[jinpan]

> Legendary investors Stan Druckenmiller and David Tepper were the latest to weigh in after a historic market rebound, saying the risk-reward of holding shares is the worst they’ve encountered in years.

True, but what are they going to do about it?

They would be hard-pressed to find a rewarding asset class today that has billions in liquidity, with less risk.

If they hold cash/tbills, they risk losing a good chunk to inflation from the new monetary policies.

They could try to hedge for a market crash, but timing it seems difficult - the market can remain irrational longer than they can remain solvent. And hedges are aren't cheap with the higher IV levels today.

[newacct583]

> hard-pressed to find a rewarding asset class today that has billions in liquidity, with less risk. If they hold cash/tbills, they risk losing a good chunk to inflation

How do you figure that risk, numerically? Historically high US inflation sits around 15% (per year, obviously). The market crashed 30%+ literally a month and a half ago, and per the linked articles (and a straighforward naive reading of the fundamentals!) seems poised to do that again.

I can't believe you genuinely view a short term 2-3 year cash holding as riskier than a stock position. It's true it lacks upside, but that's not the same thing as "risk".

[jklein11]

What evidence of another 30%+ decline do you have? I'm not questioning that there is evidence, just genuinely interested in learning more.

[newacct583]

Uh... because the market crashed ~50 days ago for reasons that still hold? The pandemic isn't resolved, the GDP isn't recovering. There's absolutely no rational reason for it not to crash again given that it did before. Now, it might not. That's the point of risk analysis.

You don't make an investment on the basis of "you can't prove to me this won't happen", you have to come up with numbers the justify it. So I'm asking again: what are your numbers that you feel the probability of a historically high burst of inflation is higher than another market crash like the one in March?

[jklein11]

> because the market crashed ~50 days ago for reasons that still hold

There have been a few big events in the past 50 days which would make me think the market is different today than it was 50 days ago.

For one the Federal Reserve has dropped interest rates and committed to backing up money market funds as well as short term commercial paper. I definitely think that this removed some risk for investors.

A large part of the fear was that companies would face serious solvency issues. I think companies access to funding (either selling new shares or selling bonds) have made this less of a concern in the short term.

Additionally, Congress passed bills to extend unemployment benefits and fund 2 months of payroll expenses for small businesses. While we have to wait to see the effects I don't think it is unreasonable to expect that paying people not to work will have some impact on inflation.

I completely agree that we are not out of the woods yet with regard to this pandemic but I would say that we are 50 days closer to being on the other side. 50 days ago, in the New York/New Jersey area where I live, our government officials were telling us we were days or in some cases hours from having our hospial ICU's at full capacity. While I am not saying that we can't find our selves in the same situation again, I do think we are in a different place now.

>You don't make an investment on the basis of "you can't prove to me this won't happen"

Just to make sure I am 100% clear. I am not making investment advice. I have no idea if the stock market will go up or down. You made the claim that the market will drop by 30%. I was interested in how you came up with that number.

[75dvtwin]

>".. Uh... because the market crashed ~50 days ago for reasons that still hold?..."

I think this depends what reasons you would pick to make the above statement, at least for US market.

My subjective reasons to be more positives are (in no particular order):

- The covid-19 induced death toll that was project in March is no longer assumed valid and is halfed, at least.

- Unfortunately, many deaths appear to be due to mismanagement of nursing homes. Therefore, focusing on how to fix that problem (and hold incompetent policy makers accountable in the process) -- is a manageable way forward.

Point in statically sampling there, (and may be I am too optimistic), is that these horrific outcomes for our elderly in these homes, may not apply to overall larger population.

- The analyst assumed unemployment rate by May was 16%, but numbers came out to be below that.

- The increased availability of testing, ventilators, personal protection equipment, and the reduction of bottlenecks in CDC, FDA happened faster than I expected.

- Not surprisingly, overall traffic in US is reduced by 38%. Which has is temporary positives (eg reduction of traffic fatalities). To be honest, not sure why I am including this in the list, but feels a temporary positive. My driving is reduced, but feels safer. May be something good will come out in this regard, long term. The traffic death/injury toll in big cities is just terrifying.

Overall, though, I think the market is overpriced at this point.

There is a shift in earning potential from 'travel and commute' related industries to online/telecommute.

But that shift will take years (may be 3-5 years), so that folks reposition their skills/workforce participation to accommodate the new realities.

However, the market thinks it 'has already happened'.

So I agree that the market is overpriced, but not because 'same reasons from 50 days ago, still hold'.

P.S. I lost a 93 year old relative in NY, they said person was not covid-19 positive, but no relatives were allowed in the hospital during treatment, and they used ventilator.

[1] https://www.newsmax.com/health/health-news/car-crash-acciden...

[mixmastamyk]

It’s not necessarily either-or, could be both. ie stagflation.

[harryh]

What inflation? CPI is currently negative.

[jklein11]

This was largely due to the supply glut of oil. Price of food went up by~3.5%.

Additionally CPI tends to be a lagging indicator. In other words it is a good way to determine if we have just seen massive inflation. The stock market is forward looking, meaning analysts are considering future risks in pricing the assets.

[harryh]

Additionally CPI tends to be a lagging indicator.

This is true, but various parties have been predicting a large increase in inflation in the US for years and years and they keep being wrong. I expect them to be wrong again this time too.

But we'll see!

[_dps]

It's simply not true that they keep being wrong. Yes, hyper-inflationists were wrong. But "much larger inflation"-ists were not wrong.

Anything with inelastic supply has gotten more expensive by an average of about 3% every year for the last decade: health care [0], education [1], real estate [2]. That's 50% higher inflation than the 2% conventional target, and arguably after the revelations of 2008 one might justifiably expect even lower than 2% natural inflation.

Then there's the very rapid rise in the price of stocks which is itself a form of price inflation (it takes more money to buy the same share of the productive economy).

Anything rich people/institutions hold or supply in exchange for dollars from laborers has gotten more expensive at a substantially-higher-than-normal rate.

[0] https://www.in2013dollars.com/Medical-care/price-inflation

[1] https://www.in2013dollars.com/College-tuition-and-fees/price...

[2] https://www.in2013dollars.com/Housing/price-inflation

[harryh]

There will always be some subset of goods that rise in price faster than the rest of the basket especially when those goods have artificial constraints on supply. That doesn't mean that inflation is rising faster than the overall basket of goods.

When we talk about the rate of inflation we aren't talking about the cost of health care or education or real estate or really any other particular good. We're talking about the value of money.

[_dps]

You're just choosing a definition that is convenient for you, and I might mention convenient for the wealthy establishment. The things ordinary people most need to buy with money have gotten more expensive — not as a blip, but durably and steadily for a decade. If you want to die on the hill of "this is not how I choose to use the word 'inflation'" then that's fine, I just don't see it as very persuasive.

[runT1ME]

The inflation that matters such as asset prices and real estate aren’t captured by CPI.

[harryh]

Stock market PE ratios are up a little bit over long run historical averages but hardly out of line with fundamentals. The same goes for price to rent ratio of most real estate.

[Mc_Big_G]

...for now.

[arkis22]

The simplest thing is to limit their exposure to the market and hold cash.

[mrits]

Where do you hold a billion dollars?

[arkis22]

bank accounts, money market funds, government debt