Disclaimer: I haven't really thought this through and your best bet is to do cashflow analysis at the most granular level possible, with some understanding of the debt covenants, optionality (they may walk away from some of their worst properties), balloon payment timing, some analysis of the tenant mix, balance sheet / financing terms and of course location/quality/etc.

With the disclaimer out of the way, some thoughts:

I think what makes this hard to value is that the short/medium-term is entirely toast and there are some extreme scenarios that they may not be able to withstand, especially if they are not prepared. Multiple waves, no vaccine, extended lockdowns and some level of social distancing measures for 2+ years, etc. And beyond the medium term, the long-term future for the American mall has been questionable for some time. With that said, I get the fundamental thesis here - if they can survive the next 2+ years, they'd be in a strong position and ultimately even if their current tenants as a group don't do very well, there has to be something productive that can be done with the space and with low interest rates, the bar isn't very high.

Well, I said a retest was possible a month ago when markets were still saturated with fear and VIX was 50+. The 2170 lows were a place of max panic, the likes of which we haven't seen since Sept 2008. A 10-15% fluctuation/pullback isn't unreasonable, but we're not selling off 25% "just because". It would take an accelerant.

Also, I'm not a bull as much as I've been a fader of the "we're closed, markets should crash!" logic, which has now evolved to "we're headed for a financial crisis!". Considering banks managed to stomach toxic, levered subprime mortgages for a couple of years before shitting themselves, all of this talk about financials is a long term (>18 months) issue, if any. The same goes for oil / high yield.

IMO, the markets will be laser-focused on employment in the next 2 months. In fact, I'll go as far as to say that if we see unemployment claims decay each week down to < 1.5M by mid June and May's unemployment rate shows improvement (e.g. two-thirds of April's), then we'll effortlessly climb to 3050 (10% of ATH). We were just trading at 2960 a week ago just based on Remdesivir shortening hospitalization time from 15 to 11 days.

Also, it's worth asking how much Trump is bluffing with respect to China. A month ago he said how he worked hard on the trade deal and was going to preserve it. If he's smart, he'll save the geopolitics until September, giving the markets/economy time to recover, but also in time for the election. Bullying China may work if it's a international effort, but China has too many allies.

Short term shocks:

Positive:
* More trials/treatment news
* Stimulus (employment targeted, e.g. infrastructure, payroll. Should be passed at least a few months before election).

Negative:
* Employment is not gained back fast enough (e.g. resurgence or weak/impaired demand)
* China geopolitics (i.e. Trump isn't bluffing)


I'll try to do some employment analysis after the numbers come this Friday.

Except it doesn't work like that. Corporate profits are what matters for the stock market, and few trillion in printing doesn't cover that loss.

You're counting real estate and bond holdings now? Trillions is very relevant compared to the functioning active economy.

This is as dumb as you saying: "There's only a 2-4% GDP contraction in the very worst recession, which is only $400 billion in lost output, a recession won't cause the S&P 500 to go down, silly! There's $200 trillion in wealth in the US, how can $400 billion matter?"

I'm not double counting at all, you just don't get it. Let me put it in child speak for you as a robbery analogy so you can grasp it:

Scenario 1: Someone breaks in and steals $1000, which is most of your savings
Scenario 2: Someone breaks in and steals $1000 and shoot you in the leg.

Scenario 2 is way worse than scenario 1, and I'm not double counting. This shock has both lost trillions in wealth AND is going to do long term structural damage to the economy in terms of millions of small business closures. It's the latter that causes the recession, and you can't print away.

You don't get it at a fundamental level because you're a parrot rather than a first principles thinker. The economy is a finely tuned giant highly complex machine, with continued growth at saturation requiring incremental tinkering and greater efficiencies. Parts of it are duct-taped on and required to make other parts work. This crisis is both stealing the engine AND setting a bomb off inside it. The engine can be replaced - that's what the fed is doing - but the bomb is what's causing the lasting economic damage. Business structures and procedures, employee skills, deployed capital, business contacts and networks, supplier chains, are all set up in a fairly fragile way and have been slowly tinkered to maximal efficiency. That's what 10 years of a bull economy is doing. When large parts of that are simply taken out, the resulting loss of structure causes long term, serious damage to economic growth and corporate profits. 10% of small businesses disappear, which makes a previous marginal product sold to them unprofitable, which means those people lose their jobs, which means the company is no longer doing B2B spending and those people are doing less discretionary spending, which drops corporate profits. Confidence goes down and friction goes way up in this newly damaged economy. It takes years to heal - this is why recessions go on for so long.

This is the situation we're in. Millions of small businesses will close forever. Tens of millions of workers will be unemployed for an extended period. B2B spending and risk taking is going way down. Globally, where the S&P 500 gets nearly half of it income, many countries and individuals are going to be impoverished by this, and their governments can't afford to bail them out. PC sales in hard hit Ecuador are going to be way down, for example, and take years to recover as people prioritize savings and food over spending. This hits MSFT, MU, INTL, etc, and flows on to their downstream business spending. It doesn't take much to send corporate profits into a tailspin at a P/E of 25+, and we are way past the "much" with the global economic damage this is going to do.

You don't get it. It's the flow on effects that matter, and global ones at that. Why are you even focusing on America given where S&P 500 profits come from?

Again, not surprising that you would try and desperately pull that conclusion out of a comment from which it can't be deduced at all.
Yet the stock markets ripped hardfrom 95 to 2000. Your own commentary is showing how your take on what will affect the markets is wrong.

You are focusing way too much on financial contagion rather than the economic damage that's just happened and continues to happen and that we're going to run into on the other side of opening up. It's narrow noob thinking. "OMG financial contagion but the fed has got this so we're all ok!" is the thrust of all your long, zero alpha posts. I can get that analysis at ijusttookbusiness101.com. You need to go a little deeper and think a little more fundamentally if you're going to get any insight on what the other side of this will look like.

When I think of big tech earnings, I think of Ecuador too.

candy, are you all in long?

You should. It was a deliberately small example of how regions you don't even normally think about are going to be a cumulative drag on global profits for a long time. A global recession is actually a very modest drop in economic output, yet even a modest drop is sufficient to tank corporate earnings and require years for recovery to old highs. This is an economic shock to much all of the world with ongoing effects that will be worse than the average recession. Yet people are acting like everything will be back to normal by the end of this year. It's really weird to watch, on par with the denial that this virus would have an impact. It's not unlike 1929, individuals and professionals threw all their savings on the rock solid belief that things would be back to normal shortly. 1929 had a massive rip off lows that's almost identical to the one we've had now, before the real selling started as the return to the old normal never happened from the structural economic damage and the loss of confidence.

now this is the kind of dick measuring argument i can get behind between you two

Eh, this one is funnier:
CYDY - one of the most obvious fraud bio pump in years (and that's saying something!), coming unraveled as the CEO dumps half his holdings on the bagholders:

CytoDyn down 9% as CEO moves to sell stock while touting COVID-19 drug:
This one even had the full buffet of fraud red flags, some glaring.

I did promise that a loud mouthed thread regular losing his cherry to an obvious bio fraud, baggie style, while being told by someone he didn't listen to that he was getting pantsed, would be entertaining. It actually gets me off to tell people the stone cold truth and have them not believe me, so thanks for that Clayton, I enjoyed this one.

Funny post.

I do think though that making arguments about the economic impact that are being made in this thread is interesting and valuable. A bit of an edge to some posts but to me it demonstrates passion.

Re: SME insolvency - why shouldn't it be the base case that some kind of policy mandated debt forgiveness/haircuts/maturity extensions be instated in debts + leases for the affected period? Novel policy intervention tools to prevent exactly that scenario of insolvencies and debt burdens damping the recovery, which requires one off compromise of debtor/creditor contracts. Also plenty of helicopter money going round to turn unemployment into funemployment.

Not sure the above is close to the 'right' intervention, but the general point I'm making here is as follows: In 2008 you could have done similar rational analysis looking at the structure of how things work at that point and following lines of logic to logical conclusions that point to a wholesale collapse of the financial system. However fed/treasury at the time also came to similar logical conclusions and didn't just sit on their arse and allow the inevitable to happen - extraordinary new policy tools designed explicitly to prevent the otehrwise logical outcome, were quickly rolled out and (at least in the near term) work as intended. Why shouldn't it be different in concept this time? Get creative with new policy tools and do whatever possible to prevent mass SME insolvency. Granted there is a window of real lost economic output and income, but just rejig some things in order to share and part-monetise the burden of that in a way which maximises economic activity bounce potential and minimises hindrances like having to continue to make rent payments

Would also suggest there's a self-fulfilling element to the popular expectation things will bounce back in reasonable enough time, around 'animal spirits' psychology, confidence and spending/business investment decisions. Treasury has demonstrated the "whatever it takes" appetite to keep that alive.

squeeze and sensitivity of corporate profit margins though is a good, worrying counter point. but overall I'm struggling to see it as so obviously bearish, though may be getting lulled into a false sense of security by buoyant SPX

A world wide depression could happen and in my view there is a “whiff of deflation in the air” but I think the odds favor a decent recovery in the not too distant future at least in the USA. Non durable spending seems to be strong in the USA. Food shortages for prolonged periods in the USA would be a disaster.

The stock price is still incredibly resilient (along with all the other penny nano stock that gained hundreds of percent after releasing news with covid in them)

Yeah the buoyant SPX is a gaslight for sure. I didn't have that pre-covid on SPX at all time high (it was obviously going to crash even while the market was batshit crazy buying at highs), but I had that on individual stocks like CCL that had strong bids on them even as the Diamond Princess meant cruises were dead for months. They eventually lost 80% of their value. You shouldn't read too much into where the market is now, it is incredibly stupid just as a general rule, but it will follow concrete data (see again:CCL), it's just very very stupid about correctly pricing expectations or seeing the likely future.

I agree with you to some extent on the toxic debt/debt overload stuff - the fed buying that up was enough to get me bullish at 2770 or so before tapping out at 2900 - but it if was all as simple as printing and nationalization of debt, well:



The real economy actually matters and you can't print your way out of economic decline. Why do you think the 2008 recovery was so slow despite Obama expert projections that the stimulus would bring unemployment down way sooner? Because the real economy is an actual highly intricate ecology that takes a long time after damage to get to a point where it's running optimally, in the interim of which corporate profits take an enormous dive for an extended period (and the market follows them).

"Decent recovery" from where to where? What percentage of small businesses will shut for good? How much will advertising spending be down? Will consumer behavior net move to spending or saving? Will people have more free money or less under their new debt burdens? How about small businesses? Medium sized businesses? How long until the US is at 80% of pre-lockdown economic activity levels? 90%? 95%? How about the world?

If you think through those questions carefully, the answers you'll get for the most probable outcomes don't speak well for a rapid recovery. Remember that China is two months ahead of the West on the infection/reopening curve, is a much more robust/essential economy (essential goods manufacturing and export) and did a far better job of eradicating it. Is their economy back to 90%? 95%? What does that say for the US and elsewhere?

Remember a recession is defined as 99% of the economic activity of the year before, and a bad one, 97% of the economic activity of the year before. The last two recessions tanked the stock market 49% and 56%. We're at -14% off all time highs.

Best economy in history



All in to save boomers' retirement. The next generations shrinking in size and thus shrinking demand surrounded by record debt everywhere be damned.

It's absolutely ridiculous

"Chairman Powell: (32:52)
So that’s a good thing. Companies are out there financing, they’re out there raising liquidity. We haven’t made any corporate loans in those facilities. We’ve made the short term money market loans, but we haven’t made any of them. And yet there’s a tremendous amount of financing going on and that’s a good thing. So we, for that reason, the ultimate demand for the facilities is quite difficult to predict because there is this announcement effect that it really gets the market functioning again. Of course we have to follow through though. And we will follow through to validate that announcement effect."

Speculators will be made whole. It's your fault if you are not crooked or poor so you can't participate.

jc penny trading at $0.239 can still buy $0.50 puts that expire on the 8th for .27 and on the 15th for .28

there's gotta be something I'm missing here, they already filed, barring some last minute bailout it's hitting 0 for sure right?

doing lots of homework now for retailers to short, been meaning to do it earlier but got caught up in tulip... err tanker mania

TCO looks really interesting, they didn't collect a whole bunch of rent lately nor should they in the imminent future, but their stock is trading higher than pre corona so either a correction is coming or i'm woefully ignorant, will be reading up on them more

ugh, i'm an idiot, j crew not jc penney

gotta stop just blasting through spreadsheets and take a moment to sit back and take in what i'm doing

penney still a bankruptcy target though but not enough nut there, most of the more obvious ones are priced accordingly so will keep diggin

RGN also interesting, has a lot of good covid news but still at 2x it's normal price so long term may look for some puts but first need to read up more

simon property group agreed to buy out TCO for $53 per share recently

big oof with oil spike right before tanker earnings

thanks, i hadn't gotten around to heavy research on it yet but i was guessing trade fell through, as the price rocketed up to the 52.5 and has since fallen to 43

very confused - this one probably requires more than 3 weeks of experience to navigate

No that's crazy, I'm almost always positioned such that I'm okay if the market goes up and okay if the market goes down. Frankly, that's how most people should be positioned unless they are extremely certain and have a strong gauge on exactly what would change their level of conviction.

Look at W
..and take it to the short ideas thread so it won't get lost quickly here

We already went over corporate profits.

Of course we have to count real estate, bonds and private equity - do you think "losses in wealth" are somehow magically concentrated in S&P 500 and all other asset classes are entirely immune?

You're completely confused here. You have to compare apples to apples. You mentioned that "the US permanently loses trillions in wealth" - this has to be compared to the overall *wealth* of the US. If you're saying S&P 500 is going to lose trillions in earnings in perpetuity, that's a different story. And wrt GDP, yeah it doesn't have much to do with the the stock market prices - it's important to understand that in 2009, the market bottomed on deflation expectations and the resulting bubble in cash, rather than anyone thinking through the implications of a small GDP drop in real terms. Real market crashes of the sort you're talking about (50%-70% drops) aren't about small drops in GDP - they are fundamentally about a bubble in cash. The demand for cash is where you have to look.

This isn't how things work - the overall magnitude of wealth loss people are projecting includes the damage from . If you take out the small business closures and structural damage, the wealth loss so far is pretty negligible

I loled.

1) I love how you now copied my point about S&P 500 being heavily exposed to the rest of the world before this being entirely absent in your thesis earlier.

2) It's important to understand that S&P 500 isn't particularly exposed to downturns in the rest of the world either. Even globally, they are much more heavily weighted towards fundamental utilities than discretionary. Of course, in downturns, companies do worse, but the actual level of exposure is not high. And we went over how this could help lots of US companies that are vying for dominant positions in foreign markets.

Do you know what was devastating for many emerging market economies? The 1997 Asian Financial Crisis. Yet, in your own words:

So once again, ensuring that equity prices don't fall dramatically is much more about ensuring that they are compelling alternatives to cash. The stimulus from the 1997 Asian Financial Crisis went towards exacerbating the US tech bubble. Much the same way that the stimulus from the dot com bust went towards oil and housing boom.

3) The global economy was in awful shape in 2010. Yet most sectors, outside of the ones that are now a very small part of the S&P 500, had higher earnings in 2010 vs 2007 at the peak.

4) "are all set up in a fairly fragile way and have been slowly tinkered to maximal efficiency" - in terms of equity valuation, mostly how this shows up is in financial leverage. But we already know that the combination of two things mitigates this 1) the overhang from the last crisis, combined wih unprecedented deficit spending at the peak of the business cycle have been such that both corporations and households have fairly strong balance sheets and aren't overly leveraged. 2) this business cycle being interrupted by an exogenous factor means they didn't actually have a chance to get to "maximal efficiency." Typically business cycles turn when leveraged investments (not necessarily financial, this could be a factory for example) based on optimistic scenarios start to turn bad at the same time, which inevitably lead to all economic actors demanding cash at the same time. We didn't really get to the point where all sorts of crazy leveraged money-losing investments were made. Now, a large class of investments are going to turn out poorly due to an exogenous shock anyway, but instead of a large number of them being allowed to fail at first, which is what we typically see, we're getting fairly unprecedented stimulus and bailouts, which will not only cushion the real shock to the economy, bu also reduce the value of cash.

We're talking about equity valuation, not the real economy. Serious market crashes, especially given the composition of S&P 500, aren't going to be about "economic damage" - because "economic damage" without serious financial contagion tends to be manageable. Once again, when you're betting on cash over S&P 500, you're not betting against the economy - you're betting on cash.