The Long Term Investor

If this rout continues for a few months.....I will get to the time of the year that I will have some money to invest. Perhaps the markets will give me some really good prices in the December/January time span.

 

Not as bad as earlier....but OMG....today is just a disaster. AND.....for no reason at all. With re-taking the OLD LOWS from June.....we are now set to drop another 5-10%. OR.....the other alternative is the markets turn positive from here for a while. OR.....the alternative is.....the markets just linger and do nothing.

That pretty well sums it up......how should I know. One thing is sure.....it is a TRADERS MARKET. I am sure they love all the volatility and the headline driven days.

 

AND....to continue to good news.

Housing: Luxury home sales plunge as mortgage rates rise

https://finance.yahoo.com/news/housing-luxury-home-sales-plunge-183900561.html

(BOLD is my opinion OR what I consider important content)

"Affluent homebuyers aren’t immune from this year’s rough housing market.

Sales of luxury homes plummeted 28.1% year over year in the summer months, according to a Redfin report, the steepest decline since at least 2012 when the firm started collecting data.

The plunge even topped the 23.2% decline that occurred at the onset of the pandemic two years ago and outpaced the 19.5% drop in sales of non-luxury homes recorded during the same period.

The latest figures underscore how rapidly rising mortgage rates have hit every corner of the housing market after climbing more than 3 percentage points since the beginning of the year.

“High-end house hunters are getting sticker shock when they see the impact of rising mortgage rates on paper. For a luxury buyer, a higher interest rate can equate to a monthly housing bill that’s thousands of dollars more expensive,” Daryl Fairweather, chief economist at Redfin, said. “Luxury goods are often the first thing to get cut when uncertain times force people to reexamine their finances.”


Redfiin report 28.1% decrease in luxury home sales
This week, the rate on the 30-year fixed mortgage — the most popular home loan for purchasing — jumped to 6.29% from 6.02% last week. That marks the highest level since October 2008 and high-end homebuyers are feeling the squeeze and getting less.

“Someone who was in the market for a $1.5 million home last year may now have a maximum budget of $800,000 thanks to higher mortgage rates,” Fairweather said.

Additionally, inflation, recession concerns, and a lukewarm stock market are weighing on high-end homebuyers — even if they can come to the table with all cash.

“All-cash buyers who like to park their funds in high-end homes may also be shying away from the real estate market given deteriorating investment prospects,” the Redfin report noted. “With home prices poised to drop in many cities, some luxury house hunters are likely moving their money into other investments, like bonds, which may offer a better rate of return.”

California’s bay area saw the most severe decline in luxury home sales with Oakland recording a 63.9% drop. San Diego and San Jose both registered a 55% decline.

The pullback in sales is also starting to curb price growth of luxury homes, Redfin found. The median sales price rose 10.5% year over year to $1.1 million during the period, down from an annual increase of 20.3% a year earlier and a record gain of 27.8% during the three months through the end of June 2021.

“Luxury-home prices have ballooned so significantly that many buyers just don’t feel they can justify the purchase,” said Sam Chute, a Redfin real estate agent in Miami. “Some homes that would’ve sold for $5 million before the pandemic are now priced at $10 million or more, even though they’ve only received minor cosmetic updates. That’s a hard pill for today’s buyers to swallow.”"

MY COMMENT

Those ugly rich people....good.....they deserve it. What is that you say.....they are the small business owners, they supply jobs to the economy, their investments provide the capital to drive the economy. Oh.....ok......never mind.

I do believe this little article is true. Here in my area the higher priced homes are definately taking longer to sell. Although here.....most of the high end buyers are ALL CASH.

AND....note......they are not saying that prices are FALLING in the above.

I see that 30 year rates are now at about 6.29%......and.....in many parts of the country a high percentage of home buyers are going to be in the JUMBO mortgage category which is even higher rates.

It will be a BIG PSYCHOLOGICAL HIT to the country if the real estate market crashes. This is the average person greatest single asset.

 

I will call it like it is.....a BRUTAL end to a BRUTAL week. Actually a BRUTAL two weeks.

I was in the RED today.....of course. I lagged the SP500 by 0.15% today. I had one bright light among my ten stocks.....Home Depot.

 

I noticed that 666 when i put those numbers up...Smokie. We seem to have the same twisted brain function. I decided against mentioning it.

BUT....speaking of the numbers. The DOW has now broken through the June low and has set a new low for 2022 today. The NASDAQ has ALSO broken through the prior low and set a new record for 2022 today. The SP500 has another 27 points to go.

We have NOW retested the prior lows and achieved them. NOW...it is a question of where we go from here and how far we fall. We are DUE for some market SANITY next week and a green week. BUT....if I had to bet real money on it I would bet......NO.

I am STILL waiting for the expected MASSIVE media fear mongering over breaking the June market lows. Probably will be the media theme next week once it sinks in.

 

Well we ended the week with many of the big averages in BEAR MARKET territory.

DOW year to date (-18.57%)
DOW for the week (-4.00%)

SP500 year to date (-22.51%)
SP500 for the week (-4.65%)

NASDAQ 100 year to date (-30.69%)
NASDAQ 100 for the week (-4.64%)

NASDAQ year to date (-30.53%)
NASDAQ for the week (-5.07%)

RUSSELL year to date (-25.20%)
RUSSELL for the week (-6.60%)

It has been a very long time since we have had a market like this year. Last time was the near.....world wide economic and banking collapse......of 2008/2009.

 

Well we certainly deserve a few days off.

I was able to successfully buy my painting at the Auction that I mentioned in an earlier post. I also have a little 300 mile road trip this Saturday for a show.

Glad to have the distraction.

 

Well here is a little more bad news.......why not. I guess the mortgage rates are way worse than I thought.

As 30-year mortgage rates hit 6.7%, homebuyers are facing ‘payment shock.’ Here are ways to save

https://www.cnbc.com/2022/09/23/som...payment-shock-ways-to-save-on-a-mortgage.html

"Key Points

• The average interest rate on a 30-year fixed mortgage is 6.7%, up from 3.3% at the start of the year.
  
• While home prices have eased over the last couple of months, they are still up 13.1% from a year ago.
• The combination has created an affordability challenge for homebuyers."

MY COMMENT

If this topic interests you.....see the rest of the article. With the current rates averaging 6.7%.....I am now increasing my 30 year mortgage prediction to......7.5 to 9%.

Still in the range that would be NORMAL at 7.5% to 8%.

Above 8%....we are getting into the bottom of the range of the STAGFLATION era....before REGAN got things straightened out with his HUGE TAX CUT, GOVERNMENT SPENDING DECREASES, and all the other steps he took.

UNFORTUNATELY....we are NOT seeing our government advocate for or take any such steps now.....ENGLAND, YES......USA.......NO. We are actually doing the opposite....of course.

 

For those that have the GUTS to face what the worst case situation looks like......here it is......the 1970's.

How to survive the worst bear market of all time

https://finance.yahoo.com/news/how-to-survive-the-worst-bear-market-of-all-time-120034754.html

(BOLD is my opinion OR what I consider important content)

"In Tom Wolfe’s famous essay about the 1970s, “The Me Decade,” he wrote about how Americans had abandoned communal thinking in favor of personal wealth. "They took their money and ran," he wrote.

In fact, there wasn’t much money to take.

Today, with the stock market in meltdown mode, it’s natural to look back at other times of financial woe: The Great Recession of 2008-2009. The bursting tech bubble in 2000. The crash of 1987, never mind 1929 — and all manner of mini-downturns and flash crashes in between.

The one that gives me the most dread is the long, soul-sucking slog between 1966 and 1982 — in other words, the 1970s. The stock market went up and down and up and down, but in the end went absolutely nowhere for 16 years (see below.)


Dow chart
Forget about lava lamps, platform shoes, and Farrah Fawcett, to me this is what defined the era.

What was it like back then? What can we learn from that time? And are we set up for a repeat performance?

Before we get to that, let’s examine the 1970s market. The most devastating take comes from looking at the Dow Jones Industrial Average. In January 1966, the Dow hit 983, a level it would not exceed until October 1982, when the Dow Jones closed at 991. The S&P 500 was almost as bad. After peaking in November of 1968 at 108, the S&P stalled, then touched 116 in January of 1973, stalled again and finally broke out in May 1982.

Why did the market go sideways for 16 years? Mostly it was soaring inflation and interest rates. Monthly CPI climbed from .9% in January 1966 to 13.6% in June 1980. Meanwhile, gas prices went from 30 cents a gallon to $1. To fight this inflation, the Federal Reserve raised the Fed Funds rate from 4.6% in 1966 all the way to 20% in 1981. That was bad for the market because higher interest rates make future company earnings, and ergo stocks, less valuable. Which in part explains the market’s swoon year to date.

According to veteran market analyst Sam Stovall, fears of repeating the errors made in the '70s are influencing the Federal Reserve’s actions today.

“The Fed has told us that it had planned on not making the same mistakes of the late 1970s, where they raised rates but then eased off out of fear of creating a deep recession, only to have to raise rates again,” Stovall says. “What the Fed is trying to avoid is to create a decade of economic choppiness. They want to be aggressive with the Fed funds rate now and corral inflation, so that we have either a V shape or at least a U shaped recovery rather than one that looks like a big W (to quote from ‘It’s a Mad, Mad, Mad, Mad World’).”

Stovall, who began working on Wall Street in the late 1970s, was schooled by his father, the late Robert Stovall, also a high-profile investor and pundit. (The Wall Street Journal did a fun piece about the two of them and their distinct investing styles.)

Jeff Yastine, who publishes goodbuyreport.com, points to some other unfavorable trends for stocks in the 1970s, noting that “many of the biggest US stocks were 'conglomerates' — companies that owned lots of unrelated businesses without a real plan for growth.” Yastine also reminds us that Japan was ascendant back then, often at the expense of the US, and that technology (chips, PCs, and networking) had yet to make any real impact. All this would change in the 1980s.

Another factor was that the stock market was richly valued heading into the 1970s. Back then a group of go-go stocks dubbed the Nifty Fifty led the market. This group included the likes of Polaroid, Eastman Kodak, and Xerox, many of which sold for more than 50 times earnings. When the market crashed in the 1970s, the Nifty Fifty was hit hard, with some stocks never recovering. I can’t help but think of the potential parallels with the FAANG or MATANA — otherwise known as tech — stocks of today.

It really does seem we’ve come full circle. Or so suggests legendary investor Stan Druckenmiller in a recent conversation with Palantir CEO Alex Karp. “First of all, full disclosure, I've had a bearish bias for 45 years that I've had to work around,” Druckenmiller says. “I like darkness."

“When I look back at the bull market we've had in financial assets — it really started in 1982. And all the factors that created that not only have stopped, they've reversed. So there's a high probability in my mind that the market at best is going to be kind of flat for 10 years, sort of like this ‘66 to ‘82 time period.”

Yikes. So what’s an investor to do?

Let’s check in with someone who was steeped in the market back then. “Well, first of all, I entered the business as a security analyst in 1965,” recalls Byron Wien, vice chairman of Blackstone’s Private Wealth Solutions group. “I remember it was a period where it was tough to make money, unless you were a really good stock picker. But I remember making money. I remember building my net worth and buying some biotech stocks that did well. And I hold some of them to this day.”

Now, let’s go back and take a closer look at what happened 50 years ago. For one thing it’s important to note the dividend yield of the S&P 500 averaged 4.1% from 1966 to 1982, so investors in the broader market were at least getting some income. (Getting a read on the Dow’s yield back then proved difficult, but in other periods it has averaged less than 2%.)

So while the 1970s was a terrible time for investors, dividends mitigated some of the misery by allowing the more diversified S&P 500 to outperform the Dow 30 — something to think about going forward. Unfortunately the dividend yield for the S&P 500 is now about 1.6%: first because stock prices are high and second because more companies are doing stock buybacks in lieu of dividends. However, I would expect the yield to climb as companies increase payouts to attract investors.

The Dow was also looking a bit hoary back then as it included the likes of Anaconda Copper (replaced by 3M in 1976), Chrysler and Esmark (replaced by IBM and Merck in 1979 ) and Johns Manville (replaced by American Express in 1982).

Of course, some stocks like Altria, Exxon, and packaged goods companies did well back in the 1970s. “Wherever demand for the products and services remained fairly consistent,” Stovall says. “You still have to eat, smoke, drink, go to the doctor, heat your home, etc.”

For some companies, the 1970s was their heyday.

“The nice thing is, there were companies that did very, very well in that environment back then,” Druckenmiller says. “That's when Apple Computer was founded [1976], Home Depot was founded [1978], coal and energy companies, chemicals made a lot of money in the '70s.”

Cyclical areas like consumer discretionary and financials did not do as well.

Some of the takeaways for investors today are always true: Avoid both overvalued stocks and those of slow-growth companies. It may also pay to own dividend yielding stocks and to diversify. And it’s worth noting that if we do have some sort of repeat of 1966-1982, stock picking becomes more important perhaps versus passive investing and index funds.

It wasn’t all darkness back in the 1970s. The disco balls lit up some stocks. You just had to look that much harder to find them. That's a likely scenario going forward as well."

MY COMMENT

UNFORTUNATELY....many parallels between now and back in the 1960's/1970's. AND...yes....we have abandoned ALL of the policies that kicked off a many decade bull market trend starting in 1982.

As to how to deal with this sort of market event.....in spite of the headline and promise of the article.....there is little to nothing in terms of how to deal with it. You basically have to be a very good stock picker and just hold on while reinvesting dividends and capital gains.

Much of the future.....will depend on the make up of government and government policy over the next 2-10 years. Again something the average person as an individual has no control over.

The good news.....every bear market is different....so lets hope we do not end up repeating what happened back than.

If I was a FEAR MONGER.....I could make some pretty good arguments that this description of the 1960's/1970's has some clear parallels to today:

"Mostly it was soaring inflation and interest rates. Monthly CPI climbed from .9% in January 1966 to 13.6% in June 1980. Meanwhile, gas prices went from 30 cents a gallon to $1. To fight this inflation, the Federal Reserve raised the Fed Funds rate from 4.6% in 1966 all the way to 20% in 1981. That was bad for the market because higher interest rates make future company earnings, and ergo stocks, less valuable. Which in part explains the market’s swoon year to date."

"Japan was ascendant back then, often at the expense of the US" (China now)

"Another factor was that the stock market was richly valued heading into the 1970s. Back then a group of go-go stocks dubbed the Nifty Fifty led the market." (big tech now)

Of course.....I remain fully invested as usual.....and.....I dont believe anyone can know or predict this sort of "STUFF"

 

Regarding the above.....welcome to my world....I lived that entire time span as a young adult......age 19 to 33. What happened back than in terms of the actual day to day and year to year events TOTALLY eclipses anything going on today. That is why I have little tolerance for people complaining about how difficult is it today. I dont have time to go through all the political or historical events of the time span 1968 to 1982.....but they were MASSIVELY DIRE.....compared to today.