UK

https://www.afr.com/wealth/investing/what-howard-marks-says-really-matters-to-investors-20221104-p5bvie Like medicine, there are side effects. So the condition today is excessive inflation and the medicine is monetary tightening, quantitative tightening and … when you slow the economy, some people get hurt.” That will create opportunities for Oaktree, which specialises in distressed debt investing. “Clearly we are excited about the future because the bargain hunter, the value investor, does not have many opportunities to find bargains when everybody has money and they’re too eager to put it to work. We want some difficulty, we want some risk aversion,” he told AFR Weekend in an exclusive interview. He was in Sydney to meet clients in a broader funding effort. “In the real world, things fluctuate between pretty good and not so hot. In the market, they fluctuate between flawless and hopeless. We’re not at hopeless. Hopeless is October 2009 or March 2020. But at least we’re not flawless anymore.” Mr Marks isn’t the only high-profiled investor to warn on the state of the economy. This week Paul Singer, founder of activist hedge fund Elliott Management, warned the world could be on the path to hyperinflation and “global societal collapse and civil or international strife” due to inaction by central bankers. But Mr Marks urged investors to ignore the endless debate about when inflation might peak or how high interest rates might go, which he said epitomised the macro-driven, trading mentality that dominated the market. He said his next addition to his famous series of memos to investors would be entitled What Really Matters. “We try to buy the stocks of companies that will become more valuable over time, and the bonds of companies that will pay interest and principal as promised. This is what matters.” Mr Marks said Oaktree was in the mindset of “patient opportunism”. “When there’s nothing clever to do, our job is really to avoid mistakes. And when there’s nothing clever to do, the mistake lies in trying to be clever. I think now we’re in transition from a very challenging period to I think a period when we will have access to more bargains. The job today is to wait.” “The Opportunities Fund group maintains a list of the things that are on their radar screen. In March, it was maybe 20 lines. In June, it was the whole page. And now I think it runs to five pages. So there’s a dramatic upturn in areas to look at, that conceivably can give us the returns we want. “Usually the things that give us the most opportunity are the things that were most warmly embraced in the good times.” But even after this year’s tightening cycle – the Federal Reserve has taken rates from zero in March to 3.75 per cent, and the RBA has moved from 0.1 per cent to 2.85 per cent – Mr Marks said pressure around the world would be for rates to move lower as quickly as possible. “Everybody wants low interest rates. The government, because it makes it easier to service the debt. The homeowner, to service their mortgage, and the LBO [leveraged buyout] operator, because it makes it easier to finance his deals. The only people who don’t want low interest rates are savers and lenders. “I think that there’s going to be a strong bias toward low rates for a long time. And even if rates were to stop here, or end up at 4.5 per cent on the Fed funds rate, or 5 per cent, this would still be historically low.”

https://www.bloomberg.com/news/articles/2022-11-03/boe-hikes-by-75-basis-points-but-rejects-market-rate-path?srnd=premium-europe&leadSource=uverify wall The Bank of England delivered its biggest interest rate increase in 33 years but strongly pushed back against market expectations for the scale of future increases, warning that following that path would induce a two-year recession. Staying on the market path used in the forecasts, which peaks at around 5.25% next year, would knock 3% off GDP and ultimately push inflation to zero, the BOE said. An outlook based on rates staying at their current 3% level implies a shorter, shallower recession and sees inflation fall close to target in two years’ time. “We think bank rate will have to go up less than what’s currently priced into financial markets,” BOE Governor Andrew Bailey said at a press conference. “That is important because, for instance, it means that the rates of new fixed-term mortgages should not need to rise as they have done.” The remarks mark a sharp contrast with Federal Reserve Chair Jerome Powell, who said Wednesday that US rates will probably go higher than people are thinking. UK government bonds and the pound fell after the BOE’s decision. Investors had already tempered their view for UK rates, suggesting a peak around 4.75%. Not in US, but this sounds like some pivot, no? So Japan, UK, EU probably soon. What if: https://www.bloomberg.com/news/articles/2022-11-02/gundlach-tells-cnbc-no-75bp-rate-hike-next-time-as-a-base-case In his view, the US inflation data will cool off in 2023, and if the Fed is successful in bringing down inflation to the 2% area by the end of next year, it will continue declining and would go well below 2%. “It is implausible” to think that inflation will halt at the 2% range and stay there. “It will go negative,” he says.

https://www.ft.com/content/6ca9a470-59ee-4809-8a5b-35f6073c9907 Ottawa has ordered three Chinese groups to divest their stakes in Canadian critical mineral companies after a defence and intelligence review concluded that the investments posed a threat to national security. In a move that reflected a significant hardening of Canada’s stance towards China, the government ordered Sinomine (Hong Kong) Rare Metals Resources to exit its stake in Power Metals, a Canadian lithium miner. Ottawa also instructed Chengze Lithium International to divest its stake in Lithium Chile and told Zangge Mining Investment (Chengdu) to unwind its investment in Ultra Lithium, another Canadian resource developer. Industry minister François-Philippe Champagne said Canada welcomed foreign direct investment from companies that “share our interests and values(opens a new window)” but would “act decisively when investments threaten our national security and our critical minerals supply chains”.

I agree, nothing to add:). In 2008-2009, when I was younger but much dumber, it almost cost me a lot to listen to much to such scaremongering. Thanks god, that autumn, I think in October 2008, biography of WB just came out, and my wife accidentally decided to buy one for me, while returning home from some foreign trip. After reading it and then all BRK letters, I quickly become much more balanced in terms of who you should follow and listen to:). Signer is smart investor, but he costantly tries to sell you an idea, that world is super dangerous and becouse of that you should almost always be hedged, of course only they know how to do this, therefore, you cannot invest without them.

I remember reading similarly very scary letter from them somwhere in 2020 spring or early summer:), but just to keep this discussion alive: https://www.ft.com/content/f3bb0f96-1816-4481-8318-4f7583326a4a The world is “on the path to hyperinflation”, it said, which could lead to “global societal collapse and civil or international strife”. While such an outcome is not certain, this is currently the direction that the world was headed, it added. However, Elliott said markets had not fallen far enough, given the many risks present, and warned of a further reversal of the so-called ‘everything rally’ seen near the top of the bull market of recent years, as sky-high investor exuberance lifted all manner of risky assets. There are so many “frightening and seriously negative possibilities” that it is hard not to think that “a seriously adverse unwind of the everything bubble” is coming, it said.The hedge fund estimates a 50 per cent fall from peak to trough would be “normal”, suggesting further large falls to come in major equity markets, although it added it was impossible to know whether or when that would happen. Elliott, which is up 6.4 per cent in 2022 and which has only lost money in two calendar years since launch in 1977, pointed to a handful of areas of potential stress that could accelerate market falls. It highlighted banks’ losses on bridge financing, potential markdowns of collateralised loan obligations and leveraged private equity as areas of potential risk for markets.The firm was also critical of investors who believed market falls will always prove shortlived and can be “ignored”.The idea that “‘we will not panic because we have seen this before’ does not comport with the current facts”, it said.

https://www.nytimes.com/2022/10/29/world/europe/ukraine-russia-war-artillery.html#:~:text=Turning the Tables%3A With powerful,Russia's hold in the territory. Sitting in front of his screens, he pinpoints tanks, barracks or other military objects and relays coordinates to artillery teams firing satellite guided shells, which hit within a yard or two of their intended targets. “From a typical howitzer, you create a sniper rifle,” he said of the combination of drone surveillance and satellite guided artillery shells, something Russia lacks. “One shot, one kill.” The partial destruction of bridges over the broad Dnipro River through the summer slowed Russia’s movement of heavy equipment to the river’s western bank, even as Western weaponry helped Ukraine whittle away at what was already there. The combination cost Russia its artillery advantage on the river’s western bank. “Think of the orcs in their trenches,” Lieutenant Oleh said, using a derisive term for Russian soldiers. “They have no heavy weaponry, no supplies, it’s cold and raining. It’s a really difficult state for morale.”

You may be right. Also these non techs have better visibility. But i think most of the speculations and extremes were in profitless "fake tech", and even FANGs are not all equal, e.g. I just cannot see Netflix on par with others. But Apple, Google, Microsoft, Amazon, maybe even Meta, these are very strong companies, growing faster then most other (maybe not every year OK) and I think that will continue in the future. Just look at the cloud or world digitisation in general, it is nowhere close to the end.

I hear you and agree on almost all points, especially re trying to nail macro. I find your posts very interesting and informative! However I disagree a little, in that we should not be obsesed with Google, Meta, maybe even Amazon etc and other fine companies, not necesseraly from tech sectors (Nike, LVHM, UMG just to name a few), which litteraly went on sale this year. I think there could be very rare oportunity to invest in some of them at reasonable or even undervalued prices. And yes, with most of them, then you can just stay patient for long. If it is allready time to go all in or not yet, I have no idea, but time to be obsesed-for me yes!:)

I know that he is not like universally loved here:), but I think it is really good discussion on this whole situation we are in, rates, possible risks etc, especially from ~20 min:

https://www.bloomberg.com/news/articles/2022-11-01/canada-plans-to-welcome-record-half-million-immigrants-in-2025 And also migration of capital from China etc in search of safety not returns?

I understand, that BRK and FFH would benefit, at least as a bussineses (if not on valuation side) if interest rates will be higher in the future. Is it the same with BAM? Or are they on the oposite side? There are a lot of discussions recently about bussines models build on low interest rates and leverage, such as CRE, which just does not work so well if rates are going much higher. How one should look at BAM in this light, would higher rates benefit or hurt their perspectives?

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/

"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:)?

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:)

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

https://www.bloomberg.com/news/articles/2022-10-27/putin-plays-down-nuclear-threat-in-ukraine-as-he-lambasts-us 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.

https://www.investing.com/news/stock-market-news/exxon-tops-tech-giants-as-biggest-cash-producer-in-sp-500-2925629

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.

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:)

https://www.wsj.com/articles/andreessen-horowitz-went-all-in-on-crypto-at-the-worst-possible-time-11666769270?mod=hp_trending_now_article_pos2

GOOGL, META.

Here we go again: https://www.wsj.com/articles/peak-fossil-fuel-demand-is-possible-in-a-few-years-iea-says-11666843203?mod=hp_lead_pos6

https://www.msn.com/en-gb/news/world/worlds-dirtiest-man-dies-just-weeks-after-taking-his-first-wash-in-60-years/ar-AA13mGcq

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