changegonnacome

Really enjoyed the above post and I think you are hitting on something but not sure it actually casts doubt on what the Fed has to to or should do....and even think that your on to something re: the acute fiscal/monetary intervention and how it itself has a half life that perhaps is transitory......I think the Fed is aware of this aspect of the puzzle.....however and this is where we step in to the realm of inflation psychology, central bank credibility & reflexivity and so its gets a little esoteric......but this bout of inflation, whatever its source, has been ongoing now for a significant period of time & forecast even in the best case scenarios to be 'above 2' for another 12-18 months ......even if the Fed believed that the monetary/fiscal inflation was just this acute spike in response to extraordinary but ultimately temporary measures, it in addition to supply chain/energy inflation have fused together together to form a multi-year inflation time series.....this length of time isn't good for both (1) inflation psychology and (2) central bank credibility. This Fed therefore is racing to address both and in some ways cant afford to run the "transitory" experiment again even if it had a reasonable likelihood of actually being true THIS time.....I posit that inflation psychology would break, if they paused and made another transitory call that turned out to be an error.........which in turn would destroy whatever credibility they have left after their intial transitory call....inflation expectations, which remain anchored, would blow out & then you really aren't in Kansas anymore & all the Paul Volcker analogies might come to pass......as really what would be required then would be Jay Powell to be replaced and for whomever replaced him to basically do a Volcker impersonation. Because lets be clear what Jay/Fed is actually proposing to do to fix this is NOT Volcker, not even close to it.....but everybody is screaming like little girls about it cause they've got so used to ZIRP levitating their portfolios, keeping vol low and bailing them out of every dumb investment they made......Fed funds @ ~5% & unemployment at ~5-6% .....eh go talk to your parents who around in the 70's, they would have sacrificed their first born child (maybe that was you! ) for that macro backdrop. In the historical record those numbers are a nothing burger.....what will be actually note worthy in the historical record is the re-marking of some asset prices relative to their post-GFC/ZIRP highs.

Totally.....US domestic focused businesses are going to get to be a bargain (already are in many cases, especially small cap value) as they get caught in the negative beta current.............SPY/QQQ is chock full of global champions selling into recessionary Europe/China & the DXY just blew out on them too & thats before we even get to inflationary pressures eating away at ATH profit margins.....Q3/Q4 earnings are gonna be a doozy

Cause of a little place, you might have heard of, called the 'rest of the world'

There's two types of wealth - perceived wealth and real wealth.....real wealth you can eat........commonly called distributable FCF......perceived wealth has a horrible tendency to vanish when reached for!

Yup - just the music isn't as good

Exactly......~5% can be argued to be the 'natural' rate.....or NAIRU - Non-accelerating inflation rate of unemployment https://www.philadelphiafed.org/surveys-and-data/real-time-data-research/nairu-data-set 3.5% is ultimately not 'normal' or natural and indicates an economy overheating......it also explains the horrible productivity numbers coming out recently....you are dipping into a pool of labour with super high diminishing returns to productivity......

I think the Fed is happy to push things with rates really until VIX hits 50.....then they think about backing off........I see what academics mean about the transmission mechanism being slow especially in an economy where most mortgages are fixed rate.....rate increases are only hitting the incremental buyer of property whereas in Europe variable mortgages means transmission mechanism is quicker as more of the population is effected immediately via monthly mortgage payments.......basic checking accounts in the US are still comfortably sitting at 0%.....First Republic are still handing out personal lines of credit at 2.95% fixed for 7 years........folks think the world has changed in terms of rates but they havent really fully.....yet.....money supply has been hit for sure, credit is in the process of being hit but not done.....but the final piece the one that matters the most is hitting spending/incomes....and we just arent there yet as todays jobs report shows

Yeah its an easy one to throw around. VIX solidly above 40+ touching 50 for a time is kind of my base case and in lots of ways one should think of the stock market now as just another version of interest rates, another brick in the wall of "financial conditions" that the Fed is using to cool the US economy.......cause it kind of is just that.....its the cost of equity capital for companies, the interest rate....the Fed is raising Fed funds, which feeds the cost of credit for consumer/enterprises and to the extent that Fed 'controls' stock prices it is driving the cost of equity financing up too........I think if you put a few whiskeys in Jay Powell he'd tell you SPY @ 2800 for a while would work very well for what he's trying to do with inflation.........its whether you can smoothly and in orderly fashion move SPY down to 2800 from 4800 or whatever.......the something breaking in some sense is things becoming disorderly which is just another word for market panics/blowups....VIX is kind of the best proxy.....

For shizzle, doggie fizzle.....I know I come off like a perma bear sometimes but my core position is 'stocks for the long term' mindset....I think the macro is so obviously horrible that running with some smart US market hedges feels 'right' to me.....owning and selling vol right now feels about as right as selling puts on gold plated assets in 2020/21 did....remember that golden age when the Fed had your back, your side, your middle & your front ......these are little games I play around the edges of my portfolio and hope to make some "alpha" as they say......but I REALLY make money when BOI, MSGE, HSW, LBTYK et al go up......I'm willing to let the BETA torture me on some of these names cause I aint signing a confession document that says MSGE $3bn enterprise value is the truth! No f-ing way.

Yep monkeys pick bottoms!.........when you see a company hit a price where's it yielding 15% FCF on a conversative estimation of that FCF and it has a shot at growing that FCF per share sustainably by 10% next year......you dont ask where the bottom is.....you dive right in and ignore/enjoy the ride

Inflation is BS.....its just oil/supply chain dummies.....its gonna go away soon by itself.....the Fed has got it wrong and its gonna have to pivot soon they've just been doing these hikes cause Bill Ackman told them too cause their morons........the herd that has SPY @ 19 multiple when earnings are about to get crushed and the major global economies are spiraling into a recession (50% SPY earnings), DXY is thru the roof.....that herd.....the same ones holding boring slow growth mega cap stocks at 3% FCF yields when the 10yr is printing 4%.....those dudes But know @Gregmal only meets some of those labels. But the difference is I have mucho respecto for @Gregmal and as he mentioned we own the same stuff.....although I will admit i cut CLPR loose as it didnt meet my FCF Yield underwriting exercise where the FCF yield had to exceed inflation rate (preferably by alot) and it had to grow that FCF in excess of the expected inflation rate next year such that my purchasing power (inflation adjusted) was preserved.

I’m afraid this one isn’t - I was right there with you @Gregmal in 2020/21 betting COVID was getting to be a nothing burger….made lots of $$….not everything you read in the paper is nonsense…..and ironically while you think your a contrarian on this, your right smack bang in the middle of the consensus when you look at US index valuations….they display an expectation around BS inflation, a pivot and a return to ZIRP world very soon….but they are Im afraid very wrong. Be careful I get the sense you think your not part of the herd this time but you really are.

Every latin American country you never heard of + the 1970's in the good old USA....inflation once it gets going has a reputation for sticking around that Im sure you've heard about Like its not only accepted orthodoxy backed up numerous case studies in lots and lots of economies......but on the face & logically you can totally understand the mechanics.........inflation is now in the psyche and forms the basis of every comp discussion I've had in the last 6 months. Those discussions, FOR NOW, are mainly about folks retrospectively restoring their purchasing power for inflation that has ALREADY happened. The danger occurs when folks prospectively begin to incorporate higher inflation expectations that part hasnt really happened yet from my experience. Which is a miracle. Inflation psychology is very real........inflation expectation, for now, do remain anchored....this is amazing news.....people believe it will go away and bit like you @Gregmal they believe, for now that ALL the inflation they see & feel is just supply chain/COVID related and the inflation is short term and should go away once things get 'sorted out' & COVID is finally "gone".....they are wrong, but i hope they keep thinking that, its good for inflation expectations & makes it easier to fix this.......a real problem would emerge if COVID/supply chains thinking were firmly in the rearview mirror and folks began to realize that a good chunk of inflation is ACTUALLY monetary & domestically led inflation & not going away. Thats when the real shit would hit the fan and inflation expectations 2, 3 years out would blow out and every medium/long term labor agreement would start incorporating 4% inflation annualized in it. As I've said for months Jay has window of time here to really get the genie back in the bottle while inflation expectations remain low......the Fed fucked up in 2021 and should have been ahead of this instead of buying MBS's & keeping rates low as COVID morphed into a bad flu via vaccines.....it was madness aided and abetted by Congress.......the fuck up now would be to move too slowly or to move quickly and back off at the first sign of progress on inflation or at the first sign of weakening economy. The Fed seems sensitive to both and for now I think they'll get this problem solved but its not good for the short term mark to market value of financial assets. Longer term it is - as asset accumulators we all should be cheering Jay....he aint gonna help your 12/24 months returns look good....but he's making sure your prospective 10yr returns are gonna be awesome....2032 @Gregmal will thank him, 2022 @Gregmal not so much

They are jihad extremists and they also say whatever will keep them in the headlines & on the cartoon network (CNBC). The last time I let Roubini wind me up like he's winding you up was 2010, suggest you do the same. Ignore. You can level this stuff at Roubini for sure and you can always question a persons intentions once they have a financial interest in an outcome but in financial markets your required to have an opinion and then express it via a financial position. Whats new/wrong about that? Your opinions are only as good as your ability to monetize them. You get paid if your opinion is correct...not sure Bill Ackman should vilified for his inflation opinion and how he chooses to express that.....if he's right he gets paid, if he doesn't he loses. Same with his UMG position etc. Now if your argument is Bill Ackman is so influential that he can convince Jay Powell to put millions of people out of work to help his interest rate swaptions position....mmm Ok....yeah maybe but I dont think so. But you really cant ignore now the chorus of respected voices on this inflation issue being 'real', persistent and a problem....which now incudes luminaries agreeing like Druckenmiller & Larry Summers.........oh and I forgot an up and coming dude nobody has probably heard of here called Jay Powell at a little D.C. hedge fund called 'the Fed' Cause well nobody else opinion matters & Jay-P has been pretty transparent about what issues we've got. Anyway as I've said a billion times before here and for months now, I dont listen to anybody, I look at the MoM BLS data for non-farm payrolls, I look at the unemployment rate & participation rate vs. NAIRU and then anecdotally I look around to see if I can borrow money inflation adjusted for negative real interest rates (I can & just did so at 2.95% for 7 years, makes no sense and shows financial conditions remain too loose relative to inflation which means we have a ways to go and more than people think......see you hit (1) Money supply (2) then credit then (3) Spending/Income to fix inflation....we are only are (2)), I also look around to see the signs of an overheating economy with a labor shortages...stores with reduced opening hours vs. 2019, for hire signs....and its everywhere......low end labor is in short supply, its price is being bid up....that labor predominately works in low single digit net margins business.......the flow through rate of increased labor costs to underlying prices in those businesses is almost 100%........end of story

@Gregmal your a smart guy.....not sure what your mental block on this is you seem to have, if you dont mind me saying so, a conspiratorial zeal attached to your thinking when it comes to this issue....not sure your engaging with it in a rational way.........& after all this time & all the logical arguments you've heard on here - you still dont seem to accept that 5% persistent multi-year inflation in a society/economy creates WAY more aggregate misery & pain in TOTAL and across MORE people than 12-18 months of a minor recession and unemployment ticking up to 5% to solve it such that we can have ANOTHER lets call it 10+ year economic expansion afterwards marked by stable prices, low interest rates & low unemployment. Not nice whats going to happen.....I agree......but sometimes in life you get presented with problems with only bad solutions.....and your duty is to pick the least bad one.....this is one of those.

The US markets aren't cheap, not even close to cheap. There is way more to go here. The bulls seem to think that we are close to a pivot somehow........give me a break......call me when unemployment is at 5% and we can consider a conversation about a timeline to a pivot from the Fed......inflation, the sticky monetary kind (not supply chain, oil, things on ships) doesnt turn until heat is taken out of the domestic economy which can only occur with a period of time where we sit below total aggregate DOMESTIC productive capacity......we aren't there yet on inflation......dont confuse pain with progress

Yeah 20 years of the Fed 'having your back' makes it feel almost impossible that the market could fall below 3000 and not have someone coming in to rescue everyones portfolios....the game has changed..........cut rates/hit QT, it used to be an asymmetric policy response, the powers that be literally couldn't lose by doing it but now that same decision isn't 'costless' they may still do it but I dont think they will.............thats where the volatility is coming from........folks are getting the sense that their feet aren't touching the bottom anymore, that their big bro at the Fed has abandoned them. Buy the dip, habits die hard Its why post all this - near term, so near you could almost wrap your arounds it, FCF will be valued so highly............it will be the golden age of 'value' investing IMO....I look forward to it.......for too long the market has been running on hot air & brain farts.....and we are entering a period of 'jam today' vs. 'jam tomorrow' which is where we've been

Let's differentiate between the US economy and US stock market for a minute....the US economy, YES........I look at the SPY/QQQ.......then I look at the relative valuations, the $, purchasing power parity.......and I think to myself......wow are large cap stocks from the US (with all their inherent internationalism) really THAT well positioned relative to ex-US alternatives......the answer is NO.....which is why I remain short the US stock market and individual names in it......more pain to go here.......with misses & earnings revisions incoming 3000 SPY is a cert in my world......the beta is MF......how low we dip below that in the panic is the only thing I'm wondering.....everything is getting slapped around right now, once its all wrestled to floor the market will do what it does best start sifting through the wreckage and high FCF beasts & pristine assets will get 'found' again and will be rewarded.........the catch is you gotta hold em in ADVANCE of the re-rating which is tough sledding but builds character

Yep anecdotally with some companies I work with that had super smart Russian developers still in Russia or were tangentially connected to Russia based 'tech talent'.......they all to a man pretty much threw in the towel last week and fled Russia.........its going to be ironic that the real damage to the Russian economy will not come from the international sanctions regime but rather Putin's mobilization effort.....whatever aspirations Russia had to be not a petro-economy just went up in smoke.....never mind the demographic nightmare saved up for the next Tzar, sorry I mean President

US economy is best positioned, yes for sure.........the US stock market not so much.......just given (1) its relative valuation starting point vs. Europe/Asia i.e. expensive (2) SPY/QQQ's & significance of global economy to revenues & more importantly earnings growth. Not a good mix.

DXY strength however is slowing SPY earnings right now......I expect a chorus of strong dollar/FX headwinds talk on Q3 earnings calls to explain earnings misses/revisions.....then I expect Q4/Q1 2023 earnings call to be full of weakening consumer/OpEx inflation & recession narrative to explain YoY earnings declines.....it will be miracle if SPY is meaningfully above 3000 in early 2023 IMO Yes I think its possible but really back half 2023....but more likely Q4 - & only if the Fed stays aggressive here in the face of the inevitable backlash which hasn't even really begun yet given unemployment hasn't really budged up yet......no uptick in unemployment = no progress = no rate cuts

Dont confuse my comment on long term investing...about what I believe to be more short term pain to go here..........SPY earnings are going to get screwed....the BETA is gonna suck balls........i think we've had the 1s leg down which is discount rate driven......second leg is earnings deterioration.....if Fed holds its water and holds firm as inflation dips lower such thats its on a predictable path way to ~2%..... then all told we might be near the bottom in stocks by Q2-ish 2023.........I still expect a 'moment' between now and then that will feel for all intensive purposes like a traditional stock market panic

Totally agree - own now what you would own in 5/10/15 years time......this is an episode inside of a much bigger narrative called long term investing.....the prices you see today are offers to buy/sell.....not verdicts on underlying business value

Take it to the bank

DXY strength = Ukraine proxy war with Russia's price just went down. Jay Powell is a war hero. There is shit load of people getting filthy rich of this war in Ukraine.....they wont want it to ever stop. Everybody wants it to be good guys versus the bad guys.......Ukraine is a questionable emerging democracy with severe corruption problems........only such a place would allow speed ball coked up son of a former US VP on to the board of their largest company. Get both Russia and Ukraine to table ASAP.....get them both some kind of PR win.......about 300 million people globally are about to experience food insecurity because energy prices, potash & grain issues.....what above those people. I'll make a prediction - if Russia dropped a tactical nuke in Ukraine........the West will do absolutely nothing.......how do I know......cause to date not a single drop of Western blood has been spilled in the soil in Ukraine and not a drop will be. We dont care enough.....you know who does care........Putin.....thousands of Russians have tied