UK

https://www.investing.com/news/economy/investors-brace-for-earnings-from-magnificent-seven-us-growth-giants-3126294 BofA Global Research projects they will increase earnings by an average of 19% over the next 12 months, more than double the an 8% estimated rise for the rest of the S&P 500. They will need strong results to justify premium valuations. Those companies trade at an overall trailing price-to-earnings ratio of about 40 times, versus 15 times for the S&P 500 excluding those companies, according to BofA. Their results may be crucial to the market as a whole. Fueled by their recent gains, megacap stocks have climbed to dominate benchmark indexes, causing headaches for some managers of active funds. In the S&P 500, the seven stocks comprise 27.9% of the index's weight. “It’s also how do these big companies, which are carrying the market ... guide for the rest of the year and into 2024,” he said. Overall, the seven companies account for 14.3% of overall S&P 500 estimated earnings for the second quarter, and 9.3% of estimated revenue, according to Tajinder Dhillon, senior research analyst at Refinitiv. But many investors say the corporate giants are nevertheless here to stay as critical holdings. Yung-Yu Ma, chief investment officer at BMO Wealth Management said that while “there is a lot priced in” to megacaps’ valuations, that did not mean they are overvalued. "If you think about the megacaps broadly ... they have gone from a core holding of a portfolio to an almost absolute necessary major component of the portfolio once you factor in trends such as AI," he said.

Something to think about. Thanks for sharing!

https://www.bloomberg.com/news/articles/2023-07-13/top-tech-stocks-power-an-18-month-surge-from-bear-to-bull-market Call it a bubble or an artificial-intelligence-driven hype cycle. But here’s another way of looking at the rally that sent the tech-heavy Nasdaq-100 to its best-ever first-half performance: a narrative round trip. Only about a half-dozen companies are responsible for virtually all of the advance, leading to a lot of investor angst over how precarious the gains feel. But it’s possible to look at the same set of facts and conclude that nothing has changed in the market over the past 18 months. The clutch of technology giants that dominate the market got crushed when it seemed as if the US Federal Reserve would drive the economy into a recession, and in 2023 that view has been reconsidered. ... “The problem with market timing is it’s inconsistent with the underlying philosophy of investing in stocks, which is that stocks really are for the long run,” says Ed Yardeni, founder of Yardeni Research Inc. “And if you get out, you have to be smart enough to get back in.”

https://www.wsj.com/articles/pepsi-pep-q2-earnings-report-2023-2f9d2b0 Pepsi said its companywide organic sales, which strip out currency and merger impacts, rose 13% from a year earlier in the second quarter—stronger than analyst expectations for a 10% rise, according to Visible Alpha. This was largely due to big, double-digit price increases, as underlying sales volumes fell slightly from a year earlier. But in the Frito-Lay North America division, maker of snacks like Cheetos and Doritos, volumes actually rose 1%, bringing organic sales growth in the division to 14%.

Some interesting info on market sentiment: https://www.bloomberg.com/news/articles/2023-07-07/force-firing-up-the-stock-market-cools-off-with-shorts-conceding?srnd=premium-europe#xj4y7vzkg “At the index level we went from deeply bearish sentiment in the fall to the other extreme right now especially in tech. I don’t think it’s fair to say that’s true for every sector,”

Personally I hate owning meaningful part of portfolio in cash or long term bonds (I want much more than 4-5 per cent, even from government bonds, which happened to me only once) for a longer term and I would not put more than 20-30 per cent portfolio in cash, even if markets seem somewhat expensive/exuberant and greedy (last time I felt this way in 2021), if it is possible to find something at least fairly valued, meaning with an expected return of >8-10 per cent. I like BRK as a theoretical benchmark and real alternative and I think it met very well this criteria in 2021 and still meets today (and perhaps every year since 2007, even including some periods of being more noticeably undervalued). To go to >50 cash, I really have not such real experience, but maybe it would be possible to imagine (also depending on long term rates etc) if market would trade at something like >30 normalized PE, with BRK>1.6-1.8 PBV and it would be impossible to find anything else sensible, without seriously compromising quality. But it seems that even during such periods like 2000 it was possible to find something with reasonable valuations and I hope it will be the case in the future:). Also for me the similar thinking applies to the other side, meaning if I feel the market is cheap (maybe already <15 normalized PE or even better if less), off substantially and with a lot of fear in it, then, depending on the opportunities, I would consider adding 20-30 per cent leverage. So most of the time I am about 100 per cent invested, but while being 70-80 per cent invested (defensive for me), I still have capacity to add about 60-40 per cent to my long exposure, if something exiting comes along, as last time I felt was the case with the market (and especially big tech etc) last year. I think if today I was given 100 per cent cash portfolio I would put at least 50-60 per cent of it into BRK and FFH (and this one is not even at 8-10 but more likely at >15 per cent expected return) on Monday and then in near future add to them / some other things until being 80-90 invested. Maybe even only with SNP500 available, I think I would still put 50 per cent of cash it into it and then think what and when to do with the rest.

I am not sure, but it seems that these remaining flows is about 9 per cent of total pre war EU gas import from Russia? Still could be painful for some countries (including Hungary), but maybe manageable / already not the issue for most EU?

Maybe this is also very timely for today: https://www.bloomberg.com/opinion/articles/2023-07-06/central-banks-should-stop-hammering-the-economy-into-recession?srnd=premium-europe Time again to move to something like the last year regime of worrying of higher for longer rates / braking of something / possibilities of large mistakes by central banks?

https://www.wsj.com/articles/home-builder-stocks-are-booming-as-homeowners-stay-put-df748479 “It’s a perfect example of the market where just when you think there’s nothing that can go right for a group, that’s when things start to go right,” Hickey said.

https://www.wsj.com/articles/ai-boom-stems-techs-downturn-a669b4a3?mod=hp_lead_pos1 SoftBank Group Chief Executive Masayoshi Son said last month that he plans to end a lull in investing and focus on AI after the ChatGPT chatbot rekindled his excitement about the future. “The time is approaching for us to go on the counteroffensive,” Son said at the annual meeting of the Japanese technology-investment company. “I want SoftBank to lead the AI revolution.”

I think maybe 10-year yield is more appropriate for risk free rate measure and currently it is at ~4 per cent. So bonds trade at like 25x multiple with no growth, but more importantly for the longer term, with no inflation protection. So assuming business such as Apple is as safe as heaven (lets trust WB here:)), global, with a strong pricing power and still growing, it is easy to rationalize choosing such business over bonds at the same or even somewhat higher multiple as it trades currently (25 vs 30). What would be your choice if you had to make a decision and lock it in for the next 10 or more years (and maybe this is the thinking of BRK)? However you have to draw a line somewhere, because at very low or zero yields this kind of math will lead you to the moon:). And in reality I am not sure at all that all of these big tech companies are completely risk free from some disruption risk (including AI) in the next 10 years, or even geopolitical (Apple and China?) or other risks (regulatory etc). So maybe for me anything of such size trading above 25x or 30x makes me very uncomfortable. Especially after seeing were those same, very special, companies (and I would definitely would not put all 8 in that category), were trading just some 6-8 month ago:). GOOGL and META both still trades at estimated 20x for the next year, almost in line/not much above the market, maybe still nothing to worry about, especially if you are sure AI will not disrupt search in any negative way and META will not fall into some another, real or imaginary, crisis:). And the sentiment around them is completely different from the last year, but maybe it will last much longer and gets even more positive (as we also seen before). So again I could rationalize to continue owning some of these big tech. But on the other hand the interesting exercise to contemplate: if and how much of these big tech companies I would put in the portfolio today if by some accident I was about to start with 100 per cent cash?

https://www.barrons.com/articles/berkshire-is-ready-for-hurricane-season-the-stakes-are-high-for-insurers-c6c1e06b

Interesting. May I ask what have you bought instead of these:)?

Yes, I think moving to something more reasonably priced or even what could still be considered cheap (or even some cash) is a logical thing to do, especially if market keeps doing in 2H, what it did in the 1H. I already moved maybe about halfway this direction Vs start of the year, by reducing leverage and adding somewhat to non big tech (mostly FFH and also some JOE). But timing this right is very difficult and tiring and I still own 2 of these 8 darlings.

Despite being very exited about some of these enormous eight just 6-8 month ago, I in no way expected that situation with long duration assets in general and big tech in particular will reverse so quickly and to a such extreme. I think I still can live with a multiples of 20x or even 25x for a really good companies with an improving results (as most of these probably are), but now some of them are getting into 30+ territory, which is maybe already disturbing for a such large and in some cases slowing businesses? But Apple is one of these and BRK continues to hold like half portfolio in it and I am also not sure what to think about it. So...more questions than answers and no predictions from me:)

Thanks very much for your answer!

Viking, thank you for sharing you analysis and thinking on FFH! Given you extensive knowledge and conviction on possible opportunity with FFH still present, may I ask you, what are your thoughts on position sizing with FFH? Given that FFH is still an insurance and somewhat levered company, what would be max position size in FFH you could still sleep well with?

https://www.washingtonpost.com/world/2023/06/30/wagner-syria-russia-battle-united-states/ And the incident also offered an early indication of the tensions to come between Prigozhin and Russia’s military leadership. The apparent loss of dozens of Wagner fighters in a single night in Syria allegedly infuriated Prigozhin, who earlier this month put out his account of the 2018 events on the social media platform Telegram. In his telling, the Wagner expedition was supposed to be the advance force of an “anti-ISIS” operation that would secure control over the plant and its environs with air support from the Russian military. But that support never came, and Prigozhin was left fuming at Defense Minister Sergei Shoigu and Russian Gen. Valery Gerasimov for allowing his fighters to become U.S. cannon fodder. According to U.S. officials in 2018, their Russian counterparts denied involvement in the battle and, during emergency discussions as the fighting raged, assented to the use of American air power on the scene. A U.S. official told my colleagues five years ago that it was “striking how the Russians themselves have been quick to distance themselves” from what he described as an operation “under Syrian command and in response to Syrian directive.” “The Russian high command in Syria assured us it was not their people,” Defense Secretary Jim Mattis told senators in testimony in April 2018. He said he directed Gen. Joseph F. Dunford Jr., chairman of the Joint Chiefs of Staff, “for the [attacking] force, then, to be annihilated.”

From the same article: Grantham, the co-founder of the Boston-based money manager Grantham Mayo Van Otterloo, has been warning of signs of froth in the stock market since at least 2015. GMO’s flagship Benchmark-Free Allocation Fund is up 4.5% this year, trailing the broader market. Since its 2003 inception, the fund’s annualized total return is 6.3%, compared with 9.9% for the S&P 500, according to FactSet data going back to Aug. 25, 2003.

https://www.washingtonpost.com/world/2023/06/30/valery-zaluzhny-ukraine-general-interview/

https://www.wsj.com/articles/grantham-warns-ai-boom-wont-prevent-market-bubble-from-bursting-fd7f5a98 That enthusiasm is strong enough to propel the broader stock market over the next couple of quarters, Grantham says, but ultimately it won’t prevent the bubble from bursting. GMO predicts that, after that happens, value will eventually set the market’s trajectory again.

https://www.bloomberg.com/news/features/2023-06-29/china-economic-rebound-falters-weighed-by-debt-property-slump-little-stimulus?srnd=premium-europe#xj4y7vzkg https://www.bloomberg.com/news/articles/2023-06-29/inventor-of-balance-sheet-recession-says-china-is-now-in-one

https://www.bloomberg.com/news/features/2023-06-18/canada-s-immigration-policies-may-boost-its-labor-market-economy?srnd=premium-europe#xj4y7vzkg

Technically, we should wait until +20 from the bottom before moving, but maybe it would be more convenient to just merge both threads into one "Have We Reached The Top/Bottom":)))

From: https://www.bloomberg.com/opinion/articles/2023-05-30/wework-s-woes-show-return-to-office-is-no-party