Large social changes AND amazing epidemic defence infrastructure as seen in Korea are insufficient in halting a recession event.
Without objection. We ARE having a recession event. The debate is over how long it lasts, and how best to play it in the markets.
To clarify, I am not stating that secondary and third waves are going to be bigger, I never did. I am merely stating that I believe that the economic restrictions that required to stop a repeat of the current situation are likely to cause serious economic harm for a long time. With South Korea presented as a fanciful best-case scenario.
Yea, I agree with that.
Jim Chanos was on CNBC’s air for an hour last week discussing all this. Now that he’s covered a lot of his shorts (and discussed those which he has not covered, and why) he discussed current investment philosophy. In essence, he’s saying “forget now, invest like things are back to normal again. What’s the value of that stock under normal conditions? And if you see it underpriced today, AND the margin of safety is sufficient, AND you can afford to wait on your profits — — the market is currently offering you an opportunity.”
If “COVID has no permanent impact on earnings, what’s the value of stock X?” depends not just on the health of the stock but on the economic conditions. No stock exists in a bubble. If things quickly return to normal, prices will too. What I did not point out is that if there is a prolonged recession, there is a significant risk of highly leveraged companies (which many are) will default on debt. This can lead to a very dangerous domino effect throughout the economy that is long-lasting.
Sure — — and I think I mentioned the financial condition of the company in my prior note. If you’re highly leveraged, you’re at risk of bankruptcy while this situation persists, and for those companies, I would be more inclined to purchase their bonds rather than their stocks, possibly, depending margin of safety.
The implication is that Buffet believes that people are being greedy now.
Or…..Warren knows something we don’t.
First off, airlines would definitely be in my “Group B” along with casual dining. I’m a business frequent flyer, and it took a LONG TIME before air traffic returned to normal after 9/11. And FURTHER, airlines tend to be heavily leveraged, since they lease their planes at a lot of their capital equipment.
But the thing that I think that “Warren knows” that most aren’t is that some of the airlines are considering NOT taking federal money and declaring bankruptcy instead, which allows them to renegotiate their union contracts.
The moment you consider that there is a nontrivial possibility of a company going bankrupt, no investor touches that stock. The “greedy/not greedy” equation gets tossed out the window.
That all said, I’ve nosed into small positions on blue chippers for the last two weeks, to the point that about 30% of my money is back into equities. The rest is in safety bonds or cash. My take is that if the market decides to retrace, I can stomach those losses, but if it decides to move up, I will have bought some household names at bargain prices.
As you say, the market is like golf — — the moment you make the mistake of thinking you’ve got it figured out, it humbles you. So, time will tell.
