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gouldy10

31 Posts.

28/04/20

08:53

Post #: 44292405
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Originally posted by antistar: ↑

The DOW and S&P500 can no longer be looked at in terms of earnings etc. It is simply the ONLY place to park capital for most large institutions, funds around the world. The bond market is the largest market in the world but more and more people are losing confidence in governments and moving cash toward blue chip stocks in the DOW and S&P500 (see a breakdown of the S&P, most gains only sit within a small percentage of stocks!)

Look at Europe, financially a ruin with a falling currency and zero trust in governments (remember the protests everywhere prior to the lockdown?). Question marks all over China for many different reasons, emerging markets highly indebted with very little room left to move. More than 90% of Japan's bond purchases are bought by their central bank! There is simply no bond market over there any more, no bid.

So if you are a large institution, pension fund, sovereign fund etc, looking to park billions of dollars somewhere, what do you buy?

You buy the Dow and the blue chip stocks of the S&P500, that's about it. American business is still seen as the safest place compared to the alternatives. This rise is simply the rest of the world parking money into the DOW regardless of earnings or any other metric. It is simply a place to park capital that's all. Worrying about P/E ratios during these times is a waste of time.

Gold is a good hedge but it is not a productive asset. Also gold is mainly a retail play. Large institutions do not buy gold as they are after yield / dividends. Nevertheless it is a great hedge and something that every portfolio should have a little bit of.

So I think ultimately the DOW / S&P500 WILL shoot up a lot higher BUT I do believe that there will first be a huge, drastic and sudden plunge in the very near term as the world wakes up to what the aftermath of these lockdowns really means for the economy. People somehow still believe that things will go back to normal..

Therefore I am looking into BBUS and SQQQ and preparing for my prediction of a very quick, sudden and rapid decline in the short term due to the shock factor. I see an initial flight to 'quality' (0% paying government bonds) as a knee jerk reaction and then a serious shoot up to the upside.

Will be doing the opposite (geared bull indices) on the other end of this. Whenever that may be

All IMO, not trading advice

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Interesting points.

I have always wondered if the P/E ratios mean much anymore. Why do we compare the current P/E against historical average P/E's when we have long term bond rates at zero or negative - is that normal??

People are happy buying Tech stocks at P/E's through the roof. There is no alternative to make a return anywhere.

brrrrrrrrr - more money printing reducing the value of your cash. Its a difficult proposition as you may find your capital gets destroyed when reality bites? Maybe those negative rates or zero are much better??

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