UK
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Posts posted by UK
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5 hours ago, Spekulatius said:
LOL, feels like twilight zone:
https://www.cnbc.com/2022/10/31/shanghai-disney-shuts-over-covid-visitors-unable-to-leave.html
"The theme park continued to operate rides for visitors stuck in the park during the closure on Monday, social media users reported."
Whats not to like:)?
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Just now, Spekulatius said:
The book is an anti war classic written by Erich Maria Remarque written in 1928 about a somewhat stylized experience of a German conscript in WW1. It's one of those books that you read in school or later when you grow up in Germany.
Neither the book nor the movie has a band of Brother vibe.
I believe it is a must read not only in Germany, but more like in whole Europe? I really liked it and his other books, and especially Black Obelisk, which is more fun and is about those hyperinfliationary years after WW1. This book together with similar real world expierences is basically is the reason I tend to avoid for a long term fixed income investmens:)
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Xi is sending a letter: https://www.bloomberg.com/news/articles/2022-10-31/blinken-speaks-with-china-s-top-diplomat-in-latest-sign-of-thaw?srnd=premium-europe
But US is sending back B-52: https://www.bloomberg.com/news/articles/2022-10-31/us-building-facility-to-base-b-52-bombers-in-australia-abc-says
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Even as Russian troops have suffered a series of recent defeats against Ukrainian forces, Putin said his plan for what he calls his “special military operation” remained to ensure the security of Kremlin-backed separatists in the eastern Donbas region. He made no mention of the sweeping goals of “de-Nazification” and “de-militarization” that he’d cited at the start of the invasion, when Russia failed in a lightning attempt to seize Ukraine’s capital, Kyiv.
Putin, whose public statements of his goals for the war have shifted in the months since he dispatched troops, didn’t explain the apparent omission. He described the neighboring regions of Ukraine that Russia illegally annexed last month as part of a historic ‘Novorossiya’ territory. His comments came in response to a question from the host of the Valdai event, foreign policy analyst Fyodor Lukyanov, who noted that “society doesn’t really understand what the plan is.” As Putin spoke, the independent Levada Center released a poll showing that for the first time, a majority of Russians now support talks to end the war, rather than continuing the invasion. -
https://www.wsj.com/articles/rocky-treasury-market-trading-rattles-wall-street-11667086782
Andrew Kreicher, a director at Wells Fargo, said liquidity in Treasurys has been about the worst he has seen over a sustained period recently. “There are so many systems in other asset classes that use Treasurys as a building block,” he said. “If you have rot in the foundation, the whole house is at risk.” While many agree trading Treasurys remains smoother than during the worst moments of 2020’s pandemic-fueled market breakdown, the current unease has built gradually over months without a single precipitating event, said Deirdre Dunn, co-head of global rates at Citi. Some traders believe the Fed’s rapid interest-rate increases are the main cause. Treasurys—especially shorter-term notes—closely reflect expectations for the Fed’s overnight rates, so quick changes can cause choppy moves. This week, the Fed is expected to raise rates by 0.75 percentage point for the fourth straight meeting. Other traders lay some blame on rules enacted after the global financial crisis that make it more expensive for banks to keep Treasurys on their balance sheet. Big banks function as Treasury-market dealers, helping match buyers and sellers. When they step back, trading stalls, said Ariel da Silva, director of fixed income at Wealth Enhancement Group, a wealth-management firm. Given the current regulatory regime, “It doesn’t behoove them to take on the inventory,” he said. Investors rely on easy Treasury sales to obtain quick cash for debt payments, margin calls and a variety of other pressing short-term needs. When that process hits hiccups, financial trouble can spiral, said Jim Caron, a fixed-income portfolio manager at Morgan Stanley Investment Management. “If the Treasury market isn’t working, nothing is working,” he said.
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If you short Apple because of China or something like that, than maybe, but even then, you probably could find better targets? Otherwise I do not understand this, it is probablly one of the best business in the world, maybe somewhat still overvalued, but how low you expect it to go down?
In terms of BRK, I would be happy if they diworsified Apple somewhat, but not because of valuation etc, but because of Apples very high dependency on China at this point of time.
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22 hours ago, dealraker said:
Old dealraker here says simply that until too much capital is chasing energy the trend though non-linear is up for the stocks. Got a long way to go. Until the last few days the only investments I've made in 3 years has been energy (based simply on market cap to total market cap). Now before you think I'm hailiing "I'm a genius!" I'll simply state that I have a whopping 5% of my net worth in energy. Pathetic sort of.
But still...
I participated on a couple of Berkshire Hathaway board forums since the mid 1990's and I literally got kicked off the last one for simply stating that I thought Buffett was making the right move buying energy. The board was controlled by those who were mandating Buffett buy Google and Meta.
Posts were removed, email regarding off-topic posts sent, and so forth. Yep my topic of energy, a huge part of Berkshire, was off topic while Google and Meta were not. Not out of the ordinary, but may seem out-there behavior with time.
What is going on with this ESG crusade is extraordinary. From governments and banks to schools (I am almost afraid to say what I think to my child on related topics in order to stay politicaly correct:)) and investment forums. There are not enought good kindergardens in our coutry, yet we subsidise EVs from foreign manufacturers, which only rich can aford anyway:)
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GOOGL, META.
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2 minutes ago, changegonnacome said:
I wasn't really commenting on GOOG's valuation per se.........simply thinking of it as a bellweather for the economy.
Definitely FANGMA will come down from its lofty FCF yield of old.........as financial instruments they have competition now not from TikTok or Alibaba.....................but from high yield savings accounts!
Yes, I generally agree with that and (except for some adventures with china tech) has been waiting for that from like 2020 summer, and still at this point my exposure is mainly BRK, but I also think that some of those long duration stocks have already come down a good part of way, and also, that you should look further than 3-6-9 month in terms what could happen with economy/inflation/rates. These business (not only FANGs, but long duration-quality in general) not so long ago were valued at 30-35 PE. They generally are well diversified globally (no need to worry about currencies so much), have strong pricing power and low capital requirements, so are inflation proof business wise (like Sees candy from WB letters on infliation), also usually are debt free or net cash and recession resilient. The only problem from perhaps until now was valuation but this problem is getting fixed as we speak. A lot of them come from 30+ PE to <20, some even to 10+. No need to look at questionable former darlings with questionable business models. And I agree It could be still premature, but if I can easily see >10 return from such businesses long term, I think they are starting to be attractive, at least for me. 15 percent would be even better. but generally I think we are not there yet. Also re inflation, I really like to discus about it but do not like to have strong opinion on it. Because like just 3 years ago everyone was afraid of high debts, automation, robots taking jobs from people (where are those robots now?) and permanent disinflation. Now everyone are talking about labor shortages and sees permanent high inflation, deglobalization etc. Meanwhile Japan still lives happily in a 0 rates world. So who knows for sure how future or even Autumn 2023 will look like? If after 12 month from now we are back at no growth and disinflation, growth will come back in favor.
As for Google, sure it could have temporary problems, but big picture, Google and Meta are still global online advertising duopoly, there are few real alternatives at this point from advertisers point of view, sure they are big at this point so recession could be more pronounce for them, than in 2009, but economy will come back at some point (*at least if nukes will not start to fly) and than it is like tollbooth on global growth. Not to mention still fast growing Cloud, AI and other bets in case of Google. Also this digitization, which was turbocharged during pandemic, I think it is far from over, Microsoft talks about just getting started, cloud based businesses seems still supporting this claim. Than again if one is afraid of technology changes, companies like UMG or LVHM or similar story maybe less growth but more visibility. How much cheaper then 18 PE you expect them to become? 15x so another -10 percent from there? I remember KO trading at some 12x F PE in 2009 spring, but not sure if probability of such scenario is high?
UK
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1 hour ago, KPO said:
Great article that pretty succinctly captures my view of ESG’s impact on the energy sector. Thanks for posting. Btw, did you notice that David Sokol was a co-author?
Yes, although I did not realized that until it was a reference to Berkshire:)
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2 hours ago, changegonnacome said:
Only thing you need to note - this is the slowest revenue growth for GOOG since 2013…..2013…..like pretty much a decade.
If that doesn’t given you pause I’m not sure what will. Advertising & GOOG is the canary in the coal mine for the economy and the canary in this case has stopped chirping.
Well: a. google is still growing 10+ percent after last years covid boom of like 40+ percent (and cloud is growing almost 40 per cent). b. what multiple you would give to a capex lite, global business growing at 10 per cent? c. even if economy will slow drastically, how much value of a business one or two subpar (not even loss making in googl case) years constitutes? Of course it could get even cheaper and perhaps assumptions about business perspectives are even more important, but it is like first time from the years you mentioned (except for a brief period in 2020), when some of these really wonderful businesses (not only Google) are finally getting reasonably priced?
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10 hours ago, Castanza said:
Haven’t had time to look but how do they compare to pre crazy covid peak?Googles 3q cc sales +11 on +39 last year. Wouldnt called it terrible:)
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President Xi Jinping stacked China’s most powerful body with his allies, giving him unfettered control over the world’s second-largest economy. Xi, 69, put six close associates with him on the Politburo Standing Committee, including former Shanghai chief Li Qiang, who appears set to become the next premier after Li Keqiang retires. The move effectively puts all of Xi’s men in key positions responsible for running the government, tearing down divisions between party and state instituted following Mao Zedong’s chaotic rule that ended with his death in 1976. The new lineup signals a greater emphasis on ideology over pragmatism in policy making for China, which now has fewer voices at the top to question Xi’s policies of Covid Zero, tighter control over the private sector and a more assertive foreign policy. In opening the party congress last week, a defiant Xi offered China up as an alternative to the US and it allies while calling for self-sufficiency in advanced technology.
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This is interesting view: https://www.wsj.com/articles/the-u-k-market-meltdown-prime-minister-uk-borrowing-tax-cuts-energy-subsidies-truss-resign-kwarteng-boe-11666273710?mod=hp_opin_pos_4
Economic growth, which brings with it higher interest rates, might now be viewed by many in the market as a bug rather than a feature. It’s terrible news if so. Britain has shown over the past month that it cowers in the shadow of a financial system that can no longer tolerate productive economic growth or the policies necessary to achieve it. Will other countries find the same to be true for them?
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3 hours ago, Viking said:
@UK the Bloomberg article you posted reinforces for me the challenges we will continue to have with the energy transition: the massive disconnect today between the dream and the reality. It is one thing for Norway to decide to do something and then execute it. But to extrapolate that to the rest of the world is simply not realistic. There simply are not enough resources available and there will not be for at least another 10 years - for the simple reason we are not building the mines on the scale needed today (it takes a minimum of 7 years to build a copper mine). Lyn Alden wrote that in every past energy transition the old energy usage never actually falls… it just slows and the new forms of energy drive the majority of incremental energy demand (leading to higher global standard of living).
I continue to be bullish on commodities over the next 5 years. I see demand increasing at the same times supply will remain constrained.
- underinvestment for years; ESG guarantees future supply growth will be muted
- increasing demand driven by mega trends: developing world, deglobalization, move to EV and clean energy sources etc.- war & geopolitical split into West vs authoritarian blocks adds more complexity
We expect world governments to thread the needle moving forward?
Yes, I do not have a strong view, but I agree with you om this. More importantly Buffett seems also on this side:). And these transitions are long and costly trends, so perhaps what happens to world economy or even China (if something happens) is much more important than that in the near/mid term. However if demand would collapsed in the short term due to one or another reason (I am not predicting it), do not be surprised those peak demand theories getting attention again:)
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15 hours ago, thepupil said:
I have been (somewhat aggressively) bonds this year and am planning on continuing to do so. some thoughts
- 2% real shouldn't be dismissed. 2% real would basically guarantee me and my family a wonderful life. If I work for 10-20 more years, save what i'm saving and made 2% real on my investments, I'll accomplish pretty much everything with respect to wealth generation and be able to provide inheritors a decent sum (assuming nothing wild and crazy wrt tail risks thereafter). I have to date made low teens per annum on my money over course of a decade or so ( not too far ahead of various markets) and plan on making >2% real on the totality of my capital, but 2% real is not some disaster.
- no one (prudent) is investing 100% of their money in bonds. if you put 20% in bonds and have 80% in risk assets, it doesn't really cause that big of a drag on return. most historical studies actually show HIGHER returns for portfolios w/ 10-15% ish bonds vs 0% bonds because of the rebalancing/diversification effect. I don't fully ascribe to modern portfolio theory by any means, but there is SOMETHING to be said for diversification. I think that was far less true where rates were 1 year ago vs today. rates have moved substantially and may provide a source of diversification going forward. I'm still 90% long equities (and 15% ish long bonds)
- deflation hedge: risk assets love relative price stability / predictable environment. they do not love lots of inflation and i'd view deflation as the scariest of all macro scenarios, particularly for levered real estate (which i invest a good bit in). very high quality, long term bonds are the best deflation hedge out there.
-it's not just the yield, there's lots of opportunity for price appreciation. let's take the BNSF 2097's at $120 / 6%. While i certainly am not predicting it get back there, this bond was $230 within the past 2 years. I think it's a mistake to say "why would i invest in that to make 6%?". I would say that with a long time horizon 6% is the minimum return and there's a big option on yields going down and making a bunch of money on a shorter term time horizon (competitive with the upside of stocks). I feel like everyone focuses only on price downside of bonds. Duration is both risk and opportunity. if at any point within the next 5 or 10 years these trade at 5% yield, then one will make the current yield of 6% + 20% of capital appreciation which would add 180-370 bps of return (7.8-9.7% /yr of total return). trading to a 4% yield would add 48% of capital appreciation (4-8% on a10 and 5 yr time horizon which would be total return of 10-14% / yr of total return). there are headlines talking about inflation going down to 3% in a few months. I don't know if that will happen, but it may happen within the next 5 years. could the bond go down? of course it could, but it's quite easy to hold and just clip coupons. now this isn't "i only buy 5 bagger" type of returns, but your risk profile is pretty different too. you are lending on like 20-30% LTV loan to the country's 2nd largest railroad with a hell of an equity sponsor in Berkshire.
-convexity is real. Take our BNSF bond. At 2% lower yields it's +47%. At 2% higher rates its -25%. the positive asymmetry of long duration bonds is beginning to come forth. now if you think inflaiton will be 9% forever and this should yield 10%, you're still going to lose 40%, but I'd say stocks are down 30-60% in that scenario too.
on a 5 yr hold basis, you'll make ~30% in coupons and at +-2% on rates be down 25% to up 47%, for total cumulative return of +5% to +77%, call it 0-12% / yr before taking into account reinvestment of the coupons which wuld put that higher. rates can certainly go up or down more so it doesn't cover the whole probability tree, but i think that's decent risk/reward.
- mental drag/attention: I focus on high quality IG bonds with lots of diversification. I'f been buying a 1%er in this healthy co, 1% in that, etc. or tsy's/tips. the underwriting is simple "will this pay the interest and principal" "will the EV of this company decline by 60-70-80% such that I'll take a loss"...there's no work with respect to predicting earnings or worrying about really much of anything. bonds senior position has value in its low maintenance requirements. cant get too complacent of course. I would index if there was an index of 20+ year non financial corporate BBB or better bonds...but don't think there is
- reinvestment: bond yield to maturites assume one reinvests at the current YTM but that doesn't mean you can't reinvest the coupons in something sexier in the future.
- i still consider myself short rates. I'm short about $750K of mortgage which has a duration of about 18 and is at a fixed rate of 2 7/8%. I own < $750K of bonds and total duration of bond portfolio is <18. rates going up still benefits me if I'm going to hold my house/mortgage for its 28.5 yr duration, which i might.
my biggest issue with bonds is their tax treatment sucks and i only have limited IRA/401k space.
anyways that's my ode to going long bonds. of the high quality long duration variety. go get em fellas.
That is awesome post. I have seriously invested in bonds only once in my life, that is during GFC and Euro crisis, when you were able to get like >10 per cent yield from government bods shorter than 10 years duration. And since I try to look at least for 8-10 return in stocks, the same applies to bonds in my view. Only I still prefer shares, because i.e. if bonds is at 5 and shares of a good company at 20 PE, I much prefer the later, because it also includes growth and safety of not loosing complete/majority of purchasing power, in case inflation and currency would go Turkish style. I was not investing at the time, but was old enough to experience two currencies going to the toilet paper in my country:). I ques that shapes attitudes somehow:). But that framework of yours on looking at the 6 per cent of long term bond is very informative and a thing to think about!
Is The Bottom Almost Here?
in General Discussion
Posted
Do you have any opinion on Japan with regards on infliation, rates or growth? They are still keeping rates at 0, currency is in freefall, yet inflation is still not a problem? How could it be so? Why all their printing and spending did not increased infliation? Too much debt? Demography? Is it temporary, or is it something what awaits, if not US, then Europe (how is Italy different from Japan?) in the future, at least to some extend?
https://www.reuters.com/markets/asia/weak-yen-prodded-japan-central-bank-debate-inflation-pressure-minutes-2022-11-02/