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Is there a legit depression level crash coming?
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<blockquote data-quote="Weather Man" data-source="post: 16574470" data-attributes="member: 137766"><p>Good piece.</p><p></p><p>In this article, I first spend a short time explaining that there is, indeed, a certain kind of bubble. However, there is not a single monster bubble that's gobbling up the world. Second, I adjust the lens, and I'll open up the world of possibilities. There are plenty of opportunities to succeed in the years ahead, bubble or no bubble. Lastly, I provide some concrete "picks" for investors who are open to active selection.</p><p></p><p></p><p><span style="font-size: 18px"><strong>Of Course There Is a Bubble</strong></span></p><p>It's impossible to ignore the fact that the stock market has inflated. Many geniuses and pundits have already explained this so I'm happy to simply reference their work. Here's a taste.</p><p></p><ul> <li data-xf-list-type="ul"><a href="https://money.com/stock-market-bubble-1999/?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link" target="_blank">5 Ways the Stock Market Looks Just Like the 1999 Dot-Com Bubble</a></li> <li data-xf-list-type="ul"><a href="https://www.cnbc.com/2021/01/03/stocks-and-bitcoin-are-massive-bubbles-david-rosenberg-warns.html?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link" target="_blank">Stocks and bitcoin are massive bubbles</a></li> <li data-xf-list-type="ul"><a href="https://www.msn.com/en-us/money/topstocks/four-ways-the-market-today-is-eerily-similar-to-the-dot-com-bubble-bofa/ar-BB1dicZC?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link" target="_blank">Four ways the market today is eerily similar to the dot-com bubble</a></li> <li data-xf-list-type="ul"><a href="https://seekingalpha.com/article/4400666-are-now-officially-in-stock-market-bubble?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link" target="_blank">We Are Now Officially In A Stock Market Bubble</a></li> <li data-xf-list-type="ul"><a href="https://seekingalpha.com/article/4398422-yes-virginia-is-stock-market-bubble?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link" target="_blank">Yes, Virginia. There Is A Stock Market Bubble</a></li> </ul><p>Valuations are sky-high. IPOs and SPACs are running hot. Day traders are back in force and meme stocks are grabbing headlines. Cash is pouring into funds.</p><p></p><p>While all of this is rattling around in my head, I like to look here because it's extraordinarily simple. Simultaneously, there is depth.</p><p></p><p>[ATTACH=full]1687833[/ATTACH]Source: msindex.net</p><p></p><p>The MS index is the expected return on invested capital (equity) divided by the invested capitals replacement value (net worth), and can be calculated for the U.S. as follows.</p><p></p><p>In effect, when The Fed tries to juice activity in the economy with easy money, it doesn't work. Instead, money tends to pump up asset prices but activity itself doesn't tend to increase. I'll come back to this shortly.</p><p></p><p>For now, I'll just say that if you're following the "rules" of the Mises Stationarity Index, popularized by Mark Spitznagel in <a href="https://amzn.to/2MBrWwG?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link" target="_blank">The Dao of Capital</a>, then you should buy when it's below 0.7 and sell when it's above 1.6 per the chart above. In other words, the market as a whole is screaming sell, sell, sell.</p><p></p><p>By the way, you might recognize the Mises Stationarity Index because it looks nearly identical to Tobin's Q. Here's that picture right now.</p><p></p><p>[ATTACH=full]1687834[/ATTACH]Source: <a href="https://www.advisorperspectives.com/dshort/updates/2021/02/03/the-q-ratio-and-market-valuation-january-update?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link" target="_blank">Advisor Perspectives</a></p><p></p><p></p><p>I think about it this way. Very simply, The Fed is printing like crazy, and that money is pouring into the economy. Furthermore, interest rates keep going down so everyone is reaching out on the yield curve. This means more and more money is chasing after assets thus driving up prices.</p><p></p><p>Unlike the Great Financial Crisis the money being printed now is not just pouring into banks for stability. Instead, dollars are now bleeding out into the general economy and - quite literally - into the hands of individuals who spend. The real-world money supply is increasing.</p><p></p><p>Of course, that means that many businesses are succeeding and their profits will soar, and continue to soar. In turn, this will almost certainly drive asset prices even higher. In short, money printing is inflating the bubble because money is chasing assets. Buying debt (i.e., bonds) is "dumb" and people who are saving are getting killed.</p><p></p><p>I want to make it very clear that there is almost certainly an asset bubble, and dollar bubble. But, the savings bubble has popped. You cannot put cash in the bank and collect enough money from interest to beat inflation over time. The value of cash in the bank is slowly but surely dying off while asset prices are shooting to the moon.</p><p></p><p>Despite all the printing there is not nearly the level of money-changing activity you might expect. It's critical to understand the concept of <a href="https://fred.stlouisfed.org/series/M2V?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link" target="_blank">money velocity</a>.</p><p></p><p>The velocity of money is the frequency at which one unit of currency is used to purchase domestically- produced goods and services within a given time period. In other words, it is the number of times one dollar is spent to buy goods and services per unit of time. If the velocity of money is increasing, then more transactions are occurring between individuals in an economy.</p><p></p><p>[ATTACH=full]1687835[/ATTACH]Source: <a href="https://fred.stlouisfed.org/series/M2V?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link" target="_blank">FRED Economic Data</a></p><p></p><p>Therefore, if the velocity of money is decreasing there are fewer transactions in the economy. Put another way, you can print all the money you want and you can feed it to banks or even directly to the people. But, if they aren't spending it, well, <em>then it's got to sit somewhere</em>. And, it's not going to sit in the bank because buying debt or saving cash simply cannot compete with exploding asset prices. That is to say, the stock market will continue to shoot up. Money will chase the yield up, and then up some more.</p><p></p><p></p><p>I want to really emphasize what's powering the stock market bubble. The Federal Reserve has been printing money and they've killed interest rates. Money is pouring into market. Because market participants are semi-rational, they are trying to put their money to good use. If you're holding stocks, it feels pretty good, and it'll work until it doesn't.</p><p></p><p>The stock market - when viewed in its entirety - is relentlessly going up and beyond normal levels in almost every "traditional" way we can imagine. If nothing else, the fact it came back so strongly from COVID-19 is a testament to the inflation of the bubble. It's my assertion that the twin power of money printing and low interest rates is greater than the pandemic at this point. Unless there is another macro event (e.g., war, another pandemic, natural disaster), the stock market will keep inflating for now.</p><p></p><p><span style="font-size: 18px"><strong>But, There Is No "Everything Bubble"</strong></span></p><p>I believe I've made it clear that it looks like there is an overall stock market bubble. It's easy to argue with data that there is a bubble and it's hard to deny that the market is very extended at this point in time.</p><p></p><p>I believe I've also already made the case that interest rates are depressed. If that's not extremely clear, then please look here:</p><p></p><p></p><p></p><p>[ATTACH=full]1687836[/ATTACH]</p><p></p><p></p><p>If the 10-year view isn't good enough, then feast your eyes on the 700-year decline in interest rates.</p><p></p><p>[ATTACH=full]1687837[/ATTACH]Source: <a href="https://www.visualcapitalist.com/700-year-decline-of-interest-rates/?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link" target="_blank">VisualCapitalist</a></p><p></p><p></p><p>There's more and more money chasing fewer and fewer real-world assets. And, as the trend indicates, interest rates are dying. It's an anti-bubble, where negative yields (i.e., savings destroys your capital) are growing tremendously.</p><p></p><p>[ATTACH=full]1687838[/ATTACH]Source: <a href="https://www.bloomberg.com/news/articles/2020-12-11/world-s-negative-yield-debt-pile-at-18-trillion-for-first-time?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link" target="_blank">Bloomberg</a></p><p></p><p>For perspective, the <a href="https://www.wsj.com/articles/the-world-is-bingeing-on-debtand-smashing-records-11606732203?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link" target="_blank">Wall Street Journal reports</a>:</p><p></p><p>More broadly, the Institute of International Finance recently said global debt had risen $15 trillion to $272 trillion in the first nine months of this year, and is set to hit $277 trillion by year-end—a record 365% of world gross domestic product.</p><p></p><p>Therefore, roughly speaking, probably 7-8% of all debt in the world is negative. Now, even if I'm wrong by 1-2% for whatever reason, we're still looking at an increasing pile of capital destroying debt. Rational human investors - <em>not central bankers</em> - will not buy this debt. Furthermore, despite the irrationality, there's no reason to believe this will stop any time soon. And, investors are paying attention.</p><p></p><ul> <li data-xf-list-type="ul"><a href="https://www.reuters.com/article/us-usa-fed-rates-investors-analysis/once-taboo-investors-begin-to-imagine-negative-u-s-rates-idUSKBN22O0P0?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link" target="_blank">Once taboo, investors begin to imagine negative U.S. rates</a></li> <li data-xf-list-type="ul"><a href="https://www.wsj.com/articles/investors-ponder-negative-bond-yields-in-the-u-s-11565521203?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link" target="_blank">Investors Ponder Negative Bond Yields in the U.S.</a></li> <li data-xf-list-type="ul"><a href="https://www.kiplinger.com/article/investing/t019-c000-s002-will-rates-in-the-u-s-go-negative.html?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link" target="_blank">Will Rates in the U.S. Go Negative?</a></li> </ul><p>It probably doesn't matter if rates in the U.S. go negative for two reasons. First, because investors are aware of the situation they've already started to position themselves and they'll continue to adjust. Perception is reality. Second, rates are so close to zero that when you add even a touch of inflation, there's still no yield in "safe" investments, like savings bonds and bank savings accounts. Again, investors will continue to chase returns in other places.</p><p></p><p><span style="font-size: 18px"><strong>Growth Versus Value</strong></span></p><p>In large part, this also explains how growth stocks have been winning and value stocks have been losing. Stated differently, investors see price appreciation and therefore capital gains opportunities.</p><p></p><p>Buying and holding tech stocks, for example, has paid off because prices are exploding. That in turn encourages more investing, which drives prices vertical, sometimes even when revenue is not keeping up.</p><p></p><p></p><p>Keeping things simple, just compare the Vanguard Russell 1000 Growth ETF to the Vanguard Russell 1000 Value ETF.</p><p></p><p></p><p></p><p>[ATTACH=full]1687839[/ATTACH]</p><p></p><p></p><p>All of this said, I'm not convinced that there's a difference between value and growth. I like to buy stocks that are on sale relative to their underlying value.</p><p></p><p>I agree with Howard Marks in <a href="https://www.oaktreecapital.com/docs/default-source/memos/something-of-value.pdf?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link" target="_blank">Something of Value</a>: The two approaches should have never been mutually exclusive. <a href="https://www.berkshirehathaway.com/letters/1992.html?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link" target="_blank">Buffett said the same thing</a>:</p><p></p><p></p><p></p><p>Most analysts feel they must choose between two approaches customarily thought to be in opposition: "value" and "growth." Indeed, many investment professionals see any mixing of the two terms as a form of intellectual cross-dressing.</p><p></p><p>We view that as fuzzy thinking (in which, it must be confessed, I myself engaged some years ago). In our opinion, the two approaches are joined at the hip: Growth is always a component in the calculation of value, constituting a variable whose importance can range from negligible to enormous and whose impact can be negative as well as positive.</p><p></p><p>Therefore, we're looking for compounding machines. And, while the stock market can be depressed, or in a bubble, there are always pockets of opportunity. Those individual stocks come in many sizes, shapes and flavors.</p><p></p><p><span style="font-size: 18px"><strong>Something for Everyone</strong></span></p><p>I believe that there are stocks available in the market that could work out really well for investors despite the overall bubble we face. Put differently, individual stocks are not in a bubble. Yes, some stocks are expensive and I won't buy. But, there are other stocks that are not in a bubble.</p><p></p><p>Before I get to some recommendations, I'll point out that even just recently, several stocks were on sale, or had potential. Those stocks then exploded upward in value. Take a peek here.</p><p></p><p></p><p></p><p>[ATTACH=full]1687840[/ATTACH]</p><p></p><p></p><p></p><p>I've been "Very Bullish" and more recently "Bullish" about Palantir (<a href="https://seekingalpha.com/symbol/PLTR?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link" target="_blank">PLTR</a>) since back in late 2020, as you can see below. I've been pounding the table.</p><p></p><p>[ATTACH=full]1687841[/ATTACH]Source: <a href="https://seekingalpha.com/author/john-rhodes?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link#regular_articles&ticker=pltr" target="_blank">Seeking Alpha</a></p><p></p><p>For the record, right now, I'm waiting for earnings to be reported before I review my thinking. But, my point is that this stock was a winner and there are ways to "win" with IPOs and DPOs (direct public offerings).</p><p></p><p>Next, very quickly, I'll mention a <a href="https://seekingalpha.com/instablog/2312271-john-rhodes/5546497-slinger-bag-ready-to-launch?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link" target="_blank">blog post</a> I wrote about a tiny little company called Slinger Bag (<a href="https://seekingalpha.com/symbol/SLBG?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link" target="_blank">OTCQB:SLBG</a>). I wrote about it back on January 23rd, 2021 and this has been the result.</p><p></p><p></p><p></p><p>[ATTACH=full]1687842[/ATTACH]</p><p></p><p></p><p>SLBG is a tiny company with $60M market cap. So, there is risk, as you'll find with any microcap company. However, with some due diligence and proper risk management, there are opportunities in the nooks and crannies. Some winners are waiting for you in the small cap universe.</p><p></p><p>I'll also point out that Alphabet (NASDAQ:<a href="https://seekingalpha.com/symbol/GOOG?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link" target="_blank">GOOG</a>) (<a href="https://seekingalpha.com/symbol/GOOGL?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link" target="_blank">GOOGL</a>) was a rational investment just a month ago, as you can see here:</p><p></p><p>[ATTACH=full]1687843[/ATTACH]Source: <a href="https://seekingalpha.com/article/4397526-googles-money-secret?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link" target="_blank">Google's Money Secret</a></p><p></p><p>My point isn't that I'm some stock-picking genius. Instead, the idea is that even when the market is in a bubble, individual stocks are not necessarily in a bubble. GOOGL is a great company, growing like crazy and they have an incredible pile of cold hard cash.</p><p></p><p>I like several stocks right now despite everything I know about the general stock market bubble. Here are two stocks that I think are undervalued and provide a little bit of something for all investors. There's nothing crazy here but I think there's potential.</p><p></p><p>First, I like Altria (<a href="https://seekingalpha.com/symbol/MO?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link" target="_blank">MO</a>).</p><p></p><p>[ATTACH=full]1687844[/ATTACH]Source: <a href="https://www.fastgraphs.com/?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link" target="_blank">FASTgraphs</a></p><p></p><p>Even if the stock limps along it'll likely return 12-15% for several years. I predict much more, but even down around 8-10% is very appealing. The price can stay perfectly flat, and the dividend can stay flat too, yet the 8% yield will give us an incredible floor. The business can just float along and give investors 8% year after year. Furthermore, earnings are not expected to stagnate. MO is expected to grow earnings. That's real money falling to the bottom line. In turn, a large percentage of that cash will be turned over to investors.</p><p></p><p>Next, I like Lockheed Martin (<a href="https://seekingalpha.com/symbol/LMT?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link" target="_blank">LMT</a>).</p><p></p><p>[ATTACH=full]1687845[/ATTACH]Source: <a href="https://www.fastgraphs.com/?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link" target="_blank">FASTgraphs</a></p><p></p><p>LMT's 20-year P/E average is 17, 15-year P/E average is 15 and 10-year average is 17. Therefore, we're looking at something between 15 and 17. Right now, LMT is sitting at under 14, so just very simple regression toward the mean gets us to a P/E of 15, which is what I'm showing above. That generates over 10% over the next several years. It's a pleasant combination of price appreciation and an abnormally high yield.</p><p></p><p></p><p></p><p>[ATTACH=full]1687846[/ATTACH]</p><p></p><p></p><p>Right now, the yield is over 3% and the payout ratio is also acceptable at 40%. It's been between something like 20% to 55% over the last 20 years, so we're "in range" for the payout ratio. LMT also has an A- S&P Credit Rating.</p><p></p><p>I'll pause here for a moment. I completely understand that MO and LMT maybe aren't literally for "everyone" but they are worth further investigation. They are growing earnings, growing their dividends, they are undervalued relative to history, they are investment grade, and so much more. Of course, there are always problems with any company. MO faces regulation, problems with JUUL, declining cigarette consumption and more. LMT faces political uncertainty and production issues. Regardless, there's more to like than dislike for most investors, especially in this environment.</p><p></p><p>Adding it all up, PLTR, SLBG, GOOGL, MO and LMT should get you thinking about pockets of opportunity. There are always rational places to put your money. There are mispriced assets available. That doesn't mean it's easy, or that there's always going to be a slam dunk or easy win. But, with a rationally constructed diversified portfolio, many investors can avoid the problems they might have with the current stock market bubble. Many stocks are not in a bubble. Not by a longshot.</p><p></p><p>I look forward to your comments below.</p></blockquote><p></p>
[QUOTE="Weather Man, post: 16574470, member: 137766"] Good piece. In this article, I first spend a short time explaining that there is, indeed, a certain kind of bubble. However, there is not a single monster bubble that's gobbling up the world. Second, I adjust the lens, and I'll open up the world of possibilities. There are plenty of opportunities to succeed in the years ahead, bubble or no bubble. Lastly, I provide some concrete "picks" for investors who are open to active selection. [size=5][b]Of Course There Is a Bubble[/b][/size] It's impossible to ignore the fact that the stock market has inflated. Many geniuses and pundits have already explained this so I'm happy to simply reference their work. Here's a taste. [LIST] [*][URL='https://money.com/stock-market-bubble-1999/?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link']5 Ways the Stock Market Looks Just Like the 1999 Dot-Com Bubble[/URL] [*][URL='https://www.cnbc.com/2021/01/03/stocks-and-bitcoin-are-massive-bubbles-david-rosenberg-warns.html?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link']Stocks and bitcoin are massive bubbles[/URL] [*][URL='https://www.msn.com/en-us/money/topstocks/four-ways-the-market-today-is-eerily-similar-to-the-dot-com-bubble-bofa/ar-BB1dicZC?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link']Four ways the market today is eerily similar to the dot-com bubble[/URL] [*][URL='https://seekingalpha.com/article/4400666-are-now-officially-in-stock-market-bubble?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link']We Are Now Officially In A Stock Market Bubble[/URL] [*][URL='https://seekingalpha.com/article/4398422-yes-virginia-is-stock-market-bubble?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link']Yes, Virginia. There Is A Stock Market Bubble[/URL] [/LIST] Valuations are sky-high. IPOs and SPACs are running hot. Day traders are back in force and meme stocks are grabbing headlines. Cash is pouring into funds. While all of this is rattling around in my head, I like to look here because it's extraordinarily simple. Simultaneously, there is depth. [ATTACH=full]1687833[/ATTACH]Source: msindex.net The MS index is the expected return on invested capital (equity) divided by the invested capitals replacement value (net worth), and can be calculated for the U.S. as follows. In effect, when The Fed tries to juice activity in the economy with easy money, it doesn't work. Instead, money tends to pump up asset prices but activity itself doesn't tend to increase. I'll come back to this shortly. For now, I'll just say that if you're following the "rules" of the Mises Stationarity Index, popularized by Mark Spitznagel in [URL='https://amzn.to/2MBrWwG?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link']The Dao of Capital[/URL], then you should buy when it's below 0.7 and sell when it's above 1.6 per the chart above. In other words, the market as a whole is screaming sell, sell, sell. By the way, you might recognize the Mises Stationarity Index because it looks nearly identical to Tobin's Q. Here's that picture right now. [ATTACH=full]1687834[/ATTACH]Source: [URL='https://www.advisorperspectives.com/dshort/updates/2021/02/03/the-q-ratio-and-market-valuation-january-update?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link']Advisor Perspectives[/URL] I think about it this way. Very simply, The Fed is printing like crazy, and that money is pouring into the economy. Furthermore, interest rates keep going down so everyone is reaching out on the yield curve. This means more and more money is chasing after assets thus driving up prices. Unlike the Great Financial Crisis the money being printed now is not just pouring into banks for stability. Instead, dollars are now bleeding out into the general economy and - quite literally - into the hands of individuals who spend. The real-world money supply is increasing. Of course, that means that many businesses are succeeding and their profits will soar, and continue to soar. In turn, this will almost certainly drive asset prices even higher. In short, money printing is inflating the bubble because money is chasing assets. Buying debt (i.e., bonds) is "dumb" and people who are saving are getting killed. I want to make it very clear that there is almost certainly an asset bubble, and dollar bubble. But, the savings bubble has popped. You cannot put cash in the bank and collect enough money from interest to beat inflation over time. The value of cash in the bank is slowly but surely dying off while asset prices are shooting to the moon. Despite all the printing there is not nearly the level of money-changing activity you might expect. It's critical to understand the concept of [URL='https://fred.stlouisfed.org/series/M2V?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link']money velocity[/URL]. The velocity of money is the frequency at which one unit of currency is used to purchase domestically- produced goods and services within a given time period. In other words, it is the number of times one dollar is spent to buy goods and services per unit of time. If the velocity of money is increasing, then more transactions are occurring between individuals in an economy. [ATTACH=full]1687835[/ATTACH]Source: [URL='https://fred.stlouisfed.org/series/M2V?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link']FRED Economic Data[/URL] Therefore, if the velocity of money is decreasing there are fewer transactions in the economy. Put another way, you can print all the money you want and you can feed it to banks or even directly to the people. But, if they aren't spending it, well, [i]then it's got to sit somewhere[/i]. And, it's not going to sit in the bank because buying debt or saving cash simply cannot compete with exploding asset prices. That is to say, the stock market will continue to shoot up. Money will chase the yield up, and then up some more. I want to really emphasize what's powering the stock market bubble. The Federal Reserve has been printing money and they've killed interest rates. Money is pouring into market. Because market participants are semi-rational, they are trying to put their money to good use. If you're holding stocks, it feels pretty good, and it'll work until it doesn't. The stock market - when viewed in its entirety - is relentlessly going up and beyond normal levels in almost every "traditional" way we can imagine. If nothing else, the fact it came back so strongly from COVID-19 is a testament to the inflation of the bubble. It's my assertion that the twin power of money printing and low interest rates is greater than the pandemic at this point. Unless there is another macro event (e.g., war, another pandemic, natural disaster), the stock market will keep inflating for now. [size=5][b]But, There Is No "Everything Bubble"[/b][/size] I believe I've made it clear that it looks like there is an overall stock market bubble. It's easy to argue with data that there is a bubble and it's hard to deny that the market is very extended at this point in time. I believe I've also already made the case that interest rates are depressed. If that's not extremely clear, then please look here: [ATTACH=full]1687836[/ATTACH] If the 10-year view isn't good enough, then feast your eyes on the 700-year decline in interest rates. [ATTACH=full]1687837[/ATTACH]Source: [URL='https://www.visualcapitalist.com/700-year-decline-of-interest-rates/?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link']VisualCapitalist[/URL] There's more and more money chasing fewer and fewer real-world assets. And, as the trend indicates, interest rates are dying. It's an anti-bubble, where negative yields (i.e., savings destroys your capital) are growing tremendously. [ATTACH=full]1687838[/ATTACH]Source: [URL='https://www.bloomberg.com/news/articles/2020-12-11/world-s-negative-yield-debt-pile-at-18-trillion-for-first-time?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link']Bloomberg[/URL] For perspective, the [URL='https://www.wsj.com/articles/the-world-is-bingeing-on-debtand-smashing-records-11606732203?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link']Wall Street Journal reports[/URL]: More broadly, the Institute of International Finance recently said global debt had risen $15 trillion to $272 trillion in the first nine months of this year, and is set to hit $277 trillion by year-end—a record 365% of world gross domestic product. Therefore, roughly speaking, probably 7-8% of all debt in the world is negative. Now, even if I'm wrong by 1-2% for whatever reason, we're still looking at an increasing pile of capital destroying debt. Rational human investors - [i]not central bankers[/i] - will not buy this debt. Furthermore, despite the irrationality, there's no reason to believe this will stop any time soon. And, investors are paying attention. [LIST] [*][URL='https://www.reuters.com/article/us-usa-fed-rates-investors-analysis/once-taboo-investors-begin-to-imagine-negative-u-s-rates-idUSKBN22O0P0?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link']Once taboo, investors begin to imagine negative U.S. rates[/URL] [*][URL='https://www.wsj.com/articles/investors-ponder-negative-bond-yields-in-the-u-s-11565521203?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link']Investors Ponder Negative Bond Yields in the U.S.[/URL] [*][URL='https://www.kiplinger.com/article/investing/t019-c000-s002-will-rates-in-the-u-s-go-negative.html?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link']Will Rates in the U.S. Go Negative?[/URL] [/LIST] It probably doesn't matter if rates in the U.S. go negative for two reasons. First, because investors are aware of the situation they've already started to position themselves and they'll continue to adjust. Perception is reality. Second, rates are so close to zero that when you add even a touch of inflation, there's still no yield in "safe" investments, like savings bonds and bank savings accounts. Again, investors will continue to chase returns in other places. [size=5][b]Growth Versus Value[/b][/size] In large part, this also explains how growth stocks have been winning and value stocks have been losing. Stated differently, investors see price appreciation and therefore capital gains opportunities. Buying and holding tech stocks, for example, has paid off because prices are exploding. That in turn encourages more investing, which drives prices vertical, sometimes even when revenue is not keeping up. Keeping things simple, just compare the Vanguard Russell 1000 Growth ETF to the Vanguard Russell 1000 Value ETF. [ATTACH=full]1687839[/ATTACH] All of this said, I'm not convinced that there's a difference between value and growth. I like to buy stocks that are on sale relative to their underlying value. I agree with Howard Marks in [URL='https://www.oaktreecapital.com/docs/default-source/memos/something-of-value.pdf?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link']Something of Value[/URL]: The two approaches should have never been mutually exclusive. [URL='https://www.berkshirehathaway.com/letters/1992.html?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link']Buffett said the same thing[/URL]: Most analysts feel they must choose between two approaches customarily thought to be in opposition: "value" and "growth." Indeed, many investment professionals see any mixing of the two terms as a form of intellectual cross-dressing. We view that as fuzzy thinking (in which, it must be confessed, I myself engaged some years ago). In our opinion, the two approaches are joined at the hip: Growth is always a component in the calculation of value, constituting a variable whose importance can range from negligible to enormous and whose impact can be negative as well as positive. Therefore, we're looking for compounding machines. And, while the stock market can be depressed, or in a bubble, there are always pockets of opportunity. Those individual stocks come in many sizes, shapes and flavors. [size=5][b]Something for Everyone[/b][/size] I believe that there are stocks available in the market that could work out really well for investors despite the overall bubble we face. Put differently, individual stocks are not in a bubble. Yes, some stocks are expensive and I won't buy. But, there are other stocks that are not in a bubble. Before I get to some recommendations, I'll point out that even just recently, several stocks were on sale, or had potential. Those stocks then exploded upward in value. Take a peek here. [ATTACH=full]1687840[/ATTACH] I've been "Very Bullish" and more recently "Bullish" about Palantir ([URL='https://seekingalpha.com/symbol/PLTR?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link']PLTR[/URL]) since back in late 2020, as you can see below. I've been pounding the table. [ATTACH=full]1687841[/ATTACH]Source: [URL='https://seekingalpha.com/author/john-rhodes?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link#regular_articles&ticker=pltr']Seeking Alpha[/URL] For the record, right now, I'm waiting for earnings to be reported before I review my thinking. But, my point is that this stock was a winner and there are ways to "win" with IPOs and DPOs (direct public offerings). Next, very quickly, I'll mention a [URL='https://seekingalpha.com/instablog/2312271-john-rhodes/5546497-slinger-bag-ready-to-launch?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link']blog post[/URL] I wrote about a tiny little company called Slinger Bag ([URL='https://seekingalpha.com/symbol/SLBG?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link']OTCQB:SLBG[/URL]). I wrote about it back on January 23rd, 2021 and this has been the result. [ATTACH=full]1687842[/ATTACH] SLBG is a tiny company with $60M market cap. So, there is risk, as you'll find with any microcap company. However, with some due diligence and proper risk management, there are opportunities in the nooks and crannies. Some winners are waiting for you in the small cap universe. I'll also point out that Alphabet (NASDAQ:[URL='https://seekingalpha.com/symbol/GOOG?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link']GOOG[/URL]) ([URL='https://seekingalpha.com/symbol/GOOGL?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link']GOOGL[/URL]) was a rational investment just a month ago, as you can see here: [ATTACH=full]1687843[/ATTACH]Source: [URL='https://seekingalpha.com/article/4397526-googles-money-secret?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link']Google's Money Secret[/URL] My point isn't that I'm some stock-picking genius. Instead, the idea is that even when the market is in a bubble, individual stocks are not necessarily in a bubble. GOOGL is a great company, growing like crazy and they have an incredible pile of cold hard cash. I like several stocks right now despite everything I know about the general stock market bubble. Here are two stocks that I think are undervalued and provide a little bit of something for all investors. There's nothing crazy here but I think there's potential. First, I like Altria ([URL='https://seekingalpha.com/symbol/MO?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link']MO[/URL]). [ATTACH=full]1687844[/ATTACH]Source: [URL='https://www.fastgraphs.com/?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link']FASTgraphs[/URL] Even if the stock limps along it'll likely return 12-15% for several years. I predict much more, but even down around 8-10% is very appealing. The price can stay perfectly flat, and the dividend can stay flat too, yet the 8% yield will give us an incredible floor. The business can just float along and give investors 8% year after year. Furthermore, earnings are not expected to stagnate. MO is expected to grow earnings. That's real money falling to the bottom line. In turn, a large percentage of that cash will be turned over to investors. Next, I like Lockheed Martin ([URL='https://seekingalpha.com/symbol/LMT?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link']LMT[/URL]). [ATTACH=full]1687845[/ATTACH]Source: [URL='https://www.fastgraphs.com/?source=content_type%3Areact%7Cfirst_level_url%3Aarticle%7Csection%3Amain_content%7Cbutton%3Abody_link']FASTgraphs[/URL] LMT's 20-year P/E average is 17, 15-year P/E average is 15 and 10-year average is 17. Therefore, we're looking at something between 15 and 17. Right now, LMT is sitting at under 14, so just very simple regression toward the mean gets us to a P/E of 15, which is what I'm showing above. That generates over 10% over the next several years. It's a pleasant combination of price appreciation and an abnormally high yield. [ATTACH=full]1687846[/ATTACH] Right now, the yield is over 3% and the payout ratio is also acceptable at 40%. It's been between something like 20% to 55% over the last 20 years, so we're "in range" for the payout ratio. LMT also has an A- S&P Credit Rating. I'll pause here for a moment. I completely understand that MO and LMT maybe aren't literally for "everyone" but they are worth further investigation. They are growing earnings, growing their dividends, they are undervalued relative to history, they are investment grade, and so much more. Of course, there are always problems with any company. MO faces regulation, problems with JUUL, declining cigarette consumption and more. LMT faces political uncertainty and production issues. Regardless, there's more to like than dislike for most investors, especially in this environment. Adding it all up, PLTR, SLBG, GOOGL, MO and LMT should get you thinking about pockets of opportunity. There are always rational places to put your money. There are mispriced assets available. That doesn't mean it's easy, or that there's always going to be a slam dunk or easy win. But, with a rationally constructed diversified portfolio, many investors can avoid the problems they might have with the current stock market bubble. Many stocks are not in a bubble. Not by a longshot. I look forward to your comments below. [/QUOTE]
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