An excellent presentation. Your analysis and rationale of the S&P level and its likely future levels were particularly insightful. It would not surprise me if companies such as Microsoft and Google become valued at some point at 33x 2021 earnings simply because of their balance sheets, dominance of their sectors, their cashflows and the realisation that a 3% yield on their stock is better than zero on long term treasuries.
I remember the day March 20, 2020 I informed my clients to keep buying high quality oil companies for long term as never in the history oil gone negative.
Thanks for your prospective on these events, Mark. I hope you continue making videos like this because a lot of us value your opinion on financial markets and the economy.
And here I am almost a year later watching while reviewing for my cfa exam thinking... WOW who would have thought back then that WTI would be at 60, 11 months later?
Just watched the complete Video ...... Wish there was a super like button on here ...... Great work Sir :) I'm definitely considering to buy the US oil ETF !
great analysis, took my 3k loss on one contract by selling @ 20 dollars a barrel. Knew it was going to drop after reading an article about hedge funds reprogramming their algos to trade futures negative. Saved me 57000 in potential loss. Sometimes you gotta take it on the chin.
FMCG Sector in India is I think a beautiful example of "no where else to go" I bought companies such Nestle India and Dmart they trade at 80 to 100 PE . At that point I thought that the companies were overvalued but the valuation seems to be just exploding over the years because there are no other good companies and the money is simply being diverted to stocks of great companies. Can you believe a 100PE multiple is a new normal. I generated 35% returns over last 6 months.
Thank you Mark. It is always so insightful to get your analysis on the market. Please keep up the great work. I have written a master’s thesis on the three goals of the FED. It is not a common belief among the academics that the FED supports asset prices, however i was able to conclude that there is a relationship between low asset prices and FED policy rate. Inspired to hear from you that you share a common analogy. As for the oil, I am hoping/believing that oil supply will level the demand and prices will at least reach 30-40 a barrel within a year or two. However, can USO or Barclays ishares ETN go out of business before that? If so would the investors lose all their investments?
I agree with a lot of what you said, except I don't think you're considering the algos programmed for certain levels. I try to take these into consideration when buying and selling. The algos are driving close to 60% of this volatility. I'd love to hear your thoughts on it. It's not human traders sitting behind a desk buying and selling 100s of millions of shares an hour. Because of the machines, I expect this volatility to last for a while.
USO is literally a futures contract.... as you said. That is the last place you should be putting your money if you want to bet on oil. ENERGY is where you want to be. invest in the producers. generational buying opportunities in the next 6 months...
Hi Mark, I might be confused on your last remark on historical P/E values. So I wish to clarify. It's shown in the chart in the link below that the average P/E range was between 8 to >20 in the 1930s. And during 1950-1960s it ranged between 7 to >20. The P/E only seemed to edge upwards approaching the end of 20th century. I'm not sure what I'm understanding wrongly when you state that P/Es of 3-4 were the norm during 1930s and 8-10 were the norm during 1950s. If you would be so kind as to explain. Cheers! www.macrotrends.net/2577/sp-500-pe-ratio-price-to-earnings-chart
Great video Mark - really, the most value added videos are yours. Whats the likelihood that big investors change up their IPS to include high yield bonds etc? That would considerably reduce the strength of your argument wouldnt it? Also I really find it difficult to value SP off of 18x earnings. I think 15-16 is more reasonable considering the ten year average, would you agree? Although at this point probably semantics
Great content! Thanks for sharing your thoughts! I have a question regarding forward P/E ratios - do those take into account at all any potential changes in corporate taxes?
Hello Mark, thanks a lot for your precious efforts I am a level one candidate and I quite understand derivatives of level one but I have some issues beyond the scope of the material in level one that confuse me so I hope you correct my guesses if I am wrong: say that I entered a long position for future contract with a settlement price equal for example 100 and as I know the contract trades at the exchange at initiation at a 100 and then strats to fluctuate over the the term of the contract and let say at a given point of time the contract value declines to 90 and I've decided to close the position before expiration and sell the contract and accept the 90!! So how the exchange close my position and what would be the cash changes in my account as a result?!!! I have a guess and I hope you correct it If I'm wrong: Is means the exchange would clear the difference between the value of contract at initiation and the price I accept to sell the contract for which means the exchange would withdraw 10 from my account. While the person (Mr X) who take the position from me would beer the obligation towards the the short party, and let say that Mr X hold the position for expiration to have the settlement! Now what is the case how the short party get the settlement price of 100?!! Should Mr X just pay the 90 while the exchange afford the difference of the (10)?!
Dr Mark, great video and extremely valuable insights as always. Just a quick comment concerning " Where else to go" at my level as a very small investor, with a lot of uncertainty in the market now I would personally "out of fear" avoid equities (I was considering shortening the market, but after your video not anymore :) I was considering alternative investments, real estate for instance, or commodities, with that said, if institutional investors would seek same path, and private equity option is in their range of sight, then the equity market might as well drop substantially. I believe human nature (fear and herding effect) will dictate where we go from here. do you think I make any sense ?
Mark, wouldn't you be purchasing the option contract at the ask price ($16.30) and not the bid price ($16.71)? In other words, you would be receiving $16,300 for purchasing the contract.
@@MarkMeldrumdo you believe there could be a big pullback caused by the huge levels of debt we're in? By big I meant bigger than you say in the video. If we consider the long term debt theory over the ~20-year cycles, we should be up for a bigger correction than the one caused by COVID-19
"No where else to go." Is real estate a good place to go? Seems a residential rental is a place that continues to produce cash flow, people must have a place to live...buy in a manufacturing area, below the median, get affordable single family homes at average prices and rent those homes for a 5-7% ROI...seems a great place to store your treasure. Let me know your thoughts?
I am someone who has been studying stocks for a couple of months and don't pretend to be an expert, but looking at the S&P500 the index is havily concentraded on GAFAM and the recovery was just too quicky, but considering that the fundamentals of most of the companys are far worst than they were 3 months ago, how can it be that the S&P is so high so fast? I'm just saying that in fact there's a bubble but the big tech is 'hiding' that because the represent over 20% of that index. Sorry for my bad englando.
On the whole, very informative vid Mark. Just wanted to point out that what you said related to PE ratios greatly increasing over the past 80 or so years is not necessarily accurate when talking about the SP (www.multpl.com/s-p-500-pe-ratio/table/by-year). Although it does seem the ratios became very high coming out of other downturns such as the dotcom crash and the 08 real estate crisis, likely for a lot of the reasons you mention. If PE ratios were to increase dramatically over time in this linear fashion as suggested, then the lower yield of equities would likely decrease the attractiveness of the asset class relative to others and a shift in SAA for these institutions and funds would likely take place. Whether that be towards holding more lower yield but less risky investments, or towards greater tolerance for higher yield and riskier asset classes.
Ilie Negura I think he is mostly referring to the institutional investors in his analysis of the market, and gold is a very speculative investment for these institutions to make. These institutions have to follow investment guidelines and manage their risk exposure, and I bet that most of their investment guidelines wouldn’t let them invest much of their portfolios in gold. The price of gold is 100% speculative and it doesn’t have any intrinsic value (meaning it doesn’t provide any potential for cash flows or earnings growth). From what I’ve read, the only time gold is an appropriate investment is to protect against hyperinflation. Unless you’re predicting a doomsday scenario where there is hyperinflation, gold is much too volatile and it doesn’t provide any returns, so the majority of investors wouldn’t fill their portfolios with it :)
Good stuff however I know you have to be using TA for nimble decisions..as a CMT/CFTe lev3 CFA candy in ur program my hit rate using 8/21 MA RSI and ADX +/- indys is over 95%..bought and sold XOP from when this video came out..up in mid teens with zero trade drag at TDA;..cmon you cant trade currencies without TA on ST basis )
Your videos are full of deep insights that help me understand more not only how the market reacts to such an unexpected event but how I should make my study for CFA be meaningful. Now a Japanese media said many companies, leveraged their fund to expand their business and, more importantly, improve their ROE by repurchasing treasury stock, face difficult situation: They need to borrow much, as some airlines now need government’s support to survive. As you mentioned, however, we need to see the situation in 2021 or 2022, not reacting to the current turmoil like short position, and I agree. On the contrary, I still doubt those companies can recover quickly, because of their huge debt payment. Considering this, is it better for us to see the market such as S&P500 and Nikkei225, would recover slowly, even though considering Fed’s action and “nowhere else to go”? It is appreciated if you give me your thought. Thank you. (sorry for all who see this question absurd)
54 companies from SP500 reported by now with a -30% YoY (20 were financials with -50%) in earnings and it is Q1 which did not take a full Covid impact, Q2 should be worse ... with some q3 and q4 spike back, net 2020 we should be back around -30% ... but if this gets prolonged ... Overall, the nowhere to go argument seems to be stronger: even if we get -30% and then again -10 or so, seems the market will hold risky assets and just wait for the recovery in 202x ... strange ...
Hi Mark, quick question, the cost of storage in the forward/future formula is expressed as a ‘rate’ (%). What is it a % of in real world terms? I understand that cost of storage as an absolute value (cost of a tanker), but don’t understand how it works in theory.
If a contract for 1,000 barrels has a value of $20,000 and storage for 1000 barrels for one month will be $5/barrel, then on pick-up, you would owe $25,000. LN(25,000/20,000) will give you a continuously compounded rate for one month.
Hey Mark, But one question though if the pandemic hits harder will that not lead to new lows? And nobody can certainly tell the probability of that happening or not.
That is the risk of playing this game. At any time, no matter what is going on, there is risk. Always risk. So investing is risk management first. If you can’t get comfortable with risk, there is always accounting as a career.
Hi Mark. A question. Considering the major demand reduction due to global lockdowns, many people expected and were aware of the oversupply of crude in the market. What I'm a little confused about is why they waited till the very last day to exit their positions/cancel contracts. Why do you think this happened?
@@MarkMeldrum yeah they are forced to continue operating as its simply to expensive to shut down. Flawed us oil strategy assumes high demand and blinded by being a net oil exporter. Can see same thing happen in June contracts. If I was China I will be loading up. They will come out the best from this pandemic.
Hi Mark, wouldn't the ETFs just have splits / consolidations, much like the leveraged ETF TVIX (VIX futures) contracts, that had to deal with heavy contago, you can see in the time series. I think ETNs can have a different structure again, as the collateral is written by a large bank like Barclays, the price can be synthetic? I'm not 100% on these concepts but this is my 2 cents
@@MarkMeldrum Appears IB has settled up with the clearinghouses , but probably chasing customers over the losses? www.businesswire.com/news/home/20200421005853/en/Interactive-Brokers-Issues-Statement-Crude-Oil-Contracts
Hi Dr. Mark, what are you using as the spot price for crude oil in calculating the future price. I tried finding the sport price of crude oil but was unable to find it. Everywhere I search, I only get futures contract price.
