Key Points
- Global Trade and global currency demand can id stronger markets long-term
- Inverted yield curve signals market peaks normally
- Debt to GDP growth ratios at high levels ( eg > 1.0 ) signal high default risk if economy turns
Current Markets
JTimmer on US markets - 221222 - Based on DCF historical PE multiples, SPX may be 15% over valued - bottom as low as 3200 in 2023
According to my analysis, a fair-value price-earnings (P/E) ratio for the S&P 500® is around 15, based on the discounted-cash-flow model and the Fed cycle. Applying that fair-value P/E to trailing S&P earnings of $217 per share would imply a fair-value level of about 3,255 for the index—about 600 points or 16% below the market's close last week.
Jtimmer on US markets - 190911
https://www.fidelity.com/viewpoints/market-and-economic-insights/Q3-outlook?ccsource=email_weekly
Bear Market Patterns
since World War II, bear markets on average have taken 13 months to go from peak to trough and 27 months to get back to breakeven. The S&P 500 index has fallen an average of 33% during bear markets over that time frame. The biggest market value decline since 1945 occurred in the 2007-2009 bear market, when the S&P 500 sank 57%.
References
| Reference_description_with_linked_URLs____________________ | Notes__________________________________________________________ |
|---|---|
| Invest Tools | |
| i Invest Strategies | |
| m Fundamental Analysis | |
| Market Factors Analysis | |
| https://www.investopedia.com/slide-show/tools-of-the-trade/ | Indicators for Trade Plans |
| https://www.marketwatch.com/story/why-this-time-is-different-rings-true-in- todays-stock-market-2019-08-13?siteid=yhoof2&yptr=yahoo | Key Indicators for a down market - marketwatch |
| https://theweek.com/articles/901853/feds-15-trillion-intervention-explained fed-sales-purchases-to-banks-to-manage-rates-2020-theweek.com- The Feds 15 trillion intervention explained.pdf | Fed's role in supporting bank liquidity, rates during a crisis |
Key Concepts
Markets Short-Term
What’s different this time
Here are the big differences this time compared to last time.
• There are negative interest rates around the world.
• Negative interest rates cushion any potential drop in the stock market.
• Central banks have more tools, such as quantitative easing (QE).
• Politicians are more prepared on the fiscal front.
• If the trade war gets resolved, it may trigger renewed global growth and higher stock prices.
• Mortgage standards are much stricter.
• Corporate and sovereign debt is a bigger danger.
How to Invest a risky market
- get vix premiums in hedges
- setup adaptive trades
- use long-short market options - SSO, SDS etc as relative balance when trends are established - use SMA, Bollinger bands etc
- cut or hedge weak equity positions which will typically have higher beta in down markets
2024 Market Outlook
240216
i>> as usual, any change in the foreign demand for US debt is one of the major drivers of our deficits and our economy - Fed influences but does not control that demand
i>> 2024 election year Democrats promise ANYTHING to buy votes - want your medical debt cancelled, want your credit debt cancelled?? Biden will drive up deficit over 2 Trillion in 2024
i>> want to fix budget and deficit problems from illegal migration ?
2023 Market Outlook
The interplay between Fed policy, inflation, economic growth and earnings will drive the market in 2023, analysts say.
But inflation could fall far enough (3%-4%) for the Fed to essentially think it has accomplished its mission (although it won’t say it directly as the target is still 2%), but for all intents and purposes, we could exit 2023 without a material inflation problem,”
A resilient job market so far has optimists — and Fed officials — arguing that the economy could avoid a so-called hard landing as monetary policy continues to tighten.
anticipating an economic recession to materialize early in 2023, as evidenced by the three quarters of projected S&P 500 index earnings declines and continued defensive sector leanings,” said Sam Stovall, chief investment strategist at CFRA, in a Wednesday note. “The severity of the recession remains in question. We expect it to be mild.”
Markets Long-Term
I suspect that the US #market follows the #Brexit roadmap: In the 3 years since the UK referendum, the UK #stockmarket has moved sideways while #earnings have grown 30% & the fwd P/E has fallen 4 pts: 16x to 12x. In the US that would suggest a de-rating from 19.5x to 15x.
How Net-Zero Carbon may reduce oil demand long-term - 2023
Energy - US Oil production to continue and grow thru 2050 - Federal report - 2023
the 2023 Annual Energy Outlook from the Energy Information Administration (EIA) finds that U.S. oil production may even increase between now and 2050 even as clean energy sources like wind and solar power increase dramatically as well.
Market Valuation Indicators
3 Bear Indicators to predict a Coming Recession
https://www.fool.com/investing/2023/02/26/bear-market-predictive-tool-not-wrong-in-77-years/
_market-indicators-recession-2023-fool.com-This Bear Market Predictive Tool Hasnt Been Wrong in 77 Years Heres Where It Says Stocks Head Next.pdf link
Inverted Yield
ISM below 43.5%
Economic LEI below 42
Leading Bear Indicator? - Russell 2000 for SP500
https://finance.yahoo.com/news/bear-market-leading-indicator-signals-094043906.html
S&P 500 experienced more than 10% drop in January 2022, which was considered a sign of weakness from a Wyckoff distribution topping formation. Yet, multiple red flags were provided as early warning via this leading indicator – Russell 2000 near the end of November 2021, at least 1 month before S&P 500 had a sharp drop of more than 10%.
Schiller CAPE - Cyclically Adjusted PE for the market - bear market predictor
https://corporatefinanceinstitute.com/resources/knowledge/finance/cape-ratio/
The CAPE Ratio (also known as the Schiller P/E or PE 10 Ratio) is an acronym for the Cyclically-Adjusted Price-to-Earnings Ratio. The ratio is calculated by dividing a company’s stock price by the average of the company’s earnings for the last ten years, adjusted for inflation.
The CAPE ratio allows the assessment of a company’s profitability over different periods of an economic cycle. The ratio also considers economic fluctuations, including the economy’s expansion and recession. Essentially, it provides a broader view of a company’s profitability by smoothing out the cyclical effects of the economy
In the past, the CAPE ratio has proved its importance in identifying potential bubbles and market crashes. The historical average of the ratio for the S&P 500 Index is between 15-16, while the highest levels of the ratio have exceeded 30. The record-high levels occurred three times in the history of the U.S. financial markets. The first was in 1929 before the Wall Street crash that signaled the start of the Great Depression. The second was in the late 1990s before the Dotcom Crash, and the third came in 2007 before the 2007-2008 Financial Crisis.
recent changes in the calculation of earnings under the GAAP distort the ratio and provide an overly pessimistic view of future earnings.
- Financial Ratios
- Guide to Financial Modeling
- Projecting Balance Sheet Line Items
- Financial Analysis Ratios Glossary
Buffett Indicator - Wiltshire 5000 / US GDP
The “Buffett Indicator” as it’s called in Wall Street circles — which takes the Wilshire 5000 Index (viewed as the total stock market) and divides it by the annual U.S. GDP
"Dry Powder" Concept - prepare to have cash for down markets - lower loss, reinvest at bottom
Can't forecast accurately
Use the wave model to average out and average in as markets fall and rise to cash
Average in on market rise from a bottom
If cash can be invested for a longer period ( 2 years? ), then look at SSO as a double SPY index that may take awhile to be net gain.
Bet on speed that deeper markets return from the lowest point versus the highest point
Evaluate where in the market cycle you are likely to be -
- market has fallen at least 15 or 20% provides a long term opportunity to return to that top then average in X% of cash ( may take 3 to 5 years for net gain )
- market falls another 10% then average in X% of cash with concept that second leg down will recover faster than the first ( may take 2 years for net gain )
- market falls another 10% then average in X% of cash with concept that third leg down will recover faster than the second ( less than 12 months )
Market rotations during crashes
Individual companies stock may have factors that cause it to move very differently than broader markets ( good or bad moves ) so ALWAYS forecast any stock forward 3 years
At the sector level,
high PE stocks fall faster based on volatility and higher sector PE compression
value stocks that generate positive cash flows consistently fall at a much lower rate
real assets - land, commodities etc tend to fall the slowest in market crashes the exception is commercial real estate which is tied to business demand and growth
Potential Value Opportunities
3 year increase in Cryptos - 2018 to 2021
2021 - new cryptos w high risk, high growth
- Many cryptocurrencies have performed better than Ethereum so far in 2021, including Solana, Cardano, Polygon, Decentraland, and Helium.
Solana ( SOL )
The superfast smart contract platform has gained over 11,000% since Jan 1. Like Ethereum, it is a programmable blockchain. It currently hosts over 500 different projects, from non-fungible tokens (NFTs) to DeFi apps.
The reason Solana's captured people's attention is that it's able to process over 50,000 transactions per second (TPS), and each costs a fraction of a cent.
Crypto Exchanges, Accounts, Wallets - 2021
https://www.fool.com/the-ascent/cryptocurrency/best-cryptocurrency-apps/
crypto-exchanges-trading-2021-Best Cryptocurrency Apps and Exchanges for December 2021.pdf
- Investing simplicity and and high interest rates: Gemini Exchange
- Trading platform and crypto selection: Coinbase
- Finding new cryptocurrency investing strategies: eToro
- Diversified investing needs: Robinhood
- Membership ecosystem: SoFi Active Investing
- Investing and peer-to-peer payment: Cash App Investing
exchange customers can buy and sell various digital currencies. They may also be able to do the following through the exchange's platform (not an exhaustive list):
- Exchange one type of cryptocurrency for another at prevailing exchange rates.
- Exchange cryptocurrency for fiat currency (like U.S. dollars), or for cryptocurrencies tied to fiat currencies.
- Spend cryptocurrencies, for example, using a linked debit card.
- Access educational resources to learn about digital currencies.
Crypto currency apps
Here are a few to consider:
- Security. Look at the exchange's security features to see how many of its assets are kept offline in cold storage, whether it has private insurance, and whether it is part of a bug bounty program that encourages ethical hackers to report any weaknesses. You can also find out whether the exchange has ever been hacked.
- Customer service. If you're new to cryptocurrency investing, 24/7 customer service is a must. Nobody wants to wade through pages of FAQ to get help because money hasn't arrived in their account.
- Range of currencies. There are over 4,000 cryptocurrencies, but even big exchanges only offer 50 to 150 coins. On most platforms, you'll likely be able to buy Bitcoin and one or two other major currencies. But if you want to buy a specific currency or plan to invest in some of the smaller coins, you'll need an exchange that has some variety.
- Ease of use. Cryptocurrency apps have developed rapidly as more people want to invest. However, at times that fast development has come at the cost of user-friendliness. Make sure the app has the features you want to use, and if you've never traded before, pick one that is beginner-friendly.
- Fees. Paying unnecessary fees is throwing money away, whether you're choosing a bank, a brokerage, or the best cryptocurrency app. Check how much it costs to deposit, withdraw, and trade before you open an account. It's also worth checking the withdrawal and deposit options to make sure they work for you.
- Research. Cryptocurrencies are a relatively new kind of investment, so the more you can learn, the better. Some apps include cryptocurrency learning centers as well as information on specific coins.
- Interest earning. Several cryptocurrency exchanges offer ways to earn interest on your coins. Make sure you understand and are comfortable with how the interest is generated. The exchange may loan out your money, or it may pay you staking fees if you commit to leaving your coins alone for a set period.
- Location. Some exchanges cannot operate in every U.S. state. Make sure the exchange you choose covers your state and complies with U.S. crypto regulations.
Where to store crypto: exchange or wallets?
it is a lot safer to leave your coins with the exchange or brokerage where you bought them. The best app for cryptocurrency will have excellent security and store your assets offline in cold storage. Several companies also insure the crypto assets they hold.
Exchange fees
Here are some fees to watch out for:
- Trading fees. Fees vary depending on the exchange and type of trade. You can find fee-free trading, but you're more likely to have to pay between 0.1% and 0.5% per trade. Fees usually get lower if you trade high volumes, and you can sometimes reduce the cost further by using the exchange's native coin.
- Deposit fees. A lot of the best cryptocurrency trading apps let you transfer money from your bank account for free. But it is worth checking, as some will charge up to 1.5%, especially if you use a debit card. If you want to pay by credit card, be aware that you're likely to get charged at least 3.5% and your bank may also treat it as a cash advance.
- Withdrawal fees. As we saw above, you can't currently withdraw your digital assets from traditional brokerages that are trading cryptocurrencies. The exchanges usually charge a set fee depending on the currency you want to withdraw. You can check the exact fees on their websites.
Potential Challenges
Biden DOE does not understand climate change or energy well - 2024 election risks
ET's Lake Charles LNG terminal development permit approval on hold by Biden adminsitration to redo environmental requirements
https://finance.yahoo.com/news/energy-transfer-could-getting-close-114400180.html
Big Tech vs SPX, ET - Forward PE & PEG rations - 240208 - what does growth cost and return?
You can see Big Tech can have big years in growth ( Meta 2023 and YTD ) vs MSFT ( 2022 and 2023 ) etc. On the other, ignoring price ET retuns a steady 9+ % cash flow with an intent to grow that annually 3 to 5%. As a midstream carrier of multiple energy types ET has a predictable business volume, pricing and cash flow compared to most businesses so lower overall risk going forward
Big Tech vs SPX, ET - 5 year view
Big Tech vs SPX, ET - 2 year view
Big Tech vs SPX, ET - 1 year view
Candidate Solutions
Step-by-step guide for Example
sample code block