Covid-19

[BlueKelah]

Karlmarx,

Long-term average earnings yield of about 20% would imply a P/E of 5. That's very very low. I don't think most companies with some growth will be priced at P/E of 5. So your opportunity set will be really limited, and you will most likely not own high quality companies, with the exception of some high quality companies in cyclical companies.

Most of US high quality companies, including old economy business are still expensive, with the exception of cyclical and micro-cap companies. I would recommend you to take a look at stock chart and trailing P/E of 3M, Macdonalds, Costco, PepsiCo, Coca Cola etc. It is very easy to assume and give a sweeping statement without taking even a closer look at the companies. 

Not sure if you even took a close look at Exxon when quoting it as an example. But, I did took a quick look some time back. Exxon might seem reasonable on a normalised earnings basis. But if you take into consideration of debt, it is not even cheap on an EV/EBIT basis. The same is happening to a lot of US corporations currently as they leverage to perform share buybacks and issue dividends, to juice management compensation. While I don't think Exxon will go bankrupt, I am uncomfortable with that amount of debt and uncertainty in oil prices which may result in changes in capital structure.

Maybe, and to my surprise, the market is suddenly having a long-term orientation (looking past and writing off 2020-2021 financial results) to justify current valuations hahaha. Guess, I am losing my advantage.

If you take Buffetts measure of Market cap to GDP, markets are still looking very very bubbly. American GDP has basically gone off a cliff now so u can imagine how big the ratio is becoming.

I can guarantee that the "reopening" of american economy will not be successful at all. in fact for most big countries which have not got the virus under control before reopening, they will get hit by the next big wave which will overwhelm health systems and cause further shutdowns. Even for countries with good control and measures like Taiwan, there can be sudden undetected clusters appear. Of course Singapore is another example what happens. 

So for sure in America whilst they have situation under a bit of control in places like new york after lockdowns, other cities u will get big clusters happening whereever there are people in mass gathering. 

USA has ~330m population, the way the people there dont care about social distancing, do you think the virus will be under control after the ~1m cases they have now? assuming they have ten times undetected cases which recovered, thats only 10m cases, still 320m of the population not immune. And dont forget fatality rate is only sub 1% if health system is not overwhelmed.

As for China, their economy has not converted enough yet to a consumer driven one and still quite reliant on manufacturing trade with the rest of the world, especially the American consumer which is the driving force. So with record unemployment starting in USA and much of OECD, you can see where things will go next half year. 

And lets not forget poorer nations with large population centers like India and africa plus south america. Those countries are unlikely to be able to tolerate any prolonged lockdown measures due to poverty people have to work just to survive. So what happens to global demand as the people in these nations inevitably get the disease and for the coming year have high death rates and so many sick that their economies get hit and might even result in social unrest?

IMHO the recent rally is just a relief rally. FED is also pumping money into the system to prop things up. Similar thing happened during 2008 crash, big dip during october panic then some recovery and ups and downs till the march lows almost half year later. I would be waiting another four five months before making any big moves into the market really.

Just sit back and wait for the wave of oil sector and airline/hotel/tourism sector bakruptcies to rock the market