higher than it was on the first of January.

He's measuring it against Bitcoin instead of dollars. Which sounds crazy... But if you remember Milton Friedman and the danger of printing money.. something has to be inflated.

I have a theory that when the Fed printed 4 trillion dollars after the housing crisis, something had to face inflation. I hypothesize it was bank lendable assets, since the money all went to big banks. The banks loan money to businesses, real estate, vehicles, and equities.

You can look at the same chart against gold and silver and it would look the same. It doesn't confirm inflation, but it's certainly a leading indicator.

 

[UpTheMiddlex3Punt]

Just put 60% in TQQQ and 40% in TMF. Rebalance monthly.

 

[Beretta.sixpack]

i think you are spot on about Walmart comparison...

I work for a Fortune 150 company, one that is rated as one of the top 20 stocks to own over the next 15 years...they don't play around.....every day we hear about layoffs...every day its "john doe is no longer with the company".....all for making the investors happy....the stock price....other measures outside of that have definitely hit home at our house, although the stock price is still going up and I have 35% of my 401K in that stock....good with the bad...but this is what all the big boys are doing to keep the numbers up

 

[Mobile Bay]

No, they are creating a bubble that is going to pop. Joe Kennedy made a fortune by shorting the market when his shoeshine boy started giving him stock tips.

 

[Mobile Bay]

I'm not up to speed on the electric vehicle manufactures and why valuations are where they are... But here are my thoughts and why I don't touch them.

Vehicle manufacturing is possibly the most competitive sector in the world. There are minefields everywhere between concept and profitability. I feel you can wait a decade and find a better entry point on these companies.

TSLA first hit $185 per share in May of 2013. It also hit that price again in September of 2019. Somehow the market and even some analysts think it's 10x more valuable today than it was less than a year ago.

EV stocks are a casino. It's pure speculation.

ETA. Analysts are useless. Dan Levy is one of the top analysts covering TSLA. From Credit Suisse. He raises his 12 month target every time the market goes up. In October of 2019, he raised 12 month price target on TSLA from $189-$200. I guest he kept raising it until his last update in July where he raised it from $700 to $1400..... Think about that. In October, he felt that it was going to be worth $200 now 7, times more.... They don't have a clue and just follow the herd. I can't think of another job where it's okay to be that bad.

This is the kind of thing driving Tesla stock. It's become a meme now. www.reddit.com/r/wallstreetbets

 

[Jeffreauxdawg]

This is the kind of thing driving Tesla stock. It's become a meme now. www.reddit.com/r/wallstreetbets

Do you remember Tokyo Joe in 1999-2000?

https://www.washingtonpost.com/wp-srv/WPcap/2000-01/06/070r-010600-idx.html

I have been comparing this to the dot com bubble for a while... This kind of stuff confirms it along with Apple splitting stock 4-1 for no reason last week other than to get retail traders to pump it up.

For the record, I love Apple as a company. I just don't love more than double what I did less than a year ago.

 

[patdog]

That's too much tied up in one stock. Especially your employer's stock.

 

[Beretta.sixpack]

oh im aware ....im still at aggressive age...

owning my company's stock is like owning a mutual fund though....look it up DHR....im 43....it has been really, really good for my retirement account the last several years...

 

[Mobile Bay]

Do you remember Tokyo Joe in 1999-2000?

https://www.washingtonpost.com/wp-srv/WPcap/2000-01/06/070r-010600-idx.html

I have been comparing this to the dot com bubble for a while... This kind of stuff confirms it along with Apple splitting stock 4-1 for no reason last week other than to get retail traders to pump it up.

For the record, I love Apple as a company. I just don't love more than double what I did less than a year ago.

No, I was still a student then. I barely had money for my ****** apartment at The Grove. So I wasn't paying attention to the market. Good read though.

 

[Jeffreauxdawg]

No, I was still a student then. I barely had money for my ****** apartment at The Grove. So I wasn't paying attention to the market. Good read though.

I was a student too. Buying internet stocks on Scottrade with the rent money. Lost at all ($700 or so by the end.) The biggest difference between now and then is it was my rent money from my job.... Now days it's taxpayer stimulus and unemployment money.

Thinking of guys about our age... If B Walker reads this, he better send that Tokyo Joe link to Portnoy just in case. I wouldn't put it past the SEC to do whatever they can to take him down. They don't like anyone making their Wall Street benefactors look foolish.**

 

[Mobile Bay]

I was a student too. Buying internet stocks on Scottrade with the rent money. Lost at all ($700 or so by the end.) The biggest difference between now and then is it was my rent money from my job.... Now days it's taxpayer stimulus and unemployment money.

Thinking of guys about our age... If B Walker reads this, he better send that Tokyo Joe link to Portnoy just in case. I wouldn't put it past the SEC to do whatever they can to take him down. They don't like anyone making their Wall Street benefactors look foolish.**

Also they are not just doing it with single stocks. Lots of them are buying options on margin. Woohoo!

Were all screwed.

 

[Seinfeld]

Thanks for the feedback. I went ahead and cashed in my gains yesterday afternoon on half my NKLA shares, but I left the other half on the table to see what happens in the coming months. Pretty small amount of cash in the grand scheme of things, so it won’t be driving my portfolio very far in one direction or the other no matter how things unfold.

It may be a good day to grab a lottery ticket because I moved that money along with some other cash over to RKT at 18.40, and its on a 2-day roll right now. The blind squirrel saying is holding true this week

 

[Quincy A. Wagstaff]

Are you talking about the S&P 500 Index? It's about the same now as it was in February, and higher than it was on the first of January.

Be careful denominating your investments in a depreciating asset.

 

[Nicephorus]

S&P 500 down 36.92% YTD as of 8/5/2020.
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You got anything in DeFi? Thinking it may be the driver of the next big speculative crypto bubble. Already up significantly this year across the board. Very little coverage in mainstream media so far maybe because barrier to entry so high right now. Seems eerily similar to bitcoin spring of 2017. Curious to see where we end up at end of year.

 

[Quincy A. Wagstaff]

DeFi is interesting, but I can't say I'm heavily invested, mainly because my understanding of it is very limited. I do deploy some of my crypto using interest accounts (interest on crypto including stablecoins, paid in crypto) and derivatives (option contracts physically settled in crypto). But because this is done with third-party institutions I guess it's really a hybrid between DeFi and traditional financial services.

 

[Nicephorus]

DeFi is interesting, but I can't say I'm heavily invested, mainly because my understanding of it is very limited. I do deploy some of my crypto using interest accounts (interest on crypto including stablecoins, paid in crypto) and derivatives (option contracts physically settled in crypto). But because this is done with third-party institutions I guess it's really a hybrid between DeFi and traditional financial services.

Started dabbling with curve.fi with stable coins and btc pegged coins which led to using some of the more complex stuff. I find it very interesting although definitely not for most people right now

 

[Irondawg]

I work for a Fortune 150 company, one that is rated as one of the top 20 stocks to own over the next 15 years...they don't play around.....every day we hear about layoffs...every day its "john doe is no longer with the company".....all for making the investors happy....the stock price....other measures outside of that have definitely hit home at our house, although the stock price is still going up and I have 35% of my 401K in that stock....good with the bad...but this is what all the big boys are doing to keep the numbers up

I work for a big boy and can attest to this as well.ots of attention on short term stuff that ignores long term ramifications. The groups I work with have been cut to the point where 1 person is going the work than 3-4 used to do and the quality of work is starting to take a big hit