EJ: The countdown to the next crisis of The System has started.

[touchring]

Re: EJ: The countdown to the next crisis of The System has started.

EJ has suppliers in China and probably contacts that can inform him of the covid 19 situation. The virus is 100% confirmed to spread and wreck havoc. So far, everyone is still preoccupied in the rocketing stock market, no one is writing about how the pandemic will affect the economy and stock market eventually.

[jk]

Re: EJ: The countdown to the next crisis of The System has started.

I don't think the post WWII era is a great analog for U.S. stocks in the current era. Stocks started out the post WWII era with low profit margins and low valuation ratios. Earnings rose during that period and equity valuations rose too, so the U.S. stock market was a good place to invest. If inflation picks up going forward, I think it will be difficult for S&P earnings to rise because record profit margins should compress and valuation ratios should compress too. Luke is counting on a manufacturing resurgence, but if he's correct, profit margins and P/E ratios are far lower in manufacturing industries than in the tech companies that are such a large weight in the market today. I think Luke is right about a lot of things, but I doubt U.S. stocks will do a great job of preserving or growing anyone's capital in real terms in a high inflation environment.

from charts i've seen, stocks didn't do much in real terms over that period, but they didn't lose real value, while the value of bonds was decimated. i think in talking about profits we'll need to distinguish nominal from real, and in fact will need to do so talking about any values of anything whatsoever. for example, nominal earnings could rise while real earnings are stagnant or even compress. at base i think the argument is that stock represents ownership in finite, real enterprises, which should in general hold value. i remember in the 70's, though, that - for example- there were major distortions in calculating things like profits because of the nominally rising value of inventories, more concentrated in some industries than others. all the numbers are going to get slippery.

[GRG55]

Re: EJ: The countdown to the next crisis of The System has started.

from charts i've seen, stocks didn't do much in real terms over that period, but they didn't lose real value, while the value of bonds was decimated. i think in talking about profits we'll need to distinguish nominal from real, and in fact will need to do so talking about any values of anything whatsoever. for example, nominal earnings could rise while real earnings are stagnant or even compress. at base i think the argument is that stock represents ownership in finite, real enterprises, which should in general hold value. i remember in the 70's, though, that - for example- there were major distortions in calculating things like profits because of the nominally rising value of inventories, more concentrated in some industries than others. all the numbers are going to get slippery.

You'll recall some of the companies/industries that did the best in the 1970s had enormous inventories - unhedged reserves of minerals in the ground.

I still think it's a rising US$ that precipitates the next phase of the global financial crisis, not a falling $. Après comes that.

But to use an old Hugh Hendry phrase, I am "stirring about in the ashes" looking for gems.

[jk]

Re: EJ: The countdown to the next crisis of The System has started.

New Fed white paper “Managing the Yield Curve in the 1940s”

Managing the Treasury Yield Curve in the 1940s – February 2020
https://www.newyorkfed.org/medialibr...orts/sr913.pdf

[jk]

Re: EJ: The countdown to the next crisis of The System has started.

You'll recall some of the companies/industries that did the best in the 1970s had enormous inventories - unhedged reserves of minerals in the ground.

I still think it's a rising US$ that precipitates the next phase of the global financial crisis, not a falling $. Après comes that.

But to use an old Hugh Hendry phrase, I am "stirring about in the ashes" looking for gems.

agree, dollar's rise likely to continue for some time. hard to know when it's time to buy commodity companies: where's the bottom? i've been buying some, and taking losses. holding back on further purchases.

got a timeline, grg?

[LazyBoy]

Re: EJ: The countdown to the next crisis of The System has started.

This is someone's daily summary of Covid-19 impact from a Supply Chain forum. It has some interesting links, including a Dun & Bradstreet whitepaper.

https://www.reddit.com/r/supplychain...date_21st_feb/

[GRG55]

Re: EJ: The countdown to the next crisis of The System has started.

agree, dollar's rise likely to continue for some time. hard to know when it's time to buy commodity companies: where's the bottom? i've been buying some, and taking losses. holding back on further purchases.

got a timeline, grg?

In some ways this seems much like the early to mid-2000s. At the time the coming financial crisis and toxic credit reasons for it (what was going to happen) were not difficult to discern or understand. The challenge was it was impossible to forecast years in advance when it would actually occur. And as it turned out both the duration and the amplitude of the distortions in the credit markets went beyond what some of us expected, before things finally started to break in the spring and summer of 2007, with the early warning signals of the oncoming storm the following year.

The deflationary bias that continues to push up the DXY seems to be persisting, now aided and extended by COVID19. Unlike SARS this variation appears to have the potential for longer lasting economic effects, initially deflationary due to the potentially "permanent" collapsing demand for everything from cruise ship cabins to airline seats. However, COVID19 would ultimately appear to be adding to the inflationary de-globalization pressures that were already gaining momentum.

What I wonder about is how inflationary the long run effects will be as, for example, elongated "just-in-time" global supply chains are reworked to more localized, more reliable, but materially more expensive sourcing. Will demand rebound in due course and be satisfied with more expensive to produce goods? Or will this be the catalyst for another stagflationary episode similar to the 1970s as consumption is dampened significantly due to rising prices? Will China attempt to (re)fill it's overcapacity by doubling down on Belt and Road type initiatives? Inquiring minds want to know, LOL.

For what it's worth, there's a case to be made for $80 oil by the end of 2021. That is directing some of my ashes investigations in the burned down energy sector.

[jk]

Re: EJ: The countdown to the next crisis of The System has started.

this is the ka before the poom. we're in a deflationary environment in many ways, exacerbated by the developing pandemic. but i expect ENORMOUS stimulus to the the response of gov'ts all around the world, including projects which will drive up the price of commodities.

wage inflation is the tough one to predict - i expect shortened supply chains will mostly be done with automation, but to some degree with higher priced labor. the 70's, the 40's-50's are both possible models. the role of gov't is POTENTIALLY going to have enormous consequences: real efforts to control the cost of healthcare, for example, 2 years of free public college or vocational training post high school could shift big piles of money in other directions.

i've already invested about 85% of my commodities allocation- likely too early. likely way too early.

[Mega]

Re: EJ: The countdown to the next crisis of The System has started.

About BLOODY TIME!
I been waiting since 2006 !!!!!!!!
Mike

[jk]

Re: EJ: The countdown to the next crisis of The System has started.

us energy stocks at lowest price relative to s&p500 since pearl harbor attack in 1941

---

https://twitter.com/TayTayLLP/status...68659137208324

[shiny!]

Re: EJ: The countdown to the next crisis of The System has started.

this is the ka before the poom. we're in a deflationary environment in many ways, exacerbated by the developing pandemic. but i expect ENORMOUS stimulus to the the response of gov'ts all around the world, including projects which will drive up the price of commodities.

...

i've already invested about 85% of my commodities allocation- likely too early. likely way too early.

I can relate. I invested in mid-level oil and gas pipelines right before that sector crashed. High distribution rates mean nothing when the prices fall like they did. It's been a bloodbath. Given the push the Democrats are making towards the Green New Deal, I'm wondering if this sector will ever come back and if so, when?

[GRG55]

Re: EJ: The countdown to the next crisis of The System has started.

About BLOODY TIME!
I been waiting since 2006 !!!!!!!!
Mike

2006??

Did you miss the last crisis Mike?

[GRG55]

Re: EJ: The countdown to the next crisis of The System has started.

I can relate. I invested in mid-level oil and gas pipelines right before that sector crashed. High distribution rates mean nothing when the prices fall like they did. It's been a bloodbath. Given the push the Democrats are making towards the Green New Deal, I'm wondering if this sector will ever come back and if so, when?

If you are buying pipeline MLPs you are buying an interest rate sensitive financial instrument which will behave somewhat similar to a bond through the interest rate cycle.

[shiny!]

Re: EJ: The countdown to the next crisis of The System has started.

If you are buying pipeline MLPs you are buying an interest rate sensitive financial instrument which will behave somewhat similar to a bond through the interest rate cycle.

Do you mean that when interest rates eventually rise, share prices will go down more?

Over the last 4 years or so, EPD hasn't grown but has held steady. PSXP and SHLX were significantly discounted when i bought them. PSXP has done well but SHLX did a major share dilution and has fallen even more since then. It doesn't seem to have a bottom. SEP held steady but got bought out by Enbridge IIRC.

[jk]

Re: EJ: The countdown to the next crisis of The System has started.

If you are buying pipeline MLPs you are buying an interest rate sensitive financial instrument which will behave somewhat similar to a bond through the interest rate cycle.

if you expect rates to go down in the immediate future they will benefit short term.

do contracts renew frequently enough for the mlp's to raise their prices and earnings if energy prices are rising? if so, that would presumably feed through into higher dividends. i.e. do they have pricing power?