Buying puts before 10 am tomorrow?

[RuleNumberOne]

IMO, Software Tariffs on Canada may happen sometime in the future. The bad immigration situation for foreign engineers in the US has led to a boom in Canada.

 

 

Who Just Beat the Bay Area in Tech Jobs? Toronto

https://www.bloomberg.com/news/articles/2018-07-24/toronto-beats-bay-area-in-new-tech-jobs-and-new-york-in-talent

 

Toronto’s tech scene is so hot the city created more jobs than the San Francisco Bay area, Seattle and Washington, D.C., combined last year, while leapfrogging New York in a ranking of “talent markets.”

 

https://www.seattletimes.com/business/microsoft/microsoft-moving-canadian-headquarters-into-toronto-as-it-expands/

 

"As part of its investment in the country, Microsoft will spend $570 million on office expansions, including the Toronto headquarters and new offices for its Vancouver sales team and Montreal lab."

 

Toronto tech: why Canada is attracting the ‘best’ people

https://www.ft.com/content/de63f33c-34e6-11e9-bd3a-8b2a211d90d5

 

"82,100: The number of tech jobs added in Toronto in 2012-17, according to CBRE. That compares with 77,830 in the San Francisco Bay Area and 34,730 in Atlanta."

 

https://press.aboutamazon.com/news-releases/news-release-details/amazon-expands-toronto-tech-hub-and-announces-plans-create-600

 

"With this expansion in Toronto, Amazon has this year alone announced plans to create more than 6,000 new jobs in Canada, from cloud computing and engineering roles to customer fulfillment positions"

 

 

Silicon Valley Looks North as Tech Giants Expand in Toronto

https://www.wsj.com/articles/silicon-valley-looks-north-as-tech-giants-expand-in-toronto-11566054001

"Silicon Valley is invading Toronto.

Intel Corp. has announced plans to build a graphics-chip design lab in Canada’s largest city. Car-hailing service Uber Technologies Inc. will be opening an engineering hub. Google’s parent, Alphabet Inc., proposed building a new Toronto campus as part of a sensor-laden “smart city” on the Lake Ontario waterfront, and Microsoft Corp. said it would expand its Canadian workforce by more than 20%."

[DooDiligence]

Haven't the corporate tax cuts been largely nullified by tariffs?

---

This guy is running the US just like he's handled all of his businesses.

I wouldn't be at all surprised if he started blowing hard about defaulting on US debt.

Wouldn't that be fun?

---

As to how the Chinese are handling taxation.

https://www.cnbc.com/2019/07/24/china-tax-cuts-may-offset-the-effects-of-trade-tariffs-economist.html

You know what Venezuelans said about Chávez early on: “ He runs the country like his hacienda”.

 

The problem with the tariffs and the game of chicken that is played are the knock on effects on confidence. Now China is slowing down, Europe is slowing down and now the US is slowing down as well. How much of this is trade war and how much is just the long economic upturn petering out is hard to know. I don’t think that interest rates and rate cuts at this point are going to make much of a difference, rates are already too low to matter, imo.

1-Our era will be henceforth be known as the Limbo rate years.

 

2-Trump may not be able to claim the largest real estate transaction ever with a Greenland

purchase but he's highly likely to go down as the man who filed the GOAT bankruptcy.

 

3-Just doing my part to stoke fear.

 

:o  (there's no goofy googley eyed emoji so this one will have to do...)

1-It's possible that a temporary truce can be reached with no material effect on the trade balance going forward so we may be in limbo for a while but the best limbo playing show that I've seen was in Hawai'i two years ago. It felt like the fire dancer was able to lower the ground. But it must have been an illusion.

 

2-Your previous reference to a default is interesting and, in 2016, this issue was 'discussed'. The USA defaulting on its debt sounds outrageous but the following reference originates from May 2016, at a time when negative interest rates were still not considered business as usual and when the left-leaning publication felt that the candidate did not stand a chance to win the contest.

https://www.npr.org/2016/05/09/477350889/donald-trumps-messy-ideas-for-handling-the-national-debt-explained

 

3-Yeah, perhaps the idea is to be able to smile whatever happens and one way for this to happen is to be ready for any eventuality and to remember what Ferris said: "Life moves pretty fast. If you don't stop and look around once in a while, you could miss it." On a more serious note (keeping in mind the long tariff thread), I continue to think that the outcome will be highly conditional on the direction of the global economy as tariffs may only be a side show and not necessarily a precipitating factor. To those who say that walking on the edge of the precipice is OK if you know what you're doing, I can't help thinking about the Smoot-Hawley Act and Mr. Smoot's reaction to the reactions: those who don't support tariffs are un-Americans and use fake-news to spread their weakness.

https://www.piie.com/blogs/trade-and-investment-policy-watch/trumps-2019-protection-could-push-china-back-smoot-hawley

 

Here's a reference from one of my favorite movies that I saw as a young adult and that offered one of the first glimpses into the American Psyche. So, can anyone explain what will happen in the event that the global economy really starts to lose steam. Anyone?

 

Wow. I was unaware of the Smoot-Hawley tariffs of the 30's.

History sometimes repeats & rhymes (minus the horrible economy for now.)

 

I had seen the piece on Trumps "renegotiation" / "discounting" of US debt instruments.

Being able to buy back at a discount seems at odds with his call for rate cuts.

 

I'm going to go out on a limb here & say that we've elected Zippy the pinhead.

 

Bueller's 1st name is my last.

[TwoCitiesCapital]

The reported GDP is real GDP (2.0%). In the example below, nominal GDP would be 3.8%, not 2.0%.

 

Looking at the US economy as a whole GDP is ~20T right? So is 100-150B of tariffs really that big of a deal in the big picture? That's what, 1-2% of US GDP?

 

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.

[SharperDingaan]

IMO, Software Tariffs on Canada may happen sometime in the future. The bad immigration situation for foreign engineers in the US has led to a boom in Canada.

 

 

Who Just Beat the Bay Area in Tech Jobs? Toronto

https://www.bloomberg.com/news/articles/2018-07-24/toronto-beats-bay-area-in-new-tech-jobs-and-new-york-in-talent

 

Toronto’s tech scene is so hot the city created more jobs than the San Francisco Bay area, Seattle and Washington, D.C., combined last year, while leapfrogging New York in a ranking of “talent markets.”

 

https://www.seattletimes.com/business/microsoft/microsoft-moving-canadian-headquarters-into-toronto-as-it-expands/

 

"As part of its investment in the country, Microsoft will spend $570 million on office expansions, including the Toronto headquarters and new offices for its Vancouver sales team and Montreal lab."

 

Toronto tech: why Canada is attracting the ‘best’ people

https://www.ft.com/content/de63f33c-34e6-11e9-bd3a-8b2a211d90d5

 

"82,100: The number of tech jobs added in Toronto in 2012-17, according to CBRE. That compares with 77,830 in the San Francisco Bay Area and 34,730 in Atlanta."

 

https://press.aboutamazon.com/news-releases/news-release-details/amazon-expands-toronto-tech-hub-and-announces-plans-create-600

 

"With this expansion in Toronto, Amazon has this year alone announced plans to create more than 6,000 new jobs in Canada, from cloud computing and engineering roles to customer fulfillment positions"

 

 

Silicon Valley Looks North as Tech Giants Expand in Toronto

https://www.wsj.com/articles/silicon-valley-looks-north-as-tech-giants-expand-in-toronto-11566054001

"Silicon Valley is invading Toronto.

Intel Corp. has announced plans to build a graphics-chip design lab in Canada’s largest city. Car-hailing service Uber Technologies Inc. will be opening an engineering hub. Google’s parent, Alphabet Inc., proposed building a new Toronto campus as part of a sensor-laden “smart city” on the Lake Ontario waterfront, and Microsoft Corp. said it would expand its Canadian workforce by more than 20%."

 

A good part of this is the FX difference, and otherwise US bound talent staying in Canada instead.

The same thing routinely happens in the film and media production house industries.

 

A software engineer in Canada will often only get paid 2/3 to 3/4 of thier US eqjuivalent, and in CAD versus USD.

Hence a US engineer costing 100K USD/year, will cost the equivalent of roughly 56K USD/year if he's sourced in Canada (100x.75x1/1.3300).

Even if you throw in telecom and 3 face/face visits/year, it's still a lot cheaper.

 

To some extent Canada is also a lot more immigrant friendly.

If you're likely to have your kids while working in Canada, they will automatically be dual-national.

 

SD

 

 

[finetrader]

I think we’re seeing plenty of signs that this is already happening.

 

Could you list some ?

[TwoCitiesCapital]

I think we’re seeing plenty of signs that this is already happening.

 

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.

 

[Spekulatius]

Ah yes, RVs.  Not sure how I forgot about those.  They are supposedly one of the best recession predictors out there.

 

Consumer spending is a key variable to monitor, as that is what seems to be holding the US economy up at the moment.  I have the suspicion that it got a temporary boost over the last few quarters because those who were paying close attention to what Trump was up to (including me) front loaded their spending.  If I'm right about this we are going to see a sharp drop in consumer spending over the next few quarters, with negative consequences.

 

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.

[TwoCitiesCapital]

Ah yes, RVs.  Not sure how I forgot about those.  They are supposedly one of the best recession predictors out there.

 

Consumer spending is a key variable to monitor, as that is what seems to be holding the US economy up at the moment.  I have the suspicion that it got a temporary boost over the last few quarters because those who were paying close attention to what Trump was up to (including me) front loaded their spending.  If I'm right about this we are going to see a sharp drop in consumer spending over the next few quarters, with negative consequences.

 

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

[RuleNumberOne]

I don't watch or read anything on politics, but i presume some demagogues must have done some attacking to get ahead in their careers. Drug companies are at historically low valuations. Same goes for banks and oil companies. That can only mean the Dem primaries are going on.

 

This adds to the negative wealth effect.

[Gregmal]

I always come back to the same things, kind of touched on above. Much of the market is already pricing in scenarios much more severe than just a run of the mill recession. Its not like autos, housing, energy, banking, etc, etc are trading at 52 week highs and 25x PEs...I mean look at what we just saw with some housing stocks. I recall about 9-12 months ago chatting here with some about companies like NVR, and LGIH...how they were priced for death and if death didn't occur it was impossible not to see massive rallies here. And NVR is up like 70% and LGIH basically doubled and guess what? They're still trading at pretty modest valuations...Nothing says the same isn't possible for many in the above mentioned sectors. Is it really all the farfetched to see BAC at $40+ or WFC at $65 next year?

 

But further contradictory, if indeed all believe the slowdown is here, why does nearly everyone on this board own BRK which has a massive composition of cyclical businesses? What cuz Warrens got $120B of cash? At 90 some odd years old, you're essentially making a bet that a recession and massive plunge will occur in such rapid order that a guy statistically on his deathbed not only has the time to deploy all that capital, but to see the investments through... I don't know about that. I think all would be well suited to step back off the ledge.

[Ahab]

Well said Gregmal. You can get large cap US banks at a sub-10 PE with 15% projected returns of capital over the next year. You can get automakers such as General Motors and Fiat-Chrysler at sub 6 PE's. The former has a world class autonomous driving unit. The latter is quietly pursing merger opportunities. Sure the aforementioned stocks could go down much further in a recession. However, if investors are spooking themselves right now, valuations are cheap in many of these out of favor sectors. The contrarian in me says we don't have a recession with everyone screaming about a recession and pretending like they understand the yield curve..

 

[Gregmal]

Cheap money and lack of quality assets is a recipe for....significantly greater appreciation and duration of "cycles" than anyone can predict. Look at the Canadian housing market, specifically in areas like BC where Asians with unlimited wealth keep on rocking and rolling. Even Buffett has said something along the lines of, if the rate on the 30 year remains 2%, stocks are very undervalued. Its supply and demand. There really arent THAT many quality asset options out there and money printing has just allowed the people with assets to need to place more of it somewhere.

 

Another thing I'd point out that is truly amazing to me is the unemployment rate. We're at 4% and considered full employment, EVEN WITH Amazon destroying retail, 90% of mom and pop businesses 6 feet under, outsourcing abundant, and automation gearing up as well. I would have expected things to be much worse.

 

[Cigarbutt]

Ah yes, RVs.  Not sure how I forgot about those.  They are supposedly one of the best recession predictors out there.

 

Consumer spending is a key variable to monitor, as that is what seems to be holding the US economy up at the moment.  I have the suspicion that it got a temporary boost over the last few quarters because those who were paying close attention to what Trump was up to (including me) front loaded their spending.  If I'm right about this we are going to see a sharp drop in consumer spending over the next few quarters, with negative consequences.

 

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

I wonder if people are looking at the same thing but using a different lens.

Simply looking at one idiosyncratic indicator and concluding that a recession is coming is unlikely to be a valid or useful conclusion. Also, even if one 'sees' slowing conditions, it probably has very little to do with economic conditions down the road.

However, within the evaluation of a specific company, I would say that there are many 'indicators' that may have some usefulness in order to understand industry dynamics and the cyclicality aspect of the industry as well as helping form an opinion about potential outcomes and downside risks.

We met a couple a few weeks ago and the description revolving around their RV acquisition was extremely instructive in terms of defining our present investing environment.

Since our investing environment has been largely defined by the Federal Reserve, one may want to use a tool that M. Alan Greenspan promoted as a maestro: the male underwear index. Anecdotally, online sales of male underwear has been relatively disappointing in 2019, so watch out.

[meiroy]

https://www.bloomberg.com/opinion/articles/2019-09-01/fed-rate-cut-won-t-give-trump-an-edge-in-trade-war-with-china?srnd=opinion&utm_source=twitter&utm_medium=social&cmpid%3D=socialflow-twitter-view&utm_content=view&utm_campaign=socialflow-organic

 

How Trump Can Win the Trade War

[DooDiligence]

https://www.bloomberg.com/opinion/articles/2019-09-01/fed-rate-cut-won-t-give-trump-an-edge-in-trade-war-with-china?srnd=opinion&utm_source=twitter&utm_medium=social&cmpid%3D=socialflow-twitter-view&utm_content=view&utm_campaign=socialflow-organic

 

How Trump Can Win the Trade War

 

Agree 1000% but the Cheeto in chief is too stupid to see something as elegant as this.

 

It also wouldn't be anything his base would understand, thus it wouldn't give him any buttons to push with them.

 

He's a button pusher.

[Gregmal]

There really arent THAT many quality asset options out there and money printing has just allowed the people with assets to need to place more of it somewhere.

 

This is actually something I wonder a bit about.  My current thinking is that this is more likely to be a temporary situation than not, the reason being that normally when you have a shortage of something but a lot of demand for it, yes its price can go up like crazy at first but then over time the high price attracts new supply and that brings the price back down to earth.  I don’t see why something similar cannot happen to things like, say, quality businesses via increased/improved entrepreneurship over time.  That being said, it may take quite a long time for this type of “cycle” to fully play out.

 

Today’s Bloomberg Odd Lots podcast was pretty interesting:

 

https://www.bloomberg.com/news/articles/2019-09-02/why-one-of-the-oldest-investing-strategies-has-been-doing-terribly?srnd=premium

 

The guest (Chris Meredith, Co-CIO of O'Shaughnessy Asset Management) talks about some similarities he sees in the business/investment environment today and the 1920s.  In each era, he notes, seemingly expensive growth stocks hugely outperformed other stocks, and not because there was a stupid bubble but because the growth companies (GM, Sears, etc in the 1920s; FANGs and co. today) actually lived up to the market’s lofty expectations.  He then notes that value investing started to make a comeback sometime around 1940-50 as other businesses gradually caught up with those industry leaders in terms of technology, and that we may be heading in that direction today.

 

I think this somewhat relates to what was discussed above re: how the lofty valuations of great companies — even if they are fully justified — can gradually deflate over time as the supply of such companies increases through things like imitation, technology diffusion, and the invention of better alternatives by new entrants.

 

Yea, I kind of see some parallels and I think regulation could ultimately be what causes the valuations to readjust. But on the other side, GOOG, AAPL, FB, etc I don't see as outrageously expensive. The Saas stuff is ridiculous. Much of biotech is hugely at odds with what is implied by big Pharma valuations. There s a lot of stuff all around that doesn't make a ton of sense in relation to other stuff.

 

But one area where I think it is harder to overcome this is because of the massive increase in wealth inequality(in other words, control of the resources) it's harder for ... "normally when you have a shortage of something but a lot of demand for it, yes its price can go up like crazy at first but then over time the high price attracts new supply and that brings the price back down to earth"... to occur. Yes the roaring 20's saw similar wealth gaps, but todays environment I think makes it difficult for competition beyond a certain level. To the extent we have some of the big tech monopolies, that at the same time have tentacles stretching into many other business areas, I see that stifling the success of new entrants. Unless you're a Silicon Valley type which most of us are not.

 

That said, I have and continue to see plenty of areas to make money for the normal investor. I am hardly a macro guy, and frankly wouldn't consider myself smart enough to justify spending time in that arena either. Ive seen so many people who clearly are intelligent enough to play there, still be so friggin hilariously wrong with their macro reads and predictions, that it makes me question why anyone bothers when they can just spend time studying the over 10,000 publicly available individual companies and make easy money that way. And by easy money I dont mean get rich quick, but kind of just being a singles and doubles hitter with a .400 OBP vs being Kyle Bass or John Paulson and hitting .150 with a few grand slams...

[Gregmal]

I also think being a macro guy is poisonous because your beliefs at the top trickle down and influence your ability to analyze at the bottom. If Im a guy looking bottom up, I do my analysis and have the various scenario skews and then assess probability and risk/reward. But Ive noticed that most macro guys can't do the same. Instead, they'll take their macro views, and then taint the fundamental analysis of individual companies, with those macro conclusions. The danger is, when you're wrong on macro, then that will likely translate to you being wrong on everything else. Again, look at Paulson, Einhorn, Bass, etc. These guys arent just wrong, they can't even hit the broad side of a barn and their returns arent just bad, they're f**** terrible. Whereas with individual investment companies, I can get the company analysis right and not even care about macro, and still make money.

[Ahab]

Well said. I think a cardinal myopia of institutional investors is thinking that their intelligence translates to success in predicting the behavior of complex systems.

Predicting the fate of individual companies is hard, but at least you can handicap the "pitch". Predicting the future of the global economy and correctly analyzing the resulting impact on securities prices requires you to be an utter savant with a Midas touch. Even Keynes was a bad macro investor.

[Cigarbutt]

https://www.bloomberg.com/opinion/articles/2019-09-01/fed-rate-cut-won-t-give-trump-an-edge-in-trade-war-with-china?srnd=opinion&utm_source=twitter&utm_medium=social&cmpid%3D=socialflow-twitter-view&utm_content=view&utm_campaign=socialflow-organic

 

How Trump Can Win the Trade War

Maybe that stuff is irrelevant for stock picking but it's entertaining and the article is refreshing when compared to the intellectual consensus (entrenchment?) coming out of Jackson Hole last August: The World needs a lower USD and lower US-based risk-free rates.

Mr. Mark Carney's speech was interesting.

https://www.bankofengland.co.uk/-/media/boe/files/speech/2019/the-growing-challenges-for-monetary-policy-speech-by-mark-carney.pdf?la=en&hash=01A18270247C456901D4043F59D4B79F09B6BFBC

He basically questioned the consequences of the disproportionate dominance of the USD in global markets and is suggesting (not a tax) an alternative based on fiat currencies. It seems like these guys have realized that the Bretton-Woods framework has lived and will take the next steps in stride.

 

Applying the content of the article would likely result in a rapid reconciliation of the achieved-future-consumption-brought-to-the-present imbalance but i wonder if the author did a good job describing possible ramifications. Maybe those will be covered in a follow-up note.

"Taxing incoming Chinese (and other foreign) investment. U.S. Senators Tammy Baldwin and Josh Hawley in late July submitted a bill that would allow the Fed to impose a flexible tax on capital inflows. This measure would make it less attractive to park money in U.S. assets, thereby shrinking the capital account imbalance, and by extension, the trade deficit."

I've been looking to buy a spot in the southern US. I guess i will have to look for alternatives.

Mr. Josh Hawley (interesting protectionist name) seems to intermittently exhibit distorted logic. He is pushing for radical protectionist policies on the trade front but seems to be unusually globalist when he simultaneously pushes for 1-importation of public price control policies used elsewhere to cap drug pricing and 2-drug reference pricing policies based on prices of medications in foreign countries.

This is turning into a swampy post and perhaps the US should tax all inputs originating outside its borders.

[Spekulatius]

I also think being a macro guy is poisonous because your beliefs at the top trickle down and influence your ability to analyze at the bottom. If Im a guy looking bottom up, I do my analysis and have the various scenario skews and then assess probability and risk/reward. But Ive noticed that most macro guys can't do the same. Instead, they'll take their macro views, and then taint the fundamental analysis of individual companies, with those macro conclusions. The danger is, when you're wrong on macro, then that will likely translate to you being wrong on everything else. Again, look at Paulson, Einhorn, Bass, etc. These guys arent just wrong, they can't even hit the broad side of a barn and their returns arent just bad, they're f**** terrible. Whereas with individual investment companies, I can get the company analysis right and not even care about macro, and still make money.

 

Referring to your earlier post, have you ever seen a recession that was priced in?

 

I agree that top down doesn’t work. Analysis of individual companies prospects is where the  money is made, but at the same time, the prospects are dependent on the macro environment to some extend. Or one can take the Howard Mark point of view and just try to assess broadly where we are in the macro cycle and go from here. Most would agree that we are more likely late in the cycle rather than early.

 

My own thinking is that there are a lot of political risk too, our current administration, as well as the election in 2020 represent a risk of a substantial paradigm shift with unclear, but most likely adverse impact on the market. Then we have Iran, Brexit and a host of other things like trade wars and crummy start ups to worry about. It isn’t clear to me they any of this is priced in the market they is just 3% of its high and at a historical high valuation.

 

Average valuation is a skewed number as there are certainly quite a few of stocks with low valuations around. but then again, if the broad indices are selling off, it seems to me that this means that at least for mid and large caps, pretty much everything will sell of, perhaps simply because Indic selling is indiscriminate. So my point is that this is a time to be more opportunistic than bullish and simply wait until Mr Market gets one of its fits again and presents great opportunities like in late 2018. I am inclined to believe, that those opportunities I’ll very likely represent themselves, perhaps in the near term future.

[Gregmal]

Priced in? It depends, like I said, housing a year ago was definitely priced in, and then it didn't happen and some things utterly exploded. But then there's the issue of "what if there actually is a recession?" and I think that comes down to valuation, and where things are in the cycle. There are two cycles. The economic one, and then the market cycle for any individual or group of equities. We may be in inning 7 or 8, sure. I agree if we are talking about economic expansion. But some equities have been well ahead of that or even permanently penalized because of past events. So I think there are a lot of companies, BAC, WFC, GM, etc's of the world, that arent terribly far off in terms of valuation, from where their cyclical bottom may be.

 

Im probably in the camp of Marks philosophically. Where are we generally speaking is quite easy to assess rather then "when exactly" it will all start/end.

 

Political risk though I 100% agree with. Donny losing his mind a little more could be bad, Certain Lefties getting in next year could be catastrophic, so one needs to stay nimble. But if things don't go haywire, and we just get a regular old run of the mil recession, I dont see much to be scared of investing in certain names. Are 20-30% pullbacks possible? Sure. Is that a big deal if your are ready for it? Not in my book. The part that is really exciting? If lets say BAC has 30% downside until the next bottom, and Im there with bags of cash to throw at it, how big a position can I get, and how much upside then do I have going forward if now we're talking about being in the 1st or 2nd inning of a new cycle and these once hated companies are now proven, durable, and market leaders?

[John Hjorth]

... But further contradictory, if indeed all believe the slowdown is here, why does nearly everyone on this board own BRK which has a massive composition of cyclical businesses? What cuz Warrens got $120B of cash? At 90 some odd years old, you're essentially making a bet that a recession and massive plunge will occur in such rapid order that a guy statistically on his deathbed not only has the time to deploy all that capital, but to see the investments through... I don't know about that. I think all would be well suited to step back off the ledge.

 

Greg,

 

To me, you've got this wrong. Why do you think that Mr. Jain & Mr. Abel are paid by Berkshire USD 18 M each annually [as far as we know, so far]? I mean : USD 18 M each for "delegation, bordering to abdication" [ref. Mr. Munger]? To me, it simply does not work that way anymore at Berkshire [and hasn't for a long time]. Yes, cyclicals are cyclicals, but then cyclicals aren't really all alike. I mean, there are stand-one-cyclicals, and then there are cyclicals-under-an-umbrella [, perhaps under the Berkshire-umbrella], and their operating conditions with regard to access to capital during a full cycle aren't nowhere near similar.

[Gregmal]

... But further contradictory, if indeed all believe the slowdown is here, why does nearly everyone on this board own BRK which has a massive composition of cyclical businesses? What cuz Warrens got $120B of cash? At 90 some odd years old, you're essentially making a bet that a recession and massive plunge will occur in such rapid order that a guy statistically on his deathbed not only has the time to deploy all that capital, but to see the investments through... I don't know about that. I think all would be well suited to step back off the ledge.

 

Greg,

 

To me, you've got this wrong. Why do you think that Mr. Jain & Mr. Abel are paid by Berkshire USD 18 M each annually [as far as we know, so far]? I mean : USD 18 M each for "delegation, bordering to abdication" [ref. Mr. Munger]? To me, it simply does not work that way anymore at Berkshire [and hasn't for a long time]. Yes, cyclicals are cyclicals, but then cyclicals aren't really all alike. I mean, there are stand-one-cyclicals, and then there are cyclicals-under-an-umbrella [, perhaps under the Berkshire-umbrella], and their operating conditions with regard to access to capital during a full cycle aren't nowhere near similar.

 

Indeed I'll admit there is some hyperbole there to make my point. Everyone is terrified but they still find it OK to buy BRK...why? I think because they(hopefully) understand the business well enough to be comfortable owning it in a drawdown, and have seen how that story plays out before. BRK isn't the only security that's ownable, and I think a lot of the dilemma for most is a combination of fear and just not knowing enough to own a business without certainty.

 

I remember when I first started out, reading a book, I think it may have been Minding Mr. Market or something like that, where the example Im shooting for came up. Essentially stating that investors often leave much by the way of returns, on the table because they rather be sure before doing anything. And that there is a very inverse relationship between certain types of certainty, and the types of returns one achieves. Another example of this is Cornwall Capitals play of Capital One during the subprime crisis in (I think) 2003 or so. Todays scenario is no where near as uncertain, but I constantly run into people who act that way which baffles me.

 

Ive definitely seen reason to get more cautious the past year or so, and definitely want to be weary over the next 18 months. But "global growth" and "recession" fears to me have been for a long time, and continue to be poor reasons to earn 0-2% annually on your money...

 

But yes John, in regards to your specific point, I think Berkshire is A-OK with Jain and Abel and if anything, am of the personal opinion that they will do better AFTER Mr. Buffett passes the torch.

[Cigarbutt]

Cheap money and lack of quality assets is a recipe for....significantly greater appreciation and duration of "cycles" than anyone can predict. Look at the Canadian housing market, specifically in areas like BC where Asians with unlimited wealth keep on rocking and rolling. Even Buffett has said something along the lines of, if the rate on the 30 year remains 2%, stocks are very undervalued. Its supply and demand. There really arent THAT many quality asset options out there and money printing has just allowed the people with assets to need to place more of it somewhere.

Underlying assumptions need to be questioned here. It is assumed that reversion to the mean will be inconsequential going forward, which is a possibility. Even under a steady state scenario (demand-supply of 'safe' assets and money chasing those assets), it's hard to see "significantly greater appreciation". The statement, as stated, would imply increasing 'money printing' going forward.

 

I've been looking at public pensions' asset-liability growing mismatch and, so far, haven't been able to spot an area to make money. An interesting feature in the last 20 years is that pension fund investment managers have increased the allocation to 'safe assets' and, despite adjustments in contributions and expected benefits, the funding ratios have been deteriorating. The math doesn't seem to be working anymore.

[DooDiligence]

https://www.bloomberg.com/opinion/articles/2019-09-01/fed-rate-cut-won-t-give-trump-an-edge-in-trade-war-with-china?srnd=opinion&utm_source=twitter&utm_medium=social&cmpid%3D=socialflow-twitter-view&utm_content=view&utm_campaign=socialflow-organic

 

How Trump Can Win the Trade War

Maybe that stuff is irrelevant for stock picking but it's entertaining and the article is refreshing when compared to the intellectual consensus (entrenchment?) coming out of Jackson Hole last August: The World needs a lower USD and lower US-based risk-free rates.

Mr. Mark Carney's speech was interesting.

https://www.bankofengland.co.uk/-/media/boe/files/speech/2019/the-growing-challenges-for-monetary-policy-speech-by-mark-carney.pdf?la=en&hash=01A18270247C456901D4043F59D4B79F09B6BFBC

He basically questioned the consequences of the disproportionate dominance of the USD in global markets and is suggesting (not a tax) an alternative based on fiat currencies. It seems like these guys have realized that the Bretton-Woods framework has lived and will take the next steps in stride.

 

Applying the content of the article would likely result in a rapid reconciliation of the achieved-future-consumption-brought-to-the-present imbalance but i wonder if the author did a good job describing possible ramifications. Maybe those will be covered in a follow-up note.

"Taxing incoming Chinese (and other foreign) investment. U.S. Senators Tammy Baldwin and Josh Hawley in late July submitted a bill that would allow the Fed to impose a flexible tax on capital inflows. This measure would make it less attractive to park money in U.S. assets, thereby shrinking the capital account imbalance, and by extension, the trade deficit."

I've been looking to buy a spot in the southern US. I guess i will have to look for alternatives.

Mr. Josh Hawley (interesting protectionist name) seems to intermittently exhibit distorted logic. He is pushing for radical protectionist policies on the trade front but seems to be unusually globalist when he simultaneously pushes for 1-importation of public price control policies used elsewhere to cap drug pricing and 2-drug reference pricing policies based on prices of medications in foreign countries.

This is turning into a swampy post and perhaps the US should tax all inputs originating outside its borders.

 

Maybe they'll make an exception for our good natured northern brothers?

 

;)

 

----

 

Not really related but while looking to see if Trumpty had ever threatened a

wall between us, I found this from the BS Journal ( a little bit Onion'y  ;D )

 

https://www.burrardstreetjournal.com/trump-demands-canadian-border-wall-after-learning-mexico-not-only-country-adjacent-to-u-s/