changegonnacome

Lake side lots are what the crypto nuts think bitcoin is - until you can sit on the porch of your bitcoin, have a beer and create life long family memories........I'll take the lake side lots all day long!

To go from macro musing to actionable insights $VWO is exactly the type of vehicle I have my eye on if/when the Fed gets the economy roll over........the US gets to fix its inflation first....that is its right as the worlds reserve currency.....via dollar strength etc.......exporting some of its inflation to rest of the world in the process......hurting EM worst........if we are close to 'being done' with inflation and cuts are just around the corner.......VWO will rip with the dual tailwind of currency appreciation against the dollar and underlying company earnings power growth against what likely to be trough earnings..........EM if you can get the timing right (not easy!) is like a coiled spring!

Nice - yep looked at HOPE before (you've reminded me to look again, thanks).......those customers pay back their loans more than most!........and all things being equal HOPE participates in the success of that demographic.......and at the risk of sounding anti-Caucasian (which I feel I can be as I am one!)......those Asian folks play hard & work harder......and wherever they plant their flag they do well over time. On the banks - in general.........I'd really like to buy them in size if/when the next recession comes.......everybody will have GFC 2.0 disease......when you and I know these things are now built like the Rock of Gibraltar!!!

My man! I nibbled on some Wells....curious what banks are on your radar?

100% agree......the most leveraged version of this in a way is European banks....in oligopoly markets. https://www.bloomberg.com/news/articles/2023-02-06/steve-eisman-of-big-short-fame-sees-a-new-paradigm-unfolding-in-markets?sref=7zqHEcxJ Steve Eisman had a good appearance on Odd Lots Podcast last week worth listening too........and he touches on the banking sector post-Dodd Frank and GFC reform........these are institutions stuffed to the gills with regulatory capital with assets categorized by risk weights (RWA's).....forced at the first sign of trouble to forecast and take FULL!! provisioning on expected losses on loan books.........these aint grandmas GFC banks, where the story just keeps getting worse till common shareholders get diluted in an equity raise... ....his take which chimes with mine......is that they are priced as if a modest US recession would send them into negative earnings territory or worse.......in reality I think the banks with large deposit franchies like you say will actually make a profit through the cycle in anything but the worst of the worst economic depressions. What happen to their valuations once that reality gets proved out......that are now kinda of anti-fragile......well they need to trade closer to a market multiple.......and when some are earning 16% RoE and are trading below tangible book thats a long way up to get you that market multiple. Then add in secularly higher rates due everything we've discuced.

Anyway getting fixated on report to report is not particularly useful. What it does point towards is the higher for longer thesis - and if you dont think that matters relative to the prospective earnings of many public companies over the short-medium term well, OK. Rates at these elevated levels for a sustained period of time has never not done damage to the US economy. For every month that Fed Funds sits at 5%+ one should think of the cumulative scar tissue building up inside the US economy - projects being paused, financing deals failing leading to defaults, M&A deals not getting done, housing/investment commencements being postponed, consumer purchases being deferred. Not saying sell everything but pick your spots - anti-fragile resilient companies are my key overlay these days.

Difference between coming down and it being at target - is I'm afraid night and day. I mean I'm trending upwards towards being a billionaire........but I'm not signing the giving pledge next week......ya know what I mean!

I think the bond market can forget about H2 2023 rate cuts. This will become obvious over the next few month. Totally - and heaven forbid the relatively benign energy tailwind we’ve had goes away…..China is 100% back at the trough of global energy consumption plus some games at the margins by Russia married to the SPR piggy-bank being raided a few too many times by a President on an election cycle and you could so easily flare up energy prices again.

As they FinTwit meme says - CPI ex-life continues to trend down If you've got a pulse, like eating food and want a roof over your head and consume services on a daily basis......it ain't over unfortunately.......and we are only now beginning to hit the inflation that doesn't get on a shipping container in China (thats gone and accounts for the 9% to 6% 'easy' fall)......but rather its the inflation thats Made in America and the result of manufacturing too much paper money to chase a finite and relatively fixed amount of domestic goods & services. SPY earnings for Q4 continue to disappoint and we are getting close to a final accounting on these............there's a reasonably strong argument emerging that on a go forward basis SPY @ 4100 is now more expensive, relative to earnings multiple and risk free alternatives, than it was @ 4800.

Yeah agree on the existential piece.....I'm just considering various levers they could pull.........pushing harder on the energy piece as a strategic tool to try to tip 'the west' back into an inflationary nightmare and/or recession......such that political support waivers is an interesting card Putin has left to play.......Europe got away with a warm winter/LNG purchases worked & US got to draw down SPR.......attention now turns to winter late-2023/24......and what tricks Vlad has up his sleeves & what the climate might serve up next winter

@Spekulatius thanks for that - the difficulty re-starting oil fields is the big deterrent I wasn't aware of.........it just struck me that Russia remains a global superpower in two key respects only - Energy & its Nuclear arsenal.........if things get existential for the regime......leaning into energy first before you literally go nuclear is the playbook. @Xerxes will have a listen, thanks

Look forward to watching this - Bolton is a hawk for sure.....on a go forward basis I tend to be skeptical of his bias towards action......as a critic of past strategy it give him's more latitude than most. Curious for those following the Russian side of things more closely than me.........has Putin, with ever increasing escalation and provision of weapons from NATO states, managed to stir some genuine nationalistic fervor at home? Which leads me to the below (and in some ways its a prerequisite). In terms of the toolkit of escalation available to Putin/Russia, outside of the military options, and in light of the recent move to reduce Russian oil production by 500,000 barrels a day......do people see the possibility or the fiscal space from a Russian economic perspective for them, as part of the war effort and to hurt the global economy, to reduce Russian oil production by something much more dramatic? Seems to me of the escalatory options left available to Russia with a genuine global impact (outside of strategic nukes)....is its ability to drive oil prices up to uncomfortable levels for the global economy. That is if their fiscal, oligarch & domestic population could support it for a few months. Interested in the various thoughts on this - withholding natural gas didn't break Europe that was the 'cheap' energy play for Putin......oil is much more lucrative and the real Russian cash cow.......does he fully weaponize this next?

Sure taking oil for granted at these levels feels kind of foolhardy...............before Russia drops the 'big one' when its finally finally out of military options in the Ukraine/NATO war......why wouldn't it play havoc with global oil markets by turning off the pumps for a little while and see how the world likes oil at $140.......it is the worlds 2nd/3rd largest oil producer.........yeah it would suck for their economy and they like those petro-dollars......but at the end of the day its 'war time' in Russia and sacrifice is part of war! Its an unlikely move.......but I wouldn't put the probability of it happening in the outlandish camp.......it represents a genuine escalation path for them to attempt to break Western solidarity with Ukraine.

Thanks for sharing , interesting read and labor market is a dynamic one- two thoughts here.......first the aggregate spend/income effect of a $250k tech workers losing their job and a $35k hotel cleaner getting hired....is night and day......in both total spend in the economy......and on the income tax side of things if you bring the federal and state fiscal sectors income into the mix. Wealth/wage inequality is such now that every tech worker getting laid off is probably like five service level workers getting sacked in terms of their outsized impact on aggregate demand/spend. Second thought on the hiring boom in leisure is interesting...when one thinks about the other thing I waffle on about alot - which is productivity........these are deeply unproductive incremental hires IMO........why?.....anybody who travelled last summer will know......hotels were producing 'bed nights' at 2019 volumes.....but doing so with skeleton staff......these were very very productive staff working in these hotels relative to bed nights produced......we all experienced it I think......"sorry our usually included breakfast buffett/restruant is closed because of COVID here's a muffin & banana in a brown paper bag"......"house keeping will only clean your room every five days and you have to request them to come in because of COVID".........consumers accepted this in 20/21/22............not anymore.........Hotels are hiring people returning staffing and service levels back to 2019 levels........but not a single extra bed night is likely to be produced by the addition of these staff over 22.......in short on the margins these workers dont increase aggregate output of bed nights......and all things being equal they diminish the average productivity per worker in the industry measured by $'s or bed nights produced.

Disney to Cut 7,000 Jobs as Bob Iger Seeks $5.5 Billion in Savings https://www.bloomberg.com/news/articles/2023-02-08/disney-earnings-beat-in-first-results-since-iger-returned-as-ceo?srnd=premium&sref=7zqHEcxJ Might be easier/quicker to start listing the companies that haven't done job cuts at this stage! As I've said before - this is playing out as the inflation fixing playbook would suggest.........and again the problem with job cuts done in corporate unison as are being done now to restore underlying earnings that are deteriorating..........is that nobody gets to "save" anything with their cost cutting measures........if EVERYBODY is basically doing it at the same time.......your laid off employee is someone else's customer.......and your customer is somebody else's laid off employee....I should add that recessions of course arent driven by just folks who've lost their job.....they are driven fundamentally by people becoming aware of somebody in their network, friends or family losing their job....which drives changes in spending patterns.......the household sector attempts to "save" too by reducing aggregate spending but doing it unison has issues as per the corporate sector. Ultimately this reduced aggregate demand/spending brings prices in the non-housing services category back to 2%.........the overarching adjustment however the more I think about is that corporates/capital's share of profits as % GDP gets reduced.....margins/earnings effectively......such that labor can enjoy at first a restoration of its pre-pandemic purchasing power from the 2020-2022 period and then as any growing economy should labor gets to expand its purchasing power over time.

Yeah me too I like running 112.5% gross exposure when I’m very comfortable to do so……I’m just not doing anything close to that right now - moving forward I think the Goldilocks scenario is an earnings recession….where those earnings are hurt because prices weaken hurting margins and wages strengthen driving up costs. That’s the route where you can actually square the circle on the price, inflation, wages, productivity story…….and not come up with unemployment and recession….but to be clear every scenario I play out on the journey back to 2% inflation see’s earnings getting whacked.

Dont think I've ever advocated for an apocalypse coming My advocacy to folks to the extent they care......is a little more caution than is normal......higher FCF underwriting standards.......more conservative estimations of an enterprises cyclically adjusted earnings power.......shy away from high P/E's.....where a fall in earnings & a fall in optimism one can get really hurt. What I've certainly said and its playing out - is that 2021/early 2022 was peak margins and peak earnings this cycle.......& if your underwriting investments at those levels, on average, you are going to be disappointed....earnings ordinarily go up YoY but the context I've covered helps explain why they are very very very unlikely to go up again (in real terms) in the way we are used to..........that is until earnings first fall, unemployment goes up, inflation returns to 2% and the Fed normalizes rates and we build out from there.....see in 2021 IMO they reached a kind of crescendo of everything going right for corporates...........underneath the hood of the index things are better and worse for individual names of course.......the upper range bound characteristic of SPY IMO (lets call it 4400 between friends) is an interesting way to hedge/play alpha games/sell vol. while picking winners/losers underneath.

Surprise Used-Car Price Jump Adds to Fed’s Inflation Worries https://www.bloomberg.com/news/articles/2023-02-08/surprise-used-car-price-jump-adds-to-fed-s-worries-on-inflation?srnd=premium&sref=7zqHEcxJ I expect lots of inflation surprises like this in the data in the coming months..........inflation doesn't roll off in a straight line .....it meanders and plateaus and sometimes will likely even go back up like above. If, like the market, your extrapolating the journey from 9% inflation to 5%.....and overlaying it on the journey from 5% to 2%........your very wrong IMO.

"https://www.bls.gov/news.release/realer.nr0.htm#:~:text=From December 2021 to December 2022%2C real average hourly earnings,weekly earnings over this period. From December 2021 to December 2022, real average hourly earnings decreased 1.1 percent, seasonally adjusted. The change in real average hourly earnings combined with a decrease of 0.9 percent in the average workweek resulted in a 2.0-percent decrease in real average weekly earnings over this period. What a great economy? One where your salary buys less this year than it did last year. For the well schooled and well heeled the cost of living background noise feels over done....you notice your Wholefoods receipt is a little high.......for some folks I know personally.....its very real. People wonder what's the problem with this "strong" economy and great unemployment numbers and why does the Fed need to "wreck it" to fix inflation...............well look at the above.........purchasing power is going backwards.......3.4% unemployment sounds great as a statistic..............but as I said many pages back......an inflationary economy is one where EVERYBODY is losing their job.......just very slowly........and disproportionally the stealth job losses are heaped on the poorest. The second point and back to the E getting whacked question we have going on here on the "bottom" and whether it was October or not......but lets just call it SPY earnings forecasts.......is how to do you fix the US employee/consumer's purchasing power and get them back to good health such that their purchasing power is increasing again? Answer> Nominal wage increases need to exceed nominal price increases? Such that real wages & purchasing power is growing again. Whats that got to do with earnings? > Well last time I checked in business if your prices are rising more slowly than your costs......your facing margin & earnings headwinds. Thats exactly where companies are right now........pushing price on a weakening consumer doesn't work...........and at the same time your employees are seeking pay increases. In some ways its so simple........the corporate sector is going to have give up some of its margin/earnings and transfer them to employees/consumers to restore their purchasing power. This situation gets fixed once that happens......there are no free lunches in economics only trade off's........and earnings clearly have to give here.....such that consumers/employees can get back on track. Then we can all get back to the real game of progress which isn't printing funny money, fiscal transfers & QE/QT - its increasing the aggregate amount of real goods and services produced in the economy.

Thats a thing of beauty! Buy and hold is the way. The human need to "do something" is strong........I've tried during my investment career to temper it at all times.....sitting on your ass and doing nothing is an under-rated strategy. The temptation to do 'something' is always there........and the financial industry of course runs on getting people to do 'stuff'..........one thing that worked for me and I suggest it to others.......is if you feel the need to do things constantly and in a way who doesn't......take a small percentage of your portfolio (5%)....move it to another brokerage provider.....and if you feel the urge to do stuff after watching CNBC go and do it there.......it scratches the itch........and creates a wonderful A/B test on whether your doing stuff is helping or hurting!!

The biggest risk investing in Turkey isnt the inflation or instability or Lira............the biggest risk for the average Joe who got interested in Turkey because of Pabrai.........is if/when Mohnish stops talking about Turkey/Reyes.........you'll have these volatile tickers in your portfolio where if your being honest with yourself you have very little idea about whats going on with the underlying business. Cloning "super investors" has merit.........outsourcing idea shortlisting is OK.......but you cant outsource research........and the problem with Turkey is what is being described/felt above...buggy IR, lack of material in English, no knowledge about the culture and/or inability to gather news about whats happening on the ground post an event like an earthquake. Investing is hard enough and rewarding enough (if done correctly) in country's your familiar with - when the material is written in English & governed by Western securities law.

Cheers!

Yeah i agree - the hint is in the name.....FIXED and thats the best case scenario.....long duration folks found out mark to market you can get absolutely killed in FI just like stocks ..........what I quibble with and we've chatted about this before is folks underwriting from 2020/21 what IMO are/were peak margins.......on what were IMO peak unit volumes for some groups that became COVID beneficiaries........and then going and paying a 20-25xx multiple on that.....Apple kind of, but there are worst than them where your toast forever............Apple is probably a sufficiently great company that you can be dumb and pay 30 times 2021 earnings and get an OK return if you hold it long enough.......such that Apple's greatness & time bails you out.........but lets be clear Apple's earning per share in Q4 2022 were down ~20% in real terms over Q4 2021.....some folks did indeed pay 30 times 2021 EPS at $180 levels......I of course could be wrong but I think those that paid $180 a share for Apple will have to hold it for a long time from here to see a descent TSR and also respecting that Apple is only like ~15% of its ATH's....on relative basis you've done better than most........but on an absolute basis not so much.

True re: underwriting a company for sure I think your too focused on the FF terminal rate itself..........whats important right now........and mis-priced in the market and therefore an opportunity long or short or by sector........is the length of TIME at the terminal rate......then the wider question of average interest rates 2025-2030 (lets call it the secular normalization of interest rates question which is unknowable with any uncertainty at all)......but right here, right now its the timing mismatch between what Powell says and what I personally think the data shows which persistent domestic non-housing services inflation not budging........... and what the markets expects........which are FF cuts coming Q4 2023. The timing piece is important - the longer we sit at higher rates......the more damage is being done that will only show up later.......higher for longer = greater propensity for negative surprises later. For example: FF @ 5.5% for homebuilders for another 6 months is whatever....cuts come, mortgage rates drop, they support volume & home prices get supported and were back to the races...........however the recent rally in homebuilders is directly correlated to this expectation, that cuts come post-September 2023.............however FF at 5.5% for the rest of this year and all of next (with consequences for the real economy), followed then by a Fed funds for the proceeding 3yrs that never dips below 3%.......well it materially changes a housebuilder's margins IMO moving forward.......I think they can do the same volume of units given demand, the demand is there......but affordability isn't with mortgage rates sitting permanently higher...........but as discussed to restore affordability and move same volume of units.....homebuilders will have to give up margin.........or put another way house prices have to fall.....all while homebuilders labor costs I suspect continue to rise. Homebuilders earnings get whacked! As per the E, dropping of a cliff thesis. To your point on a good company or a shit company - a high margin efficient homebuilder has margin to give up to maintain/grow volume and keep acceptable RoE's....you just need to underwrite lower margins and not use 21/22 data.....a shit homebuilder/company is one that can only make money at 2019/2020/2021 house prices & FF at 0%........without looking i suspect there are a few of these around. See housing affordability chart below........we can quibble with the data driving it...........but for example I'd appreciate someone pointing me in the direction of a listed homebuilder that earned relatively or absolutely poor margins/RoE in the period marked in red and/or built a substantial portion of their landbank in that period. If that homebuilder exists I'd like to short it they are in trouble........a scaled recognizable efficient/ low cost producer of starter homes I'd like to own at the right price.

Kashkari does a descent job here of saying what I've been saying - best case 1% productivity growth (but in reality productivity growth is likely to be flat for 2023).......in a full employment/full spend economy where wages are going up ~4-5% equals persistently higher inflation well above 2% certainly in the "non-housing services" category for sure (which is a huge part of the US economy).......that alone forces the Fed hands re:cuts later this year......and lets not forget the energy/commodity goldilocks scenario we've had these past few months which has helped drive dis-inflationary pressures that have flattered the numbers.....that tailwind reverses and joins the non-housing services inflation that hasnt moved diddly squat in all that time.........well.....you've got MoM inflation data that starts going UP again