ArminvanBuyout

I saw recently that US firms have been increasing market share internationally - one reason for why earnings growth has outpaced GDP growth. The other reason is that if you believe technology drives winner takes most/all dynamics, then the larger companies (who are generally winners) should disproportionate amount of market share from private companies, resulting in public companies representing larger % of the GDP pie

It seems like the largest increase in fiscal spending recently is interest expense, which then flows back into the economy. So in a way, isn't this a bit circular, where keeping rates high continues to drive fiscal spending, which continues to prop up economy (i.e. stimulative to the point of the comment a page or two ago). Would there be a scenario where the geniuses at the Fed see that, and will cut to "reduce" the fiscal impact?

Warder's a beast - was a great resource when I was ramping up on met

Building on my prior response, the other model I have is thinking around where market is underpricing growth. Based on experience, market generally just seems to price in 1-2 years of earnings (based on implied DCFs). If you think growth is sustainable for longer, then you can lean into duration, and underwrite higher growth for longer. Just think of how many companies look expensive on metrics, but in hindsight, everyone should've been buying those companies regardless of NTM metrics

One thing that's really helped for me for framing is to lean into duration as a competitive advantage, and recognize that the incremental buyer or seller today is most likely someone who works at a pod shop, and therefore has a different trading window than me. If something looks good for the a 3-5 year period, but is trading cheaply because the path to get to that point is still a bit uncertain, then I take the risk. I'm effectively getting paid to take that uncertainty on, and I lean into that duration advantage (frankly one of the only advantages I have as an individual investor). This probably has higher vol than the traditional buy companies on cheap metrics, but I think open up the opportunity set to much better risk-return skews

First example I've seen of AI actually driving profits through layoffs (which acts as deflationary force). Basically saying AI is handling 2/3 of CX tickets now, and that will save $40 Mn per year https://www.fastcompany.com/91039401/klarna-ai-virtual-assistant-does-the-work-of-700-humans-after-layoffs

Interesting paper from GMO on how the last decade has been the outlier on the largest large caps outperforming, with this quote quite powerful - "Since 1957, the 10 largest stocks in the S&P 500 have underperformed an equal-weighted index of the remaining 490 stocks by 2.4% per year. But the last decade has been a very notable departure from that trend, with the largest 10 outperforming by a massive 4.9% per year on average" https://www.gmo.com/americas/research-library/magnificently-concentrated_gmoquarterlyletter/

In what way?

The gap is likely filled by government deficits - corporate profits is tied to government actions + household actions, and with the amount of deficits we've been running the last few years, I'm not surprised at the strength of corporates.

Bigger than the Super Bowl

What happened to it since 2021? Seems like share price has completely collapsed and is barely above pre-COVID levels

Completely agree - there's less public companies vs. before, while the amount of money in the market (whether it be through 401Ks, foreign capital, etc.) has drastically increased. Think there's been a permanent shift in the floor valuation, and stocks will mostly look more expensive vs. history. I also wonder if the tenure of the average public company has lengthened (would love to see data on this), resulting in investors naturally willing to underwrite more years of NT cash flows before applying a terminal (DCF analogy)

There's a lot of nuances with the data and context that make it not as useful if you just blindly look at it. Good article on some of the accounting nuances (beyond just the context of different rate regimes vs. history) https://www.philosophicaleconomics.com/2013/12/shiller/ Doesn't mean I don't think multiples are high vs. history, though I don't think that's a reason as is to just not be in the market

Hah well, the US is currently the shining light in an otherwise dismal global world economy, though again, argument is that if results are this good with rest of world being in the dumps, imagine if we see cyclical recovery. Earnings will probably go through the roof!

Or, maybe the market is forward looking enough to see that as long as government continues to spend, a lot of the positives can offset the negatives too. Manufacturing recession, but we've been in one for a while now, and cyclically, odds are, manufacturing will probably be better in 18 months vs. worse. And we still have hundreds of billions of dollars in stimulus that will hit the industry every year Real wages are actually higher than pre-COVID levels, and while they're below, combination of still excess savings + falling inflation probably means consumers aren't in as much trouble as the bears think. And while we probably don't have accelerating economy, it certainly won't be the collapse that bears are playing for And with rates falling (not because things are in trouble, but because inflation has stabilized, and we need to get real rates down to normal level), that's a big sign of change in sentiment and business environment that can drive business growth again. I guess the point is that there's a lot of positives in the economy as well. The market is certainly extrapolating that positivity, but to ignore all of those points and that path is just overly bearish

We've also been in a quasi-manufacturing softness period for quite a while now, and have had rolling softness in many industries. Only thing that hasn't broken has been consumer (for many reasons), but it's hard to see a scenario where even if we do enter recession, we don't quickly bounce back. The caveat being that something major unexpected could rear its head, but hey, isn't that the genesis of pretty much every major recession anyways hah

Isn't like 90% of the float locked or something (remember seeing that somewhere). Feel like you could easily get blown out here based on news / election updates

Looks like it's trading ~30x NTM EPS, in-line with AAPL. Not to say either of it makes sense (and I'm not in either), but bull at these prices probably thinks continuation of the AI driven growth for next few years (big if, but that's what bull is playing for), and so 30x NTM probably looks cheap in 3 years time In fact, maybe someone else looks at this, and thinks NVDA outgrows AAPL in medium-term, yet both are at same multiples, good pair trade here, and in market downturn, even if Mag7 loses halo, downside is protected with pair, and so NVDA is actually a relative long here...just to play devil's advocate

In normal environment (i.e. ex-2021), market definitely underprices durability of growth + capital allocation, so when you think you've found a winner, better hold onto it...

From what I remember, people loved the CFO (it was the CFO leaving), and he was slated to become CEO once current COE leaves, so for CFO to leave is negative sentiment for outlook

I follow some Japanese investors on twitter. One of the prevailing themes recently has been how "not cheap" the Nikkei is anymore. I find it funny because regardless of where you're based, the one common theme is how the market is always too expensive haha (I say this in jest as someone who's starting to ramp up exposure there)

Haha https://www.institutionalinvestor.com/article/2ccw3nwlyyjuarvu1dam8/premium/this-might-be-the-most-volatile-hedge-fund

I guess separately, what are people's thoughts on the whole consumer excess savings dynamic that bears have been harping on? It's one of the only points that seems generally plausible, though I guess the counter is that lower rates while jobs continue to stay solid --> slightly better business sentiment --> soft landing before we dig too deep into consumer savings --> stronger foundation for next leg of economy post temp slowdown

A good thread on inflation from a few weeks ago

Ramping up the food retail market and was wondering if anyone has any blogs or places they recommend to start at. Companies in industries like grocers and meal prep companies.