4 ms·

My hot take is that the virus isn’t affecting future cash flows enough to warrant a crash, but as is typical, it sure as heck is a big enough catalyst for “risk

by gfodor 7y ago

My hot take is that the virus isn’t affecting future cash flows enough to warrant a crash, but as is typical, it sure as heck is a big enough catalyst for “risk off” to take hold and most pent-up mispricings to finally normalize, which according to some would be a huge pullback or crash.

remote_phone 7y ago
The US is 80% services based which is why we were immune from the China trade war. China has a lot more to lose than the US because they don’t import from the US as much as they export. But services are going to dry up very very badly. Which will disproportionately affect the US, especially with how many minimum wage jobs there are.
- partiallypro 7y ago
  Only 2% of the US workforce has a minimum wage job.
  - Sebguer 7y ago
    Only 2% of the US workforce has a FEDERAL minimum wage job. Many states and cities have higher minimum wages than that, and something like 40% make less than $15.
dforrestwilson 7y ago
At this point it’s about lack of trust (which is what markets are premised on). https://www.epsilontheory.com/the-mozilo-market/ https://www.epsilontheory.com/the-mozilo-market/ As this thing eats its way through other countries and their economies slowdown the cash flow outlook will change won’t it?
dcftoapv 7y ago
Your hot take is wrong. Cash flows are absolutely going to be impacted here. Initially, the thought was that this was only going to be a supply-side shock, but people are planning to completely hunker down, not booking flights, not traveling to work, taking time off. This is going to be a large, if transitory, problem. Buy a little bit of the dip every day, and get ready to eat some losses in Q2. Summer is coming.
- gfodor 7y ago
  I misphrased that - I meant to say in the long term. I agree that we will see a quarter or two of eps impact due to virus. But for a true crash the market needs to price in a longer term impact due to the virus - which seems unlikely on its own. However we certainly can see a crash due to sentiment and valuation changes prompted by this as a catalyst.
  - dcftoapv 7y ago
    This has introduced credit risk to impacted businesses as well. Credit risk means we could see less liquid debt markets which could decrease employment, investment, and long run GDP growth. All of this especially concerning given that the fed has only 1 - 2 more pulls at monetary supply via interest rates before they have to introduce more QE. There are too many connections here to simply discount the long-run risk to the economy which is why you're seeing a sell off. PwC's audit lead gave a great interview on Bloomberg the other day that I thought summed this situation up well. Paraphrased: Those that have been fixing their roof while the sun is shining are going to be just fine, but a lot of businesses didn't do that. Businesses with high leverage, unsteady cash flows, flaky customers, and inefficient cost structures could be in trouble here. I'm a buyer in this market, but I'm a buyer precisely because I have a long horizon. There's no guarantee that we get back up to these rich valuations any time soon.

by gfodor 7y ago

remote_phone 7y ago

The US is 80% services based which is why we were immune from the China trade war. China has a lot more to lose than the US because they don’t import from the US as much as they export. But services are going to dry up very very badly. Which will disproportionately affect the US, especially with how many minimum wage jobs there are.

partiallypro 7y ago
Only 2% of the US workforce has a minimum wage job.
- Sebguer 7y ago
  Only 2% of the US workforce has a FEDERAL minimum wage job. Many states and cities have higher minimum wages than that, and something like 40% make less than $15.

dforrestwilson 7y ago

At this point it’s about lack of trust (which is what markets are premised on). https://www.epsilontheory.com/the-mozilo-market/ https://www.epsilontheory.com/the-mozilo-market/ As this thing eats its way through other countries and their economies slowdown the cash flow outlook will change won’t it?

dcftoapv 7y ago

Your hot take is wrong. Cash flows are absolutely going to be impacted here. Initially, the thought was that this was only going to be a supply-side shock, but people are planning to completely hunker down, not booking flights, not traveling to work, taking time off. This is going to be a large, if transitory, problem. Buy a little bit of the dip every day, and get ready to eat some losses in Q2. Summer is coming.

gfodor 7y ago
I misphrased that - I meant to say in the long term. I agree that we will see a quarter or two of eps impact due to virus. But for a true crash the market needs to price in a longer term impact due to the virus - which seems unlikely on its own. However we certainly can see a crash due to sentiment and valuation changes prompted by this as a catalyst.
- dcftoapv 7y ago
  This has introduced credit risk to impacted businesses as well. Credit risk means we could see less liquid debt markets which could decrease employment, investment, and long run GDP growth. All of this especially concerning given that the fed has only 1 - 2 more pulls at monetary supply via interest rates before they have to introduce more QE. There are too many connections here to simply discount the long-run risk to the economy which is why you're seeing a sell off. PwC's audit lead gave a great interview on Bloomberg the other day that I thought summed this situation up well. Paraphrased: Those that have been fixing their roof while the sun is shining are going to be just fine, but a lot of businesses didn't do that. Businesses with high leverage, unsteady cash flows, flaky customers, and inefficient cost structures could be in trouble here. I'm a buyer in this market, but I'm a buyer precisely because I have a long horizon. There's no guarantee that we get back up to these rich valuations any time soon.