Gmthebeau
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Posts posted by Gmthebeau
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On 9/27/2023 at 7:24 PM, TwoCitiesCapital said:
In the long-run, I still agree with Lacey Hunt. Debt is deflationary.
It's still growing in real terms regardless of what inflation is/has been. As long as debt is still growing in real term, I expect the economic trajectory is "lower for longer".
The Fed is making a policy error IMO and the real opportunity isn't in stocks pricing in continued perfection but in bonds pricing in real yields of 2-3% with basically no credit risk ( in treasuries, mortgages, and TIPS).
The treasury bond market has lost more trillions in the last 2-years, amongst risk averse investors, than the real estate market did in 2008 and people are convinced the only fall out from that is a run of the mill 15-20% pull from manic highs? Without considering the impact of higher defaults, insolvent banks, negative PMIs and leading indicators, declining earnings, alternatives yielding significantly more than equities, and geopolitical tensions at multi decade highs? Give me a f*cking break.
The music stopped in 2021. Y'all don't have to dance anymore.
Yes, all the debt will eventually be deflationary. The FED can manipulate the game along time though with quantitive tightening/easing, and other levers they pull. I had been expecting the 5-30 part of the yield curve to shift higher and it finally has. All the pundits now say don't buy bonds, after telling everyone to buy them early the year. The consensus views are nearly ALWAYS wrong. I don't think we are quite a full peak rates on the long end yet but getting close. The cycle is taking longer to play out because of a labor shortage is keeping unemployment low. It will eventually crack and bonds will rally bigly and stocks will plunge bigly.
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On 8/14/2023 at 3:11 PM, thepupil said:
So i was into this stuff late last year when it started getting to these type of levels. Stuff like SHW 4's of 2042. Sherwin Williams isn't going anywhere and you're buying at the highest yielding (20 yr) part of the 10-30 yr curve with some credit/liquidity spread and you get to 5.9% YTM / $78. It doesn't seem terrible, my. The problem is when you go to buy and to sell, the t-costs aren't great, so you have to be prepared to lose a few points on the way in / out, this doesn't matter if you're actually intending to hold long term, but I found that when duration/spreads rallied, I made 8 points instead of 12 points and found myself wondering if I'd have just been better off buying more liquid things like tsy futures or calls thereon.
I'm looking to extend duration of my parents bonds portfolio and probably will be picking up some stuff like this, but they use Fidelity which is absolutely terrible at bonds...a simpler solution may just to be to buy the Vanguard fund VWETX w/ an SEC yield of 5.2% as of 8/10 and probably a little higher now.
also think LT TIPS are interesting. Why should the government give investors 2% real risk free, and the ability to lock that in for 30 years? it just doesn't seem to make sense to me. 30 yr TIPS yeields are highest they've been since 2010. while they debuted at 4% REAL in the late 90's (an amazing opportunity to jus tlock in all one needed in hindsight), still think 2% real is pretty good for a portion of a retiree's capital.
All this is said in the context of a tax deferred accounts, not taxable.
30 year tips at current levels could make a lot of sense for retirees, or others wanting to duration match.
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I buy treasury bills, which currently pay about 5.4%. You can buy through Schwab, fidelity etc pretty much any competent broker. They are very liquid and easy to sell if an opportunity comes along.
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9 minutes ago, cameronfen said:
Do you code? Have you tried Code Interpreter?
GPT-4 Code Interpreter is good as a junior software engineer but is able to generate code faster than any human. Alpha Fold is a big improvement in protein folding which has huge implications for biotech, not to mention other older techniques that are adopted by companies like Schrodinger. Self-driving cars are progressing slowly but will get there. Medical diagnosis via computer vision is a relatively import field too, but more niche than these other applications. The improving classical statistical modeling has already changed how 50+% of businesses work. Without machine learning, there is no need for many data scientists, data engineers, business analysts.
No, I don't code. I just saw some guy on CNBC talking about his AI model to pick stocks. I remember this same guy on there a couple years ago recommending UPST at like $300 per share before it fell to $15 (now its like $50), so I suppose AI can't do any worse than him. Can't believe people are still paying him fees.
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4 minutes ago, Masterofnone said:
Well in a (useless) sample size of one, my son and his wife just bought a house. Because they need one and are tired of pissing away potential equity in rent payments. They bought a house they can afford and if rates go down, will naturally refinance if it seems prudent. Anyone with a mortgage will HOPE rates will fall so that refinancing helps them financially. That is different than EXPECTS.
Reports..... agendas....?
Those expectations could be the case, though but at least in my son's experience the banks didn't seem caviler with their underwriting requirements- quite the opposite.
Exactly, hoping rates go down in their case would be normal. Buying something you may not be able to afford because you EXPECT rates to go down is a whole other thing.
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7 minutes ago, tnp20 said:
You are both right and wrong.
Hype has gotten ahead of reality where everyone is touting use of AI.
The reality is moving forward with real AI applications getting implemented and used everyday - the most glaring example is not ChatGPT but something called co-pilot. Its used in coding as well as office suite of products. Others have things that are similar. Many , many other applications now being used and its using the new AI (so called transformer or foundation model, not the old AI...raw neural networks you had to configure yourself).
Its coming...but S curve applies...first slowly and then all of a sudden. We are far from 2000-2001 moment. The mother of all bubbles may be coming ...
There are 3 opportunities here......trade into a bubble, short the heck out of the top (Jessy moment), when babies get thrown out of the bath water, pick up the amazons and the microsofts of AI for long term hold...
There will be some applications but it's all incremental basically, nothing game changing. It won't be anywhere near as big as the internet.
Prior to the AI frenzy, we heard how the Metaverse was going to be the next big thing. It hasn't caught on, so they moved on to AI - basically to get a rally started.
I would bet the XLU (utilities) vastly outperforms the AIQ (AI ETF) over the next 20 years.
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AI is wildly overhyped. You can tell this because there are virtually no practical applications for it. Every company issues press releases and powerpoint presentations. There is no there there. NVDA reached pretty much same P/S ratio that CSCO did at its peak in 2000. I suspect they may be able to push it up a bit more but it's mostly done. Elon Musk will never have full self driving cars its all smoke and mirrors.
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10 hours ago, Parsad said:
Well, contrary to what the banks are saying and many others, I'm expecting things to get tough next year in Canada for two reasons:
- Read a story today about many people taking large, short-term mortgages out while supply is low because they are expecting rates to fall next year...so in other words, they are paying inflated prices and taking on massive mortgages, and expecting their payments to go down next year.
- My brother who works for TD told me that today, they sent out 125,000 trigger letters to mortgagees. Meaning, their variable rate mortgages are now only covering interest or less. Their options, pay a lump sum to bring the mortgage payments in line with where they were, extend their amortization, or pay off their mortgage (meaning sell or borrow from friends/family). That's for all of Canada, but just for this week alone! I would imagine RBC, CIBC and BMO are in similar straits...so you can imagine close to 500K mortgages may be covering only interest payments! If rates rise further over the next few months, that is going to trigger another avalanche of trigger letters.
Cheers!
I have seen reports that many recent homebuyers are expecting rates to fall and they "will just refinance". I agree a lot of people are betting on a return to low rates. This seems like a very risky bet to me. I think it is more likely we see the treasury yield curve shift up on the long end when people finally realize the FED is serious about getting back to 2% inflation and it will take much longer than the market expects. Mortgage rates may very well go higher not lower.
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1 hour ago, TwoCitiesCapital said:
Barely slowed down is an interesting way to characterize it.
There are pockets of strength, but consumers revolving credit balances have soared and lower-end consumer demand has cratered. CRE defaults are startinf to happen right and left in top-tier cities further constraining banks that are already illiquid and potentially insolvent. Home prices are flat to down YoY (real returns are significantly negative), PMIs are sub-50 signalling both local and global contraction, and leading indicators have been falling for like ~16-17 months now.
The primary strengths seem to be equities (absurdly high relative to bond yields and their underlying profits), consumer spending (only when ignoring its funded by increasing revolving credit), and GDP (which has been significantly at odds with GDI for months now).
It's probably better characterized as stagnating - not "barely slowed". A lot of signs are pointing to continued weakness in addition to what we've already seen.
1-year ago the Fed Funds was 1.5%.
6-months ago Fed Funds was 4.25%.
WE know these things act with a lag so perhaps all were seeing now are the effects of rates surpassing 3ish%. Perhaps we do get to 6.5% on the front end, but I think it'll be seen as a policy mistake in hindsight and the bond market is sniffing that out which is why the 10-year has gone nowhere in 9 months despite significant hiking activity at the front end.
retail sales still look pretty strong. The consumer drives most of the economy. Unemployment not moved. CRE defaults won’t bring down inflation. The easy inflation comps are done, now they have the hard work of bringing it down to 2%. If they don’t it will just ramp back up. I think the bond market will be proven wrong and rates go higher but that’s definitely not the consensus view. -
2 hours ago, Intelligent_Investor said:
The issue is that there is a Washington pun right now, which is much more powerful than any Fed put. If we get into a recession Washington will just print another couple of trillion dollars to get us out of it. Congress hasn't shown any willingness to temper spending and their solution to every crisis seems to be just print their way out. This implies 3 things: 1) Long term monetary devaluation 2) Higher required return on gov't debt 3) Consumer spending and thus corporate earnings will likely have a floor making equities more attractive. We are very much TINA right now
With interest rates having moved up so much it will be very hard to spend the way Trump/Biden did recently. I don't see that at all.
I do believe due to the massive debt the FED was intentionally slow in responding to inflation, and continues to be slow to respond. They want to help inflate way the debt, but obviously they can't say that.
I don't see stocks breaking out from their old highs for years. At best they top the old high slightly to pull in the last suckers then get trashed. Stocks will be in a trading range for years in my opinion. At the top of the range people get giddy - as always.
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52 minutes ago, TwoCitiesCapital said:
Perhaps. I'm not willing to take the bet that 10-year doesn't surpass 4.25%, but am willing to say I'll be buying more of them if they do. Over the next 12-18 months, I expect that'll be a pretty good rate relative to where they'll terminate in the cutting cycle.
I agree that rates may not going back to 0 and that we may never see a 1-handle on the 10-year again. I agree that the long term path for rates will be higher on average than the last 10-years, buty belief is that this inflation is inherently unstable.
I DO expect lower rates in the next year or two and that's all that I really care about. Inflation has already cratered despite not yet pricing in the declining trend in housing (and the contraction in credit that has yet to course through the economy). I dunno where 10-year rates bottom, but I can see 2-2.5% being a reasonable target if we do get modest deflation which I believe is possible - particularly if rates keep rising.
My thesis on a boom/bust cycle for inflation, rather than it being a constant 1-3%, seems to be playing out nicely so far. I'm prepared for the market to price in the current bust and then I'll be positioned for the next boom.
Lots of people think the 10 year is going back to 2.5% or so - which explains the stock market ramping. Inflation has come down but the core is still more than double the target of 2%. The FED still has alot more work to do if they are serious about inflation. Policy rate should be 6 or even 6.5 already. I suspect they will be forced to recognize this sooner or later. The fact that the economy has barely slowed down at the 5% rate tells you they are not really still restrictive. I think there is a good chance the 10 year goes back to 4.25 and surpasses that high. The entire curve from 5-30 is still to low. When/if the FED is forced to recognize they have to once again go higher then they think the curve will probably shift up.
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On 7/8/2023 at 10:32 AM, james22 said:
I like to believe investors will increasingly recognize stocks as less risky than they do now, and so value them more highly than they do now:
Glassman and Hassett believed that both investors and official commentators had mistakenly considered stocks to be a risky investment which should require a premium return, when compared to 'safe' investments such as government bonds.
They argued that if stocks and bonds were treated as equally risky, the Dow Jones index would be around 36,000. Hence, anyone who gets in now and stays for the long haul, can expect returns of around 300 per cent (in addition to the normal interest rate) as the rest of the market wakes up.
Once this historic correction is over, the efficient-market hypothesis will hold sway.
https://en.wikipedia.org/wiki/Dow_36,000
That investors haven't fled equities for 4% bonds encourages this belief.
most investors today have only EVER invested under the FED put regime. If thats changes due to structurally higher inflation, they will learn a very hard lesson.
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1 hour ago, TwoCitiesCapital said:
Well, we didn't take out 4.08 yet - topped at 4.06 and now back down to 3.7s
Same with the 2-year. Some thought re-approaching the prior high of 5% meant something, but here we are again at 4.8% after tagging 5%.
For every hike the market prices in, it prices in another cut (or a faster rate of cuts) in the future - at least that's been the case for the 9-months. The 10-year still hasn't exceeded it's October 22 peak and the 2-year is flat to it.
I had been trading the range but on this latest rally in bonds I have gone all T-Bills. The narrative seems to have changed to where more and more people are saying buy bonds. I think the top end of the range is going to be taken out and we challenge the old cycle highs in yields on the 10-30 year part of the curve.
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3 hours ago, Saluki said:
I agree to a point. If they had done a passive investment like they did with Alibaba and had said "instead of a billion, how about $500mm for half the company, you can get rid of your investors who want you to cash out, and you can keep running it as is until you are ready to go public. We'll be hands off like if you sold to Berkshire" That's a plausible scenario with a happy ending.
I think it's useful to study some of these industry leaders who stumble so that you develop some pattern recognition and can hopefully bail on something like Google, Amazon or Apple if you see the signs. I read an incredible book on Sears once. Sears was such a dominant retailer that it had the company divided into 5 territories in the US because it was too big for one person to manage. If you broke Sears up into it's territories, it would still be the 5 biggest retailers in the US. If you think of the Sears catalog and then realize that Sears founded Prodigy internet, you realize that it's not inconceivable that they could've been Amazon. Apple credit card? Sears had Discover. They created Allstate Insurance too, think of what they could do with that float. They had so much cash lying around that they almost bought Caterpillar.
So what happened? Ego. The power always rested with the retail guys and they didn't like that Allstate, Discover and the new financial stuff was so profitable because it meant that they could end up running the company eventually, so they decided it was a distraction and started casting off the pieces as the retail continued to struggle. Can you imagine if Amazon was not run by the founder and the e-commerce guys decided to spin off the cloud business because they saw it as a threat to their power? Stranger things have happened. Maybe it's because I was an M&A lawyer and I'm programmed to look for things that can go wrong and anticipate and prepare for it? Maybe these cautionary tales have instructive value? Maybe the ashes of fallen giants are good places to look for value (General Growth made Ackman his first fortune, Sam Zell wasn't called the grave dancer for nothing). Who knows?
Management of a company is super important. Sears was eventually run by some really incompetent people. GE was at one time on top of the world until incompetents took over. This list is endless. Ballmer ran Microsoft into the ground practically, once he left boom they got a real leader and are minting money again. This is why turnarounds almost never work unless you bring in an outsider with a proven track record of performance. Simply thinking the management that ran you into the ground will somehow magically right the ship virtually never works. Also, why I don't think Iger will turn around Disney. Chapek takes all the blame but he inherited what Iger left him which was a company not positioned very well. Iger will try to put lipstick on it and hope he can sell it.
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I am showing a Demark 13 sell signal printing on SPY today, for anyone interested in that.
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4 minutes ago, gfp said:
I spent a couple days with Berkowitz touring almost every St. Joe development property and I think he's pretty pleased with how things are going.
Did he have a master plan to have almost his entire fund be in one illiquid concentrated holding? No, he did not.
How can he be pleased with how things are going? Hasn't he been in this holding since like 2009? He has massively underperformed since then. His performance has been so bad if you go to his website it isn't listed anywhere on it. You have to open the annual report where it is required to be published to find it.
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7 hours ago, Castanza said:
"Einhorn isn’t suggesting that optimistic valuations are hiding darker secrets at St. Joe Company"
LOL short reports hit different in hindsight. Sounds diabolical! Nothing more sinister than "overvaluing" some of the best beach adjacent property in the US around what 5k/acre at the time of this article
Berkowitz has pretty much destroyed his reputation and his poor shareholders money on this gambit. I guess most of the shareholders left. This reminds me of Eddie Lamberts boondoggle in Sears. Eddie was the only one who ever made any money off Sears. Berkowitz got sucked into that too. Pretty sure Berkowitz won't make much if anything ever off St Joe. You have to wonder how someone who trounced the market so soundly for years went so wrong. I imagine he has enough money that it isn't that important to him whether it works or not. He simply has gone so far down the road he feels compelled to show he is right rather than cut his losses.
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About 60% in t-bills and some bonds.
“It takes character to sit there with all that cash and do nothing. I didn’t get to where I am by going after mediocre opportunities.” Charlie Munger
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13 minutes ago, tede02 said:
Wow, in March, before SVB went down, the 2-year broke through 5% before crashing down under 4%. Consensus was pretty strong that we wouldn't see 5% again and yet here we are. The 10-year is above 4% also which is toward the high side of it's range.
Gundlach has talked about buying long bonds as an credit and equity hedge. This is an intriguing idea.
Bonds should be looked at from a wealth preservation standpoint in my opinion. If you buy quality bonds, hold to maturity, you won't lose money and you make the income - which is pretty decent for the first time in like a decade. Most people who buy bonds buy them for this reason. They already have enough money to live the rest of their lives, and want to preserve wealth. Trying to get the highest return possible is not everyone's goal. If bonds yields eventually fall you could sell them for a capital gain - but that should not be the focus of why you bought them. Trying to predict which way interest rates are going to go in a given timeframe is pretty tough to do.
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1 hour ago, UK said:
Interesting. May I ask what have you bought instead of these:)?
I have gotten more defensive. The easy money has been made from last fall. I think the market may grind higher from here but I don’t have a lot of conviction here. That said the most recent things I bought are PYPL, UL, HEINY, SR, DEO -
8 minutes ago, brobro777 said:
Oh yea but this time around it's the sheer size of these companies that makes me scared. I own everything Apple and love their products and order from Amazon constantly but you need a lot of money to push multiple Tril companies up and where is that money going to come from when you can get 5% risk free? It doesn't take much to pop 20% a $2.8Bil company like JOE but multiple Trillions?
Hoo boy I don't know...
All of them are overvalued. It won't end well. Apple has been using 90% of the GAAP profits to buyback stock. At higher and higher valuations it has less and less an impact. Nobody is going to buy a $3000 headset or whatever they came up with. They can sell more watches and services but it barely moves the needle at this size.
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6 minutes ago, brobro777 said:
$3Tril AAPL here, $2.5Tril MSFT there, all at 30X plus and NVDA at $1Tril...
Boy that's rich baby, really rich, when it's not 2016 with 0% rates!
NVDA is approaching the same P/S ratio that CSCO peaked at in 1999. Took CSCO decades to recover once it rolled over.
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3 minutes ago, changegonnacome said:
Again you've basically proved my point.......when AI 'works' it ceases to be called AI.
"a guy who say at his desk and banged out the code" = biological intelligence
Automation that replaced "a guy" sitting at a desk = artificial intelligence
I have proven your definition. I just don't agree with it that all completed software implementation is AI.
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1 minute ago, changegonnacome said:
Thanks for proving my point.
Automation is AI that works, AI is automation that doesn't work.......yet.
I guess if you classify all software automation is AI, but I don't think thats true. AI is supposed to be the computer writing the code. Much of the automation you described is a guy who sat at his desk and banged out the code. I dont call that AI.
Bonds!
in General Discussion
Posted
I think we will see 5% on the 10 year and higher on the 30 year, but it might consolidate first before the next move...or maybe not. If we keep seeing an unabated rise in 10-30 year part of the curve stocks will start having crash risk.