changegonnacome

Its the “exorbitant privilege” that comes with being the worlds reserve currency - its both a privilege and curse...a privilege cause it gives an economy that has it so much economic latitude....a curse cause the politicians and the electorate get into a death spiral of exploiting the privilege to an absurd degree. The short version of the global monetary system is that it fundamentally requires the USA to run a budget deficit and trade deficit. The world, as it continues to grow, is perennially 'short' dollars....the US supplies dollars via its budget and trade deficit. I've no problem with this necessary deficit estimated at ~3-4% but the absurd levels right now are not helpful. The reserve currency status can also function a lot like the so called "resource curse" that bedevils many commodity rich economies.....large wealth in the ground but no enguiniety and dynamism to create goods & services outside of pulling stuff out of the ground.......look at Israel in the middle east....its amazing.....all these oil rich arab states surrounding them and Israel sitting over nada, dust......and they've grown to be the real economic powerhouse in the region (sure with lots of help from the USA) but make no mistake the system, their lack of resources as a forcing function for ingenuity of the Israeli people built that economy......while their Arab neighbors still have only dwindling oil reserves. The danger of the reserve currency curse....is your country can do a reverse Israel......rely more and more on deficits over time versus the dynamism of the past. The huge difference with the world reserve currency moniker vs. the resource curse is that it is in its initial stages - the reserve currency status is hard earned & deservedly won. he danger of the reserve currency curse....is your country can do a reverse Israel......coming to rely more and more on deficits over time versus the dynamism of the past. That hasn't happened to the USA.....this last wave of innovation from Apple, Google, Microsoft and now in AI shows a US still striving for greatness - the GOP are attuned to the risks of the reseve currency curse.......while AOC & Sanders.....would given everybody in the country a six month vacation twice a year and fund it all with debt if left to their own devices....they have no idea where prosperity comes from.....they think its just printed on pieces of green paper called dollar bills.

Yep agree from numerous anecdotal conversations with folks there.......the lag in US office return is really a function of an exceptionally tight labor market dare I say 'overheating' economy vs. UK/Europe....put simply middle managers and/or employers in US don't sense they have the leverage (yet) to impose fully their end state post-COVID WFH policies without spiking attrition to undesirable levels............I'd imagine moving forward that if SuperCore inflation starts failing, and it isnt right now, that it will be inversely correlated with office attendance........which is to say as office attendance rises SuperCore will be failing.......likewise office attendance will be positively correlated with productivity gains which will be dis-inflationary (P -WFH.....'Pretending to Work from Home' is real)...you can pretend to work from the office but its much easier to do so at home!....at least in the office there is some monkey see monkey do social proof going on that others are working and so should you! I'd imagine increasing office attendance will also be inversely correlated with wage growth. I watch the Kastle systems site - it will be a nice coincident indicator of some of the above: https://www.kastle.com/safety-wellness/getting-america-back-to-work-occupancy-by-day-of-week/ Friday is the real canary in the coalmine day IMO......YoY Friday attendance has barely budged...you see this spike up meaningfully MoM and the Fed is getting what it wants/needs & the labor market is cooling. I've completely got wrong the time its taken for the Fed to effect a slow down.....the resilience of the US economy has been impressive.....I for sure underestimated how rate insensitive large swathes of the American consumer is........Europe is making genuine progress on underlying inflation for the opposite reason......but ultimately the Fed will succeed.......it's amazing how the conversation has pivoted from rate cuts in H2 to conversations around 6% Fed Funds. Just given the level of rate insensitivity it might be very surprising how high the Fed needs to get to drive unemployment up to 5%....which at the end of the day if you read between the lines is what they are aiming at.....NAIRU is ~4.5%.....and to achieve the supercore disinflation they want they probably need to hit ~5%......I think written in JP's notebook is a dream scenario where he gets unemployment to the late 4%'s.....and supercore into the mid 2's.....and THEN he starts cutting knowing that momentum + lags will finish the job.

You hit the nail on the head......and whats crazy in cities like NYC in terms of street level CRE - restaurants/bars in particular- is that city decided to retain all the COVID era extra dining capacity it created via outdoor/street dining..............very successful bars/restaurants have managed to double sometimes triple their seating capacity with these COVID era accommodations that they got to keep.....seems harmless....until you realize that doubling/tripling capacity of these establishments has kneecapped the neighbouring street level CRE & the bar or restaurant that MIGHT have opened up just down the street.

Talent borrows, genius steals I say you came up with it......and if anyone ever asks me about it.......I came up with it!

Never heard that theory before - but your right........drug dealing used to be a physical distribution game.......and street corners were fulfillment & logistics hubs......'owning' the right hub in certain neighbourhood was important to gain access & control the customer channel, so important you'd engage in extreme violence & murder to do so.....god bless Boost Mobile & MetroPCS for keeping our streets safe!

I would say more Monopoly like….in some instances…..and there seems a growing willingness on a bipartisan basis to tackle some of this….first via blocking mergers….later perhaps via breakups or forced divestures…many of these companies especially the platform guys…..are beginning to look like deathstars for every other US company/industry they might choose to enter. It’s an amazing achievement by some of them…..in some respects….getting ‘done’ for antitrust is like winning gold at the capitalism Olympics…..you played the game so skillfully that you designed the perfect mousetrap….but it now needs to be taken away…..as capitalist you should be proud that your creation comes under anti-trust scrutiny.

It can be a short term headwind for sure…..the GBP mkt cap quote doesn’t reflect underlying trading currency strength or company performance…lots of companies are simply re-listing to the US or Euronext..Hostelworld which is the name I’m mostly involved in there…..has both a nano cap discount and this underlying Euro trading currency/GBP discount…..a discount is only as good as the catalyst which solves it however……my nano cap problem will be solved by HSW scaling to revenue and mkt cap relevance and/or M&A…M&A is going to large catalyst for many UK value names IMO..…and I do believe that the UK to an extent is exiting its 2016-2022 Brexit fever dream….and stepping back into a world of pragmatism not idealism mixed with tribalism…..the UK is an amazingly civilized place with great in-place human capital/universities and given its attractiveness as a place to live it has an ability to attract the best and brightest globally. In short I think they emerge from this mess in a good position and in a reasonable timeframe which should see further GBP strength and flows back to LSE listed entities in time. The Tory Brexiteers and Corbyn-istas….kind of had their time in the sun and between them they wrecked the UK…..I hope….what we are seeing with Sunak and Starmer is a rush back to the Centre.

I follow the UK fairly closely - it's sad to see how far its drifted since 2016......I think its fair to say that Britain has been at war with itself since the Brexit referendum......and the political class in response to that civil war has suffered a significant brain drain/exodus of the most competent & trustworthy leaders...both Labour & Tory......the last two PMs might go down in history as the worst one/two combo the UK has ever produced in terms of competency, credibility, character & ability......Boris Johnson > Lizz Truss......the UK is lucky that Sunak was still a serving politician and had not returned to investment banking such that he could pick up the pieces after the Johnson/Truss debacle & restore some faith in the UK as a fiscal authority with the markets and as partner with the EU which allowed for a resolution of the EU/UK trade deal. This is not to suggest that Sunak is some kind of genuis political operator (he isn't)....he is however honest, hard working & a pragmatist not wholly focused on his own re-election but doing what makes the most sense for the UK longer term. The Bank of England, I would suggest, likely needs to assert its independence as fully as it can now to get inflation under control while Sunak is in No.10 & Hunt in No.11......the residents of those addresses, if they were to change, might not be so respectful of central bank independence moving forward. Having said all that I agree with this recent podcast - https://www.bloomberg.com/news/articles/2023-05-26/podcast-rob-arnott-says-why-uk-value-stocks-are-still-the-trade-of-the-decade?srnd=premium&sref=7zqHEcxJ You can find stocks on the LSE with pretty much nothing to do with the UK's economy......and better still you can find stocks who's main trading currency is Euros but the listing is quoted in GBP's....its a nice FX tailwind for buybacks as lots of the smaller stocks really don't seem to move much on the underlying FX/trading movements. I think the level of M&A in this company cohort is going to go through the roof in the next year or two.

Most recent MoM annualized March to April is actually 5.2% (see below)........3 month average is mid-4's.....whatever way you slice it......this is an inflation data series for the largest sub-component of US GDP.....which stepped into the 4% plus inflation range in Q1 2021!!!!...over two years ago.....and has consistently and persistently bounced around in the 4-6% range ever since. This is NOT what progress on inflation looks like:

MoM progression annualized is about mid-4's too for SuperCore inflation....like I said there is no progress or disinflation occuring on SuperCore....its why your hearing the noise rise around hiking again. As I've said a few times.....when folks turn around and say 2% inflation vs. 4%...is no big deal, its not scary......they are forgetting the 8th wonder of the world - compounding......and that inflation compounds on itself....and so small differences lead to outsized results. Moving the goalpost on inflation seems harmless.....but it's a primose path to dumb outcomes over time. Basic inflation math: 2% inflation means the value of the dollar halfs or put another way nominal prices DOUBLE every 36 years.......nobody notices, nobody cares 4% means the value of the dollar halfs or prices double every 18 years!!!!!

THIS ^ is the problem and what the Fed is looking at. The United States is a SERVICE based economy. Believing your on a path back to 2% inflation......when the largest component of your economy (services) is printing 4.5% Month over Month inflation figures......is the absurd part. Back of the envelope math and accounting for services being 77% of the economy......and rolling off all the stuff that people know is going to roll off....your looking at an economy 'stuck' with headline inflation running at about 3.5 - 3.75%.......meaning the Fed is missing its inflation target not by a little but by alot......its like saying your going to land the plane in New York but you actually end up landing in Chicago. That sound like a Central Bank thats meeting its goals.....and as I've said.....you dont want a world where the 10yr or 30yr.....starts assuming 3.75% inflation as the norm on a go forward basis.

You not read what the Fed says? - they've been excluding real estate from their inflation concerns for months and months now.....the only absurd thing is that folks seem to think that the Fed is so moronic that its missing the OER/real estate influence and roll off. Go read the press releases & minutes the Fed agrees with you......they are excluding real estate as they consider the inflation picture.

Yeah of course....who doesnt know about OER? If your hanging your "the Fed are reckless morons intent on destroying jobs & the economy for absolutely no reason" thesis on the idea that somehow they are missing the hiding in plain sight OER data roll off, you are mistaken on that. The Fed knows it all too well, they see it....but they are looking through that and have been clear that they are looking past that....to the underlying inflation story stripped of food, energy & housing....& its not good. It demonstrates almost no progress on this SuperCore number. Today's new numbers confirm that same. As I pointed out in my post above this...its domestic services inflation that's the problem....the so called SuperCore number.....I link to CorePCE data cause its readily available to link too.....it strips out food & energy....& Supercore goes on to strip out housing/OER........and the number the Fed has guided everybody to look at it as its key measure on progress..........read the minutes and the press releases....they fully get the OER component. Services inflation (supercore)......no big deal I hear you say............services only made up like 77.6% of the US economy in 2021.

Inflation Inched Higher in April, Reflecting Challenge for the Fed: https://www.nytimes.com/2023/05/26/us/politics/inflation-april-federal-reserve.html Oops there's that sticky inflation again for another month

U.S. Core PCE Price Index YoY Release Date Time Actual Forecast Previous May 26, 2023 (Apr) 08:30 4.6% 4.6% Apr 28, 2023 (Mar) 08:30 4.6% 4.5% 4.7% Mar 31, 2023 (Feb) 08:30 4.6% 4.7% 4.7% Feb 24, 2023 (Jan) 09:30 4.7% 4.3% 4.6% Jan 27, 2023 (Dec) 09:30 4.4% 4.4% 4.7% Dec 23, 2022 (Nov) 09:30 4.7% 4.7% 5.0% Dec 01, 2022 (Oct) 09:30 5.0% 5.0% 5.2% Oct 28, 2022 (Sep) 08:30 5.1% 5.2% 4.9% Sep 30, 2022 (Aug) 08:30 4.9% 4.7% 4.7% Aug 26, 2022 (Jul) 08:30 4.6% 4.7% 4.8% Jul 29, 2022 (Jun) 08:30 4.8% 4.7% 4.7% Jun 30, 2022 (May) 08:30 4.7% 4.8% 4.9% https://www.bea.gov/data/personal-consumption-expenditures-price-index-excluding-food-and-energy Unfortunately - the facts don't agree with you both......wishing something was so and it being so....are two different things. As I've said for months and months now.........3.4% unemployment, nominal spending growth like we have & sleepy productivity growth is completely and utterly incompatible with a magical soft landing trip back to 2% inflation where nobody gets hurt. And as I've been saying for months the rubber is now hitting the road on sticky, plateauing and hard to shift inflation....and this is exactly whats showing up in the MoM data above and more tellingly inside the SuperCore number.....this 'core' inflation isn't going down and is showing basically zero progress in going down.......see Made in China inflation went away as we all knew it would....Supply chain inflation sorted itself as we discussed here......Avian flu egg inflation is/will go away cause well more chickens is an easy problem to fix....but that was a head fake on progress....lurking underneath all that is Made in America inflation, domestic monetary inflation.........its hit a stubborn floor for months now. Literally going sideways. Some people seem confused as Fed speak out there is now kite flying the possibility of more rate rises in H2, not rate cuts like dreamers wanted.....see you can pretend they are lunatics if you want............but if your mandate is 2% inflation.....and your actually at about double that at ~4%........its no surprise at all your considering additional measures, the Fed officials are being very very rational........you just need to look at the complete lack of progress around this domestic inflation......its there, its a fact......no more supply chain excuses left now.......the Unites Sates Federal Reserve Bank is failing to adequately control prices as per its 2% stated target. End of story. See folks have confused progress on headline inflation which was driven by the rolling off of China, Energy, Supply Chain stuff......and extrapolated, as humans do, the most recent past out into the future. They are very wrong on that extrapolation as it pertains to inflation............we've reached the part of Mount Everest Inflation where the cliff goes vertical and the oxygen levels drop but you can just about see the peak.......but its a tough slog getting from 4% down to 2%....and the economy/labor market is going to get hypoxia on the way to 2......(Hypoxia: confusion, restlessness, difficulty breathing, rapid heart rate, and bluish skin).....sounds about right in terms of symptoms that define the end of a rate hiking cycle ....we aren't quite there yet.....maybe Jay Powell will never get to the summit of Everest....but he's still talking a good game.....lets hope he has some descent sherpas to help him get there. The alternatives aren't good.....trust me....the recent rise in long term rates is the first sign of a growing lack of faith that this Fed has the stomach/tools or wherewithal to get inflation under control......investors and the average Joe Sixpack for sure live out at the end long end of the curve, not the short end the Fed controls....you dont wanna see a world where the 30yr starts incorporating the assumption that the monetary authorities arent taking their mandate seriously and 4% inflation is the new normal moving forward.....that is not a good day for SPY/QQQ & the home price index.

I use IBKR due to low margin interest rate….in exchange I live in fear of automated margin liquidations that IBKR is famous for….I like the constraint, it’s quells my aggression..…see Petterffy doesn’t do margin calls, he does sales…and on average I hold small cap slightly illiquid stocks…..I also have all the warnings about leverage oozing out of my ears….the warnings are justified…..running a portfolio at 112.5% gross exposure means in a 50% sharp drawdown scenario…..my 12.5% margin loan would balloon to 25%…..depending on holdings this is still well within the overnight margin requirements that IBKR has and as a result even in a 50% drawdown scenario I should not find myself in a forced liquidation….or certainly that margin ‘space’ & time would allow me to take corrective action. So short version - I want to be a hero, but I definitely don’t want to be a ZERO. The 112.5% exposure is also reserved for times when the wind is really at the equity investors back…post a draw down….when the Fed has got your back, when credit is expanding….when Joe Sixpack’s monthly free cash flow can’t help but get better in the ensuing months. This is not one of those times….I’m not saying you can’t make money or pick your spots….for sure you can…..it’s just the wind is at your front and you need to make higher quality, higher probability decisions. Everywhere I look I wonder how Joe Sixpack is gonna have more money this year than last….and I don’t see it and haven’t heard anyone make a good argument to the contrary…..the median American’s b/s and purchasing power cash flow is dis-improving. It’s a time to move forward with caution and raise the quality bar on investments.

Poor Carl.......still making mistakes after 87yrs.... Carl Icahn admits he got bearish bet that cost $9bn wrong: https://www.ft.com/content/9e0cc00d-a910-455c-bc1a-2d20dfe21289 A warning to those that hear 'voices' about impending doom.......I hear those voices sometimes......I let it, on occasion, take my gross exposure from 112% down to ~80%.......but never below.......and never with 'bets' that cost significant NAV waiting for some imagined anticipated meltdown.......to the extent I ever use options......always much better to be a seller than a buyer Peter Lynch says, “Far more money has been lost by investors trying to anticipate corrections, than lost in the corrections themselves.”....... and he's 100% right of course

Always enjoyed Sam's take.......there was clarity to his thinking that marked him out.......and like @Spekulatius said i listened to a couple of recent interviews and if it wasn't for the wrinkled face and gravelled voice.....he sounded like a guy with a 40yr plan. I'll miss getting his comtempuournous take on things.

Totally and I excluded folks on this board in my post……who are obviously active equity folks…..which means they likely mix in circles of other active equity folks…I think everyone on this board is somewhat in the minority being so interested in stocks…..the exit from equites will be led by disengaged capital that has passively participated in the great returns….whom are risk averse and are very happy to be told that they have “enough” to retire based on their 401k/IRA balances…folks for whom the ‘market’ has remained a kind of mystery their whole lives, a wonderful mystery that has seen their wealth grow….but still a mystery…these folks will instruct their advisors to move them into less risky things…..2022 was a painful downdraft…..if another downdraft occurs this year (with no Fed put, as we’ve become accustomed too) such that we exit 23 with another down year……boomers will head for the equity exits, never to return….which has consequences just given the level of wealth held by that cohort.

Yeah it’s phenomenal- still feels a little pavlovian to me…….and ignores the ‘sea change’ we’ve talked about in terms of secular shift in interest rates and inflation…..QQQ rally is another expression of the Fed is cutting soon and it’s back to 2010’s ZIRP world……I was certain of this sea change theory up until recently…..but to be fair some of these LLM’s and their potential impact on productivity & therefore inflation have certainly created a counter narrative. It’s beyond interesting what happens next……and the winners and losers from AI/LLM’s is going to be fascinating to watch

Yeah gurus come and go…..like fashion…..I listen or am swayed by the following….ultimately it’s the ones with long run track records that matter Druckenmiller on Macro Tudor Jones on what you might call short term market gyrations/market psychology Dalio on cycles…..think Dalio’s most important concept outside of big cycle stuff…..is the concept of not just intrinsic value…..but rather flows…..which is to say who are the holders or prospective holders of what assets & why….and what do their balance sheets & future obligations look like…..the price of assets isn’t always determined by just their intrinsic value…..but rather what is the audience of folks interested in or capable of holding that asset….as that will determine the price……for example…..EM was considered the riskiest of risk assets….it’s audience grew in “risk on” periods and the valuations went up…so you had these big historical swings up in that asset class…that didn’t happen last cycle of zero interest rates & QE when it should….Why? Cause the audience that would have gone into EM actually directed their ‘risk on’ funds into VC,PE and Crypto…which all got juiced by super low interest rates…..the natural audience/flows of EM holders shrank….as other even riskier asset classes sucked up flows. It’s an interesting concept. Demographically the US has an investment audience shift happening right now…..baby boomers are retiring……maybe not folks on this board…..but baby boomer retirees (a massive cohort of wealth) are or are soon to be cycling out of equites….target date funds are reaching their date….no baby boomer, having experienced the last 13yr equity boom…wants to be left holding the bag so to speak…..as somebody once said the only skill required at a party is knowing when to leave…..baby boomers don’t need or wants to stay on the equity rollercoaster……especially when they know that ballpark equity like returns are now available in fixed income. It’s a big group and big potential rotation and why the Druck & Tudor seem fairly happy to predict a kind of lost decade for the indexes. I’m somewhat interested in this stuff……but fundamentally am a bottoms up guy……as I’ve said before I own in big quantity a home builder…..this is not what a macro driven doom monger does….I look for idiosyncratic micro opportunities. I dial up or down my market exposure with a macro cycle overlay…..there’s times to swing for the fences….and times to move forward with caution as Howard Mark’s says…..I like the wind at my back when getting aggressive.

Absolutely - and the index themselves have become a bit of a headfake.......SPY gains from last October's bottom are driven by a tiny sliver of companies with monopoly or oligopoly like positions......S&P 500 minus the 10 massive outperformers.......has some reasonably priced stocks where you'll do fine.........I own a big position in an Irish home builder for god's sake.....the stereotypical permabear couldn't bring themselves to do that.....but when something is cheap & competitively advantaged for the long term then you've got to act.

Yep - https://www.bloomberg.com/?sref=7zqHEcxJ "Consumers typically build up more credit-card debt at the end of the year, during the holiday season, and then reduce those balances at the start of the following year, sometimes with the help of tax refunds. But for the first time in 20 years, that wasn’t the case this year, suggesting some households are under strain from higher prices and may be relying on credit cards to maintain their spending."

Along with Druck....Tudor Jones speaks and I listen: Note he says stocks higher at the end of this year in longer clip........and talks about a halcyon period that continues & lasts around 6 months after the last Fed hike has happened...guess the argument is May 3rd was the last hike........Sorkon never asked about what happens after that halcyon period is over........the book says markets dont really reach their bottom (OP title of this thread) until sometime AFTER the Fed starts cutting......my guess is if Tudor Jones was encouraged to continue he likely would have touched on this......that post the haylcon period and after the Fed starts cutting into a weakening economy do you get the true bottoming of stocks....but conscious I might be putting my words in his mouth.......he's also a trader and I'm not........and for all those who take this posts as somebody sitting 100% in cash and waiting for the apocalypse......I'm up to my eyeballs in equities.......just not in equites over my head, thats all.

Yep the "bid" under New York City real estate is insane.......for every potential theoretical modest increase in affordability that might occur in a doomsday NYC scenario.....a cohort steps up to buy the dip so to speak.....in this case buying the dip is moving to NYC