1.Was yesterday the bottom? No*. We encourage you to read our note on chasing bear market rallies that we published last week after the market ripped ~6% in two days (and then subsequently gave it all back). We’ll continue to be very transparent on what we’re looking for to call an end to this bear market (lower rates, better housing and PMI data). I don’t want to be the boy that cries “bottom” every time we see market volatility. We still have an eco and eps recession to deal with in 2023, as we digest the tightening of 2022. It’s far from over according to our PROCESS. Would it be nice to see a bear market rally in the last two months of the year, of course! Just don’t lose focus of the big picture – we couldn’t be farther from a bottom in housing, or the start of a new HOPE cycle. Managing risks in a bear market is more important than being bearish.
The Bulls: “Markets bottom with peak CPI”
Our take: Markets only bottom with “Peak inflation” when it comes with a side of ECONOMIC RECOVERY
The Bulls: “Everybody is bearish, there is nobody left to sell.”
Our take**:** 1) fund flows have barely declined in 2022; 2) AAII Equity Exposure Still At 62% (and going lower).
The Bulls: “We’re heading for a soft landing”.
Our take: 100% of the time you’ve had a recession when the 1) Fed hiked; 2) Food & Energy Inflation >5%; and 3) banks tightened lending standards. We’ve got all 3 today.
The Bulls: “Housing –this isn’t 2008”.
Our take: That’s right, it’s 2022. 1) Rates are higher; 2) units under construction are at a record; 3) affordability is at all-time lows. It won’t be a credit crisis like 2008 (look overseas for potential credit crises), but we won’t see a quick recovery in housing either.
The Bulls: “Earnings Are Good So Far”.
Markets bottom with 1) stimulus; and then 3)improving leading MACRO data (Housing Starts, ISM).
Jim’s bottom indicators were good things to pay attention to. Markets up 14% in October. I love that the approach is to do better than a coin toss. No claims that it is infallable or that it will always be right. But that you can use data to make more informed decisions that tilt odds in your favor. I didn’t bet the farm using this sign, but I did say consistently in market and avoided trying to make any short term bearish bets.
There are many things to recommend Divi but his dislike for Jim is not one of them. There is lots to learn there. We can all agree to disagree without having to disparage.
I’d be amazed if we’ve seen a bottom, having read my stock market history I’d consider the recent uptick another bout of optimism before a further grind down what with increasing interest rate rises and outlook etc leading to market readjustment. Someone commented that we’ll know when we’ve reached the bottom when people have necome bearish on Apple and it’s sold off.
Personally im just DCA into some names I like at reasonable valuations, Apple definately isn’t one. 10 year 12% return price target is $90 per share.
I didn’t pivot very much as a result of the post about the bottom detector, but I appreciated it. Pretty much I just held onto what I owned. But it helped me to stay resolved about that rather than selling anything. And on the margin, I bought a couple of things that have done extremely well from the bottom, but they weren’t done at any scale. I am girding for a bumpy period.
Having said that, I am not as convinced that the market has another large round to go of deep decline the way people like GMO believe. I know why they believe that and can appreciate where the belief comes from when I see our currently interest rate level and valuations from things like CAPE. But I see individual stocks that I follow trading at what seems like very attractive valuations. BRK included. This is the first time it’s felt that way in years. So I can’t quite resolve the discrepancy mentally but there are things that seem worth investing in now as a conservative value oriented investor.
Here’s a recent (Oct 19) talk with Howard Marks. Apologies if posted before.
Marks: "I don’t believe in forecasts, especially my own. Following the recent correction FAANG’s are “essentially fairly priced”. Recession likely coming, but forget the short term…next few months. What matters is the long term. Can you find stocks that will do well for the long term. Still investing in China?‘’
The corporate tax cuts pushed through by the prior administration mean that more of GDP is flowing to the corporate bottom line. If one assumes that the current lower tax rates will continue, then a one time re-valuation upward on this measure would be appropriate.
My problem is not with Jim but with folks who hang on to Jim’s words. Sometimes he is right, mostly about BRK. His advise and reasoning is sound and has earned the trust of the board. He has also been right about DLTR.
However, most of the other times Jim has been very wrong: CBI, ADS, TSLA, AMZN, S&P etc and can be objectively measured with info from last 10 to 15 years. The pattern was Jim asserts something and folks hitting the like button, not based on the content but on who authored.
My problem is not with Jim
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most of the other times Jim has been very wrong
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I say again. There is no bottom detector, no top detector.
Ignore this nonsense.
For me, trying to assert the value of Jim by pointing out cases where he was right or wrong is not the point. I was happy to see his bottom detector and it influenced my thinking about some things, but it wasn’t like I tried to back up the truck or something. Similarly, the fact that Jim’s call was wrong in some situations like CBI doesn’t detract at all from the value I think he had.
Jim was invaluable because he thought deeply about the situations he was looking at. He did an enormous amount of work and analysis and showed you the data. Its the kind of analysis I wish I could do but don’t have the time for and couldn’t do in some cases even if I wanted to. It was like having a great analyst working for me for free.
Armed with that analysis, I could make my own decision and diligence. I never blamed Jim for failings and I didn’t think he wanted nor did it feel right to me to credit him with the wins. We all make our own decisions ultimately. When I click thumbs up on one of his long form posts, it wasn’t a reflection of whether I agreed with him or not (although I did often), it was a thank you for putting in all that work and sharing it with the community. Prediction is a hard business, I don’t expect he or anyone else to get it right all the time. If Jim had a blind spot, we could all decide that for ourselves and ignore his recommendations. But his data was always helpful and you could follow his logic, disagree or not.
That is worth so much and far more than posts that offer a short paragraph asserting only an opinion rather than deep analysis + opinion. Even if the posters opinion is right a lot of the time, its value to me is close to useless. But the ability to have someone constantly streaming data and analysis for me to weigh, now that was gold.
Yeah. I did my own diligence. That was the point. I can’t help it that in the end my judgement was that his data was more accurate and his analysis more transparent than the limited amounts you put up.
