[chassis]

Originally Posted by Chick Webb

Haven't made many investments in the past 6 months or so; holding absurd amounts of cash. As I said earlier in this thread (or maybe in another), I'm looking for AAPL to hit $120-130, SPY to hit $350-320, and the VIX to spike close to 40 before I consider pretty much anything investible. That said, I did buy a small amount of AMD today because their multiple got stupid low after the red flag they threw up yesterday. There are other semi's that I'm keeping a close eye on, but haven't pulled the trigger yet.

I have been making some trades, though. In the last several months I've both gotten killed and spiked some VIX options trades and am about even for the year on those at this point; I had the right idea, but my timing was off and the August calls didn't work out. It looks like I'm going to make a little on some EWG puts and if I do I'll take some of the profits and roll those forward. I have a nice profit in XLE calls that I bought last week and actually rolled those up to take the profits and extend the position a little further out into '23. If oil spikes that could pay off handsomely.

I was supposed to have a call yesterday with my Schwab guys to set up bearish reversals on a few things, thinking that I could make some money in the short term and pick up the shares to hold if/when they dropped. But for some reason my phone didn't ring and I missed them, and that idea got a lot more expensive today, dammit. Will re-assess over the weekend and come up with new strike prices, I think, because there are some things that I'm willing to buy if they drop another 5+% or so.

What is an absurd amount of cash to you, in terms of % of net worth or # of months' worth of living expenses?

[P1]

Originally Posted by chassis

What is an absurd amount of cash to you, in terms of % of net worth or # of months' worth of living expenses?

Let's make it even clearer: just ask what's an "absurd amount of cash", period.

[Tyga11]

Originally Posted by P1

Let's make it even clearer: just ask what's an "absurd amount of cash", period.

To some it’s $25k to others it’s $1M.

For me it would be $1M

[Chick Webb]

Originally Posted by chassis

What is an absurd amount of cash to you, in terms of % of net worth or # of months' worth of living expenses?

Middle of last year it was about 10%, which is 3+ years of living expenses. After dumping a lot of stuff starting last fall, now it's closer to 30%. But, understand, I'm 2 1/2 years (max) from retiring. My wife intends to keep working and makes good money but it's 1/3 of what I earn, and we have two mortgages (our house and the one I bought my MiL). And we live in CA, so the numbers are big. Really big.

The last thing I want is to have to liquidate a bunch of assets to fund the first few years of my retirement. My cash flow requirements in retirement are going to be significant for a while and de-risking right now makes a lot of sense for us. My sons, in their 20's? I tell 'em not to look at their statements and just keep piling the money in. Totally different for them.

[Tyga11]

You know it's bad when you're down 2% and that's a good day in the market!

[Tyga11]

Can someone explain to me the reversal? I'm not complaining!

[Chick Webb]

Originally Posted by Tyga11

Can someone explain to me the reversal? I'm not complaining!

It's the same reason people remarry - Hope against reason.

[Tyga11]

Originally Posted by Chick Webb

It's the same reason people remarry - Hope against reason.

I assume the reason is the markets reaches a point and all of the institutional investors just buy because it reaches that number?

[Chick Webb]

Originally Posted by Tyga11

I assume the reason is the markets reaches a point and all of the institutional investors just buy because it reaches that number?

Well, what I meant was the hope that the Fed is somehow going to start lowering interest rates soon triumphed (today, anyway) over the reasoned position that it's quite clear inflation is going to be very stubborn, rates will likely go a little higher, and will for sure be higher for longer.

Part of today's action was driven by the S&P touching of 3500. That triggered the selling of a lot of hedges and the resulting cash being reinvested then drove the market back up. It looks like we may be in for another short-term rally, since not even a hotter-than-expected inflation report could scare people off today. But there's no way this is the bottom, IMHO. Inflation is still high, too many people have jobs, and people haven't figured out how bad earnings are going to get in the coming recession.

How long will this latest bear market rally last? It could be over tomorrow, since it's the start of earnings season. All will depend on the earnings, since P = M * E. M's already come down because higher interest rates create a higher discount on future earnings. If there's going to be another 5-10% leg down, it'll be due to earnings coming down. We'll see.

[antzcrashing]

Originally Posted by Tyga11

I assume the reason is the markets reaches a point and all of the institutional investors just buy because it reaches that number?

And algorithms

[antzcrashing]

Originally Posted by Chick Webb

Well, what I meant was the hope that the Fed is somehow going to start lowering interest rates soon triumphed (today, anyway) over the reasoned position that it's quite clear inflation is going to be very stubborn, rates will likely go a little higher, and will for sure be higher for longer.

Part of today's action was driven by the S&P touching of 3500. That triggered the selling of a lot of hedges and the resulting cash being reinvested then drove the market back up. It looks like we may be in for another short-term rally, since not even a hotter-than-expected inflation report could scare people off today. But there's no way this is the bottom, IMHO. Inflation is still high, too many people have jobs, and people haven't figured out how bad earnings are going to get in the coming recession.

How long will this latest bear market rally last? It could be over tomorrow, since it's the start of earnings season. All will depend on the earnings, since P = M * E. M's already come down because higher interest rates create a higher discount on future earnings. If there's going to be another 5-10% leg down, it'll be due to earnings coming down. We'll see.

It would be over today or tomorrow but the us market is also celebrating hopes that the UK can get out of their pension problems. Might be next week before the hangover hits, but it will hit

[Tyga11]

Originally Posted by antzcrashing

It would be over today or tomorrow but the us market is also celebrating hopes that the UK can get out of their pension problems. Might be next week before the hangover hits, but it will hit

So if housing is driving inflation...it seems to me we have a housing problem. That's not an issue the FED can fix right?

I'm just trying to think outside the box

[antzcrashing]

Originally Posted by Tyga11

So if housing is driving inflation...it seems to me we have a housing problem. That's not an issue the FED can fix right?

I'm just trying to think outside the box

It's multi factor and several are increasing, not just housing. But yes, housing is impacting here:

"Another large jump in food prices boosted the headline number. The food index rose 0.8% for the month, the same as August, and was up 11.2% from a year ago.

That increase helped offset a 2.1% decline in energy prices that included a 4.9% drop in gasoline. Energy prices have moved higher in October, with the price of regular gasoline at the pump nearly 20 cents higher than a month ago, according to AAA.

Closely watched shelter costs, which make up about one-third of CPI, rose 0.7% and are up 6.6% from a year ago. Transportation services also showed a big bump, increasing 1.9% on the month and 14.6% on an annual basis. Medical care services costs rose 1% in September." CNBC

I would disagree that fed can't impact housing, if they hike enough it will translate, but it tends to lag more

[Tyga11]

Originally Posted by antzcrashing

It's multi factor and several are increasing, not just housing. But yes, housing is impacting here:

"Another large jump in food prices boosted the headline number. The food index rose 0.8% for the month, the same as August, and was up 11.2% from a year ago.

That increase helped offset a 2.1% decline in energy prices that included a 4.9% drop in gasoline. Energy prices have moved higher in October, with the price of regular gasoline at the pump nearly 20 cents higher than a month ago, according to AAA.

Closely watched shelter costs, which make up about one-third of CPI, rose 0.7% and are up 6.6% from a year ago. Transportation services also showed a big bump, increasing 1.9% on the month and 14.6% on an annual basis. Medical care services costs rose 1% in September." CNBC

I would disagree that fed can't impact housing, if they hike enough it will translate, but it tends to lag more

Why do we care if food prices go up like 5%? You're talking about less than a $1 or $2 increase for most foods. How is that worth crashing the economy over?

[antzcrashing]

Originally Posted by Tyga11

Why do we care if food prices go up like 5%? You're talking about less than a $1 or $2 increase for most foods. How is that worth crashing the economy over?

That is a very complicated question that gets into equality, equity, politics and other areas. But I will leave you with the fed's answer as it is relevant

As one of the Fed's mandated objectives, price stability itself is an end, or goal, of policy. Fundamentally, price stability preserves the integrity and purchasing power of the nation's money. When prices are stable, people can hold money for transactions and other purposes without having to worry that inflation will eat away at the real value of their money balances. Equally important, stable prices allow people to rely on the dollar as a measure of value when making long-term contracts, engaging in long-term planning, or borrowing or lending for long periods.

[Tyga11]

Originally Posted by antzcrashing

That is a very complicated question that gets into equality, equity, politics and other areas. But I will leave you with the fed's answer as it is relevant

As one of the Fed's mandated objectives, price stability itself is an end, or goal, of policy. Fundamentally, price stability preserves the integrity and purchasing power of the nation's money. When prices are stable, people can hold money for transactions and other purposes without having to worry that inflation will eat away at the real value of their money balances. Equally important, stable prices allow people to rely on the dollar as a measure of value when making long-term contracts, engaging in long-term planning, or borrowing or lending for long periods.

I wasn't looking for a definitive answer. I admit I'm selfish because I want the market to go up...for personal reasons. We all have a short life and I don't feel about it.

[Chick Webb]

Originally Posted by Tyga11

So if housing is driving inflation...it seems to me we have a housing problem. That's not an issue the FED can fix right?

Not directly, of course; the Fed's not out building houses or apartments. But driving up the cost of capital by raising rates has already begun to affect the market and prices. It's a blunt instrument, but it does work.

Mortgage interest rates have more than doubled in a year. That is a big shock and it's put a halt to the bidding wars and %5-over-asking offers we were seeing just last fall. Prices have started to drop a little, but it will be a while before that merd really hits the fan. That'll happen when people have to sell b/c they are moving to take a new job, or they can't afford the mortgage b/c they lost one, or some other circumstance that makes them desperate to sell. The pool of potential buyers at last year's price has shrunk dramatically, so prices will have to come down to the buyer's ability to pay.

Plus, the fed is taking $90 Billion a month out of the economy now (called Quantitative Tightening or QT). That is going to further tighten credit availabilty for everyone. Builders need loans to buy land, materials, pay laborers, etc., in order to build new homes. Even municipalities will be affected, as they typically issue bonds for improvements such as the new roads, sewers, schools, etc., that are needed for new housing development. All will be paying more to borrow, and will likely borrow less, which will slow the economy and reduce demand in a broad context.

Frankly it's the QT that worries me more than the interest rates. That has a tendency to cause these "Lehman moments", when hidden credit risks and complex cross-party leveraged positions suddenly become untenable and major portions of the economy threaten to cease functioning, literally overnight, without intervention from a Central Bank. That's what happened in the UK, and something like it could certainly happen here. It's why I'm not 100% in cash. If the Fed really breaks something and has to turn around and start pumping liquidity into the economy again, the markets are going to rally big in moments, and I don't want to miss it. Well, not all of it, anyway.

[chassis]

Let's talk about the housing market. It's tight for reasons of underbuilding since the GFC.

The past two years of unusual behavior in every way, shape and form, doesn't change the fact that the housing market is underbuilt.

Raising interest rates to the heavens won't change the fact that the housing market is underbuilt.

Summary: underlying demand for housing is strong enough to withstand significant interest rate increases, due to underbuilding since the GFC. So the Fed would be in error to attempt to reduce housing demand by raising interest rates.

Higher interest rates will blunt housing demand from speculators, and a small number of non-speculative but discretionary buyers. It will not change fundamental underlying demand based on household formation and housing units taken out of the market due to obsolescence, demolition, etc.

[2008M36MT]

Originally Posted by chassis

Let's talk about the housing market. It's tight for reasons of underbuilding since the GFC.

The past two years of unusual behavior in every way, shape and form, doesn't change the fact that the housing market is underbuilt.

Raising interest rates to the heavens won't change the fact that the housing market is underbuilt.

Summary: underlying demand for housing is strong enough to withstand significant interest rate increases, due to underbuilding since the GFC. So the Fed would be in error to attempt to reduce housing demand by raising interest rates.

Higher interest rates will blunt housing demand from speculators, and a small number of non-speculative but discretionary buyers. It will not change fundamental underlying demand based on household formation and housing units taken out of the market due to obsolescence, demolition, etc.

Agree with the demand remaining strong thesis generally, but believe it is speculative demand in particular that will continue account for and drive most of the demand. It isn't Main Street that's buying homes at this point, but institutional investors, which is inherently speculative. Low supply notwithstanding, Main Street is depleting savings and relying on credit at record levels, qualifying for mortgages is as hard as ever. Folks don't have $100K sitting in their accounts for down payments, can't pay 2x monthly payment since inflation has outpaced wage growth, so on and so forth. I'm a capitalist at heart but something stinks to high heaven, this type of speculation needs to be regulated and regulated quickly.

That said, I want to buy a second house, hoping the San Diego market drops by 20% then I'm in.

[dangerus_car]

Bloomberg said that today bounce is probably most likely technical reason. The bounce happens to hit the 50% half point between covid low in 2020 and january 2022 high.

Most institutions who place puts then cash in then buy back the share.

[tgrundke]

Originally Posted by Tyga11

Why do we care if food prices go up like 5%? You're talking about less than a $1 or $2 increase for most foods. How is that worth crashing the economy over?

Beef, chicken, milk, eggs, flour, cooking oils are all up significantly. Chicken is crazy: $8.49/lb. for organic split breast, $6.50/lb. for non-organic. That's up nearly 40% over the last two years.

When you look at the median take home pay, an increase across your basket of goods against a fixed income is pretty disastrous. If you take someone with a $50k salary that leaves them with around $400/week in disposable income after fixed items like rent and taxes are factored in. If you assume $200/week in food, that's $28/day you have available.

Now imagine you've got several mouths to feed....

[tgrundke]

Originally Posted by chassis

Let's talk about the housing market. It's tight for reasons of underbuilding since the GFC.

The past two years of unusual behavior in every way, shape and form, doesn't change the fact that the housing market is underbuilt.

Raising interest rates to the heavens won't change the fact that the housing market is underbuilt.

Summary: underlying demand for housing is strong enough to withstand significant interest rate increases, due to underbuilding since the GFC. So the Fed would be in error to attempt to reduce housing demand by raising interest rates.

Higher interest rates will blunt housing demand from speculators, and a small number of non-speculative but discretionary buyers. It will not change fundamental underlying demand based on household formation and housing units taken out of the market due to obsolescence, demolition, etc.

Agreed, and I'll add to this: consider that many of the homes built in the last few years of ultra-low interest rates have skewed the cost basis upward as home builders went upmarket in prices and existing home owners "over improved" their properties.

Now, add in the last 24 months of shortages and inflation and you're adding even more cost to a home.