Control Panel: New acronyms for stock alternatives

Investors seem to love acronyms. “FOMO” for “fear of missing out.”
“TINA” for “there is no alternative” to stocks. These acronyms seem to crop up during market bubbles when speculators are playing musical chairs and trying to think of justifications for buying stocks while the CAPE is higher than the 1929 peak.

Finally, the Federal Reserve has brought some sanity into the market by raising the fed funds rate to combat high inflation.

Wall Street Concedes There Is Finally an Alternative to Stocks

TARA, TAPAS and TIARA are battling to replace TINA as traders’ favorite investing mantra

By Akane Otani, The Wall Street Journal, March 5, 2023


For the first time in years, things outside of the stock market — including emerging market assets, Treasurys and cash — are looking attractive.

Fund managers’ allocation to stocks is sitting at about 2.2 standard deviations below its long-term average…

Goldman Sachs Group Inc. has dubbed the shift “TARA,” short for “there are reasonable alternatives,” while Deutsche Bank AG has endorsed “TAPAS,” meaning “there are plenty of alternatives,” and Insight Investment has come up with “TIARA,” or “there is a realistic alternative” to stocks…

Analysts are also expecting S&P 500 earnings to decline in the first and second quarters of 2023. U.S. stocks still don’t look cheap, though…[end quote]

SPX is far from cheap. The entire stock market is still in a bubble even with its relatively small retreat from nosebleed highs. The Control Panel shows that the stock market is still far from capitulation.

The Fear & Greed Index is neutral. The trade is turning more toward risk-on as SPX and junk bonds are rising relative to the 10 year Treasury. USD, oil and copper have stabilized. Natgas is rising – it may have set a low or this may be noise.

After rising for the past couple of weeks, the Treasury yield curve may have stabilized for the time being. But the higher-than-expected inflation reported recently means that the Federal Reserve will surely continue raising the fed funds rate. Despite the inverted yield curve that may pressure higher yields in longer-term bonds. The Fed’s gradual roll-off of its longer-term assets is too small to impact the market. 10YT and 10Y TIPS yields are close to recent highs, presenting a buying opportunity for those who believe that inflation will moderate. Bond values usually rise during recessions.

The 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity has set a record low, again signaling a recession within the next few months. But this has been going on for several months and the anticipated recession hasn’t arrived yet.

Economic activity in the services sector expanded in February for the second consecutive month as the Services PMI® registered 55.1 percent, say the nation’s purchasing and supply executives in the latest Services ISM® Report On Business ®. The sector has grown in 32 of the last 33 months, with the lone contraction in December. Economic activity in the manufacturing sector contracted in February for the fourth consecutive month following a 28-month period of growth, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.

The Fed is quite concerned about the strength in the services sector since inflation is being driven by low unemployment which is driving wages. The prime age (25-54) labor force participation rate has recovered to its pre-pandemic level. The overall labor force participation rate is much lower. Many workers who left the work force (stopped seeking employment) during the pandemic have not returned.

With spring coming, the most active home-buying season has arrived. The 30 year mortgage is 6.65%, a 20 year high. The S&P/Case-Shiller U.S. National Home Price Index has dropped slightly but is still far above the 2008 bubble level. Existing home sales (units) are far below a year ago.

The Atlanta Fed GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2023 is 2.3 percent on March 1. That’s a lot better than a recession. The Fed will have no reason to back off raising the fed funds rate.

China unveiled its lowest GDP growth target, 5%, in more than a quarter-century as Beijing faces challenges in the domestic and global economy following its emergence from three years of strict Covid-19 measures. China’s economy has rebounded strongly since the “zero Covid” policy was rescinded but the government wants to focus on stability. Export growth began to slow in year-on-year terms, and then to reverse course in October, after consumers and businesses in the West cut back on spending amid central banks’ aggressive moves to tame inflation.

The METAR for next week is partly sunny. There’s no negative news impacting the stock market and the internals for the past week are positive. It’s far too soon to say that the recent positive trend is stable considering the Fed’s policy but for the short term it’s stable.

Wendy

https://www.ismworld.org/supply-management-news-and-reports/reports/ism-report-on-business/services/february/

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The divergence between US manufacturing ISM and services ISM is very interesting and likely helps us understand how the consumer is thinking and spending:

  • Due to inflation my monthly expenses are still high (eggs, OJ, gas, rent, mortgage payment etc.).
  • I (the consumer) will try to save a bit by buying less “stuff” (appliances, clothes, cars etc.)
  • I will look for ways to downgrade my consumer staples purchases to non-brand stuff e.g. toothpaste, paper towels, cleaning supplies etc.
  • But I still want to have some fun. Heck, the COVID pandemic is still fresh on my mind. So I will take a vacation. I will eat out in restaurants and order in a few times a month.
    We have heard anecdotal evidence of all these buying trends from recent earnings reports - WMT, TGT, HD etc.

RE: GDP growth estimates, they are still all over the map.

From Argus Research…
7:14 AM ET 3/3/23
Our analysis of the data that has been reported in recent weeks leads us to conclude that key components of U.S. GDP are still expanding, despite the impact of inflation, the pandemic, and geopolitical developments. That said, growth is not consistent across all segments of the economy and, in many cases, growth rates are slowing. The risk of recession is real – but a U.S. recession is not a foregone conclusion. After reviewing the latest economic data, we have raised our 1Q23 GDPestimate to 1.3% from our prior forecast of 0.2%. We continue to look for the first quarter to start at a weak rate, but then for the economy to improve as the year goes on. Our estimate for all of 2023 is now 1.8%, up from our prior forecast of 1.6%. The U.S. Federal Reserve is combating inflation with aggressive interest-rate hikes. Our preliminary forecast for GDP growth in 2024 remains 1.8%, as the Federal Reserve, with its tool chest again full after hiking rates during 1H23, can contemplate lowering interest rates to recharge economic growth. Our GDP estimates generally are in the range of other forecasters. The Wall Street Journal Economic Survey calls for GDP growth of 0.2% in 2023 and 1.9% in 2024. The Federal Reserve is now anticipating GDP growth of 0.5% for 2023, and for growth of 1.6% in 2024. Meanwhile, the IMF is calling for 2023 growth of 1.4%. The Philadelphia Federal Reserve’s Survey of Professional Forecasters is calling for growth of 0.7% in 20232 and 1.8% in 2024.A recent GDPNow Forecast from the Federal Reserve Bank of Atlanta sees growth of 2.5% for 1Q23.

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Speaking of acronyms, has anyone coined SOMA yet? That’s what I’m doing.

No telling which way this market is going for cash, for securities, for real estate or metals.

Three guesses what SOMA stands for.
'38Packard

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I cant help it. Or I wont help it. :rofl: :rofl: :rofl:

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Sit On My Ankles? Dude, that’s a crappy acronym… :smiley:

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HAHAHA! I’m not gonna sit on YOUR ankles :wink:

But SOMB (Sitting on my bu-tt) just didn’t have the same ring as SOMA !

Cheers,
'38Packard

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Well there is JOMO… JOMO is the joy of missing out

If in cash right now, one could be experiencing it…

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@BeachMan2115 this being the internet, I’m not sure exactly what point you were trying to make.

Scrutinizing the chart you posted, I observe that the “best days” – the few days that provided most of the return of the S&P500 – occurred very close to the “worst days.” These were times of extreme volatility and high risk.

Personally, I hate volatility and high risk. YMMV – it’s a personality thing. I’m a gardener, not a gambler, and I like slow, steady, reliable returns.

The chart shows that investors who missed the 60 best days over the 20 year period actually had a negative return from the S&P500. This seems to show that being out of the market during times of extreme volatility lead to negative returns.

This puzzles me because it contradicts charts developed by mungofitch and John Hussman that show that being out of the SPX during market plunges but re-entering when the bull market resumes has historically led to a high return.

As for me, I am enjoying “JOMO” as you wrote since I’m almost entirely in cash and bonds. I’m not sure that’s what you meant. I do hope to re-enter the stock market when inflation stabilizes and the Fed stops raising the fed funds rate. I may miss out before then but that’s OK. I would rather have a stable bull market with slow, steady growth than volatility.

Wendy

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The chart doesn’t talk about what would happen if you had been out of the market during the 10 worst days either.

In the end, this chart is trying to show that timing the market is a fool’s errand. And fundamentally they are correct. Most people would be in the market when the worst downturns happened, then panic and sell, and not be back in for the best days.

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Hey @BeachMan2115

JOMO - Could also be the Joy Of Missing Out losing a bunch of your hard earned cash.

In addition to what Wendy said, here’s what the former Treasury Secretary had to say today:

Some excerpts:

“The process of bringing down inflation will bring on a recession at some stage, as it almost always has in the past,” Summers said.

And for the US economy, it could likely mean a “Wile E. Coyote moment,” Summers said, referencing the cartoon canine’s relentless — yet futile — pursuit of the speedy Roadrunner off a cliff and into mid-air.

Gravity eventually could win out.

“The economy could hit an air pocket in a few months,” he said.

APANFM - Air Pockets Are Not For Me - Thank you!

Cheers!
'38Packard

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Time for a NAPP.
NAPP = No Air Pockets, Please

DB2

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Does it? $10,000 invested with Hussman’s flagship Strategic Growth fund (HSGFX) at inception in July 2000 would be $10,735 today.

$10,000 invested in Vanguard’s Total Stock Market index fund (VTSAX) at the same time would be $49,351 today.

HSGFX’s all time high was in August 2008, and still off about 50% from that peak.

If you use Buffett’s definition of risk as “the change of permanent loss of capital,” one of these things is far riskier than the other.

Edit to add: For those following along, Mungofitch’s major bottom detector fired back on September 29. The market is up about 12% since that time.

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Timing systems such as mungofitch’s do not provide higher returns but they do lower volatility, leading to things like a higher Sharpe ratio.

DB2

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Volatility. A long time ago, someone once told me that the best way to avoid volatility is to “not look”. I think it was more a quip than advice, but when you think about it, maybe the best way to avoid volatility is to simply not look at prices frequently, and certainly not in response to anything in the news.

Risk. People say they don’t like risk, but that isn’t really true, they simply prefer some types of risk over others. For example, people who invest primarily in fixed income prefer the risk of not beating inflation [by much], people who invest primarily in short-term fixed income prefer the risk of long stretches of ZIRP. While people who invest primarily in stocks prefer the risk of complete loss in some positions balanced by large gains in other positions, and some prefer the more sedate climb of index funds over the decades, but always beating inflation by a reasonable amount.

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Our tolerance for volatility can, and probably should, change over time. A younger investor can put up with a lot of volatility because they have a lot of time before the money will be needed. A retired investor is living off of their portfolio, and therefore cannot tolerate too much volatility. They need to tap into their portfolio on a regular basis to make withdrawals for living expenses.

—Peter

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Well said, Peter. Every one has a risk tolerance level that is personal and colors how they invest, evaluate market conditions and manage their portfolios.

And that’s ok because it is what makes a market. If everyone was bullish at the same time, there would not be any sellers to buy from and vice versa.

Cheers!

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