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Dinar

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Posts posted by Dinar

    Is The Bottom Almost Here?

    in General Discussion

    Posted

    18 minutes ago, Viking said:


    @Parsad i think you are far too optimistic with your suggestions of what the Fed should do. Most people seem to think inflationary pressures are magically going to disappear… like the ending of a Disney movie. As soon as financial markets get a whiff the Fed might be slowing increases (or done) they will rip much, much higher. Stocks will pop. Bond yields will come down (further out on the curve). Credit spreads will tighten. The US$ will sell off. In short financial conditions will ease. (We saw this movie play out mid-June to mid-August.) And the Fed will be screwed.

     

    History teaches us there  is likely only one way to solve an embedded inflation problem (like we have now). And that is a Paul Volker type of tightening that last much longer than 6 months and that likely causes a more than mild recession. Has a recession happened? No. Is it coming? Given the strong employment reports, no. The fever has not broke yet. 
    —————

    The dilemma the Fed has today is the rest of the world cannot handle what the US is executing. So something will likely break (like what almost happened in Japan 2 weeks ago and the UK last week). If the plumbing of the financial system breaks the Fed will have to pivot. And then inflation will likely roar again. And then Powell likely looks for a new job.

    —————

    Commodities will rip higher at the first sign of an economic expansion. Because production is supply constrained. And that will fuel inflation. Oil, steel and lumber are all on my watch list for when we get to the next expansion. Jeff Currie has an interesting theory about the inflation of the 1970’s… he said perhaps one of the reasons it lasted so long because it took 7-8 years to solve the significant supply constraints that existed at the beginning of the 1970’s. i wonder if we do not have a similar set up today. This means It wasn’t just Volker that slayed the 1970’s inflation dragon. If that is true, then we could see persistently high inflation for many years (because ESG/government policy will ensure new supply capacity does not get built out on the scale needed to happen). 
     

     

    I beg to differ.  I think that inflation is in the rear view mirror.   The inflation in goods - used car prices, etc is about to flatline and may be go in reverse.  I am looking for a new car, leases do not seem more expensive than they were ten months ago despite higher interest rates.   I  think that supply of labor in US is going up sharply (massive swing from positive to negative wealth effect, millions pouring over the Southern border, Ukrainian and Russian refugees, people fed up with President Xi), meanwhile demand for labor is declining sharply - corporates are firing, construction/real estate is firing.  So hard to see labor inflation.  As for commodities, what implication does shrinking Chinese population and end of Chinese construction boom have on demand for cement, iron ore, lumber and oil?  

    Where do REIT'S go from here ?

    in General Discussion

    Posted

    25 minutes ago, Gregmal said:

    Competition breeds success. Just not Jon Litt. Wish he would just go away.

    I am going to vote for him.  Not because I am a fan, but to send a message.  I think that AIV needs to drastically cut SG&A.  I am also not sure that they are any good at real estate development, and do not want them to learn on my dime.

    UK Small Companies' valuations seem highly attractive for long term investors

    in General Discussion

    Posted

    2 hours ago, Spekulatius said:

    Looks to me like the GBP and the UK economy is melting down. I follow GHH (Gooch and Housego) simply because I dealt with them in the past with my job and a new some folks working there and the stock has lost half it's value this year and then there are the GBP losses on top. The stock looked quite overvalued and I can't make a valuation case even now, but that performance is really something to behold.

    The company diluted shareholders at the bottom in 2009, so a hard pass for me.  

    Russia-Ukrainian War

    in General Discussion

    Posted

    50 minutes ago, Xerxes said:

    @Dinar

     

    Back in Feb-March, I argued for exit ramp, fortunately for Kiev (and unfortunately for the Kremlin) the conflict unfolded in a way that exit ramp is looking more and more remote. The sinking of the flagship in the Black Sea didn’t help either. 
     

    We have for all intent and purposes linked ourselves as the “weapon supplier of last resort”. Kiev pretty much owns the narrative. 

    The moment the West stops supplying weapons and money, Ukraine loses the war, so the West has leverage.

    Russia-Ukrainian War

    in General Discussion

    Posted

    4 hours ago, Xerxes said:

    Ukraine is the aggrieved party. They are the ones doing the fighting (and dying) and frankly doing so as the first line of defence (while we chill). So they need to consent .. not West. 
     

    Ukrainian have established some leverage via their most recent offensive, which in turn means Russia has lost leverage. So I don’t think we are going to see much talking until Kremlin re-establish back some sort of leverage. (Whatever that means)
     

    West’s role here is to bleed dry a historical geopolitical foe that has always cast a wary eye on the West, to clear its own arsenal of the old inventory, to test new weapons …. …. Keep doing that until that opportunity exists (politically correct of saying the same-thing for those who see things in a black and white cartoonish way:   help the Rebel-Alliance-Ukrainian defend Soviet Union II)

     

    On nuking Kiev, I don’t think the man is itching to do so. He has grown reckless but not that stupid. That said given the stupidity we have seen so far coming from Kremlin there is a non zero chance of something happening with the nuclear reactors and that would be less direct, more Kremlin-like (ambiguity) and accomplish the samething, which is to add a fresh dose of complexity and terror. 

     

    On a different note, anyone has any comparison case study of this episode of Kremlin doubling down … to the “Surge” in 2007, when Bush & Co doubled down as part their de-nazification campaign of Ay-Raq.
     

    Or is that something we don’t want to remember !! And prefer not pointing out. 

     

     

    Ukraine would have lost without Western support, and given the sacrifices already made by the West - tens of billions in aid, refugees, skyrocketing nat gas prices, collapsing industry caused by higher nat gas prices, Ukraine asking for hundreds of billions of dollars in aid to rebuilt, the West certainly ought to have a very important seat at the table.  But there has to be an off-ramp.  The has to be a face saving way for Putin to exit in order to have a chance to avoid tens of thousands of more deaths.

    Russia-Ukrainian War

    in General Discussion

    Posted

    15 minutes ago, Spekulatius said:

    Read Putins speech and tell me where he learned anything. He is as boxed in his ideological box just as much as he was at the beginning of the war.

     

    Let's assume the west think we need to negotiate and decide we give him the Donbas, Crimean Luhansk area and his $350B back, bcause of nuclear threats. Happy days for everyone - Oh wait!

    Of course he still has his nuclear weapons. So he is going to ask for me - he would be stupid if he didn't. So now you have a Putin who is richer, has more land and has been vindicated. Why would he not ask for more fondling with his nuclear trigger.

     

    The only reason to negotiate is if you can eliminate the threat posed and we can't. So giving in to Putin in a negotiation is going to make things worse.

     

    The only way to counter the nuclear threat if Putin threatens with nuclear weapon use is to give Ukraine Nukes if they decide they take them. Then Putin can decide to nuke it out or go home.

     

    I would not give Ukraine nukes.  Ukraine is an insanely corrupt country, what makes you think they will not sell them to....

    What are you buying today?

    in General Discussion

    Posted

    55 minutes ago, Spekulatius said:

    PM is better run, but it's a matter of price. I bought in the low thirties, sold north of $46 (almost top ticked it) and now feel I should get in. It's a dividend stock and I don't try to overthink it.

    If PM goes sub sub 90's, I am in too. I continue to hold SWMA (havn't sold a share) but unsure what happens next.

    I think if you adjust for growth, PM is much cheaper than BTI.  BTI I think is losing volumes at 3% per annum, while PM is growing at 2%+.  In addition, one gets a free option on IQOOS in the US.  

    What are you buying today?

    in General Discussion

    Posted

    10 minutes ago, Spekulatius said:

    Life comes at you fast - had a fill for some FRFHF at $451. Also got some fills for $BTI at a bit more than $37.

    Spek, why do you like BTI?  I used to own it, sold post results in February, and every time I look at it, I cannot get there, particularly vs PM & SWMA

    What are you buying today?

    in General Discussion

    Posted

    43 minutes ago, Spekulatius said:

    Do you feel it's attractive? Their debt is surging. It's a great business as long as housing/construction hums along nicely, but not so much if it slows down. I don't know how much is priced in and it sure looks cheap. One of the many above average cyclical business that looks fairly cheap based on normalized earnings ( if this is knowable).

    Yes, I think that it is quite cheap.  Their debt is up as the company has been aggressively growing fleet.  Recessions are generally a big negative for them but here is why I think it will be less of an issue:

    a) Smaller competitors have been going out of business since they cannot get equipment/skilled labor

    b) There are significant economies of scale - if you double the number of locations, you do not need to double the number of units or skilled mechanics

    c) The return of manufacturing to America, the semiconductor plant building boom in the US, the Biden infrastructure plan all bode very well for demand.   

    d) I do not think that home construction will decline that much, since we still need homes to be built.  

    What's priced in?  The stock is selling at USD 42 per share, while it should earn $3.50-$3.70 this fiscal year (ends 04/30/2023.)  You have to reduce EPS by 4% to account for gains of sale of equipment so call it $3.50 in EPS.  Assuming a real discount rate = 6% (so nominal = inflation + 6%), this assumes 30% drop in profitability and zero growth on a going forward basis in real terms.  The company claimed that could (in real terms) more than double and almost triple in size in one of their presentations.  Given returns on marginal capital, this growth opportunity, that you get for free, is quite valuable.

    Where Does the Global Economy Go From Here?

    in General Discussion

    Posted

    I think that inflation has peaked.  If as rumored, Facebook and Alphabet reduce headcount by say 10% or 20K+ employees, plus reduce contractor employment (200 janitors and bus drivers at Facebook got fired), then this will certainly have a ripple effect.  With other companies, including MSFT probably following, you could have tens of thousands of tech lay-offs and tens of thousands of janitors, cooks, masseuses, et all fired.  They will all probably easily find employment, but that should definitely cool wage pressure, and probably consumer spending.  No need to pay a Google or FB or MSFT engineer 500K per annum any more.   Also, if venture funding starts to dry up, tens of thousands of more techies and support stuff will also have to look for new employment.  The wealth effect from no longer rising housing prices and declining equity/bonds/crypto will also dampen consumer spending and possibly force some people to rejoin the labor force. 

    Where Does the Global Economy Go From Here?

    in General Discussion

    Posted

    1 minute ago, changegonnacome said:

     

    As I said above........this is guiding clients or investing clients assets in Costco/Apple/Microsoft etc at 3-4% FCF yields, while the 30yr treasury is potentially going to 6%......conservative sometimes is another word for institutional ass covering, while keeping the client FULLY invested and with you and making sure you dont get sacked in the post-mortem

    I did not express my self clearly.  Conservative in his words were: short-term bonds, preferred stocks, longer term munis, REITs, little in equities with a bias towards European names.  

    Where Does the Global Economy Go From Here?

    in General Discussion

    Posted

    I think that most people are positioned very conservatively/defensively.  Here are two datapoints for you:

     

    a) I spoke with guy in high net worth at a large bank (minimum account - $10MM in investable assets.)  He said that in general they are guiding clients to be very conservative.  Also, the biggest client inflows/purchases are going into B-REIT (Blackstone's REIT.)  I asked why, he said there is effectively no mark to market on it, so clients are not worried.  This is NOT the bank steering them supposedly, this is clients choosing from a menu of options.  

    b) I spoke with a former coworker today.  He is in the high yield/distressed/special situations group at a large family office. (Family office is over $30bn in assets, his group manages several billion.)  He said that 1) they are only buying first lien paper, which he thinks is pretty safe at 10-11% yields.  2) pretty much everyone he talks to is very defensively positioned.  He has been in this seat for twenty two years.

    Where Does the Global Economy Go From Here?

    in General Discussion

    Posted

    2 minutes ago, changegonnacome said:

     

    Housing is collateral damage......last time I checked the Fed doesnt have a mandate to fix the housing market............its trying to fix inflation...........I agree with your statement that labor force mobility is going to drop off a cliff as people wont budge out of their 3% mortgaged home and move elsewhere into the arms of 6% mortgages (which feels a bit long term inflationary to me, if you dont mind me saying 🙂 ).....a dynamic economy needs labor to move to where its required. Being short people, in the places you need em brings pricing pressure! Probably another one to add to the list of reasons why we aint going back to ZERO anytime soon even after we 'fix' this hopefully transitory inflation issue.

     

    Anyway housing and stock market is collateral damage this time around with some intent from the Fed around negative wealth effects......its the mirror opposite of post-GFC.....where the stock market was collateral beneficiary of stimulating and cutting rates to bail the system out. 

     

    Dont fight the Fed.

    Sure, but at what point are things priced in?  S&P is down 20% (excluding dividends) in nominal terms and probably 30% in real terms.  At what point would you say things are priced in?  I am not trying to be argumentative, I am trying to understand how you think.  Thank you.

    Where Does the Global Economy Go From Here?

    in General Discussion

    Posted

    23 minutes ago, changegonnacome said:

     

    Because nominal house prices rose so high in 2021 that a tiny in change underlying interest rates literally blew out monthly mortgage payment affordability......buyers have gone on strike as result, hence mortgage demand collapse.....sellers haven't got the memo yet and hold dear to 2021 comps......transactions & mortgage demand will restart once nominal price levels reset downwards and/or mortgage rates fall back.....or alternatively home sellers wait for a couple of years of nominal wage increases such that the price of the home has fallen in real terms & affordability is restored by that mechanism

    I agree with you that house prices rose very sharply in 2020 and 2021.  However, the change in mortgage rates from 3% to 6%, is not tiny.  Holding house price constant, the change in interest rates sent mortgage payment higher by 40%.  That's not tiny.  

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