changegonnacome

@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

Another overlooked beneficiary of the post-ZIRP world with limited credit risk are the custodian and fund administrators…State Street / BNY Mellon for example…….when you strip away the business process outsourcing side (which is a sticky consolidated scale game for sure now) they are fundamentally cash handling businesses. Moving the custody and/or administration of your fund to collect a few extra bps of cash interest (for your LP’s!)….has both a ‘just not worth it element’ and an agency problem element associated with OPM….. which should all things being equal in this now consolidated industry see the players collect healthy NIM’s with little chance of price wars on cash deposit rates held by their asset management clients.

Yeah futures seem to be the way to go on the fed funds stuff........ Banks are good one in terms of the ZIRP sea change piece but as i think @Spekulatius pointed out previously......banks with outstanding low cost & stable deposit collecting franchises are the way to go here........WFC might be my favorite of the big banks for this reason moving forward.....an ultra low cost funding base is a huge competitive advantage moving forward. Insurers - I guess it depends........I'm always conscious depending on the type of insurance.....that its fundamentally a commodity product.....while they can deploy premium into unexpectedly higher yielding fixed income instruments today benefiting the bottomline in the short-run.......its much more likely, for certain insurance types anyway, that higher for longer fixed income yield benefits will actually flow through to the consumer via lower premiums.....just given the competitive dynamics. Curious what banks/insurers you've looked at in this space that you like.

Re:inflation possibly your right - I haven't dug into it in huge amount of detail to have a super strong conviction....my impression was from gleaning some of the data was that direct COVID fiscal stimulus had done what BOJ had failed to do for 2010's which was get inflation up........but think your right now too which is FX starting in mid-2021 chipped in greatly too.......Japan maintaining relatively low interest rates while RoW started to move theirs has weakened the Yen......and so yeah the rest of the world is exporting them their inflation and they are happily importing it. Dollar/Yen chart is scary in that regard.....imagine whats happened to a theoretical basket of US/dollar denominated goods and services in Japan...ouch. DXY strength is such an advantage for US consumers & the inflation fight here:

https://www.cmegroup.com/markets/interest-rates/stirs/eurodollar.html I think what you’re looking for is futures and options on futures related to short term FI. they are accessible to the everyday Joe on interactive brokers. I have never traded them in a personal or prod context, therefore don’t want to provide any more specifics, but if you want the purest form of short term rate speculation, it’s somewhere in there. Appreciate that - I'll do some digging

I wholeheartedly agree - and echo the sentiment. I like it.....but even as much as I like it......I'm buying cheap and selling dear......for all my macro musings......I'm still up to my neck in cheap stocks that will do well regardless of Fed funds at 6%, the economy printing negative GDP etc. One important macro musings outside my ramblings is the sentiment in Howard Mark's Sea Change memo - we are moving from a low return world to likely a fair return world.....folks on COBF will do fine given the value investing bias....but paying outrageously high multiples on things was always dangerous.....doubly so now.....further incremental multiple expansion bailed alot of people of out errs of judgement in the recent past.....that tail wind to investors is receding I think

Yep - Japan finally during COVID.......stopped letting the BOJ drive the bus with financial instrument chicanery and the fiscal authorities got out the bazooka.....and did stimulus that results in direct aggregate demand/spending in the real economy (not just financial instruments)......and surprise surprise they got the inflation they dreamed off...positive some supply chain inflation in there too related to COVID etc. but there is also monetary inflation. - https://www.piie.com/research/piie-charts/japans-government-spent-less-covid-19-stimulus-headline-numbers-suggest

Yep you only get to reap what you sow and actually harvest......fiscal transfers, nominal wage increases, creation of debt fueled spending........changes nothing in terms of domestic output.......only the quoted price of that domestic output........to the extent the rest of world accepts dollars of course (and this is the exorbitant privilege of the reserve currency) you can indeed consume more via the creation of more monetary instruments that you send overseas and for which people will send you their output! Its an amazing thing (but with no downsides I wont go into). This phenomena is exactly why goods inflation is coming down so quickly/easily & drastically (supply chain relief/strong dollar) and why Fed knows the problem for inflation moving forward is "non-housing services".....put another way goods/services you consume that don't go in shipping containers from overseas.....I refer to it as simply domestic goods and services.

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.