changegonnacome

Best trade of 2023 is the - "you better believe exactly what Jerome Powell is saying trade". It's now my highest conviction idea. There will be no cuts to Fed funds in Q4 2023 as is priced in......in fact the real direction of travel I think is that terminal rate expectations & reality are going to go marginally higher from here......thats your higher of the higher for longer story.....Powell then also needs to ensure that a pause isn't misinterpreted as a pivot.....not sure what the answer for him on this is smaller more spaced out hikes....10bps vs. 25bps! This market just loves to rally.....30 years of Pavlovian conditioning will do that I guess. Need help COBF on how best to express this in the most levered way possible!!!? In the equity markets where I know best - its clearly short the long duration and/or interest rate sensitive stuff. Recent retail rally stuff (not huge fan of the asymmetry of shorting and buying puts means you have to get direction and timing exactly right). Pair that with short duration/low PE/rate beneficiary stuff I guess...energy etc. However the purest expression of this I'd imagine is in the bond market.......where I admit I'm a novice.....I bought a bond for the first time in my life recently...............interest rate options? on the short end of the curve? What instrument is likely to react the most violently to expectations of cuts later this year getting dashed? If anybody has any ideas feel free to DM me on it - very interested in exploring this.

Best trade of 2023 is the - "you better believe exactly what Jerome Powell is saying trade". It's now my highest conviction idea. There will be no cuts to Fed funds in Q4 2023 as is priced in......in fact the real direction of travel I think is that terminal rate expectations & reality are going to go marginally higher from here......thats your higher of the higher for longer story.....Powell then also needs to ensure that a pause isn't misinterpreted as a pivot.....not sure what the answer for him on this is smaller more spaced out hikes....10bps vs. 25bps! This market just loves to rally.....30 years of Pavlovian conditioning will do that I guess. Need help COBF on how best to express this in the most levered way possible!!!? In the equity markets where I know best - its clearly short the long duration and/or interest rate sensitive stuff. Recent retail rally stuff (not huge fan of the asymmetry of shorting and buying puts means you have to get direction and timing exactly right). Pair that with short duration/low PE/rate beneficiary stuff I guess...energy etc. However the purest expression of this I'd imagine is in the bond market.......where I admit I'm a novice.....I bought a bond for the first time in my life recently......... @thepupil your Mr.Bond in my eyes.......interest rate options? on the short end of the curve? What instrument is likely to react the most violently to expectations of cuts later this year getting dashed? If anybody has any ideas feel free to DM me on it - very interested in exploring this.

Absolutely - my long post didn't even touch on the larger secular forces at play......it was concerned with the right here, right now of contemporaneous aggregate spending/wages & output dynamics at play in the US and their effect on inflation...........in a very real sense the de-globalization inflationary forces are yet to come.....you can't undo 40yrs of globalization in a couple of years.....so in some respects right now we are still very much the beneficiary of the globalization disinflationary goldilocks period......but its ebbing away by the day. Likewise with energy although we are feeling it now with more to come later - our ESG/nimbyism madness has baked in the cake higher hydrocarbon prices moving forward. The pushback to my own inflation thesis & I hate to agree with Cathie Wood on something but the only thing I see working against this inflationary trend is indeed the advancement of AI which could free up huge swathes of disinflationary human capital if it advances sufficiently......as she sells her ARKK ETF on CNBC she argues its just around the corner and thats where we differ.....but she's not wrong on the core idea......full autonomy alone for example if it were irrefutably "solved" would eliminate the largest single line item occupation of working age males in the USA.......which is the broadly defined DRIVER category.....think how housing shortages might be solved if all the male drivers in America retrained into construction jobs for example....how disinflationary that would be for construction costs......& by extension new housing supply.

You seem to be saying that because we had ultra low interest rates in the 2010's and no excess goods and services inflation showed up that the whole wage/spending <-> price inflation theory is debunked???? And what I've explained above re:BLS report is academic baloney and nothing to worry about. I couldn't disagree more and I'll explain why. I'll also expand more than usual if only so that I get my thinking down on paper and consider positioning against this. So forgive the length I'm writing this out for me......as the fella said the post is long, because I didnt have time to make it shorter! If I'm right there is a serious amount of money to made taking the other side of the H2 2022 Fed cutting bet/soft landing bet that dominates positioning and market consensus- so it warrants some expansion as the 'wisdom' of the bond market can't be ignored. Anyway back @Gregmal to your point with USA/Japan/real world ZIR reality killing the wage/spending<>price theory of inflation.......and how the very lack of inflation in 2010's during ZIRP in the USA and Japan puts the very idea in the garbage can.............respectively I don't think you understand where inflation comes from if thats your view point.......it comes from too much money/spending chasing too few goods and services.......it DOES not come from low interest rates or quantitive easing for that matter. So again remember its too much money/spending chasing too few goods and services. It just so happens that wages are the MAIN component of spending/money in any economy.......like I said you poo poo wage-price theory....your effectively saying there is no link between the quantity of money and prices vis-à-vis inflation. Its akin to saying the flat earth guys have a point. It's bonkers. Anyway let me repeat - inflation of the kind were concerned with consumable goods and services inflation in the real economy is not created by low interest rates. Low interest rates DO cause price inflation in cash flowing ASSET PRICES via the discount effect in financial markets/financial economy but not in consumable goods and services transacted in the real economy. OK lets get a little more granular and explain the ZIRP 2010's and why inflation stayed, surprisingly for those that don't understand inflation as many seem not too, low in spite of zero interest rates. Its not a mystery. There are three sources of funds or spending in the REAL economy: (1) Wages (2) Credit (3) Government/Treasury The 2010's had ultra low interest rates & quantitive easing.......but interest rates alone are not a source of funds/spending in the economy.....all things being equal lower interest rates do tend ordinarily to lead to more credit creation/demand which eventually DOES become spending. That however is not a given.........in the 2010's credit creation that could have become spending was actually exceptionally muted. Why? Well financial institutions were trying to repair their balance sheets - they weren't interested in making new loans. They were re-building regulatory capital. Consumers, hurting post GFC even if banks were lending (they weren't), had an aversion to credit and were repairing their own balance sheets. Lending standards, via regulation & capital requirements, also became more prudent = lower opportunity to create credit/spending. Low interest rates don't cause inflation. Credit creation that becomes spending causes inflation. Central Bank quantitive easing, I here you say, again quantitive easing does not CREATE spending in the real economy....it is channelled into financial instruments. The Fed buys a bond from a financial market participant, they then take that cash and buy another financial instrument (presumably one further out the risk curve). The Fed does not buy eggs in the real economy or laptops or automobile via QE. Do all the QE you want.......its great for financial instrument valuation/inflation. Which, yes, has a little efficacy via the wealth affect.......however the transmission mechanism from QE to the real economy is rather weak. Now hopefully that helped you understand that. So go look at the 2010's in the USA/Japan*........its no mystery at all why inflation remained muted even with 0% interest rates & QE..............go look at exactly what I look at right here TODAY and talk about ad nauseum in the BLS data from back then.......and you'll see (1) why there was low ~2% inflation then and (2) why there is and WILL BE inflation moving forward with this BLS data feeding into nominal spending growth that we got today..............see the 2010's was dominated by moribund spending growth and sleepy wage growth....credit creation was subdued in spite of low interest rates and governments in US and Europe implemented the wrong policies of austerity.....put it all in the pot.........and we can see why even getting inflation to the 2% target was difficult!!!!!! Lots of QE, permanently zero bond Fed funds with ECB going negative. Cause the delta between spending (wage/credit/fiscal) growth and output/productivity growth remained tight...that delta was sub-2%....so we got sub ~2%. inflation for a big chunk of time So where are we right now and why this BLS non-farm payrolls/EIC data today and productivity growth data yesterday matter! And why they matter alot. So again three sources of funds/spending in the economy lets think about them right now in contrast to the 2010's and you'll understand the difference: (1) Wages today - wages are accelerating YoY at unusually high levels well above those seen in the 2010's......this is very DIFFERENT scenario......wage growth in 2021 was 4.5%, in 2022 it was 5.1%.......by contract wage growth in the period 2010 - 2105 the numbers were sub-2%.....1.8%....1.9% was the norm...a little later in the Trump roaring years it got to 2.4%!!! (2) Credit - financial institutions with their balance sheets repaired and over-flowing with regulatory capital & SBA loan....as well as exceptionally low REAL interest rates in 2021/22..........credit in the USA economy was.....maybe not quite now.........absolutely free flowing...back logs for cars (mainly bought with credit) etc. Credit creation is I would imagine slowing now. I need to look into data on this although credit card debt is clearly going through the roof...credit card debt = immediate spending in the economy!! Put simply its a very robust credit creation environment....how many instant approval loans do people on here get offered every day??? They weren't so common in the 2010's....financial institutions are loaded with regulatory capital today......they are single and ready to mingle with borrowers! (3) Government/Fiscal/Treasury - well we know they went crazy in 2020/21...trillion dollar packages here, there and everywhere........but would you say right now, their coffers full from nominal spending/wage growth taxes, that federal, state & local governments budgets are constrained....they most certainly are not.....Joe Biden is running around the country this week trying to turn the spiget on spending billions on infrastructure.....social security increases of what 8.5% got pushed through late last year. The fiscal authorities are to put it mildly spending like drunken sailors.....contrast that with the 2010's....remember WW3 over TARP...$475bn in the end Now the other side of the inflation coin - output/productivity: Well productivity was pretty lousy in the 2010's averaging 2%........but that was OK.........cause against that nominal wage growth was muted too as outlined above, add in spending by the household sector (made up of muted wage growth & muted credit demand) and then add in restrained fiscal authorities fighting over BILLION dollar packages.....remember TARP........$475 billion, how quaint!........now its TRILLIONS or it doesn't get on the floor for debate......so short version when you aggregate spending growth against muted productivity growth.......it worked out to muted inflation prints....in some ways disappointingly low inflation. Contrast that to today - you've got WAGE growth which flows through to nominal spending growth on fire with 4.5% & 5.5% prints the last two years.....and you certainly had a credit boom in 2021/H1 2022....credit card debt being the only credit sub-category booming right now......and then you have the fiscal authorities running around with TRILLION dollar fiscal packages burning a whole in their pocket.......CHIPS Act.....ironically named Inflation reduction act............all while PRODUCTIVITY growth wasn't 2% last year like in the 2010's.............it was god damn NEGATIVE! I rest my case your honor............if you got to the end of the above congrats, not sure I would have.........I'm writing it more for you than me to double check I'm not crazy.......the market (equities/bonds) are positioned like this BLS data were seeing today and productivity data yesterday is a nothing burger.........if I'm right and I think I am.....they're wrong and there's a very nice opportunity to make some alpha. That's my job for the weekend *Japan mystery using framework above...................shrinking/aging population = decelerating aggregate nominal spending growth (old people also spend less than young people which means double trouble).....so you could, if your not careful, even get outright falls in aggregate nominal spending and hence why the BOJ plays such a big role in that economy........then you've got the flip side of aggregate nominal spending and thats aggregate output/productivity growth.....if just maintain total output, never mind grow it..........while nominal spending doesn't grow but actually falls.........well you've got a disinflation problem.......which conversely is too little spending/money chasing too many goods and services!!!!

So your saying the most important price in the economy - the price of money, interest rates....their level and duration of their stay at particular level....now IMO higher, for longer........what Buffet calls gravity..... doesn't really matter...... Jobs/Wages/Income/Spending.........are ALL fundamentally the same thing as it pertains to the quantity of money in any economy......where do most people get their money from pray tell? the money tree or is it their wages? Answer is wages are the largest source of funds in the economy.............saying the wage-price spiral concept is an unproven academic theory..........is functionally the same as saying there is no link between the quantity of money and the price of goods. It's a bonkers to say it out loud and actually believe it.

BLS Jobs Report and Non-Farm Payrolls: As I've said before - in any economy you can give yourself all the nominal pay increases you want.....money is just pieces of paper......what you get to consume is what you produce......that is constrained by output & productivity growth.......changing the amount of paper money in circulation does not change the amount of goods and services......only the quoted price.........running wage growth way in excess of productivity growth like this gets you inflation excess of 2%. Rate cuts in 2022 are now a fantasy......in fact, I think, that Powell/Fed are more likely now to raise expectations about the ultimate terminal rate at the next meeting & extend the horizon beyond 2023 into 2024 for how long they may have to hold it there. Why does this matter about the bottom? It matters because if you look at market expectations or whats "in the price" right now its for rate cuts in H2 2023 & a soft landing......soft landing is TBC......but rate cuts are completely and utterly out the window IMO........ thats the future, not in market prices right now......higher for much much longer than is expected in light of what I expect to be US inflation persistently & stubbornly stuck above the Fed's target........driven by wage growth which is simply way too high for an economy with such poor productivity growth and completely and utterly inconsistent with 2% inflation.

Everybody has been poo, poo-ing, the earnings getting whacked shoe to drop thesis...took a little longer than I thought ...but you check out what just got filed after the close today?......E getting whacked story has clearly begun............just went through all the big tech earnings........different calls, same messages.......kind of eerily scarily similar.....and from the best companies & business models the world has ever known....wait till the average no moat ZombieCo starts feeling it/reporting it .....weakening consumer, margins and earnings softening......corporate response to sales/margins/earnings slipping.....pretty much the same........EFFICIENCY programs.......we all know what that means. Lots of enterprises are going to take big techs lead (already have FedEx etc.) and try to save margins & earnings by getting more "efficient" by doing layoffs.....works for a little while........but thinking they can all get to 'earnings heaven' together at the same time, doing the same thing in unison is the great MBA delusion. Henry Ford had a revolutionary idea.......your employee is also your customer........when you fire employees, your also firing customers.

Q > Is the bottom almost here? A > One possible answer.......... Not until retail as a percentage of total market volume drops back down to a more normal sub-10% level If this is accurate though that today exceeded peak meme stock mania in percentage volume terms.....its quite something.

Its possible for sure......betting on people do what is the most convenient and repent later is usually a pretty good bet - what I would say is if they move the goal post higher........dont expect equities, especially long duration ones, to have a good day in the office that day......as permanently higher inflation expectations would get imbedded into the long bond.......and by extension discount rates

Yeah should have given a shout out to my peeps on the non-W2 side of the house.......and serious respect to your COVID journey as a travel business owner. I can only imagine how difficult it must have been to manage through that - hope your back to killing it right now!

Of course - I say W2 as these are the people who ordinarily are sleepwalking and expecting the pennys from heaven (salary) to just drop into their account every two weeks....... Entrepreneurs, contractors & 1099 workers in my experience know all too well that the real world throws up surprises and they are in the main more prepared for turbulence

This I wholeheartedly endorse - if your a W2 employee and don't have six months expenses in MM or CD account right now....as layoffs randomly get distributed across big bureaucratic orgs with likely more to come.......you need your head examined.....this is a time for prudence as the macro path forward is fundamentally uncertain

Word -- short selling is a terrible way to live....& very hard to do successfully as the bodies of short sellers would attest too..........

Yep - their timing is impeccable though - those results into a risk-off rally would have been carnage.....some are modestly down AH....others are way up.......

100% - whatever you think about inflation - pain to come got baked in the cake in H2 2022 via Fed tightening….just hasn’t fully flowed through yet

If by inflation you mean 9% - I agree. Do you consider 3.75% inflation enough to worry about….if you think it’s no problemo….I can assure you the Fed doesn’t I do hope your right - but the math on wage and productivity data emerging says we are cruising towards a disappointing and unexpected plateauing of the disinflationary momentum in the US (think I used the term head fake before). Expected easing/pivot/rate cuts in H2 look like a fantasy to me now based on that data even more so when you layer on the Fed’s repeated reference to errors of the past around easing too early. I don’t want to spoil the party my NLV is loving this too - but this is a bear market rally….trade it but don’t own it.

As I've said before ad nauseam in terms of inflation moving forward - the two numbers that matter most in terms of the trajectory of rates and by extension the health of the US economy/company earnings are: (1) BLS - Non-farm payrolls data & Employment Cost Index (ECI) (2) BLS - US Productivity growth Some good news today from productivity report (https://www.bls.gov/news.release/prod2.nr0.htm) was in Q4 2022 productivity rebounded to a 3% annualized clip. HOWEVER and I'll just lift from an article as it summarizes it well and I've added highlights in red: "In all of 2022, U.S. productivity declined at a 1.3% rate. That’s the lowest annual rate since 1974. Some economists point to the post-pandemic return of workers in sectors like leisure and hospitality and health care. Key details: Output in the fourth quarter rose 2.3%. Hours worked rose 0.5%. Outside of the pandemic, that is the lowest level of hours worked since the fourth quarter of 2019. Unit-labor costs, a key measure of wages, rose 1.1% in the fourth quarter. That’s down from a 2% rate in the third quarter. Economists has expected a 1.5% gain. For all of 2022, unit labor costs rose 5.7%. That’s the fastest pace since 1982." https://www.marketwatch.com/story/u-s-productivity-rebounds-in-fourth-quarter-11675347610 If you dont see an issue there - I havent explained it very well in my previous posts in this thread! The divergence between those two lines highlighted in red is a serious serious problem re: domestic in-grained monetary inflation which manifests in the "non-housing services" data series the Fed uses....we can talk all day about oil or Made in China supply chain crap........9% to 4% inflation is a zinch via base effects etc..........but if you think 4% to 2% is gonna be I think its becoming increasingly clear that this is less and less likely .....I want to believe in soft landings so I can go 112.5% LONG like I usually am....but historically this type of inflation is the gooey sticky kind that just wont budge without PAIN to the corporate & household sector via earnings erosion / layoffs & labor market weakness. Alternatively you need to believe there is going to be a productivity miracle in 2023 output.......while H1 2023 payrolls/ECI growth captures unprecedented wage restraint all while 23 states jack up minimum wage....https://www.usatoday.com/story/money/2022/12/22/minimum-wage-raise-23-states/10940440002/ * caveat is these numbers are always subject to revisions, maybe something changes in them later that paints a better picture

Lets do it!!!! We can figure out what to do about 2024 returns for the next 11 months

Dont tempt me! I'm up 13% YTD.......find rock solid fixed income instrument to absorb NAV with 11 month runway and yield to maturity of 5% which doesn't seem too far fetched......and 2023 return is 18%......secured on Feb 1st 2023

I think the thing that they cant believe and either can I is that in a full employment/output economy with sleepy productivity growth perhaps sub-1% (BLS data out tomorrow on productivity) that wage increases annualized in the 4%+ range would NOT result in over 2% inflation.....math would say you land or get stuck at least 3-4%+ for 2023.....and its only a softening of labor market conditions out into 2024 that temper wage growth enough. Chart below IMO is the key - you just don't get stable prices on domestically produced goods and services writing yourself these types of wages increases in a highly developed low productivity growth economy. https://www.bls.gov/charts/employment-cost-index/compensation-in-private-industry-and-state-and-local-government-3-month-percent-change.htm

Have to say it sounded pretty close to this - I think dis-inflationary momentum seem to have surprised them...........last shoe to drop to get them to back away from the red interest rates rises button is what they refer too as "non-housing services"......which I agree with Powell........is where the sticky, self-reinforcing above 2% inflation COULD be located in the data set....if you buy my previously outlined theory on wage-price-productivity conundrum.........IMO if non-housing services moves down with any type of momentum in the months ahead then a pause would be appropriate.....if it continues then you get cutting quickly cause the strong disinflationary forces (technology/demographics/whatever) that dominated the 2010's and kept interest rates low is still very much in place. Very interesting indeed.

Congrats dude - JOE neighbourhood?

Agree - I remain pretty much fully invested......my macro framework helps me not to walk into punches on the company side.....we had and are still in a very unusual time for markets.....I think it requires a little macro overlay....for example I think lots of companies over-earned during COVID as a result of stimulus.....there was earnings bubble for some......so with that knowledge I look at more normalized earnings from 2016-2019 and inflation adjust............I know "thou shall not macro" commandment......but I think you'd be fool coming out COVID with inflation like we had, a severe tightening cycle (on the heels of 2010's ZIRP) and with fixed income providing a competitive alternative to equities as @thepupil perfectly points out..................not to let a little macro into your life!

Hey listen - I report - you decide You guys remember business cycles right?.....you know the way the majority of major inflationary cycles have played out in the past? So far.... Completed: (1) we had a monetary/fiscal fueled spending rally starting in 2020 - unprecedented in scale/scope (2) that rally in spending led to jump in savings/incomes/spending which also found its way into financial assets (3) that spending surge.....resulted in an earnings jump and peak margins for the corporate sector (4) that additional cash also found its way into financial assets - we had bubble in those....crypto, SPACS, NFT's, no FCF tech.....multiples expanded and they expanded on top of spending fueled record earnings (4) but............INFLATION arrived......some supply chain (no biggie) but alot that was monetary....because we had a full employment economy going into COVID.......and we sure as hell didn't make much extra STUFF (productivity) during COVID?....we just created extra money to buy stuff.!...and so we got good old fashioned monetary inflation (5) The monetary authorities had to tighten aggressively to try to reduce the inflation (6) Financial Assets get hit first - and multiples contracted (7) Real economy looks OK & corporate sector has a little weakness but also looks ok.....its just a DCF multiple adjustment so far WE ARE HERE * - at the maybe we got away with it stage, the wily coyote moment off the cliff.....(its just big tech doing layoffs, they were dumb, they hired too many people)...........we had a boom.....there will be no bust....its those precious few seconds in the morning after the night before when you wake up and think I'm actually ok.....but by the time you get to the bathroom your desperately hunting for pain pills & have ordered take-out on your phone from both Taco Bell AND McDonald's To be Completed/Whats left (my take): (8) Higher costs of capital (equity/debt) + higher SG&A costs (labor/inputs) + weakening consumer begin to seriously erode corporate margins & profits.......you can only 'make the quarter' a couple of times (9) Corporations en-masse (not just big tech) either in advance or in response to these earnings weakness try to "cut their way back to prosperity" by instituting "efficiency" lay-offs to protect the bottomline....they also reign in their investments budgets (10) The problem is that in a circular economy where when one persons income is another persons spending....the corporate sectors chorus of layoffs done in close proximity to each other......doesn't protect their earnings......it actually ensures they get destroyed.......the paradox of thrift (11) Earnings Fall......Unemployment goes up.......spending falls........earnings fall further.............. (12) Real economy goes into a RECESSION (13) in financial markets optimism turns to pessimism....remember Mr.Market is manic depressive - multiples contract further on pessimism ESPECIALLY when the Fed is nowhere to be seen.....the Fed Put is gone.......and now that multiple is on an even lower earnings number than before. (14) But.......and here's the good news........inflation falls back to two as growth in income/spending comes back in-line with productivity growth....inflation is no longer the primary concern...the Fed can re-focus on its other mandate employment (15) Fed and/or fiscal authorities ease/stimulate......multiples on equity capital expand.......cheaper debt encourages investment.......companies start to hire again.......spending increases........earnings recover etc etc * possibly I'm just a guy on the internet......ChatGPT writes all my posts ...... Anyway the way the movie plays out in the negative version of things is the above.....lets see I've given more credence because you have too, based on the data, to the idea of a soft landing...maybe inflation is actually done for..............you can add in there somewhere for extra giggles that the Fed eases too soon and inflation returns and it requires another tightening cycle and more pain.

My other favorite coin I saw was 'CumRocket'.....the funny thing is, as funny as it is.....it might actually have a future as its some currency associated with online pornography