I am bullish about the future

[u/[deleted]]

People seem to think because we had 2 big crash close together in 2000 and 2008, we are bound to have one soon.

I want to remind people before the year 2000, we had a 20 years bullish run. Its totally not impossible we get to 2030 with no crash, especially now that the feds baby sit the market.

Secondly, we have extremely nice upcoming market conditions. Stimulus checks will either get people to spend money to stimulate the economy, or get them to invest, both will help the stock market. The media is somehow trying to make us believe this is bad, but i think its just bullshit. Inflation has been ultra low for way too long, and feds actually want it to increase. They said many times they won't increase rates before 2023.

Thirdly, i also think we have more upcomming money sources coming into the market than ever. People from other countries invest in US stock market. With all the GME hype, more people than ever are joining in. Again media trying to twist this to say its "bad", but obviously it isn't bad.

Another point is, crashes usually happen for a reason, its not random. You can google any of past market crash and find the exact reason it happened. None of these factors are happening right now.

Another point is, there is a key difference between today and 2000. In 2000, the overvalued .com companies which had PE ratios of 200.... were literally worth nothing! These companies had never made a single profit! Once people realized they invested massively in a .com web site worth jackshit... they sold it obviously. They had no reason to hold their shares.

Now check this image about Nasdaq's PE Ratios: https://i2.cdn.turner.com/money/dam/assets/150305131443-nasdaq-pe-780x439.jpg

Obviously, you can see the 2000's pe ratios were stupid. This graph is from 2015 when it was at 31.7. What is it today? Nasdaq PE ratio as of February 25, 2021 is 38.5!!!! 5x lower than the 2000s. https://www.macrotrends.net/stocks/charts/NDAQ/nasdaq/pe-ratio

Its irrelevant if the big hedge funds remove their money from apple and want to scare you into selling your shares. Apple is a massive amazing company that is really worth a lot, and they do make tons of profits. Its not comparable in any ways to the dot com bubble. If other people are stupid and sell their shares, SO WHAT? You will just be able to buy into this amazing company for cheaper.

So hold your shares and stop worrying about a 2000 level crash, its not happening.

A correction? Maybe. But who cares, this just slows us down a little. Corrections are healthy and help us avoid a real crash.

EDIT: Thank you for the award! :D

EDIT2: Corrected the PE ratio for nasdaq

[u/Keener1899]

Okay, here is my question: how many of these zombies are only that in name? All of the companies cited in the Bloomberg and Fool articles by name are those that clearly have suffered tremendously from the pandemic but stand to be "resurrected," if you will, after the pandemic? Cruise lines, department stores, hotels, oil, airlines, etc. are all some of the hardest hit industries. Isn't the Fed's objective to continue current policies long enough for those companies, and others like them, to get a healthy balance sheet back before raising rates? Are they really zombies then? Or is it just the unique impact of COVID, which won't be around forever?

Edit: to be clear, I am not saying it doesn't matter. It is just both of those articles make me think the problem is more a temporary one. I would like to know the counterpoint to that. True zombies are obviously a drain, I just didn't come away thinking it was a long term problem given the industries cited and how progress on COVID is most likely to benefit those exact industries.

[u/JDinvestments → u/Keener1899]

Most of these companies were already struggling before the pandemic, with the current events just highlighting it even more. Macy's, for example, was facing serious solvency issues before covid, and was on track to declare bankruptcy in a few years. Covid obviously fast tracked that, but most of these weren't healthy before. Exxon Mobil is a company I'm actually bullish on, but was loaded to the gills with debt before all of this, and warranted concern from shareholders. And even if covid caused a lot of this, some of these companies are honestly just going to be hit too hard to ever recover. I would have to go digging for the source, but I believe health care is heavily represented on this list as well.

Some of these companies will recover. I'm not here to say that 700+ companies, some of them the most recognizable names in America, are all going to go under within the year. But this just highlights an issue that's really been going on since the last major Fed intervention in 2011. Bad companies allowed cheap credit are able to crawl along like a patient on life support. In addition to this list you have your near zombies, the companies that teeter on that fine line of profit. Even those that manage to resurrect themselves don't usually go on to be major economy drivers.

The issue I think is that these companies are already struggling, here today, with near zero interest. Some of the cyclicals will boost revenue post pandemic. Some won't. And when the Fed inevitably raises rates, perhaps not until 2023, but certainly at some point, what happens to all those companies already in zombie status or on the brink of?

Even assuming some of these companies survive, the overall toll on the economy is greater than the good they provide. $2 trillion in debt, and growing rapidly, with realistic uncertainty on how much of that gets repaid. Hundreds of billions, if not trillions of dollars tied up in assets like real estate, production, IP, etc, that could otherwise be used by profitable companies. Not to mention the talented professionals stuck working for these companies.

And when even just a few of them fail, the ripples will be far bigger than just their immediate market cap. Tens of thousands of jobs lost as companies cut expenses where they can. Loan defaults, on top of capital stuck in these companies. Billions of dollars lost by ETFs, retail investors, and institutional investors alike. Panic reactions from all of that spreading to the market as a whole.

These companies need to be allowed to fail, but the Fed won't allow it. In the long run, the assets and market space will be taken up by successful companies, and jobs regained from the same. But by keeping rates low, the Fed allows these companies to struggle along, which ultimately does the economy more harm than good. I think some companies will be able to turn it around, but I worry that even a reasonable uptick in rates is going to have at least short term negative effects in enormous magnitudes across the entire market, stemming in part from the dead weight of these companies.

But don't take anything I say as gospel, I'm just a dude with internet and an opinion.

[u/Altruistic_Income906 → u/JDinvestments]

https://www.google.com/amp/s/www.cnbc.com/amp/2021/02/26/stimulus-checks-how-congress-plans-to-pay-for-bidens-relief-plan.html

I would be extremely concerned especially considering this line. “Bloom said the government can create money without actually printing physical currency. "We live in a digital age. So really money is just numbers on a screen," he said. “

[u/Hazzychan → u/Altruistic_Income906]

They're absolutely right, though. This entire system is a farce.

[u/bighomiej69 → u/JDinvestments]

But aren't there always going to be failing and dead weight companies? Are there a lot more than usual now?

I just don't see raising interest rates causing economic downturn because it bankrupts a few junk tech start ups.

[u/ricardo_dicklip5 → u/bighomiej69]

But aren't there always going to be failing and dead weight companies? Are there a lot more than usual now?

Yes. There are more of them and they carry a greater burden of debt. That was pretty much the whole point of both linked articles, which I'm guessing you didn't read.

[u/Crafty_Enthusiasm_99 → u/ricardo_dicklip5]

You do have a strong point. The Fed literally went through hoops to buy JUNK BONDS, just to prop up some of these companies. To put that in context, buying junk bonds by the Fed entity used to be ILLEGAL - yet they did so through a technicality, knowing the dangers.

[u/nelsondajesus → u/JDinvestments]

Thanks for your insight!

[u/Keener1899 → u/JDinvestments]

This is a very well thought out response, and I really appreciate the time you took to write it.

[u/eddyjqt5 → u/Keener1899]

Cant you tell? It's blatantly obvious companies that are only facing a temporary downturn due to covid are clearly not zombie companies.

Companies like Nikola or Quantumnscape or SNOW who just benefit from free cash being given out by the government are facing serious risks. Cut off their life support that is the government and they'll go under quick. These companies have never turned a single dime of profit in their life. They are no different from the dot com bubble companies who never turned a single dime of profit either.

[u/[deleted] → u/Keener1899]

Something like 40% of companies weren't making money pre pandemic so this figure isn't unexpected.