Jump to content
Sign in to follow this  
dydo

Beyond Solar

Recommended Posts

The markets have taken a big hit this past week. They are down near 11%. The question is how far can they go? The markets were at 29,000 and the PE had been pushed up to over 20% from the hstoric norms of around 16.  This while corporate profits had a 1 time spike as did the GDP from the massive tax cuts and the increased deficit spending. Those tax cuts  added $500B into the U.S. economy with much parked into the Markets. On top of that you have the markets driven in part by a 400 fold increase in leverage in the markets since the crash in 08.

 

One would think if GDP slows, which it has, and if you factor out the $500B in deficit spending increase, ther real GDP is under 1%. The profits are not going to climb and the PE ratio that was forward looking at 20% needs to pull back.  In a heavy drop, you can see the margin calls rolling in from all the leveraged buying that has happened. To me this would indicate you could be looking at a 20% + market pull back from the highs. That would peg the market drops down to around 22,500 to 23,500. Those numbers put you in the range of the late Dec 2018 early Jan 2019 range. Those numbers would also put the average market growth in around 7% under Trump which is more in line recent historical averages.

Just my 2 cents.

Share this post


Link to post
Share on other sites
On 2/19/2020 at 9:31 AM, explo said:

TSLA roaring back this week..

Holy cow!  TSLA was almost $1000 two weeks ago.  Now only $630.  Almost 40% drop.

Share this post


Link to post
Share on other sites
1 hour ago, SCSolar said:

That would peg the market drops down to around 22,500 to 23,500.

Yes, that's what I'm looking for, too.  The current pandemic scare is just the trigger to bring us back to levels that more realistically reflect the macroeconomic factors you mention.  And from what I've heard on the news so far, the bad news about lack of US preparation for an outbreak is just starting.  We have virtually no testing kits, and not even something as simple as masks.  Couple that with an administration which is purely incapable of telling the truth about the most mundane things, and God help us if we actually have a serious outbreak in an urban center somewhere.

Batten down the hatches, folks, it's gonna be a wild ride....

Share this post


Link to post
Share on other sites
21 hours ago, Jetmoney said:

Holy cow!  TSLA was almost $1000 two weeks ago.  Now only $630.  Almost 40% drop.

Right now this one is a comfort. The only stock sold (75% of it) in my portfolio before the market drop this week. 

 

Share this post


Link to post
Share on other sites
On 2/28/2020 at 10:33 AM, solarpete said:

Yes, that's what I'm looking for, too.  The current pandemic scare is just the trigger to bring us back to levels that more realistically reflect the macroeconomic factors you mention.  And from what I've heard on the news so far, the bad news about lack of US preparation for an outbreak is just starting.  We have virtually no testing kits, and not even something as simple as masks.  Couple that with an administration which is purely incapable of telling the truth about the most mundane things, and God help us if we actually have a serious outbreak in an urban center somewhere.

Batten down the hatches, folks, it's gonna be a wild ride....

Wow, within 364 of the high end range of a 23,500 I gave a week ago. We are almost at a 20% decline from the highs less than a month ago on the DJI. The selloff picked up by the end of the day. This could blow down to 22,000 real soon. I am still in the black for the year but another couple of days like this even my short hedge will have me turning to red.

Share this post


Link to post
Share on other sites
1 hour ago, SCSolar said:

I am still in the black for the year but another couple of days like this even my short hedge will have me turning to red.

Very good job. I'm deep in the red for the year now..

Share this post


Link to post
Share on other sites

To foster discussions,

 

During the 2008 the "Great Recession" in which the bond markets destroyed the economy and caused credit defaults and failure, the markets dropped to 6,000.

 

Is this Virus going to impact the economy worse than a bond issue? The 08 recession was financial related, this is economic driven as the remedy it seems is to shut down everything and isolate as China did. If it is truly economic and we are going to be headed to 20%+ unemployment as things shut down, would you think that the markets would hit the  lows of 08?

 

When you realize the depth of shutting down the economy, schools closed, restaurants and bars closed, parks closed, events closed, people told to work from home , there will be greater consequences than we are seeing now. You are going to have people defaulting on auto loans, home loans, business loans, and bankruptcies are likely to shoot through the roof.  The highly leveraged industries of Oil and Gas are not going to be able to survive the collapse in demand for products. They have Trillions in debt that will start defaulting,  the Airline and travel industry are already looking for bailouts, the banks and brokerages will teeter with defaults on bonds.  The U.S. government will have a serious decline in tax receipts and with their proposals to backstop industry with well over a Trillion dollars "initially"  with the deficit already running at over a Trillion dollars, you could be looking at a 3+ Trillion deficit over the next year.

 

There are reports that the U.S. government has a report they are not releasing that suggests this pandemeic is going to go on for 12 to 18 months. That is will come in waves during that time.

 

is this potentially worse economically than the 08 credit crisis? The are suggestion a decline of 5% as of now in GDP for a recession. Could it be worse?  If so, can the markets drop to the lows of just a little over 10 years ago when these companies start revealing total impacts of shutdowns?

 

Interesting to ponder as the markets are now below the day Trump took office. I would not be shocked to see these pushed down to 15,000 or less but 10,000 or less? I guess it depends on how severe and long it lasts.

Share this post


Link to post
Share on other sites

Interesting discussion SCSolar. So there are a lot of "curve flattening" and "steepening" decisions going on by policy makers in many countries now. The main focus is to flatten the "death rate" curve by flattening "infection rate" in the risk group in parallell with steepening the "health care capacity expansion rate" curve. If the "infection rate" doesn't peak too much higher and earlier than the capacity then the "death rate" can be significantly flattened to a "non-unnecessary deaths" level and the "public uproar" curve gets flattened with it.

One big problem is that flattening the "infection rate" in the risk group requires restrictions to freedom of economy contributing non-risk groups which steepens the "recession curve" as some industries grinds to a halt by the restrictions, which also steepens the "public uproar" curve (both from direct freedom as well as indirect freedom, by reduced financial security, impact). To counter that recession flattening measures using targeted fiscal stimulus packages are announced on a daily basis and monetary policy makers are firing all (blank) demand boosting bullet as well as venturing into different targeted measures (buying junk bonds etc.) to help bridge liquidity stress to avoid unnecessary insolvency of normally strong businesses.

So the elderly death rate and the normally vibrant small businesses "death rate" needs to be balanced perfectly by policy makers to have their own interest - the "public uproar" curve - flattened optimally. How the policy makers manages to use its currently virtually free money (inflation bill will come later but some inflation is welcome) to laser target the "recession flattening" measures is still uncertain as well as the virus and public behaviour is uncertain. Specific industries might be bailed out. In non-democracies the "public uproar" curve is less of a problem as the public is more used to restrictions and to plan rather than market economy.

In the short-term the financial markets are trying to price the uncertainty about the effect the fallout will have on future earnings. If it thinks it will be a short pain it will be much better than if it thinks damage will linger for years as it did from the financial crisis of 2008. That judgement is very much up to sentiment. At least policy makers seem to take the difficult task of balancing the different curves optimally quite seriously, so it is more up to their competence than willingness. So pricing of financial assets now is reflecting the confidence the public (or investor community) have in policy makers ability to avoid lasting effects on the economy.

Edited by explo

Share this post


Link to post
Share on other sites
On 3/18/2020 at 6:31 PM, SCSolar said:

can the markets drop to the lows of just a little over 10 years ago when these companies start revealing total impacts of shutdowns

If you refer to the intra-day hit of 666 for the S&P 500 on March 6, 2009 that would a very bad scenario that would only be topped by the 86% drop from September 16, 1929 to June 1, 1932, which was a complete breakdown of the equities chart. A more reasonable, still very bad but not complete breakdown, scenario would be a drop to the October 11, 2007 high of 1576 before the 58% crash that followed. This would be a crash with equal magnitude to 2008  and a 13 year setback, but far from the 1929 crash.

By its swiftness it looks more like the 36% decline in 1987 from the August 25 high to the October 20 low. That would mean that we could hit 2170 next week based on the February 19 high. To me it would seem reasonable to have a last wash out there before stabilisation and rebound. The big question is whether get a big second drop after that to have a scenario like above. For fortunate investors that got out early (like you) it is more easy to wait things out to not risk getting in before the bottom. Those down already need to be on the ride back up to not get a blow to long-term return (being out on the big up days and being in on the big down days does that wipes long-term return).

Personally I don't know. The virus is running its course quite rapidly, so out of the humanitarian and economics hits it looks like it might be biased towards the former. That the Q2 economy will contract double digits would be expected by now. That there will be many bankruptcies and spiking unemployment is expected and packages to reduce this will be released on the world. The big question is whether the machinery can spin up much more quickly again next year than it did after the financial crisis. When the markets will do its big price mark ups and how large discount we will see before that is the impossible question to answer. 

When the dust settles the strong (business and people) will remain with all the stimulus to share. Don't forget that liabilities reduction will happen too. When we look at this in retrospect the outcome will as always be obvious and the appropriate actions clear. For now uncertainty rules.

Edited by explo

Share this post


Link to post
Share on other sites
10 hours ago, explo said:

The big question is whether get a big second drop after that to have a scenario like above. For fortunate investors that got out early (like you) it is more easy to wait things out to not risk getting in before the bottom. Those down already need to be on the ride back up to not get a blow to long-term return (being out on the big up days and being in on the big down days does that wipes long-term return).

 

I hear what you are saying. I just harken back to the days of Solar, when LDK when bankrupt or many of the solars dropped all the way to $1-$2. There were people suggesting all along that the business is sound it will rebound. LDK never did and people held from $20 to $10 to $6 all the way to bankruptcy missing the signals. Others like yourself looked at JKS and piled in at $2. I am not saying the U.S. economy is like LDK. If there is another leg down then the question is how deep. My guess is if nothing happens near term it is 12-15,000. If something happens then you could see a bounce up. The problem is that things are shut down and will stay until either people get tired of the economy shut down and will tolerate deaths and sichkness or there is a prevention minimizing the virus.

 

Right now Wall Street is betting on a HUGE bailout. They are now talking 2 trillion and more. From what I am hearing they are looking at bypassing a large number of the most impacted being part time workers and those just hired a they are looking at salary base to see if you get money. Then the rest $1.5Trillion plus are going to be funnel through the banks who are going to underwrite loans and make money of that. They are looking at backstopping companies and not backstopping the people.

 

You have entire industries wanting to get money on the cheap from the FED. Industries like Coal that has been dying is now asking for more loans. Those guys are going broke anyways as technology sweeps them into being an industry of past history. You have oil and gas wanting hundreds of Billions even though their issue is not as much the virus  as capitalism and competition. You have a massive amount of debt at risk now and looking to bailout the industries to prevent yet another financial collapse due to gross mismanagement.  By that I mean reliance on debt.

 

Debt is the same thing I have pointed out about an over leveraged market. The markets leverage quadrupled since 2008 to almost 1 Trillion leveraged. That in itself was a driver of the markets as well as the tax breaks and buy backs that altered standardized PE's. The question is does Wall Street and business go back to that old model thus getting a big bounce, or does a reset of PE and growth drive it back to the old models. There was the potential for a  20% hit just from a PE reset. There was a further downside of 10-20% due to leveraging, there is another 10% hit growth falls back to 1% range after the recession.. That is a 40-50% hit without earnings dropping negative and unemployment not recovering.  We are at a 30-32% hit.

 

Just my thoughts.

Share this post


Link to post
Share on other sites
5 hours ago, SCSolar said:

The problem is that things are shut down and will stay until either people get tired of the economy shut down and will tolerate deaths and sichkness or there is a prevention minimizing the virus.

I think many think that the measures taken will reduce the spread like in China. It won't. The majority of the population in the majority of the countries will get infected. The measures intend only to slow the infection rate so that all don't get infected the same month. Flattening the infection curve reduce the peak and make it occur later. This has double effect - it reduces the healthcare capacity requirement and buys time to expand the healthcare capacity. What China did is likely more problematic as the virus is almost impossible to stop, so they will likely get new outbreaks.

After the virus has run its course a majority will have been infected which gives herd immunity preventing the virus from being able to cause large problems in the future. Hopefully. The question is how much we must restrict the economy to flatten the infection curve and how quickly the economy rebounds after restrictions are lifted. Turning off part of the economy is something quite new in this globalized economy, so we don't know very much about it.

Edited by explo

Share this post


Link to post
Share on other sites

Good Gracious, Corona to slash german GDP by 7 - 20% according to one of the main economic research institutes:
https://en24.news/c/2020/03/economy-virus-crisis-costs-germany-730-billion-euros-say-researchers.html

Are there any estimates yet for the U.S.?

That's what happens when you eat bat soup instead of chicken soup.

 

 

Share this post


Link to post
Share on other sites
1 hour ago, Klothilde said:

Good Gracious, Corona to slash german GDP by 7 - 20% according to one of the main economic research institutes:
https://en24.news/c/2020/03/economy-virus-crisis-costs-germany-730-billion-euros-say-researchers.html

Are there any estimates yet for the U.S.?

That's what happens when you eat bat soup instead of chicken soup.

 

 

Q2 estimates from -8% to -15% and I have seen up to -24%(JPM) for JPM as a potential.

 

https://thehill.com/policy/finance/488648-goldman-sachs-says-gdp-could-fall-24-percent-in-second-quarter

 

Goldmand Sachs has estimate 2.5 million people filed for unemployment. Even DeFurer has laid of his staff without pay.

 

https://thehill.com/policy/finance/488648-goldman-sachs-says-gdp-could-fall-24-percent-in-second-quarter

 

Trump and his fear mongering to get more money says unemployment could reach 1933 levels of 20%

 

https://www.nbcnews.com/politics/congress/coronavirus-trump-administration-warns-20-percent-unemployment-rate-n1162601

 

It is a matter of weeks before some people can file for unemployment as they must use their sick leave and vacation leave first in before claiming unemployment.

 

I read Trump has told the Bureau of Labor Statistics (Son of former Supreme Court Judge Scalia)  not to give hard numbers on unemployment rather to give a direction if asked. He is telling states not to even report the numbers. To state a number Trump fears will create more panick and make him look bad.

https://www.commondreams.org/news/2020/03/20/millions-out-work-unparalleled-moment-trump-tells-states-hold-back-unemployment

 

 

Share this post


Link to post
Share on other sites

This is slightly off the trading topic Explo and I have talked about. But this is a market issue regarding COVID low demand for Oil and the Price war going on between Russia and Suadi Arabia.

The Oil Shale industry in the U.S. is about to collapse. That energy independence the Trump administration has touted was built on the most costly to produce and some of the dirtiest oil from  Oil Shale. The cost to get Oil from these fields is in the upper $30's to upper $40's per barrel. These companies have taken trillions in debt to buy equipment and build fields that produce the Oil. These fields are profitless with Oil under $50-$60. The Oil is worthless with the price under $30/barrel. 

This Bloomberg article lays out some of the issues, which includes Job losses and bankruptcies and why the industry needs to be bailed out.

 

https://finance.yahoo.com/news/u-t-afford-let-shale-180000917.html

 

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • Donate

    Please donate to support this community. We appreciate all donations!

    Donate Sidebar by DevFuse
  • Upcoming Events

    No upcoming events found
  • Forum Statistics

    • Total Topics
      33
    • Total Posts
      92,890
  • Who's Online (See full list)



×
×
  • Create New...