Kupotea

Can you give more of your insight into what you feel the market has already priced in? The way I see it, the market has shrunk multiples in response to higher rates but is still a ways away from pricing in a reduction in earnings. Even if it is just a mild recession.

Agreed but supply is only so elastic. With a current deficit and spare capacity almost fully tapped you get demand destruction as the balancing factor. You need a way to encourage supply growth in what many see as a sunset industry. If we do get a recession and oil prices collapse do we not just end up with a bigger gap coming out of the other side? If the economy muddles along how long does it take to fill the current deficit? I think we continue to grind higher until the economy breaks or the investment community changes their minds on the need for higher capex.

Buying several oil producer/servicing stocks: SU, GXE, MEG, and TCW.

Took a full 10% allocation in MSGE at sub $51. There's nothing better than a stock with covered downside and significant upside optionality.

That assumes all different crypto currencies are intended for the same use case which doesn't have to be the case. There are three supposed uses for cryptocurrency that I've heard of: 1. As a form of currency. (So far this is clearly not the case and honestly who knows if it will ever happen.) 2. As a store of value a.k.a. digital gold. (Bitcoin looks to be the clear winner on this front. Its functionality makes it a great store of value but pretty terrible for the use case below.) 3. As an infrastructure to develop applications for decentralized verification. (This is where most of the competition in the crypto space is happening, web3, etc.) If you want to speculate on the value of digital gold you're welcome to. If you want to try to evaluate the value of various crypto currencies as a platform for applications you can do that too. It's pretty clear at this point that crypto isn't going away and it's also clear that it was/is still in a bubble based on its current use cases.

The problem is that the FED has become a politicized entity. It doesn't matter that inflation is primarily supply driven and that it will likely work itself out within the next 1-2 years because US midterms are in Nov. They need to be seen as being tough on inflation today because high CPI prints aren't going to let up between now and then. There will eventually be a turn when it becomes apparent the FED needs to back pedal but in my opinion that's several months from now. In the meantime, you're going to get a lot of the sky is falling and multiple compression. Agree with Viking that you want to have cash to deploy when the opportunities start to get really juicy.

Sticky inflation is still increasing and that has to be the FED's primary concern. Wouldn't be shocked to see a 5 handle before rates peak but who knows.

Working in Healthcare IoT I notice so many potential opportunities to collect data and add a little intelligence to everyday interactions (not just in healthcare). It's the logical next step now that we've automated a great deal of digital work and the timing is right as sensor and data costs are falling rapidly. The long run tendency will be towards dominant players by industry because you need a certain level of domain expertise but really the more data and sensors you have the better decision making and actions you can implement. There are some interesting new players but likely you see it all consolidated among the major IoT/Cloud service providers. Basically the new FANGs might look a whole lot like the old FANGs (less FB/NFLX + MSFT).

I think the market will continue to be surprised by how sticky inflation is. Demand is an issue but the real challenge is supply side and you can't simply turn on the spigot for raw materials, labour, and equipment. Not convinced we're heading for a recession this year but what's to say that 10 year treasuries can't hit 6% this cycle? What does the stock market look like under that scenario with lower profit margins thrown into the mix?

You have multiple negatives playing out for the global economy at the same time. Significant reduction in fiscal stimulus, higher borrowing costs across the board, the worst inflation we've seen in decades. This is offset to a degree by pent up demand but there's also been a significant loss of wealth occurring. There are major defaults happening right now in China, Russia/Ukraine, and I'm going to guess several European utility cos soon. We're already at the point where governments and CBs would normally come to the rescue but their hands are tied. They know inflation is the bigger threat and they've clearly communicated they intend to break it. The bond market is signalling that rates are running higher but equities aren't adjusting yet to the new cost of capital. Most likely because all of the institutional players are so thoroughly hedged that the path of least resistance is a nice short squeeze. I'm not a pessimist by nature and I'm looking forward to picking up some bargains in the not too distant future. I'd be surprised if things don't get worse before they get better.

There's also electrical grid requirements to think about. You can't just switch everyone to EVs and expect that current infrastructure can handle it.

Agreed. While there are short term impacts as traders figure out how to buy and sell barrels without SWIFT ultimately there’s enough buyers out there to cover what Russia is producing. This does all tie back to a lack of spare capacity. If OPEC was holding 5+ million barrels in additional capacity this would be a nothing burger. When people are already concerned we may run out of capacity before the end of the year these geopolitical events take on significant meaning. I don’t think prices go back below $100 as long as the possibility of escalation remains. Putin is the more likely one to cut off supply to the EU in my opinion than the EU refusing to buy.

I think it pulled prices forward but shouldn't have a meaningful impact on how high the price of oil eventually runs. The overall thesis was once spare capacity becomes non-existent then the only offset to demand is higher prices until a recession is triggered. Similar to 2008 you don't actually need to run out of oil for it to go parabolic just the expectation that spare capacity won't be sufficient to cover demand. I do think the easy money has been made on this trade though as there's no real way to know how high it will go or when it will turn against you. If you believe that oil will continue to spike you're better off buying puts on whatever the market still considers safe (Apple, Bank Stocks, etc.).

Going to have to disagree with this take. OPEC opened the spigots precisely because US oil production was growing 2 million barrels YoY. They couldn’t feasibly continue to cut supply to make room for US production so they started a price war. Marginal supply vs demand is what ultimately dictates the price of any commodity over longer periods of time and US shale production was that new marginal supply.

I would love to buy NU at a reasonable valuation. Somewhere at a sub 10B market cap. Has a long way to go but it's falling fast so who knows.

Their mandate is price stability and unemployment. My point is that the stock market affects inflation via the wealth effect and when you're fighting deflation it helps to have a rising stock market. The reverse is also true. I think it's silly that people think the FED has their back and would never let the market crash. One of the easiest tools in their belt today is purposely talking the market down.

I think the FEDs action from the last decade can be seen as a fight against deflation. It makes sense to prop up the stock market when you need more cash in people's pockets. Conversely, I think we're moving into at least a temporary period where the FED would prefer financial assets to fall in order to mitigate some inflationary pressures. The more the market falls the less they actually have to do in terms of raising rates. The US government can't afford significantly higher rates at this time so hawkish talk is really the best tool in their belt. I'm fully allocated right now with a defensive tilt to my chosen positions. I also have a 5% SPY hedge in place. If the market continues to falls and pulls everything down I can liquidate the put/lower beta stocks and use that cash to invest into new opportunities. If the market shrugs it off and climbs higher my assumption is the longs more than cover the insurance from the put. You can't time the market but I do believe you can get a sense of when you should be positioned defensibly and when it's okay to leverage up a bit and swing for the fences.

Took a large position in SU. No hedges and it seems to be priced slightly below strip pricing which I already think is understated. One of the few large cap stocks allocating serious capital to buybacks right now.

I agree with what you're saying and was just using extreme examples to make a point. At the end of the day what matters is how confident you are in the IV and discount to that valuation given your projected time-frame. If you have a wide range in value then you should size the position accordingly.

Take VC investing. The average investment may be at 10x-100x sales or whatever but at the correct growth rate an investor can still make huge returns. To Gregmal's point there is no multiple too high and no multiple too low depending on the specific company in question. https://future.a16z.com/entry-multiples-dont-matter/ Now the better question is can you reasonably forecast for massive growth? Many value investors would say that's too hard and so they stick to cigar butt investing. There's nothing inherently wrong with either approach as long as you're good at it.

I think the oil sands producers are well positioned due to lack of capex requirements for maintaining current production. Lots of upfront capex is required for oil sands producers but you don't need to constantly invest in new wells for lost production once it's online. Lets them avoid some of the inflationary costs that will be hitting the shale/offshore drillers. Also, there's the potential tipping point when the market goes from valuing oil producers on pure cash flow to assigning value to the actual reserves. Oil sands producers have decades of reserves which have zero value under the current ESG narrative.

Starter position in LMT

I've been in mostly cash for the last two weeks. I think the narrative about the FED put is about to be broken. Stocks are by and large overvalued unless you assume perpetually low rates. All the self reinforcing narratives about the FED being unable to raise rates and the government still being able to service its debts had a kernel of truth but was largely overplayed. Rotation out of tech has been clear for a while now and only the FAAMG stocks are holding the market up. Earnings will disappoint next year as stimulus comes off and China implements a controlled real estate crash. Long term I do think inflation is the clear preferred option to dealing with the global gov debt problem so I'll be adding to select names as the pullback plays out.