Waiting for the Puke

Investment Analysis Clubs Macro Economic Trends and Risks
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A trillion dollars in crypto currencies which wasn’t really a trillion dollars is now zero dollars, only days or weeks later.

Algorithmic stablecoin Terra which was, as the eponymous name implies guaranteed to be stable because it was pegged to Luna, another computer generated currency has dropped below $1 par, to 20¢ in fact. In an effort to support it, Luna issued more and more tokens, so many in fact that it dropped from a $60 par to 3/100ths of a penny in a week.

Coinbase recently IPOed at a valuation of almost $100 billion, it’s down to $18B.

It isn’t just crypto, of course. Meme stocks have taken a hit or cratered entirely. Robin Hood is down 85%, and poor lionized Cathie Woods Ark Innovation is off 74%.

The carnage isn’t limited to those flighty “new era” stocks either. Facebook is off, Netflix, PayPal, Lyft, Carvana, DraftKings, Beyond Meat and plenty more are downstairs remembering upstairs fondly, but distantly.

It stops when, as tne Wall Street Journal article notes, “it’s time for the puke.” That’s when the diehards finally capitulate, selling at any price in a vain attempt to get out of the way of even worse results.

Yes, there may be a dead at bounce along the way, and there will be relief rallies, and stalwarts will resist the tsunami, but for now crypto is down, some of it never to return. Likewise many stocks, though most will survive. Peloton is borrowing $750M just to keep its head above water. Bonds? Headed down as the Fed belatedly raises interest rates. Housing will cool, and with it refis which allowed homeowners to use their stick built piggy banks. Cash, if you hold it, will be down. Thanks inflation.

Remember TINA? There Is No Alternative? Now it’s TIN. There Is Nothing. Manage as best you can, this is probably not the time for the couch potato portfolio.

https://www.wsj.com/articles/when-will-the-selling-stop-cryp…

Bitcoin is almost as bs as fiat money. The key word is “almost”."

The funny thing is that fiat money, at least, has a government or a business behind it. And it has acceptance as “money” through most of the population. Crypto has neither.

However, when fiat currency has negative real interest, only a fool wouldn’t look elsewhere.

OK, but it would take a real fool to throw their money into something worse after looking, wouldn’t it?

In other news: Elon Musk will likely have the opportunity to buy Twitter at half the price he agreed to just days ago. He, of course, will use fiat money to complete the deal, assuming he does.

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“It stops when, as tne Wall Street Journal article notes, “it’s time for the puke.” That’s when the diehards finally capitulate, selling at any price in a vain attempt to get out of the way of even worse results.”

I’m watching the Saul board for the capitulation. The heavy weights on the board bailed on Upstart and Monday. What’s next? There is a sudden focus on valuation and macroeconomic factors, despite both topics being banned. Saul himself floated some looney theory about fed hikes being over, so prices won’t continue to fall with rising rates. I hope Saul used those proceeds from his Monday sale to get rid of his margin, otherwise…

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Bonds? Headed down

It’s possible that as we transition from a Fed scare bear market to a recession scare bear market that bonds (treasuries) will do fine. And gold, and Yen … the strong dollar may be short lived.

https://www.newyorkfed.org/survey/empire/empiresurvey_overvi…

Manufacturing looking a little soft again …

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However, when fiat currency has negative real interest, only a fool wouldn’t look elsewhere.

With central banks raising rates this is not true.

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<bonds (treasuries) will do fine.>

Treasuries always do fine if held to maturity since they have no default risk. I always buy the individual Treasury securities, never a bond fund since the NAV will fall as rates rise even if the bonds do not default.

Wendy

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I’m watching the Saul board for the capitulation. The heavy weights on the board bailed on Upstart and Monday. What’s next?

Still a ways to go. I remember watching and talking @Home all the way down from over $100 to single digits and there were still people “buying on the dip.” There are some who go all in with religious fervor, and whose faith seemingly cannot be shaken. Though I’ve never heard the term “puke” before, I’ll take the WSJ’s word that it’s bandied about amongst those who spent there lives inside and have watched the various cycles play out.

As evidence I offer this post from Saul’s, now climbing the “Best Of” chart to show that we are not there yet:

Hey all,
Saul and board monitors I don’t think this video interview is off topic, in fact I think it’s really a great lesson that’s needed right now in investing in innovators and visionaries. [continue praising Jeff Bezos/Amazon]
https://discussion.fool.com/an-interview-of-bezos-1999-35112067…

Not a single post disagreeing. No mention of “survivorship bias”. No equivalent video from the CEO of Enron. Where, I wonder, is the interview with the founders of Pets.com? Why no mention of Lehman Brothers and their endless pot of gold or Countrywide, which claimed to have a “new way to handle mortgages”. How many billions were fizzled up because “it’s different this time?”

I don’t mean to be too hard on the guy, maybe his pet isn’t Pets.com and it is Amazon. But there’s a reasonable chance that I’ve seen this movie before, I think.

Goofy. Still waiting for the puke.

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I’m watching the Saul board for the capitulation. The heavy weights on the board bailed on Upstart and Monday. What’s next?

Except that the reason for those who bailed, which is not universal, is a perception that the story has changed … most notably slowed growth. Story changes happen in boom times too, so I don’t see these changes as related to the general market. People there are hanging on to other high growth companies that have also lost a lot of current market value, but if the story remains, the expectation is that they will come back.

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Treasuries always do fine if held to maturity since they have no default risk.

Depends on what you mean by “fine”. If you mean no nominal risk of loss, then I would agree. But if you mean “provides some real return”, I disagree. You are almost sure to have a zero or negative real return with most treasury securities today.

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Not a single post disagreeing.</>

Isn’t that prohibited on that board? Like politics is prohibited here…

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Goofy, I agree with everything you said, except for the “waiting” part. There’s already been a lot of puking on selected companies that will be fine over the long haul. I can’t pick dead bottom, so I’m drizzling in now. Maybe I’ll be off by a few percent. Fine.

But CSCO holders are puking now. I bought some a few minutes ago. I’ve got bids that may trigger today on, e.g., INTC, CMCSA, PYPL, and GOOG. If they trigger, fine. If not, fine. I could go on, but I think you see where I’m coming from. Many of these even pay decent dividends, better than Treasuries.

Also, not all Saul stocks are created equal. Heck, Berkshire bought SNOW pretty much where it is now. Morningstar likes CRWD based on a not unreasonable DCF story. Etc.

Re macro: this isn’t 2008-09 (as you well know). It’s not even 2020, in which one may well have concluded that human civilization was looking at another Dark Ages. The macro-challenges we confront at the moment are certainly daunting. And they’re coming all in a lump, which makes them all the more so. But they’re plausibly fixable, or at least endurable. I think.

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Goofy, I agree with everything you said, except for the “waiting” part. There’s already been a lot of puking on selected companies that will be fine over the long haul. I can’t pick dead bottom, so I’m drizzling in now. Maybe I’ll be off by a few percent. Fine.

Yes, it’s hard to pick the bottom, but I’m thinking there’s at least a bit more carnage to come. We have barely gotten to the bear market stage, and those are common enough. I’m thinking this will be somewhat worse than the traditional bear for several reasons:

  1. The market (as a whole) was quite overvalued in the first place.

  2. There was plenty of froth, particularly among “new” stock sectors, but also such flighty instruments as crypto and NFT’s, not to mention the soaring prices being paid for homes, artwork, and so forth. All of the TINA and FOMO rolled upstream to the stock market in general, even including stalwarts (which is where I focus these days.)

  3. The sudden convergence of negative factors has hit hard: inflation, Ukraine, Covid rebound, worker shortage, earnings misses, supply chain, etc. Bears don’t usually have this many negative factors all colliding at once.

No, I don’t think this is anything like 2009, but I’d put it as potentially a little worse than 1999 by breadth and depth. Just my guess, obviously. I’m starting to look around but I’m not there yet. If there’s one big mistake I’ve made again and again it’s waiting too long to get back in after bailing, I hope not to repeat it this time. (No, I didn’t run to 100% cash as I have done previously but I did sell a bunch of stuff I thought weak.)

We’ll see.

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“ If there’s one big mistake I’ve made again and again it’s waiting too long to get back in after bailing”

I hear that. One thing I’ve decided to do is to average in to companies I think are attractively priced if not screaming buys. I’ve started positions in GOOG, TROW, and FDX, and bought a little more brkb today. If they fall further I will buy more.

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