rb
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Posts posted by rb
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The cloud over Clover Health is enough for me to question anything he markets.
This thread is amusing:
I love Assness. Whatever that guy talks about... investing, politics, business. He'll give you an honest, straight up, no bullshit answer. You've got to respect that in a man.
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You and LongHaul are basically saying the same thing. He's specifically naming sectors while you are talking about lower demand in things that are financed. Well that mean weakness in housing, autos, investment and finance.
I said lower price for financed assets not necessarily lower demand.
Also, the difference is in timing:
First, demand goes back to normal, while minimum wage goes up and stimulus money shows up in people's bank accounts.
This causes more dollars to chase limited goods.
]That causes inflation to finally show up.
]That causes market to raise longer-term interest rates, or Mr. Market starts to predict it, and starts raising longer-term interest rates earlier.
Fed continues to keep low Fed rate and continues to buy treasuries to try to lower longer-term interest rates. That causes monetary supply to increase further. I hear what some say that banks have to hold extra reserves as a result of Fed buying treasuries, but that doesn't stop banks from using those reserves to enable transactions at higher prices.
The rise in interest rates causes price of financed assets, i.e. stocks, CRE, etc. to go down, or Mr. Market starts to predict and some financed and effectively-internally-financed assets like stocks start to go down sooner.
Prices don't react to interest rates prices react to demand. Rates are the catalyst. So whenever you say lower price you say lower demand.
Are you saying you disagree with the numbered points above? If so, which # do you disagree with so that I can understand your perspective better?
Specifically 5 and 6. If you see sustained inflationary pressure the FED WILL raise rates. In fact the higher LT yields represent an anticipation of this raise down the road. Higher rates of course affect prices of financed assets by influencing demand for them. Higher rates->Lower Demand->Lower prices.
An environment where you have 6% inflation without financed assets participating in that is frankly maybe possible in one iteration of a simulation but not one that is plausible.
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Inflation hurting RE is one of the biggest widespread, false narratives I consistently see people peddling. It is my belief, especially in certain areas(Sunbelt) that we're entering a phase not unsimilar in parallels to the mid 2000's. It will also mirror the tech bubble part one(late 90s) and tech bubble part 2(2015-now) in terms of how it plays out. First go around was warranted excitement but also ahead of itself, second go around is all that but with fundamentals to support it, and let it run longer and larger. And during housing bubble part 1.....mortgages where 5-8%......
EDIT: to clarify, I wouldn't exactly want to be a highly levered owner of certain RE assets, especially with a lot of short/mid term maturities. But otherwise, most of the higher rates = RE is fucked narrative, is crap.
I don't think we're talking about an environment where you have sustained inflation. What we're talking about realistically is an environment with more inflationary pressure where you basically have low inflation, higher rates. I agree that in a sustained inflation environment RE assets will go up nominally. On a real basis that's more of a mixed bag. But it's hard for me to picture a scenario where you basically have lower rates lead to higher RE asset valuations, higher rates don't affect RE asset valuations.
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You and LongHaul are basically saying the same thing. He's specifically naming sectors while you are talking about lower demand in things that are financed. Well that mean weakness in housing, autos, investment and finance.
I said lower price for financed assets not necessarily lower demand.
Also, the difference is in timing:
First, demand goes back to normal, while minimum wage goes up and stimulus money shows up in people's bank accounts.
This causes more dollars to chase limited goods.
]That causes inflation to finally show up.
]That causes market to raise longer-term interest rates, or Mr. Market starts to predict it, and starts raising longer-term interest rates earlier.
Fed continues to keep low Fed rate and continues to buy treasuries to try to lower longer-term interest rates. That causes monetary supply to increase further. I hear what some say that banks have to hold extra reserves as a result of Fed buying treasuries, but that doesn't stop banks from using those reserves to enable transactions at higher prices.
The rise in interest rates causes price of financed assets, i.e. stocks, CRE, etc. to go down, or Mr. Market starts to predict and some financed and effectively-internally-financed assets like stocks start to go down sooner.
Prices don't react to interest rates prices react to demand. Rates are the catalyst. So whenever you say lower price you say lower demand.
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I find it hard to understand why people think inflation -> higher rates -> lower housing prices.
Real hard assets are supposed to go up in a real inflation scenario, isn't it? Same for stocks. Check Venezala's stock market for example. Inflation through the roof. Stock index through the roof. Same happened in 1948 in China.
Cause that's not's really gonna happen. You're not gonna have a real inflation scenario. You won't get Venezuela, or Argentina, or 48 China. If it comes to pass you'll have demand boost->a mild and boring inflation spike->higher rates->inflation subsides->a higher rate plateau->lower asset prices.
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But that will of course not be good for stocks if they're currently pricing in a 2% 10 year yield till kingdom come.
rb, I agree with you on this!
Yeah. That's what I'm more concerned of. I don't think we see any nightmare scenario in the near future in terms of inflation. But we may get to higher rates. Again, nothing earth shattering. But given that everything seems priced to perfection these days i would say that implies a lot of risk for equities that something will not go according to plan. I mean look how you get a bit of a freakout because the 10 year moved by 50 bps.
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I kind feel moderate inflation is going to be yet another positive for stocks especially as with financial repression (Fed keeping interest rates low) it will be impossible to hold cash. And kinda agree with Powell that you don't just go from 1-2% to 6% overnight. Inflationary pressures tend to build slowly over time although agree could be some short lived effects due to supply shortages/pent up demand etc which might push it to 3-4% this year. Also different economy from the 1970s. Far less manufacturing based so high input prices aren't going to have the same kinda impact. Remember commodity prices were super high in 2008 and inflation was still moderate.
Learning Machine. Guessing the PE of 39 you are using is 2020 which is obviously trough earnings. If the strong growth everyone is expecting comes through that multiple could come way down. Also for the S&P 500 not sure how relevant CAPE is given a lot of S&P constituents are fast growing so average earnings are less relevant than future earnings and a lot of the cyclicals could enjoy very strong future earnings compared to the stagnant economy post GFC if all the stimulus juices the economy.
I think the Fed hiking rates and the bond market hiking rates are very different in effect. The former leads to tighter financial conditions. The latter not so much and it will be a while before bonds become credible alternatives to stocks.
Mattee, I don't know where you get to the fact that the S&P constituents are fast growing. S&P earnings peaked in 2007 at 85 and then peaked again in 2019 at 140. That's a growth rate of 4.2% per year nominal. That's actually somewhat better than one might have expected but it's certainly not outside the bounds of what would be a standard model. Certainly not something you would call fast growing.
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It doesn't work like that.
Thanks rb for your perspective. To understand deeper what you mean, what do you mean by "it"?
Demand dynamics and inflation. What you've described in your posts: housing, autos, finance, investment is a huge part of the economy. You can't have weakness in a huge part of the economy and a raging economic orgy in another. Weakness in housing, autos, finance and investment equates to a really bad recession (think 2008) which is not an inflationary event.
I think you might be mixing up mine and LongHaul's posts.
Are you saying we cannot have a 1970s style inflation-triggered stagflation, where inflation leads to higher interest rates and in-turn lower stock prices?
You and LongHaul are basically saying the same thing. He's specifically naming sectors while you are talking about lower demand in things that are financed. Well that mean weakness in housing, autos, investment and finance.
Yes, I'm also saying that you can't have a 70s style stagflation. That was driven by supply side inflation which led to a wage-price spiral. Higher rates were the cure. Now we're talking about demand side inflation which is a completely different animal. You can't have demand side inflation with weakness in demand. It's also very unlikely you'll have high inflation and high interest rates. But you could have a burst of higher inflation that leads to a higher rate environment and normal inflation. Think a 4-5% 10 year yield and 2% inflation or such kinda what we had during the 2000s.
Economically speaking that's kinda where you want to be. (I am personally a fan of a somewhat higher normalized inflation). But that will of course not be good for stocks if they're currently pricing in a 2% 10 year yield till kingdom come.
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It doesn't work like that.
Thanks rb for your perspective. To understand deeper what you mean, what do you mean by "it"?
Demand dynamics and inflation. What you've described in your posts: housing, autos, finance, investment is a huge part of the economy. You can't have weakness in a huge part of the economy and a raging economic orgy in another. Weakness in housing, autos, finance and investment equates to a really bad recession (think 2008) which is not an inflationary event.
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It doesn't work like that.
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How do you have strong inflation and weak demand at the same time?
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I'm not sure, but i think it's something along the lines of when he's done getting really rich of the SPACs he'll move on to saving the climate. So should throw some money in there cause the sooner that happens the better for us ;D.
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How much is GDP influenced by debt and deficits? I can borrow a lot more money to spend at 0% than at 15%. Have 40 years of falling interest rates skewed the USD to GDP comparison?
For a while I've given into the narrative that the boomers are robbing from the younger generations. Now I'm starting to think the retired boomers are the ones who will get screwed.
Haven't they also benefitted from a massive increase in asset prices driven by declining interest rates?
That's true, but I think the wealth is pretty concentrated.
There's lots of homeowners out there.
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This all is reasonable and makes sense. I think less sophisticated people see the debt and deficit spending and think something must be wrong. The idea of matching money supply with demand makes a lot of sense to me, and is the biggest detractor for having a fixed gold monetary system (could still create reserve system backed by gold though).
What I don't understand is if this is the best monetary system, why is deflation treated like kryptonite? Deflation is a good thing for the individual consumer. Deflation is not good for the indebted nation. It seems like the fed mandate has changed from stable prices and low unemployment to propping up the stock market and triggering inflation.
Deflation is treated like Kryptonite because it discourages consumption which is not something you want. It's worth pointing out that now we actually know how to beat inflation Volker did it. The only time we've beat deflation is with WW2 and I don't think we want to try that again.
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How much is GDP influenced by debt and deficits? I can borrow a lot more money to spend at 0% than at 15%. Have 40 years of falling interest rates skewed the USD to GDP comparison?
For a while I've given into the narrative that the boomers are robbing from the younger generations. Now I'm starting to think the retired boomers are the ones who will get screwed.
Haven't they also benefitted from a massive increase in asset prices driven by declining interest rates?
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Because people shop for car insurance when rates go up. 2020 was not such a year. People stayed at home, rates went down, rebates were received etc.
I'm not too worried about the self driving aspect I think it's still a ways off and it's not gonna replace insurance. It's gonna affect accident frequency and severity maybe that will be somewhat offset by the fat that the cars will be more expensive. So the risk is that premium per policy will decline somewhat. But PGR is really, really good at taking share which I think it'll continue to do despite already being #3. So I'm more bullish from a policy growth perspective rather than a premium per policy perspective.
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I don't have the exact numbers on me but 14-16x normalized seems about right. That's insanely cheap for a company that consistently posts double digit growth rates. Especially in the context of the multiples we are seeing today. I keep thinking that I must be missing something, but I don't think I am. PGR also posted double digit growth in the number of policies in 2020 which is absolutely amazing as 2020 was not a year that people go shopping for car insurance.
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I would add progressive to the list. This looks seriously cheap at this point.
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The balance cutoff for IB to waive the fee is $100,000 USD.
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Someone who tweeted about buying GME calls is no Buffett. That's why the comparison is laughable on face value, it's not because of "emotional baggage".
This
This play, which he only held for 1 day, was a 5x and more importantly helped him build goodwill with the next generation of investors. These are the investors who will be buying his holding company when it goes public. It was a smart business move that communicated to retail investors "I'm on your side."
I'm not sure "investors" is the right classifier for these people.
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Could be MSFT
He's said before they won't buy MSFT because of Gates.
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The person that lent the shares is long, the person that bought the shares from the short is also long .
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I think you’re right that it does have a conspiratorial slant but I wouldn’t call it garbage. It does illustrate the mechanics of how over 100% of a company’s float can be shorted, the interconnectivity between funds, brokers, and clearinghouses, and some techniques used to conceal short positions.
It's not fully garbage but it is garbagy. The part about shorts having the ability to destroy companies etc.
Also a big part of what's not being talked about is how the float is calculated and the ability to go over the float. For example in the case of GME Blackrock owns 12% of the o/s and that amount is not included in the float but Blackrock will lend you the shares.
Chamath
in General Discussion
Posted
Completely agree! But Wood is no chump either in the competition for the prize. I've just seen a video of her where she uses the treasury yield as a discount rate for equity. Seriously? There's no risk premium anymore? Either she's selling to idiots or thinks we're all idiots. What's even more amazing is that the video was monitored by someone from her compliance team.