SHDL
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Posts posted by SHDL
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It's even better if you're part of the "looter class" and not an American. Then you can loot America and not have to deal with its shitty infrastructure at the same time. ;D
Attaboy Mitch!
You have a somewhat similar situation with very rich Americans too. Who cares how bad LGA is if you never have to use it thanks to your private jet? I think that is a key reason why infrastructure spending doesn’t get as much political support from Republicans as one might hope.
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I have no insider info but looking at their numbers I think it’s quite likely that they have bets tied to the bond market as well. Like Eurodollar futures/options (to bet on falling interest rates) or credit default swaps (to bet on rising credit spreads). As an individual investor one could have done very well during the recent crash with put options on certain high yield bond ETFs as well — some went up like 100x or so IIRC.
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Senate Republicans now hoping to pump the brakes on stimulus spending:
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Why no discussion about Japan?
The daily cases show steady decrease after maximum at about 600 in middle of April to now about 180-200.
For a crowded, cold country with subways and bullet trains (public transport), old age its pretty good
without lockdown.
https://www.worldometers.info/coronavirus/country/japan/
This anomaly was apparently what got some people to look into the BCG theory that I posted about a while ago. It has some merit (IMO) and a clinical trial is underway in Australia and a few other places. I hope it proves correct as that would greatly improve the outlook.
China always had BCG.
UK had till 2005
France till 2007
Spain 1981
Since most people dying are very old, they must be BCG vaccinated in China, UK, France and Spain.
I picked Japan though most south east asian countries have low Covid incidence since Japan is cold, with older population, has subways and crowded.
If Japan had low incidence because of BCG, China should have had low incidence too and not need lockdown.
UK, France and Spain would had low Covid too.
http://www.bcgatlas.org/index.php
From what I know the data on this isn’t as clear cut as I was hoping. Spain only had it from 1965 to 1981, so it is not clear what % of the elderly there really got it. China claims to have had it for a long time but there were apparently major lapses in vaccine administration especially during the Cultural Revolution. Etc. And to add further confusion, there are some signs that the exact version of the vaccine matters (the Soviet/Japan strain, which is commonly used in East Asia, works better than the Denmark strain, which is/was more commonly used in Western Europe, etc). In any case the clinical trials should help sort this out.
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There a certain age bias in this current situation , both on terms of health as well as financial risk. Zell has a lot more to lose than to win at this Point than let’s say a 30 year old private equity guy.
First, he has a much higher chance to get killed by this disarrayed, second with this being an unprecedented situation l he really doesn’t know how this plays out economically. So he won’t play until he sees it, plain and simple.
Compare this to a 30 year old private equity guy who probably is willing to roll the dice with other people’s money and if it doesn’t work out, he is just going to try again a couple of years later with a different shop.
The different starting situation and incentives lead to different decision making bias.
Does the 30 year old not have significant career risk in doing that? I think Buffett and Zell have been relatively straight shooters (particularly Zell) about the opportunities they see at any point in time. I don't think they would have any reason to waver now unless they truly saw a wide range of outcomes. Also, Buffett was about 78 when he went through the Great Recession, so taking his comments and assigning some risk-averse age argument doesn't hold water to me.
It's kind of interesting Buffett's comments about $137 billion not being that much in the context of worst-case outcomes. That is a way different tone than his "we only need $20 billion to survive even the worst catastrophe" , and suggests to me he thinks coronavirus will be a huge issue for insurers, not dissimilar to what Dupperrault and others have said.
Maybe these guys are simply operating in areas (insurance and real estate) where there is close to maximum uncertainty right now about how things play out. During 2008 perhaps Buffett could pick up bargains because he knew his insurance subs were not as exposed to 2008 risks as the current insurance business is to the fallout from the pandemic?
I’ve been thinking and talking to people about this a lot. If you look back a few decades ago, both Warren & Charlie groused a lot about what they called “social inflation” in insurance. Things that weren’t covered became covered because it was politically palatable to do so. I suspect they are worried about some pain sharing that the politicians might inflict on insurance carriers.
The 10-Q had a line that was likely alluding to this possibility:
“The potential effects of the pandemic may be further affected by judicial rulings and regulatory and legislative actions pertaining to insurance coverage and claims that we cannot reasonably estimate at this time.”
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Forgive me for a snap reaction without all the info, but isn't there a large bias here with Siegel? Hasn't he always been a MASSIVE Stock bull? So I would expect him to always say that bonds are toast.
I think you’re right about the direction of bias. To me though, there is an important difference between him saying “stocks are likely to outperform bonds over the long run” for the millionth time and “bonds are likely to do poorly over the next few years due to rising inflation and interest rates.” I don’t recall him ever make the latter prediction, but of course I may be mistaken.
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Why no discussion about Japan?
The daily cases show steady decrease after maximum at about 600 in middle of April to now about 180-200.
For a crowded, cold country with subways and bullet trains (public transport), old age its pretty good
without lockdown.
https://www.worldometers.info/coronavirus/country/japan/
This anomaly was apparently what got some people to look into the BCG theory that I posted about a while ago. It has some merit (IMO) and a clinical trial is underway in Australia and a few other places. I hope it proves correct as that would greatly improve the outlook.
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Jeremy Siegel on CNBC today:
https://www.cnbc.com/2020/05/05/forty-year-bull-market-in-bonds-is-over-whartons-jeremy-siegel.html
He’s bearish on long term bonds now. He thinks inflation and interest rates will start going up before long and that the owners of those bonds will be the ones who will ultimately end up paying the price for the pandemic.
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New interview:
Nothing too surprising but it was good to hear his thoughts on RE. Like Buffett, he’s not really buying now.
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It‘s the equivalent of the US Supreme Court in Germany. There is nothing above it.
Thank you for elaborating, Spekulatius,
What does that imply in this particular context?
Some helpful commentary here:
https://www.wsj.com/articles/ecb-faces-renewed-legal-pressure-over-bond-purchases-11588685562
I’m not too familiar with European politics but the story is consistent with my general sense that we may be reaching the political limits of these massive central bank interventions.
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There is already some solid evidence of short term deflation. The CPI was down a lot in March vs February for instance (much of it attributable to lower energy prices).
Anecdotally though grocery prices have gone up a lot recently, and we are also starting to see workers publicly demand higher wages via strikes and such. I take those as potential early signs of inflation.
Yes, the data the next 6 months will be very interesting. Regarding wages, if unemployment hits +15% and we do not get a V shaped recovery then my guess is wage growth will slow over time as expectations fall.
Currently, grocers are having to pay a premium to attract and keep workers during the pandemic. This will likely be true for all occupations where employees are put at a health risk.
I also see a scenario where business that re-open have to charge higher prices because their revenue is lower (due to social distancing requirements) and their expenses are higher (due to PPE they need to source for staff).
Crazy stew of unknowable factors right now. Business owners must be going crazy trying to figure out what to do and how it all might play out...
Right, and the supply side disruptions make stagflation a very real possibility. That will test the Fed’s independence like nothing else.
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That was much better than expected. He sounded well and sharp, questions were well selected, we even got one from Bill Murray.
I too heard a lot of bearish dog whistle. Especially that remark about him not wanting to talk about certain scenarios because he thinks he might increase the probability of them materializing if he does...
Meanwhile many of the media headlines are (predictably) upbeat:
- WSJ: Warren Buffett Says ‘American Magic’ to Overcome Virus Uncertainty
- CNBC: Buffett says economy will beat virus: ‘Nothing can basically stop America’
- USA Today: Buffett tells investors to 'Bet on America,' buying stocks for long-term gain
The market reaction to this should be fun to watch.
I skimmed that article after the meeting. I couldn't believe the spin it took on the meeting. The WSJ watched a very different meeting than the one I saw.
I’ve learned to pay attention to such discrepancies. Sometimes you can almost smell an agenda...
Anyway ARS got it right:
https://www.nytimes.com/2020/05/03/business/dealbook/warren-buffett-berkshire-hathaway.html
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There is already some solid evidence of short term deflation. The CPI was down a lot in March vs February for instance (much of it attributable to lower energy prices).
Anecdotally though grocery prices have gone up a lot recently, and we are also starting to see workers publicly demand higher wages via strikes and such. I take those as potential early signs of inflation.
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Costco is selling a 3 liter wine box of Kirkland Cabernet Sauvignon. It works out to $3.75 per 750 mL bottle.
It's honestly quite good.
Trying the Pinot Grigio now. I was planning to use it for cooking but it’s much better than expected. One of the most drinkable cheap wines I’ve tried.
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That was much better than expected. He sounded well and sharp, questions were well selected, we even got one from Bill Murray.
I too heard a lot of bearish dog whistle. Especially that remark about him not wanting to talk about certain scenarios because he thinks he might increase the probability of them materializing if he does...
Meanwhile many of the media headlines are (predictably) upbeat:
- WSJ: Warren Buffett Says ‘American Magic’ to Overcome Virus Uncertainty
- CNBC: Buffett says economy will beat virus: ‘Nothing can basically stop America’
- USA Today: Buffett tells investors to 'Bet on America,' buying stocks for long-term gain
The market reaction to this should be fun to watch.
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Edit: I have a great idea for a business. Open a company that employs such private investors for nominal salary which they themselves pay into the company. And then they can honestly tell everyone that they work for BIM Inc. which is in stealth mode, so hush hush. 8)
You could also just set up a LLC for a nominal amount of money and tell people that you run your own business called XYZ Asset Management or whatever.
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I think one of his bigger but less visible legacies will be that he made financial markets more efficient than they were previously by teaching people how to “correct” Mr. Market when he’s wrong and get paid for doing so.
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My hunch is that this type of political outrage, rather than the market’s ability/willingness to absorb US government debt, will be what ultimately limits the government’s ability to keep the stimulus programs going forever. The day we reach that limit will likely be the “Lehman moment” of this cycle.
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Losses will be borne by the US Treasury probably via its General Acct at the Fed.
That is good to know, thanks much for the input. Very strange setup indeed.
It was my understanding was his point is they're not allowed to create inflation.
Yes that is the punchline, and as far as I can tell his reasoning is sound. Where I differ is I think the rules (like the Federal Reserve Act) will be modified down the road so as to make it easier for the Fed to induce (moderate amounts of) inflation. The most recent lending program seemed to me like a really stealthy way of moving in that direction but according to wabuffo that is actually not the case. But that doesn’t mean it cannot happen. And it just seems to me like a much better option vs some of the strange alternatives that the BOJ and ECB have been trying lately without much success.
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wabuffo,
Thanks for the commentary. I actually have a question that you or someone else may be able to help me answer. As I understand these new lending programs are funded by a loan from the Fed and something like a 10% equity layer provided by the Treasury. So ok, so far no “money printing,” but what if the losses exceed 10% (which might happen if things get bad enough)? Does the Treasury then somehow compensate the Fed for their losses? But if so, the “10%” number is kind of meaningless right? Or does the Treasury do nothing and let the Fed absorb the loss above 10%? If so, would you not say that that is essentially helicopter money, given that what happened at the end of the day was the Fed gave cash to a (non-bank) private sector entity and got nothing in return?
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Japan is stuck in mild deflation.
I'm no expert on this subject, but find it very interesting for portfolio asset allocation, so please forgive a perhaps naive question.
Is mild deflation much worse than mild inflation?
I ask as some people have suggested that Japan's livelihood does not seem to have suffered especially from mild deflation.
So I am wondering if we are so afraid of deflation because of the 30s experience that it is like a 'System 1' thing - any mention of the subject makes us recoil.
I suppose my instinct is that anything 'mild' is generally not a problem. Where the problem begins is if something cannot be controlled - and I know the fear of inflation is that once started properly, it is very hard to control. So perhaps the same is the case for deflation.
Anyway, I welcome any thoughts, and will try to get to the interview.
(n.b. I know that Japan has other problematic issues e.g. the enormous debt overhang. I also recall how the 'obvious thing' about debt in Japan has tripped people up so much, coining the term, the 'widowmaker trade' ).
I think that depends on how “mild” we are talking about. If it’s +0.1% vs -0.1% inflation I don’t think it matters much. But say +3% vs -3% inflation is a bigger deal. The basic theory is that because nominal short term rates can’t go (much) below zero, if we have 3% deflation the Fed is unable to bring real rates below 3%. Whereas if we have 3% inflation they can get to a -3% real rate by bringing the nominal rate down to zero. So that is a 6% difference in real rates, which should be meaningful for at least some investment/spending decisions.
On Japan, it is true that their economy hasn’t really collapsed or anything. But they’ve had abysmally slow growth for quite some time now. The tricky thing is they are only one data point and so no one can really tell if deflation is the true culprit or if it’s something else. I actually think it’s something else but that doesn’t really matter ... what matters more is that the Fed and other central banks are obviously terrified of their situation and are bending over backwards to avoid it (all the negative side effects be damned).
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- Vance Crowe Podcast: Lacy Hunt (April 18, 2020)
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Good interview. I agree with a lot of what he said, but not everything.
The biggest disagreement I have is that I think the Fed will do absolutely anything to avoid a deflation trap. In fact with the latest round of interventions they are hinting how determined they are. Those interventions are not just another round of QE (which isn’t necessarily inflation-inducing for reasons correctly discussed in the interview), they are a step toward some real money printing. This really complicates the picture because although we are certain to have a demand-side driven recession, which is likely deflationary (as discussed in the interview), we are also going to have the Fed trying to fight off the deflationary forces with every gun they have. The supply side disruptions (which are inflationary) are also another relevant factor to keep in mind.
Anyway my expectation is that the Fed will in the end get what it wants on the inflation front, namely mild inflation. I would not make a gutsy macro bet on deflation for this reason.
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WHO confirms that, at this time, there is no evidence to suggest getting COVID-19 once prevents you from getting it again.
This has been a concern of mine as well. I only have a layman’s understanding of how vaccines actually work, but does this not increase the likelihood of us never getting a vaccine? That is a scenario that I think not many are prepared for.
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Equity investors complaining about their -12% YTD returns.
Universa Investments
in General Discussion
Posted
It was either HYG or JNK, maybe both. The caveats are: (a) you had to get the strike and expiration just right to get the max return (duh), and (b) trading was pretty thin pre-crash so I am not sure how much you could actually buy at those historical prices.
Edit: Randomly pulling out one example ... a few HYG 5/15 70 puts traded < $0.05 in Feb and went > $5.00 in late Mar