I’m also starting to lean towards this view. The current way of operating will inevitably lead to the further escalation of already large income disparities. The question then is whether unrest can be avoided, or if it will inevitably lead to revolution and the creation of a new system. The current situation feels like a ticking time bomb in this sense. The longer the situation lasts, the more desperate measures will have to be resorted to, both with corona and the economy, and the more disagreement they will create.
It would be a natural cycle of the world. Ray Dalio seemed to describe that the transition to a new system is always experienced as frightening, but ultimately as a good thing for the collective.
I didn’t have time to finish watching the video, but a question came to mind: could dividend yields in the US rise instead of share buybacks, due to central bank money flowing into stocks? Other interests will certainly come into the stock market when money flows in through doors and windows so much that the frames come loose.
From this, I understand that the best environment would be one where one could somehow justify a maximal valuation level relative to earnings performance. The problem, in my opinion, is that from the peak, the journey goes downwards.
I personally find the TINA environment quite uncomfortable, because valuation is based too much or even almost entirely on factors outside of the business itself. It is somehow much easier to make relatively OK investments if there is interest in the portfolio as a safeguard, if EPS starts to decline and stocks otherwise have low multiples to support them.
Well, yeah. Growth companies are allowed high multiples, but only when “everyone” discovers them. It’s not bad if you’re a bit ahead of the curve.
Good clarifying question. I meant this as the best environment for stocks in general, considering total return: earnings growth is possible, multiples expand, and interest rate hikes don’t cause stress. Of course, as always, all good things come to an end eventually.
But even this isn’t pleasant for all stocks. For example, our engineering companies would surely prefer faster economic growth than what we’ve seen.
I’d say that valuation still relies
(or at least relied in the “non-crisis times” of 2010–2019) on companies’ own earnings performance in the sense that investors don’t easily give high multiples to companies that don’t deserve them. This hasn’t been like “2008” when all sorts of companies received high multiples relative to their earnings performance.
Those that grow are indeed crowned with even more generous multiples in this environment. But a growth company is a “scarce commodity” in the stock market, and you have to pay for it.
Our good friend Tuomas Malinen and his central bank-critical speech on Yle radio channel can be listened to from the link below. 54 minutes of full bear talk, where at one point Malinen even mentioned that leaving the euro would be the only option for Finland if helicopter money starts falling from the sky. Worth listening to.
As for Inderes’ Melkein Minuutissa (Almost in a Minute) and Nordnet’s Trader’s Club, I think both are good and factual channels that delve into market events and explain even very complex things in plain language… they complement each other well, even though both cover some of the same points. So, from this home couch, full marks (Verneri Douze Pointe) go to Inderes’ Melkein Minuutissa videos.
Lepikko’s theory makes pretty far-fetched assumptions, but to be honest, I largely think the same way myself – so much so that there don’t seem to be many viable alternatives.
The expected return on bonds is miserable. Pension costs are only growing. Returns have to come from somewhere. What else besides stocks and alternative private equity funds (e.g., infra, energy, real estate…)?
Gold might also become relevant if interest rates have to be raised, causing stocks to lose momentum. But this can’t happen for a really long time yet, can it?
Mikko Mäkinen’s interview from December came to mind, where he described how growing and undervalued markets on average perform better than highly valued and slow-growing ones.
I need to listen to it again myself, I think he meant certain frontier markets were attractive at the time (many had/have low valuations) compared to the US market in 2019, which was on the expensive side.
The gap has actually probably widened even more now… The fact that, on average, a developed and more stable market is more comfortable for an investor (and we haven’t even really had many alternatives to Western markets besides Japan and a few others for only a few decades) doesn’t usually mean that developing markets can’t offer better returns sometimes, especially if the starting level is low. And some of those markets also mature into more stable ones over time.
The expression “central bank money flows into stocks,” which I also use fruitfully, is a bit misleading because, in fact, the Fed’s or ECB’s purchase programs do not directly involve stocks. They buy debt instruments and thus try to push the market to move money into riskier assets, such as stocks.
This raises (most likely, this has not unambiguously happened in Japan, even though the central bank buys stocks directly…) valuation multiples, which weakens the dividend yield %. It does not have a direct impact on companies’ earnings and, consequently, on profits distributed to owners.
Sure, the increase in central bank money has also pushed down interest rates in our country, thereby directing money to relatively low-yield but stable stocks, whose valuation level is historically high and the price increase seems to have been based more on the rise in PE ratios.
A little wild Saturday speculation (without the influence of alcohol, mind you).
Kim Jong-Un dead/in a coma/otherwise out of the picture. A huge riot will begin in North Korea, first internally, and then China and South Korea/the US will get involved. The end result will be the collapse of the Kim dynasty at some point and some kind of hybrid between the Chinese model and the free world.
A tremendous reconstruction will begin, boosting the world economy into new growth.
Whether North Korea remains its own state or goes the way of East Germany remains to be seen.
One can say about these that, citing their own sources, TMZ has been the first news agency to report on several American deaths (e.g., Michael Jackson, Kobe Bryant, etc.)… but in this case, even these agencies are only referring to foreign information.
If official information on the matter emerges around Sunday/Monday, stock markets could easily drop by a couple of percent for a single day.
Uncertainty about the future could probably weigh down stock prices. And whoever would rise to leadership, they might feel pressured to show that they are a decisive and independent leader, etc., and create more uncertainty.
If Kim is in good health, then attention will shift to this:
North Korea is a Confucian country that values seniority and masculinity. She is Kim’s most trusted ally, but nothing more, Petrov says.
Instead, according to Petrov, Kim Yo-jong has an important role in strengthening Kim Jong-un’s soft power and polishing his public image.
– She plays a central role in North Korea’s national and international political campaigns, as she is one of the key actors for the regime’s survival.
According to Anna Field, Beijing bureau chief of The Washington Post, however, Kim Yo-jong is the only member of Kim’s family who would have the opportunity to succeed her brother.
So, it’s mainly about whether North Korea, despite all its Confucianism, can, when forced to, transition to so-called “female command”…?
For the future, it could be something some have dreamed of:
For North Korea, the only somehow close significant state is China…
“He wants to open North Korea, rebuild its economy and has said that he wants to do for North Korea what Deng Xiaoping did for China. He wants a peace regime,” Rogers said.
“I would like to invest in North Korea, but I’m not allowed to now because I’m an American and it’s illegal. .."
Unfortunately, power vacuums are often filled by the man who is willing to do anything. If Kim is dead, I bet the cruelest general will take power and a new dynasty will be born. The stock market will, of course, take a small hit. However, as long as North Korea stays within its own borders, this will have no impact on companies’ future earnings.
The acquisition of nuclear weapons by the “wrong hands” (from the terrorists’ perspective, it would be the “right hands”) is another “white swan” alongside the pandemic; it wouldn’t be a surprise, but rather a matter of time.
The possible collapse of North Korea could raise this concern. Regarding the collapse of such a secretive regime, outsiders can only speculate. Either it will collapse soon, or it will limp along for an surprisingly long time.
North Korea is not the only one. Pakistan and India are also wild cards when it comes to nuclear weapons. Pakistan is a wild card even concerning its own existence…
If we take the speculations further, which is allowed on weekends, the nuclear arms game has also become more complex in the hands of states. As I understand it, there is fairly good communication between Russia and the USA on these matters, based on 70 years of experience. Now there are several nuclear powers, and what kind of “hotline” exists between Beijing and Washington to resolve ambiguities is a question mark.
There you have some contemplation of risks that are difficult for investors to quantify but are clearly visible…
