changegonnacome

Yeah agree....but auto lengths have been expanding recently out to 7 years I believe, these aint your grandpas 3 year loans.....I havent looked at Ally so no specific insight......the question for Ally is what does its loan book look like with this duration lense applied and at what rate does the book churn from customers paying off old fixed rate interest loans to newer higher rate auto loans.....so you'd need to understand this.....but yep agree with your general take...with Ally your taking more duration risk with COF your taking more delinquency risk.....and as @Spekulatius points out above your relying on COF to price its rates to reflect that........which if the rhetoric is to believed COF has the finest data driven credit models in the industry....pick your poison!

Not to answer for @Spekulatius but Ally has duration risk - auto loans are fixed rate products.....Ally borrows short (deposits) & lends long (auto loans)......NIMS could really compress for Ally if deposit rates shoot up against their book of FIXED auto loans......COF just has to put up the CC rates in 4 weeks time if their cost of deposits rises, maintaining NIM's....that about right @Spekulatius?

Yes i think we'll find most businesses the last two years have been over-earning relative to whats going to happen in the next two. But yep Capital One meets a few of my stagflation investment standards, FCF yield above inflation, positively correlated to rising rates (but sensitive to weakening consumer as you say) and with aggressive buybacks, NIM's expanding & muted delinquencies the FCF per share has a shot at growing in the NTM close to CPI.

Yeah no free lunch ever I guess - it's the quid pro quo for the margin rates they offer without the begging you need to do with Schwab. Its also a reminder why IB will be the last broker standing in the zombie apocalypse just given their shareholder equity & mark to model margin systems they use which are ruthless!

Ruthless stuff by IB.. & a good reminder to me seen as I'm a customer too......selling stuff in foreign markets while you are asleep

Like this one - interest rate sensitive but with monthly escalators.....so not taking duration risk like a lot of financial institutions who are borrowing short (deposits/bonds) & lending long on fixed rate products that could destroy NIM's over time. Yes - i like this one very much! & at 5-6 times earnings. https://www.bloomberg.com/news/articles/2022-09-02/higher-credit-card-bills-average-interest-rate-apr-is-highest-since-1996?sref=7zqHEcxJ

Lots of turnover in his eh portfolio, but his results speak for themselves

Because nobody believes for a second that anything of what you described is really changeable politically in the current environment - if it’s not even on the table, it doesn’t get discussed. From the Democrats politically there is clearly no chance they ask the question whether some social welfare programs create a disincentive to work never mind changing said programs…. and if you haven’t noticed recently the Republican Party (post-Trump) has a new voter constituency (poor white working class) that has in it a much larger percentage of recipients of social welfare than used to be the case for the GOP. The margins are so narrow, especially for the presidency, that touching Medicare, Medicaid or social security is political suicide & the party MOST likely to do something about amending/reducing these programs just gained a few million new ‘fans of the Donald’ that are in receipt of these payments.

For sure - would never advocate that.....but i think you've got to underwrite your portfolio such that it can do well if inflation just disappears before Christmas & we get back to low rates, so yeah dont sell everything and miss the rally........but I think you've got to underwrite it too for stagflation, sustained Fed Funds at 4-5% and inflation persistently above 4% well into next year.....they aren't mutually exclusive and there's no in and out here....people waffle on about stock pickers markets etc. well this one.....as I've said before the beta in US markets is gonna suck yet I hold US stuff.....but ive an international bias now, short SPY/AAPL puts, probably gonna sell OTM index calls as SPY is not going back 4,800 in the next 12 months with Powell's foot on its neck, then basket of fallen angels that easily can fall 80% more and still be expensive...... and if/when the time comes with VIX at 40, I'm happy to be selling OTM puts on BRK, MSGE, ESRT like I did back in COVID-y times. I use IB.....Interesting that they exercised options like that...didnt think that would happen outside market hours.....their rates are cheap, but man are they ruthless when their mark to model tells them too......I play it very conservatively with them for that reason and never push margin too far......& just generally I've found anytime your babysitting positions & opening your IB app more than 3 times a day to 'peek'....its the surest sign that your little out on a limb and you know it.

As per my post above - that day is coming for AAPL et al i think

Equity market performance through inflation/stagflation is usually terrible.........we've already seen part one of the stagflation movie which is the no FCF, high growth companies get killed first for obvious reasons............but what comes next IMO and I'm positioned for it....so I'm unashamedly talking my book here for transparency.........is that the stuff that actually has FCF but very high multiples on that FCF will get killed the worst next (think Apple at 3% FCF yield @ $170 a share or Costco @ 2.8% yield).......why.....cause their FCF yield has been driven down so low through investors bidding up their price........that the higher multiple has made it so the earnings yield actually dips below the rate of inflation. So much so that if you think of it Apple offers an inflation adjusted negative FCF yield in the next 12 months. $APPL: 3% FCF yield in a 6% inflation world....think about that for a second.....inflation adjusted thats a negative next twelve month 3% FCF financial instrument people are holding (relative to the $170 price ). These people have unwittingly become growth investors....because you absolutely have to have Apple deliver FCF per share growth in excess of inflation (or inflation reverts to 2%) to get back to in-the-money positive FCF relative to what you paid. The problem for the behemoths is it's hard to meaningfully grow FCF at 9% into a weakening consumer/economy with higher rates (especially if you over-earned during COVID like Apple).. So IMO they are going to get slaughtered in the next 12 months, because right now they are wolfs (growth companies) in sheep's clothes. You can talk about other stuff too...like owning a name like Apple is just safe bet so you've career risk and institutional biases bidding it up to 30 times earnings..........the other issues for these companies is just competition....from the 10/30yr.....one can argue some names like Apple became bond subs when bonds got too expensive. If bond rates go higher & stay higher...well you don't need the substitute anymore, you buy the real thing. Not good for these types of low FCF yield names. I've mentioned this before but equities as inflation hedges have to meet two criteria to "work" right now IMO - they need to have a robust sustainable LTM P/FCF yield above the inflation rate AND ideally they should have reasonable prospects of growing underlying nominal FCF in the next twelve months at or above the NTM expected inflation rate. They need robust balance sheets and no requirements for access to the capital markets. Stick to this philosophy and you'll come out the other side with your portfolios purchasing power intact I think. Exit multiples you can't be sure of......that is out of your control Mr.Market will decide that.......you though are purchasing cash flows and what you are in control of is putting money to work today that delivers an inflation adjusted REAL return & that those cash flows have a reasonable prospect of continuing in the next twelve months time to grow above or equal to the inflation rate...............which today puts you in ~11 x P/FCF stocks or below.....and the beauty of these of course is there's just less multiple to contract vs. the ones at 30 ......which your chart @TwoCitiesCapital kind of speaks too.

I'd add to this Ray Dalio - yes still at Bridgewater (a macro fund, so bias towards catastrophe)........but I dont think Ray based on all his activities for the last few years....is really in the doom selling business. He has more money than god and an earnest teachers bent to pay his knowledge forward, you've seen his material........Dalio & Bob Prince I listen to more than Grantham.........it just so happens that Dalio/Prince have a negative view point which rhymes with Grantham's but they have much more balanced & rigorous framework......and like it or not the macro matters right now inflation, demand, money supply, interest rates.............& yes Druckenmiller is the GOAT cause he just runs his own money & he doesn't seem to care one iota about fame, he just wants to make Benjamins & he changes his mind on a dime.

Samesy, kind of - I hold a predominately long portfolio with a non-US bias for now....you might read my messages and think I'm all cash & with a massive short book......I'm not.........my short positions are designed hopefully to allow me to potentially have spare cash to buy more of what I like & already own, as the price of the things I like/know go down further due to the broad market beta.......so my shorts will hopefully puke cash when the cash is most needed.......I really do think that there will be March 2020-esque opportunities in US markets in the next 12-18 months SPY 3000 is a real possibility IMO but I cant be certain (so I'm not selling what I like and what I know & understand because I could be wrong) & I'm running a relatively conservative short book with that in mind. Both combined should allow me some incremental liquidity when the time comes and then I'll consider going on margin too if things get disgustingly cheap.

Right and probably smaller amount but not insignificant number of young adults who, on paper in 2021/22, felt very wealthy when the quoted value of their shitcoins, crypto, NFTs & Tesla was speeding towards da moon......go look on YouTube you'll find them making plans to retire in just 18 months time............to them working for a living probably felt like something your grandpa used to have to do back in the day, not for these kids What did they used to say on Twitter - "have fun, staying poor" I think at this point with even a modicum of recent hindsight I think its becoming irrefutable that 2020/21 was an asset bubble in the US to rival any of the great ones of the past 1999, 1929........but it aint over.....go look at the valuations for Lucid & Nikola......just because something is down 80% doesn't, mean it cant drop another 80%......now be careful out there .......bear market rallys can rip your face off like we saw in June/July but valuations IMO are starting re-enter earths orbit from their recent trip to da moon and so you can still pick your spots to be short & do well.

Wasn't aware of that - yep much easier to achieve politically if you add an incentive cheque but end up with the same result...more workers, working for longer

Yep agree - falls in 401k, IRA's, home values + rising prices driving negative wealth effects...that will make some retirees un-retire........another lever the FED has via financial instruments that can increase the labor force......SPY @ 3,000 will potentially bring a tonne of retirees back to the workforce as their withdrawal rate starts to tell them they DONT have enough to get to 85 or whatever

Agree - social security I think is politically impossible.....doesn't help that US life expectancy is actually falling unlike lots of place in the world....... European countries retirement ages are nudging towards being increased the argument being that life expectancy has greatly increased since the concept of retirement settled on age 65 in the 1960's.....and you had expectancy to life another maybe ten years max on average. This dialogue is happening in Europe and its gaining acceptance as reasonable in light of serious gains in life expectancy. This conversation falls apart if your country has stagnant or declining life expectancy. Yeah agree on immigration......do an audit of where the labor shortages are, quantify them......then run a process to get the best qualified suitable candidates from overseas with requirement that these programs have clearly defined ON/OFF switch, that are linked to some aggregate mix of the unemployment rate, labor force participation rate & inflation.....this though NEEDS to be a number, not some politicians/ bureaucrats view of whether the program should be ON or OFF...the immigration spigot gets must be turned OFF once this number is breached.

Yeah the more I think about it, your right......it requires significantly more intervention on the part of the FED

Wouldnt quite put it like that.......but this is something maybe you and I have a little more common ground on if I'm reading you right here. I look around and I see a generation of young (mainly males) in their late teens/early 20's, even older......apathetically doom scrolling TikTok, playing video games till 4am & smoking ridiculous amounts of genetically modified 'super' dope with levels of THC that would knock Willie Nelson on his ass. These folks, I can assure you, are not particularly productive employees. This is not a good mix for an economy with not so great demographics in that age cohort & then you can add in the public school system failing kids from modest to middling backgrounds where private schools & personal tutors are just not even in the picture. P.S.- what did the CCP call video games......opuim for the soul.....this is something me and the CCP agree on!

Yeah I thought about this a a-lot. My take: Marginal incremental labor like that which is being brought into the workforce now........suffers greatly from the law of diminishing returns.......it speaks to an economy that is probably operating beyond what economists call the natural rate of unemployment.......adding labor beyond this natural inflection point the productivity returns to that incremental labor begin to deteriorate with greater speed & with it goes productivity gains. Appreciate your thought on the above @Spekulatius cause I've been puzzled by the same data your looking at....you think I might have a point? One addition based on @ERICOPOLY 's point on excess retirements......is the boomers who've retired from the workforce, were potentially a group of highly productive people relative to labor force participants that remain & hence productivity has taken a hit as a result. Clearly its not just one thing but I think diminishing returns to labor & boomers higher than average productivity explains that data we are looking at.

Your supposition might be correct - this is economics there are puts and takes everywhere, its never quite one thing but always a multitude. However @ERICOPOLY supposing you are correct and you've nailed the predominant key driver of the inflation issue.....excess demand relative to a reduced labor force that became impaired by boomers retiring in droves. I'll ask you this: Does it, in practical terms, matter what caused it? If what caused it, boomers retiring, isn't changing anytime soon? The medicine required is the same either way, right? We have excess demand relative to the productive capacity of the economy...........that labor capacity lost to retirement is NOT coming back but the demand remains.......short of forcing over 55's to un-retire by dictate. You and I have different ideas on what predominately caused the excess demand relative to the productive capacity of the economy - but the diagnosis doesn't change the symptoms or the course of treatment required, in fact one can argue that your thesis speaks to a much more permanent and sustained downshift in the aggregate productive capacity of the US economy driven by demographics which points to a much more intractable inflation problem than what I'm theorizing.

Totally agree the Fed doesn't control the supply side of the economy, never has & never will - but they sure as hell control the demand side. Reminds me of that alcoholics anonymous Serentiy Prayer thingy ( slightly modified for central bankers): 'God, grant me the serenity to accept the things I cannot change (the supply side!), courage to change the things I can (demand side!), and the wisdom to know the difference.'

Higher interest rates on the 10yr/30yr......places incremental constraints on the sovereign too.....what Biden has done in reckless fiscal giveaways, Republican administration's have done in reckless corporate tax cuts......depends, I guess, on who your target voter audience is where the giveaways ultimately go.....but the lines are blurring, the parties are co-mingling economic audiences.......the next Republican House will be filled potentially with Trump-esque Republicans who now, with a nativist bent, appeal to poor white working class voters who used to be the backbone of the Democratic party.........seems fiscal conservatism on both sides of the aisle is dying on the vine.

Yeah it can @ERICOPOLY, the only reason there is a labor shortage.....is because there's an EXCESS of demand. The Fed is in the demand destruction business now, which in turn solves the labor shortage, right?

If your question is whether stocks and the negative wealth effects a fall in their quoted value would have on overall aggregate demand & wether that would be sufficient enough all by itself to reduce demand and restore price stability.....the answer is no.......not enough people in the broader economy own financial assets.......but it does have an effect.....I mentioned it a few pages ago I know one couple in response to fall in value of their major holding ( a tech darling) decided to give up their NYC rental that they had been holding, in addition to a Florida rental. The above example is a perfect illustration of negative wealth effects.......the quoted value of their equity portfolio declined by 30%....they 'felt' less wealthy.....and reduced their demand for housing in the United States by 50%.........take this and expand it across lots of transactions in the economy.....and yes wealth effects both positive and negative effect aggregate demand but I don' think its significant enough to get the Fed where they want to go. Effecting aggregate demand sufficiently will require the Fed to completely change the math in the credit markets.....this will have a much larger effect on aggregate demand than a 40% fall in the SPY.