TwoCitiesCapital

Doesn't this do A LOT more for the commons than the preferred at this point? The preferred are good for par - we know that now that the NWS will be stopped. But if the NWS was illegal and a settlement would return some of those proceeds back, that means less dilution to the common as those billions come back as capital.

Very interesting

Doubtful. It opened near flat. Only been the last 2-3 hours that it's rocketed higher. The only India related headline I've seen has been speculation that India is joining the global recession - nothing to send this bad boy up 15%. Was hoping it'd continue to trend lower so I could buy more :/

Did I miss some major headline or something? Up 15% today?

RV’s are supposedly a good measure because strong RV sales indicate a lot of consumer confidence (since it is large outlay for those who tend to buy them and it’s totally discretionary ) as well as easy to obtain credit (most are bought on credit). I think boats are similar and their sales also have weakened recently. It's ok. He ignores all of the indicators to pick on the one that seems.most dubious on the surface...and yet, still agrees with the overall narrative

100% I'm concerned with it, but at the same time both Europe and Japan are worse than the U.S. in that regard and nothing bad has happened yet which emboldens policy makers to continue making unsustainable decisions. When will it stop? When it can't continue. Europe are not worse in terms of deficits. Germany actually runs a surplus and even Italy’s deficit is 2.1% if GDP vs US at roughly 4.5%. Sure, in recent history deficits have been better, but historically they were not which is why overall debt levels are higher. The debt level is what I was referencing - I apologize that it wasn't clear. Overall, I think the existing stock of debt, once large enough, is likely more important than incremental growth/reduction in that stock of debt. Also, I was generalizing across the monetary union - obviously you'll always be able to find individual exceptions just like you can find states/counties/cities in the U.S. that are exceptions regarding deficits and debts. The most important thing is the deficit not the debt. If your deficit is lower than growth rate of nominal GDP over the cycle you are generally fine. Total government debt to GDP will never go above some upper bound. The reasoning behind this is akin to a DCF. The deficit is the growth rate of your debt, and the nominal gdp growth rate is you discount rate. As low as your rate of growth is slower than your discount rate overall debt to GDP will stay bounded. If your debt is above that bounded level, as long as you commit to the same deficit amount, your debt to gdp will actually go down even if are running a (low) deficit. You might be right, but the problem is that deficit growth HASN'T been lower than nominal GDP growth over this cycle. This is precisely why debt/GDP ratios the world over have been exploding.

Could you list some ? Yes, for starters we have the various PMI indexes. The recent numbers suggest that we are starting to see general economic weakness around the world. For North America specifically there are things like AAR rail traffic data, which have been meaningfully declining YoY for a while now. There are also some isolated reports that come in every now and then that focus on specific industries. Today there was a story in the WSJ about how new truck purchases are sharply declining. And then there is the inverted yield curve. I actually have mixed feelings about this one because it could well be caused by irrational speculation in the bond market and/or excessive easing by the ECB/BOJ. But still, it has a stellar track record as a recession forecaster, and, more importantly, its message is consistent with the other signals listed above. I'd also add the slowdown in RVs, negative leading indicators, the declining trend in the velocity of money, the continued pressure on real estate (particularly at the high-end), the drop in YOY corporate profits, the massive decline in consumer sentiment we just witnessed for August, and the fact that banks are now reducing the availability of credit and raising cash. All of these indicate a slowing of the economy. Further, it takes MONTHS for any easing to move through the system. That quarter-point cut that we received in July won't really resonate in the economy until later-2019. Any subsequent cuts will also take many months to be felt. As for now, we're still feeling the tightening that was occurring all the way up to the cut. Every pundit/report you see says we're not in recession because employment is still good and the consumer still strong. They're right about not BEING in a recession presently, but that says nothing the direction of an economy that is probably heading into one. Both the drop in consumer spending and the drop in employment will be LAGGING indicators that confirm the onset of the recession - they will NOT warn of its arrival. By the time the recession is confirmed, it may be too late to get out of stocks which will likely have already made significant downward progress in the correction.

Q2 GDP was 2.0% annualized. Q2 inflation was 1.8% annualized. The economy is basically already flat in real economic terms and any additional pile on, or reduction in economic activity, will result in an economic contraction. You're right. My bad.

Have been buying & selling over the last 2-3 weeks. Typically 20-30% of the position. When VIX dropped to 15-17 I was buying and selling those same contracts each time it went to 20+. Entire position has basically been paid for in profits at this point and I purchased more today. VIX hasn't dropped in the target range like I've been waiting for on prior buys, but 2 observations give me an ominous feeling: 1) A handful of the last few days have ended slightly positive or flat for the S&P/Dow and my puts positions still rose in value slightly (crazy!) 2) NYSE Composite failed to break through it's 200 DMA today and turned negative again. Not a huge TA expert, but that seems to tell me that a major composite failed to break out on positive headlines (supposedly softer trade stance from Trump/China) and the market isn't buying it and is hedging instead (a bid under puts despite rising market). Maybe I'm just to more risk-seeking now that it's house money, but it doesn't sit right with me so I purchased more puts today. Yea, Im getting the same gut feeling. Everything of late seems like a bull trap. Cyclicals just don't move on up days and then get flattened on down days. Everything gets faded. Many names within an earshot of or at 52 week lows. Even non correlated assets are getting sold off. My top performer this month is basically a triple net REIT.... Seems like I was wrong this time around. Closed the extra positions but continue to hold the core hedge. We'll see. It seems every time something recovers(be it the economic news, stock market, or whatever) Donny thinks he's got money in the bank to go wage war on someone... We'll see. I have a hard time deciphering politics, but if I had to guess, both sides are ready for a reprieve at this point and willing to take a little break from the tit-for-tat. I'm thinking the Chinese are refusing to escalate now because 1) They're trying to limit the immediate damage to their economy and draw this out over time 2) They're trying to delay when the damage occurs until election season to maximize the odds that Trump gets removed from office Why escalate now if doing so in a month or two better achieves those goals? Still holding the core hedge position just in-case, but wouldn't be surprised to see us take-off and approach the highs from here. Just glad I repurchased most of my covered calls at this point which means I can still benefit slightly from the upward volatility when it comes time to re-sell them.

**Editing because I realized that it was a different thread that I had this conversation in. Including that section from that thread below** While I don't disagree with the statement overall, I'd like to see flows information confirm it. It was my understanding that this was, in part, what drove the 10-year to 1.60% back in 2016, but since then I thought it had been a net negative return for most foreign buyers to buy treasuries and hedge the currency risk which has eliminated a lot of the foreign demand over the past 2 years. Is there any flow data supporting foreign buyers? If the references I looked at are correct, US government debt held by foreign entities has increased ++ after the last recession but has relatively plateaued. https://fred.stlouisfed.org/series/FDHBFIN However, the US government has issued debt at a rate much higher than GDP growth and somebody/somewhere has been piling up. In percentage terms, US government debt held by foreign entities over total US government debt (as per the Treasury Department) has risen from about 25% entering the Great Recession peaked at around 34% in 2013-6 and is now on its way down to 29% even if absolute numbers keep going up. Remember also that the Fed has recently been a net seller of government debt. Against all odds, rates have gone down despite the increased supply and demand from US individuals and institutions (including banks) seems to be the driving force. Here is official data showing what happened recently (over a year-period when public debt increased by 960B). https://ticdata.treasury.gov/Publish/mfh.txt From a bird's eye view it seems that the fear and greed spectrum looks more and more like the bimodal distribution that is becoming obvious in other segments which cannot be discussed in investment threads. The US continues to have the cleanest dirty shirt but it's getting dirtier in our beg-thy-neighbor world. I think this supports that we cannot believe that it's foreign buyers. Foreign held treasuries have increased slightly since 2016, but at a far lesser rate than the supply which results in them owning a significant % of the total supply less than their peak in 2016 (as you pointed out). If foreign buyers went from 34% ownership of the Treasury market to 29%, they certainly can't be the cause of the recent drop in rates - someone else had to absorb their 5% reduction along with the increase in new supply. home.treasury.gov/news/press-releases/sm679 Press release from May 2019. Pietrangeli is the Director of the Office of Debt Management and a member of the Treausry Borrowing Advisory Committee. I'd take what he says, and the data, over what BofA says any day. Once again, it's not foreign buyers driving U.S. rates It's one perspective by one asset manager that was refuted by the head of open market operations at the Treasury as recently as May. I'll take the guy who sees the big picture of a guy who is a small contribution to that picture any day. I also have some qualms with what he is saying here: 1) The USD is does not always behave as a safe haven in recession. It did in 2008, 1980, and 1982 but failed to in 2000, 1990, and 1974 (i.e. the dollar declined in value during the recessionary periods). Also, I'm sure it's a mixed bag in any given year as to which currencies the dollar outperformed/underperformed so a lot of this is also very dependent on which currency you're considering. Thus, to say it's a safe haven to that will hedge a global recession is less than conclusive and I think most managers know. 2) The volatility in the USD far exceed the yields on bonds if you're buying them on a un-hedged basis. The USD is up 2% this year. If that reverses, on an unhedged basis you've lost nearly the entire total return for the year for any tenure of bond closer than 10-years. The USD is up 5% from the lows in early 2018 - a reversal there would wipe out 3-5 years of coupon return depending on what tenure you're buying. No self-respecting fixed income manager is going to expose themselves to that kind of volatility and risk losing 5-years worth of returns by not hedging the currency. These are not equity investors that are accustomed to risk - these are investors who choose bonds specifically to manager their aversion to risk.

Have been buying & selling over the last 2-3 weeks. Typically 20-30% of the position. When VIX dropped to 15-17 I was buying and selling those same contracts each time it went to 20+. Entire position has basically been paid for in profits at this point and I purchased more today. VIX hasn't dropped in the target range like I've been waiting for on prior buys, but 2 observations give me an ominous feeling: 1) A handful of the last few days have ended slightly positive or flat for the S&P/Dow and my puts positions still rose in value slightly (crazy!) 2) NYSE Composite failed to break through it's 200 DMA today and turned negative again. Not a huge TA expert, but that seems to tell me that a major composite failed to break out on positive headlines (supposedly softer trade stance from Trump/China) and the market isn't buying it and is hedging instead (a bid under puts despite rising market). Maybe I'm just to more risk-seeking now that it's house money, but it doesn't sit right with me so I purchased more puts today. Yea, Im getting the same gut feeling. Everything of late seems like a bull trap. Cyclicals just don't move on up days and then get flattened on down days. Everything gets faded. Many names within an earshot of or at 52 week lows. Even non correlated assets are getting sold off. My top performer this month is basically a triple net REIT.... Seems like I was wrong this time around. Closed the extra positions but continue to hold the core hedge.

I own oil stocks Cardboard. Along with other base metal royalty owners and producers, a few good miners, and a ton of EM exposure particularly to Russia. I know where the market is cheap - but cheap sectors get cheaper in a recession so why blow the load and throw caution to the wind just because SOME areas are cheap now? I'd rather wait for everything to get cheap and throw darts at the board.

I tend to agree. Bonds are literally screaming recession and stocks are still bumping along like it's not a big deal. I wasn't old enough, or educated enough, to recall much of the events from 2000 and 2008 (other than I was the naive idiot buying banks, autos, and dry shippers in 2007/2008 ), but this seems crazy and I'm assuming is atypical. It's not so much a divergence in performance that bothers me, but the divergence in the narrative. Bonds are saying there's no need to be concerned with inflation and/or GDP growth is going to be muted for the next 30-years. Stocks plucking along at high P/Es with near record margins suggests equity markets see no danger to nominal GDP growth/inflation. I know I've sounded like a broken record since 2016, but my concern is contracting multiples on top of contracting earnings. Not hard to get a 60% decline in such a scenario.

Have been buying & selling over the last 2-3 weeks. Typically 20-30% of the position. When VIX dropped to 15-17 I was buying and selling those same contracts each time it went to 20+. Entire position has basically been paid for in profits at this point and I purchased more today. VIX hasn't dropped in the target range like I've been waiting for on prior buys, but 2 observations give me an ominous feeling: 1) A handful of the last few days have ended slightly positive or flat for the S&P/Dow and my puts positions still rose in value slightly (crazy!) 2) NYSE Composite failed to break through it's 200 DMA today and turned negative again. Not a huge TA expert, but that seems to tell me that a major composite failed to break out on positive headlines (supposedly softer trade stance from Trump/China) and the market isn't buying it and is hedging instead (a bid under puts despite rising market). Maybe I'm just to more risk-seeking now that it's house money, but it doesn't sit right with me so I purchased more puts today.

Politicians aren't subject to insider trading laws and their portfolios returns regularly do better than the average retail investor. Go figure.

Powell habt mastered the art of Greenspan doublespeak to say nothing , but phrase it in a way that everyone can take away whatever they like. However given what we know, why would we even care what he says? Because it's entertaining? Someone just announced more tariffs on US goods, about 1.5 hours before the market opens. Coincidence, no doubt. Tim Duy's Fed Watch is a fantastic source to figure out all this Fed talk: https://blogs.uoregon.edu/timduyfedwatch/ 1.5 hours before on a day where there was already a pretty high probability of disappointment out of the Fed not committing to further easing! Buckle up.

To be fair, the signaling can be just as important as the actions. I think that's what most people are expecting from JH - signaling of a commitment in one direction or the other

100% I'm concerned with it, but at the same time both Europe and Japan are worse than the U.S. in that regard and nothing bad has happened yet which emboldens policy makers to continue making unsustainable decisions. When will it stop? When it can't continue. Europe are not worse in terms of deficits. Germany actually runs a surplus and even Italy’s deficit is 2.1% if GDP vs US at roughly 4.5%. Sure, in recent history deficits have been better, but historically they were not which is why overall debt levels are higher. The debt level is what I was referencing - I apologize that it wasn't clear. Overall, I think the existing stock of debt, once large enough, is likely more important than incremental growth/reduction in that stock of debt. Also, I was generalizing across the monetary union - obviously you'll always be able to find individual exceptions just like you can find states/counties/cities in the U.S. that are exceptions regarding deficits and debts.

100% I'm concerned with it, but at the same time both Europe and Japan are worse than the U.S. in that regard and nothing bad has happened yet which emboldens policy makers to continue making unsustainable decisions. When will it stop? When it can't continue.

Agreed. I think parental involvement and discipline is often, but not always, the cause of the students drive and motivation.

I generally agree with this. As someone who has moved around the country, I've been some of the best schools and some of the worst. Quite literally, I attended the #1 middle school in the country, at the time, for math & science and went to the high-school/college in Mississippi (the worst state for education). I had good and bad teachers in both systems. I also had many friends/acquaintances that succeeded from both as well as people who failed to reach their potential from both. From my anecdotal experience with people, it has little to do with the school/teachers and more to do with the drive/discipline of the student themselves. The only thing I'd say the good school did "better" is it had higher expectations of its student body in terms of curriculum and most of the students rose to meet that challenge. For example, the school I went to in Texas had algebra and basic trig as part of the math curriculum for 6th graders. In Mississippi, those classes were reserved for 8th and 9th graders and I was forced to retake both. Generally, I'd say it was roughly the same % of the student population who excelled at it so it seem like setting the expectations to get that done earlier was just fine and that Mississippi is simply wasting time and resources while not improving the outcome.

We'll, at least not for the next several. I doubt most incremental buyers are planning to hold for the full 30 years and are looking to the duration for speculative/hedging purposes. Those who are buy/hold buyers (pensions, etc) probably have other ways of managing/mitigating the duration and inflation risk at some time in the future.

+1 No bailout is necessary. Just the ability to discharge the loans in bankruptcy. This will force reasonable lending standards on the industry instead of making loans that can never be paid back. I don't want a bailout to borrowers because it was a choice, but less of a choice when considering all of the social pressures. We were all told to go to college to get a good job. No other alternative was offered. Now, you may fault kids for not doing the cost-benefit analysis, but ultimately this is what they were told to do by older people with more experience - and those same people are the ones who disparaged the lazy millennials who DIDN'T want to go to college. The borrowers need to accept responsibility for their decisions. Bankruptcy doesn't come easy, but would "let them off the hook" and it would also punish the lenders who made unreasonable loans. The real travesty here is that the govt took it over by arguing private lenders were being predatory and make unsustainable loans....and then continued the practice at a much larger scale! Sorry, but we don't get to 'game the system'. No going to Harvard to get your masters, racking up 200K to pay for it; walking away from the debt (via bankruptcy) ... while still keeping the earning power of that Harvard degree! The loans are secured against (the future taxes on) lifetime earnings, and lifetime means exactly that - lifetime. As already pointed out; all a student need do every month is just pay interest only. Never pay the loan back, and just bank the principal that you would have paid in either a mortgage principal repayment, or T-Bills. No defaults, no pressure to act, and every month you're a little further ahead. Student wins, government loses, and eventually you will probably get a community related write-off. All we need do is just not give the loan until the student evidences sufficient 'maturity'. Pick a set of relevant criteria, that the student either has or does not. SD While I understand your point, it's not students who went to Harvard to get their MBAs that are the cause of the student debt explosion or the inability to pay. If govt isn't comfortable subsidizing that risk, it could go back to the private market which is going to look for co-signers and/or collateral which isn't an unreasonable request. The problem is primarily middle-america students who racked up 70k in loans to end up with a 35k-50k/year job OR those who couldn't get a job in 2008-2010 who then went back to grad school and racked up additional loans to make themselves more competitive even as wage growth continued to stagnate. Secondly, not sure where you think interest rates are on most of these loans, but paying interest only and investing the principal at 2% is still a mutli-decade strategy that will suck up a large portion of disposable income and only provide a modicum of relief a decade down the road.. .

+1 No bailout is necessary. Just the ability to discharge the loans in bankruptcy. This will force reasonable lending standards on the industry instead of making loans that can never be paid back. I don't want a bailout to borrowers because it was a choice, but less of a choice when considering all of the social pressures. We were all told to go to college to get a good job. No other alternative was offered. Now, you may fault kids for not doing the cost-benefit analysis, but ultimately this is what they were told to do by older people with more experience - and those same people are the ones who disparaged the lazy millennials who DIDN'T want to go to college. The borrowers need to accept responsibility for their decisions. Bankruptcy doesn't come easy, but would "let them off the hook" and it would also punish the lenders who made unreasonable loans. The real travesty here is that the govt took it over by arguing private lenders were being predatory and make unsustainable loans....and then continued the practice at a much larger scale!

But as learned with Sears, it matters not what those properties are worth if they're not sold OR if the proceeds from the sale prop up the retail business. Not saying that M is going the way of JCP or Sears - just that I'm skeptical of the value department styles provide overall given my own shopping habits and prior investment experiences