changegonnacome

Exactly - this is how its going to play out.....you had supply chain inflation, some monetary inflation......but were now headed into a period where inflation is becoming the topic of the day and this is inflation psychology and it embeds in an insidious way. The FED will have some tailwinds in their fight......supply chains do seem to be easing up, we have a bull whip effect coming through from folks who have over ordered............and I have a strong feeling that Russia/Ukraine conflict heading into fall/winter will either be inching towards a negotiated settlement or be effectively wrapped up. So the inflation print will get cut in half....through maybe natural causes.....but I think a stubborn inflation persisting at 3.5-4% is going to sit underneath simply because (1) job openings vs. seekers ratio out of whack (2) inflation expectations as above.........and this will require the FED to really jack rates later this year or early next when this becomes apparent & put the economy into a coma to kill it finally.

Dont think you understood what i was saying……i should have been clearer………folks in this thread have Putin as an expansionist hell bent on re-creating the USSR and taking back Ukraine “forever” melding it back into the Russian Federation & in their wild fantasies he marches on to Warsaw & into East Germany………but look at the evidence…….he amassed a small fighting force on the borders of Ukraine in February……a really minuscule amount of forces 190,000 to 250,000 men as per the CIA….……..you can invade and capture a lot of territory with an army like that, on a good day maybe you get all the way to Kyiv if you catch the Ukranian’s flat footed………..but here’s the rub & the key point the expansionists need to grapple with…….…….can you occupy and control even a medium sized city with such a tiny army?Never mind the administrative capital Kyiv + other cities + plus plus plus the rest of Ukraine with that many troops? No you cant. Its mathematically impossible. It would be like trying to buy the Empire State building for a $10,000, I mean you can try but its not gonna work out. I mean somebody please try and explain away this key piece of logic & in no way did he Putin believe somehow the Western Ukranian people would like welcome Russian tanks into Kyiv. That is nonsense. So the expansionist theorists have a problem. The maths dont work. So we have a problem with the expansion theory of what Putin was doing in February unless someone has logical explaintion to the above for me……..was he really planning to take control of the WHOLE of Ukraine and fold it into mother Russia with 250,000 troops? Not even a deluded president advised by spineless generals 6 months out of a Moscow academy would be dumb enough to suggest that and Putin is not a fool. So as I say put the Putin invading, capturing AND occupying Ukraine narrative out of your head the facts dont back it up. So what was his calculation……..my guess…….was he hoped for a super successful blitzergreig to Kyiv, Russian troops walking around the halls of Government buildings of Kyiv in a few days or a couple of weeks, scare the shit out of Zelensky/the West, rely on a flat footed & uncoordinated response from the West……force Zelensky to a neutrality deal quickly, maybe some concession on Donbass…..Ukraine drifting into the arms of NATO would be stopped for a generation……..Putin has made his point to the West that Russian “red lines” are real and also reminded the EU that peace in Europe isnt a given and that the post-world war security architecture of Europe still have relevancy and Russia’s concerns should be respected not least because it has the worlds largest nuclear arsenal. I think he had very limited military aspirations in February but a very large strategic aspiration - stopping the drift of Ukrane into a deepening military alignment with NATO/the West. What happened? Putin underestimated the effectiveness of the Ukranian army & he under estimated how coordinated the response from the West was going to be with sanctions + military aid and how quickly his fight against the Ukranian army became a fight against the Ukranian + unlimited military equipment from the UK/US etc. i.e a good old fashioned proxy war with the US. Where now I’m fairly positive that Zelensky behind closed doors, as he watches every city that matters in Ukraine reduced to rubble, would love to go back to the “peace deal” he offered no more than three weeks into the conflict but he now knows this deal would look too much like a Russian victory that it would be a problem for his US allies & the hardline Ukranian right, which makes it politically unacceptable. So they fight on. Russia’s response to all this…….fine they would have liked the quick neutrality deal I outlined above two weeks after the war started…….but now they know they are in a proxy war…..where politically Putin cant be seen to “lose” either now to the US/NATO/Ukraine in the same way the US/NATO allies cant be seen to lose. His response is really just to demolish Ukraine back to the stone ages. When Russia “takes” a Ukrainian city…you should go look at the victory photos…..its Russian troops beside a completely bombed out government building with everything in frame completley demolished…….they have no intention of staying/occupying or running administratively large swathes of Ukraine (with the exception of the Russian speaking parts in the East)…they just intend to wreck it & achieve through aerial artillery demolition, what they hoped to achieve with a quick “no NATO” peace deal….a militarily neutered Ukraine.

Exactly right......Star Trek had the prime directive, you know don't interfere on other planets civilizations because your interference can have unintended consequences & not be welcome in the long run.....its a piece of wisdom wrapped up in a space soap opera. Nobody of course can prove me right or wrong on this one.....but if the US & allies hadn't flooded Ukraine with arms sustaining the conflict & their belief they could "beat" the Russians back over their border......this war would already be over & Ukraine would be in better shape than it is today & in the future.......and the crazy thing is the peace deal would look exactly like the deal Zelinsky kite flyed two weeks after the whole thing started > Ukrainian neutrality, Minsk Agreement solution in the East.....Putin would have packed up & left, if you believe like me, that his ultimate aim from the get go and for the last decade really was a neutral Ukraine in a classic military buffer state sense............but I know lots of people in this thread are signed up to the Putin is an expansionist lunatic, hell bent on occupying Ukraine (with 250,000 soldiers ), recreating the USSR & then marching on to take Poland, Lithuania, East Germany. That idea though is just pure nonsense and a media/politcal invention that doesnt stand up to a second a logic....the easiest of which just requires you to read the CIA's intelligence reports of the number of troops amassed in Russia/Belarus before the conflict began.....an army so large it would struggle to capture & but more importantly hold the State of Wyoming, never mind a country of 70 million people. Some people will believe anything.

4.......nearly 5 months into this and the "peace deal" on the table in February.......is effectively the off ramp where this conflict ends up in the end.....I havent heard a credible alternative. This is: (1) Ukrainian commitment to neutrality / No NATO membership (2) Minsk-esque agreement for Eastern Ukraine/contested territories Difference now however is that it's a proxy war between the US & Russia...with all those dynamics......and the US (aligned with the Ukrainian right, not Zelensky) will decide when & what the optics of victory for the US political players 'make sense'.......for an embattled UK Prime Minister Ukraine & Zelensky is a positive PR story he wheels out to try and save his administration, for the embattled US president its one place he can appear Presidential while domestically his presidency falls apart. In the process Ukraine gets increasingly destroyed such that whats left will be husk & millions globally are likely to go hungry due to grain shortages. Its time for a shitload of pragmatism in regards to this situation and a concerted effort at 'peace talks'. Suspect there is no interest in this now until after November.

Samesies

Yep a decade plus of ZIRP, spineless central bankers & reckless politicians running deficits made it so that every US asset class imaginable was pushed to the edge of reason (& a lot beyond)…….they thought what they were doing was OK…….in the same way a child eating a satchel full of Halloween candy does.

I think he's spot on - earnings up next.....and its gonna get ugly

More HSW

Yep - but to be clear I’m saying this will be a head fake…..supply chain inflation will peel off, Fed will pause, but what will be revealed is stubborn underlying monetary inflation that is Fed/Treasury made and will require a second rate hike cycle that will put the US into recession (if that doesn’t happen this hike cycle). I hate macro and have no faith in my macro predictions…..but this is what my spidey senses tell me. Real story is, cause the problem is so hard as pertains to the US economy/inflation/markets, is that I’ve pivoted a lot of energy to international stocks. Where IMO the inflation there is more supply chain/Ukraine related & my strong $ is going a lot further.

Do you have any more information on the Y axis.....it says index/tighter financial conditions.......index of what? - Ok 'financial conditions'....what financial conditions data is used to build the index? Just curious.

Burry today tweeting about 'bullwhip' effect of bloated inventories that is akin to the disinflation head fake I expect in the next couple of quarters driven by two elements (1) this bullwhip effect but then (2) genuine easing around supply chains in China etc. etc......the supply side inflation will indeed turn out to be transitory just glacially slower than that word suggests........what wont pass so easily, IMO, is the monetary inflation unleashed in 2020/21 and still circulating in the system (deficit spending/cash out refis/QE in 2020/21) which will remain stubbornly higher inlfation than the Fed's target & will require further rate hikes after a brief head fake pause later this year.

From the article - “Today I am starting to behave aggressively,” the founder and co-chair of Oaktree Capital Management, said in an interview. In this particular instance I think he's talking about debt & what Oaktree is doing.....but maybe thats my bearish bias coming through. I saw something a couple of weeks ago from him and he referred to equities and was unusually clear on his bearish stance there. Regardless I dont let anyone else think for me

Spent a good chunk of time on this name earlier this year.....the partnerships model they are pivoting to is interesting........but it depends almost completely on the whims of the UK government (which I consider currently as dysnfuntional & unpredictable as the US political system) and how much budget it allocates to social housing/ housing association & Homes England department......the other issue is that in an inflationary environment where Countryside tenders for these partnership projects inflation can wreck havoc on your proposal and your relying on the various local councils to "work with you" in the future to rebase the costs in the tender to allow you to get out with a margin.

I think supply chain, commodities inflation moderates and feeds through to CPI in Q3/4.........but that will only go so far maybe taking CPI down from 8% to a 5/6 handle and this will be the head fake I suspect later this year where folks suspect where conclude that what the Fed is doing is 'working'........the only issue is that inflation in the US is both supply side inflation mixed with old style monetary inflation.......monetary inflation is more stubborn to remove from the economy & will require the Fed to resume a rate hike cycle in early 2023 (if indeed they pause later this year in response to some supply side easing). You cant forget that with CPI @ 8% and Fed Funds @ 1.75% going to say 3.5% by YE.....where inflation, IMO, will come down but still be stubbornly high at 5+%......the Fed in that scenario will STILL be running a classically accommodative monetary regime in an inflationary environment.......big question is further out the curve whether QT / bond dynamics do what the Fed isnt on the short end.

Mark’s/Oaktree,as you know, play in the credit markets…..there are different risk reward dynamics at play here vs. equities…..especially in this part of the cycle with clear impending IMO dangers to earnings. Creditors will still get paid if Apple’s earnings drop 20%, equity holders will have a different result. Goldman Says Signs Are Here of Belt-Tightening Impact to Profits https://www.bloomberg.com/news/articles/2022-06-26/goldman-says-signs-are-here-of-belt-tightening-impact-to-profits

We are talking so broadly here that it gets a little meaningless, so I'll speak about the indexes SPY/QQQ lets say.....but no not 10% next quarter but lets say 1-2% a QTR for the next 4 qtrs but I think really accelerating into early 2023 just given the dynamics I'm hearing around wage negotiations & ingrained inflation expectations driving those conversations. Labor not capital is in the driving seat right now in the US & labor is pressing its advantage effecting corp. margins into a weakening consumer, higher energy prices & an outrageously strong dollar depressing the value of overseas earnings (~40% of SPY revenue). It's a tough mix for US earnings while at the same treasury's & other less 'risky' US assets than equities are beginning to compete again for investors attention pulling people back in the risk curve & reducing multiples. As I've mentioned before I pick stocks........but you cant ignore the beta......sometimes it has your back, sometimes its a full force gail in the front....I think the US SPY/QQQ is in the later camp for the next 12 - 18 months and hence why I'm careful around picking my spots in US markets right now. It's tough going swimming against the current. I like swimming with the current. My whacked comment is a little too over the top.......I mean it in the context of P/E valuations having a magnifying effect just given the numerator & denominator interacting as they do.......modest changes in earnings reality (E) married to modest changes in expectations/optimism & alternatives to equities (P) are all thats required to move stock prices significantly and way more than you'd expect given we don't think in terms of you know a ratio where both top & bottom are moving together. I dont need to tell you this @Parsad but for others I just want to be clear on what I'm saying.....earnings arent going off a cliff but big moves in SPY/QQQ dont require that.

Yes low interest rates in the EU then add to that there are just way too many banks creating a competitively destructive landscape for earnings......with too many participants fighting over a limited profit pool = disaster for bank earnings and why its not unusual to see some European banks trading at 0.2 TBV & rightly so.....they should be wound up, merged & shareholder equity returned but this is Europe and cozy insiders (boards & management) like to collect the check and prestige while screwing shareholders. in a European bank context....look at the Irish banks AIB & BOI......this is an oligopolistic banking market where two international players just left....its closer to Canada or the US than in EU in terms of the dynamics

Energy Inflation, strong dollar (traditionally not good for S&P earnings where 50% is derived from overseas), rising labor costs, waning consumer sentiment at home & abroad........means S&P500 profits & profit margins are going to get whacked in the next 3-6 months......multiples have come in from heady highs giving some comfort to jump into a bear market rally.....but everybody forgets the denominator risk with our friend E in P/E........and thats the next shoe to drop with earnings revisions by companies then analysts pulling in 23/24 index earning forecasts. 2021 will be a record year for S&P profit margins for years to come IMO. I expect another 20-30% drop & some folks to be scratching their head wondering how FWD P/E multiples can stay the same at ~x16 but their index fund just did another bear on them on top of the previous bear!

Yeah i watch that stuff and agree.....but as you've mentioned before.....one cant rule out that Powell, through aggressive Fed action, wants to or will take credit for moderating inflation even if it would have happened anyway....becoming a mini-Volcker legend in his own mind. The beauty with macro and its inherent complexity is that murky correlation and causation will allow him to claim victory regardless......untangling what moderated inflation in the post-mortem is like staring in the looking glass you see what you want to see. The tone of his testimony yesterday and responses to questions around house prices falling/borrowing costs going up, the looming recession etc etc tell you everything you need to know I think. Powell is, IMO, not for turning on this matter.

Yep all very valid points.....but i guess what I'm saying is Powell doesnt give a F......he's not elected by the people has just been re-appointed to chair and history is calling him to kill inflation 'for the poor'.........its what Jesus would do Ok I'm being over the top here for effect....but you catch my drift. He has a plan & he has his 'Why' and to top it all off he has the power to execute unencumbered by political considerations & influence. He is on an inflation jihad!! and I'm not too sure when the penny is going to fully drop with US markets but thats my spicy take with religious overtones for shock value

Watched Powell testify to congress......i standby my earlier comments in this thread.....which is we might disagree on inflation & its sources, its future trajectory, the Fed's ability to moderate it with their toolkit. We can & have disagreed on its effects on lower income folks & whether they 'deserve' it or not. But watch Powell's testimony and two things come through loud and clear in his characterization of what happens next: (1) Powell & the Fed believe inflation regardless of its source is insidious & pernicious and waiting for it to moderate might allow it to ingrain in inflation expectations making it even harder to solve later (2) Powell indicated a moral imperative to act to help the poor...stating clearly his "Why?" This is because he/they believe inflation hurts the poor disproportionally and if the cost to help them is the re-pricing of financial assets & in the case of housing real estate assets then this is the price that must be paid for the greater good and he/the Fed are willing to watch that happen and ignore the squeals from market particpants. We've argued over many pages here whether these views are right or wrong...what I'm saying here is that the view above, right or wrong, is the only 'view' that matters as this is the view of the people driving the bus here with rate hikes. I happen to agree with him but it doesnt matter what I think...its what he/FOMC think that matters.

HSW

Yep Hostelworld (HSW) small cap on LSE is IMO still disgustingly cheap (despite being up 40% YTD) relative to the numbers they are going to print in August

I’m afraid your throwing out the baby with the baby formula & many of you are acting like your view on this inflation stuff going away soon all by itself ones supplies chains reconstitute……..is somehow contrarian ( @Gregmal I’m looking at you ). That view, is the consensus market view - look at the long bond, break even inflation etc etc. What your articulating is whats priced in. Holding this view, you are slap bang in the middle of the market consensus. Maybe your right - the market often is the best detective. So whats not priced in, is the following - is that inflation we have now is a monetary inflation (exasperated by supply chain issues but not its root cause). That its likely to persist & embed itself into the economy unless dealt with & that the post-COVID world itself has an inflationary bias (re-shoring/resiliency vs. cost optimization, China Cold War, demographics) which will lead to structurally higher inflation moving forward . The long bond…..and other long duration assets have only modestly priced in this future - this version of the future does not seem that fanciful to me and the argument's for it are compelling. In this type of world everything doesn’t just “GO UP” over time as it has for the last 40 years…..but certain things will……low P/E, consumer staples with pricing power etc. etc. No harm, IMO, to be open to to the idea that what Grantham / Dalio are saying might turn out to be true….and position accordingly. Dont think your portfolio has to be in one camp or the other but you can do well with a bias to low P/E stocks with proven cash flows & pricing power that should do well in one world and pretty good in the other type thing.

Appreciate the reply SD & insights......very interesting space.....but own DD is key. Thanks again for the pointers.