Have We Hit The Top?

[treasurehunt]

7 minutes ago, ValueArb said:

 

How is that a flaw? China reinvesting capital to produce up the value chain lowers the costs of many useful goods, and makes them wealthier and able to buy more of our goods and services. 

 

The traditional free market example is the Lawyer who bills $200/hour for legal work, but has to spend a lot of time typing up the product of their legal expertise, so she gets really fast at typing and can type 200 wpm. Still she only spends 4 hours a day doing actual billable legal work, and 4 hours a day typing it up. So she hire a secretary who can only type their notes at 100 wpm for $20/hour, and it takes him far longer, 8 hours a day. But now she can bill 8 hours a day, her gross income doubles, and even after paying her secretary her net income increases 80% (though she actually has to hire two secretaries to handle the greater billable output in this example, so net income "only" increases 60% in reality). This demonstrates why even if we can do something better and more productively than another country, it makes sense to let them do it if the net result lowers the cost of that input and allows us to focus our capital, time and energy on higher return activities. 

 

So by your example, now her secretary passes her paralegal exam and he can start charging $40/hour to help clients with simple legal forms and activities. First this isn't bad for the clients, its good. And its probably not bad for the lawyer. She can probably connect clients to her paralegal for simpler tasks and charge them $50/hour, increasing client retention and their budgets, which may even allow them to hire her for legal projects they previously couldn't afford to fund. 

 

Apple is a great example of this. Cheap smartphones and commodity PCs have been around forever, if Chinese companies make them cheaper and better that's great for americans who choose that option, giving them more money to spend elsewhere or enabling their companies to equip more employees with better PCs to be more productive. But Apple has invested immense amounts of capital into building proprietary operating systems and software, CPUs, hardware, services and stores to provide value and experience that a huge number of customers consider superior. Its not going anywhere, and neither are its customers as long as they consider it even slightly better than Android, Windows and Linux devices.

 

Companies like Dell would rightly go away if cheap Chinese PC makers can build generic PCs to undercut it's offerings. But even Dell has long understood this, and provides most of its value to the enterprise in easily managable and servicable equipment. As China moves up the value chain, we get to make the value chain even longer and better.

 

Yes, you are right that "flaw" is probably not the right word. I am not convinced that completely free trade between two countries with widely different standards of living will benefit both, but then again I haven't thought very deeply about this. It is still the morally right thing to do in most cases, I think.

 

[ValueArb]

7 hours ago, Luca said:

 

 

 

 

This is a problem if the stagnation persists. 

 

Its really hard to push up post 2018 incomes when the country took an entire year off, and ran up another $10 trillion in debt to pay for it. Expect more stagnation until we get our fiscal house in order.

 

 

[Dinar]

3 minutes ago, ValueArb said:

 

Its really hard to push up post 2018 incomes when the country took an entire year off, and ran up another $10 trillion in debt to pay for it. Expect more stagnation until we get our fiscal house in order.

 

 

You are 100% correct, but I would add also that incentives matter.  When you get free groceries + food stamps, Medicaid, subsidized/free housing, welfare, et all, what is the point of working for most low income workers?  You tax those who work more and more so more and more people can sit on welfare.

[ValueArb]

28 minutes ago, treasurehunt said:

 

Yes, you are right that "flaw" is probably not the right word. I am not convinced that completely free trade between two countries with widely different standards of living will benefit both, but then again I haven't thought very deeply about this. It is still the morally right thing to do in most cases, I think.

 

 

You are correct about the moral case, but unfortunately it carries little weight with most people.

 

A better example might be to reductio ad absurdum. What would happen if China submit its entire billion inhabitants and all its capital to our needs? Anything we wanted to build they would build for us, for free. The CCP would command their smartphone makers to invest more heavily to build iPhone level phones and give them to americans, for free. Same with their PC makers. Their farmers would send us all their annual crop production, for free. BYD would build all the EVs we wanted, for free.

 

Would this be terrible? Would our farmers, car makers, computer companies and Apple go out of business and we'd be all unemployed, with nothing to do but eat our free food, play video games on our free PCs, call our friends on our free phones and drive over to their house in our free cars? Or would we take all the free stuff from China and keep working to make even better stuff and different foods so we can live even better?

 

There is is only one major difference between this example and the real world where China provides us more and cheaper goods than we can make. The difference is with free trade the dollars we send to china to buy cheaper goods have to get sent back to buy either american goods, american services or fund the american budget deficit and debt.  Since Clinton left office we've decided that our benefits of free trade should mostly accrue in the form of funding our deficit spending, not selling more goods and services. 

Edited March 1 by ValueArb

[Gregmal]

When fast food gets that expensive, a rationale person owes it to themselves to go get their food at a better joint....I can get a 4 pack of the finest burgers for $10 at the store. Or I can go to the highest of caliber local steakhouses and get a burger meal for $16-25. Fast food is really just a lazy choice. Further, pretty sure Wendys still has $5-6 combo deals. People make choices and then blame inflation. Its easier that way. There is NO reason, longer term, McDonald's should be able to charge $15 for a Big Mac meal if people behaved rationally.

[ValueArb]

10 minutes ago, Dinar said:

You are 100% correct, but I would add also that incentives matter.  When you get free groceries + food stamps, Medicaid, subsidized/free housing, welfare, et all, what is the point of working for most low income workers?  You tax those who work more and more so more and more people can sit on welfare.

 

Can't argue with this point. In fact it may be a significant influence in keeping lower quartile incomes stagnant.

[gfp]

So to Dinar's and ValueArb's points above - Am I to understand that your argument is that fewer people working (because they don't have to and they are sitting on welfare) is contributing to lower wages for the low income workers we are discussing?  Fewer low-skill laborers seeking work -> Lower wages?  Is that what you two believe?

[vinod1]

50 minutes ago, ValueArb said:

 

There is no flaw, other than self interested actors incented to profit seek at the expense of everyone else by inducing politicians to return to mercantilism. 

 

Ok

[james22]

15 minutes ago, Gregmal said:

... if people behaved rationally.

 

1. LOL

 

2. It's possible those who frequent fast food places aren't familiar with the highest of caliber local steakhouses.

[ValueArb]

40 minutes ago, gfp said:

So to Dinar's and ValueArb's points above - Am I to understand that your argument is that fewer people working (because they don't have to and they are sitting on welfare) is contributing to lower wages for the low income workers we are discussing?  Fewer low-skill laborers seeking work -> Lower wages?  Is that what you two believe?

 

No, I'm looking at household income before transfer payments. If you have two people in a household living entirely off welfare and foodstamps (and charity, and other less legal endeavors), under that measure your household income is zero.  If both took full time jobs at $10/hour, their household income is now $41,600 raising average income for the quartile (but not affecting overall median household income).

 

More to your point. If transitioning a bunch of people from government dole to actual work lowers wages, the effect on average unskilled wage is likely to be slight, but the effects for them, their families, their quartile's average income, the country, government spending, taxes, and borrowing is likely to be significantly beneficial. 

[RedLion]

2 hours ago, Castanza said:

I rarely eat at MCD's but the wife and I were road tripping and stopped for a "quick and cheap meal."

 

Small fry - $3.69

Large fry - $4.95

Quarter Pounder meal - $13.69

McChicken - $3.99

McDouble - $3.19 

4-Piece Nugget - $3.69 

 

We kept driving...absurd prices for borderline garbage food. Can go to a local sit down burger joint for those prices. 

I bought a pack of prime grade filet mignon at Sam’s club for the same price as the last time I bought fast food for the family. It’s stupid how much prepared food costs, it used to be an area I wasted a lot of money on,  but mostly just cook at home or go to the tamale lady at the corner lot. 

[Dinar]

3 hours ago, gfp said:

So to Dinar's and ValueArb's points above - Am I to understand that your argument is that fewer people working (because they don't have to and they are sitting on welfare) is contributing to lower wages for the low income workers we are discussing?  Fewer low-skill laborers seeking work -> Lower wages?  Is that what you two believe?

No, what I believe is that unskilled immigration depresses wages paid to low income workers.  If you would like to see their wages rise, like I do, you need to eliminate unskilled immigration and help those low income workers who want and can to become skilled tradesmen - carpenters, electricians, plumbers, etc...

The benefit of gutting social services is manifold - good for people for their dignity and mental well being, reduces crime (when people don't work, they tend to look for trouble), boosts GDP as those workers join the labor force, crime reduction benefits society in a myriad of ways.  Government has more tax revenue without changing tax rates, etc...  Larger labor force is also good reducing inflationary pressures.  But no, I am NOT saying that decreasing unskilled labor force leads to lower wages, just the opposite.  

[Spooky]

7 hours ago, vinod1 said:

 

Ok

 

What is the flaw vinod1 (apologies if I missed it above)?

[bargainman]

8 hours ago, Castanza said:

I rarely eat at MCD's but the wife and I were road tripping and stopped for a "quick and cheap meal."

 

Small fry - $3.69

Large fry - $4.95

Quarter Pounder meal - $13.69

McChicken - $3.99

McDouble - $3.19 

4-Piece Nugget - $3.69 

 

We kept driving...absurd prices for borderline garbage food. Can go to a local sit down burger joint for those prices. 

 if you get the McDonald's app, there's always a daily 2 for 1.  2 double cheeseburgers or 6pc chicken nuggets for $3.39.  plus you earn points for the occasional free ice cream cone      

[bargainman]

With regards to the comments around unskilled immigrants, good luck finding nonimmigrants in the tiktok generation willing to do the menial difficult jobs like the migrant workers on farms, the dishes and floors in restaurants etc.  

[backtothebeach]

This thread was started in August 2021 with the title “The TOP is coming”. In retrospect that was actually a great call, the market topped out in November 2021.

 

Then, close to a market bottom, I think in May 2022, Parsad renamed it to “Is The Bottom Almost There?” The market bottomed in May, but made another even lower bottom in September 2022. Still, I think another good call.
 

Not sure when exactly it was changed to the current title “ Have We Hit The Top? “, but it was way before a new all-time high, IIRC with the S&P around 4200, so in retrospect a very premature call.
 

Just goes to show how difficult these calls are… and how difficult it is to be confidently bullish after a bear market, even when all the bullish trends are all in place. E.g. the index above it’s 200 DMA, etc.. I think after the GFC it was similar, it took a long time for people to regain confidence.

[mattee2264]

https://www.axios.com/2023/11/03/productivity-growth-us-economy

https://www.reuters.com/markets/us/us-productivity-rises-fastest-pace-three-years-third-quarter-2023-11-02/

https://www.ft.com/content/61b8574d-724c-4486-b6b0-21191c22d476

https://www.brookings.edu/articles/machines-of-mind-the-case-for-an-ai-powered-productivity-boom/

https://www.bloomberg.com/opinion/articles/2024-02-23/us-productivity-is-on-upswing-again-ai-could-supercharge-it-for-good-or-ill?leadSource=uverify wall

 

Quite a few hints that US productivity growth is on an upswing and that is even before widespread adoption of AI by businesses. If so it really would be a holy grail as it would result in faster economic growth and lower inflation (and therefore allow lower interest rates). 

 

Economic growth and productivity growth was anaemic for much of the post GFC period with most of the EPS growth of the S&P 500 driven by financial engineering, secular growth from Big Tech and tax cuts. 

 

So if this isn't a false dawn then this could indeed be the roaring 20s with the S&P 500 already up almost 150% from the pandemic lows and a long bull market can take markets up 300-500%. And that is a prospect that would keep even the most hardened perma-bear up at night. 

 

 

Edited March 2 by mattee2264

[Hektor]

10 minutes ago, mattee2264 said:

If so it really would be a holy grail as it would result in faster economic growth and lower inflation (and therefore allow lower interest rates). 

 

https://fortune.com/2024/02/06/immigration-labor-force-soft-landing-paul-krugman/

 

Quote

A major economic mystery of the post-pandemic U.S. is how, with the tightest labor market in decades, employers keep adding jobs every month—even as record-high inflation steadily cools. To that question, Nobel Prize-winning economist Paul Krugman has a simple answer: It’s the immigration, stupid. 

 

“The economy is chugging along, creating lots of jobs, inflation is basically in the rearview mirror now, and not a hint of all of the terrible stuff that was supposed to be happening,” Krugman told the New Republic’s “Daily Blast” podcast on Sunday. A major reason that employers have been able to keep hiring without refueling inflation is because the labor force is growing, Krugman noted. “How much of the increase in the labor force is foreign-born workers? How much of the increase since 2020 is foreign workers? The answer is all,” he said, adding that every aspect of U.S. outperformance relative to other advanced countries is due to its ability to grow rapidly, thanks to the availability of foreign-born workers.

 

[blakehampton]

These are Apple’s figures 3 years prior of when Buffett started buying the stock in Q1 of 2016. Back then, Apple’s market cap was roughly $500-600 billion and 30 year bonds were yielding about 3%. Current 30 year bonds are yielding 4.3%.

 

Buffett is the GOAT and this was obviously an amazing investment. It just seems to me that Buffett doesn’t like to sell even when something is sitting at a crazy price. Hasn’t he been in the same situation before with Coke? I’m not saying that this is a bad trait, and it might actually be a great one over the long-term, especially in his situation with the amount of money that he has to manage. However, I just can’t fathom why people think Apple is a good investment right now. I also found the research on Buffett’s past purchase interesting, so I thought I’d share.

 

 

Edited March 4 by blakehampton

[blakehampton]

Buffett wrote in an annual letter to shareholders that “Our satisfactory results have been the products of about a dozen truly good decisions.” Does anybody have a good list of these 12? I can think of a few but I’m missing some:

1. Apple
2. Coca-cola
3. Gillette
4. Amex
5. GEICO
6. Cap Cities/ABC
7. The Washington Post
8. Wells Fargo
9. See’s Candies
10. National Indemnity

I also think it might be interesting to rank them by impact but it sounds like quite the challenge. Also I'm just now realizing that not all 12 are investments, some are decisions regarding people.

Edited March 5 by blakehampton

[ValueArb]

Just now, blakehampton said:

Buffett said at an annual meeting that most of his money came from a dozen good decisions or so. Does anybody have a good list of those 12? I can think of a few but I’m missing some:

1. Apple
2. Coca-cola
3. Gillette
4. Amex
5. GEICO
6. Cap Cities/ABC
7. The Washington Post
8. Wells Fargo
9. See’s Candies

I also think it might be interesting to rank them by impact but it sounds like quite the challenge.

#1 - Sanborn Maps

#2 - American Exoress

 

 

because the earliest big wins are what enables the later winners.

[oscarazocar]

15 minutes ago, blakehampton said:

Buffett said at an annual meeting that most of his money came from a dozen good decisions or so. Does anybody have a good list of those 12? I can think of a few but I’m missing some:

1. Apple
2. Coca-cola
3. Gillette
4. Amex
5. GEICO
6. Cap Cities/ABC
7. The Washington Post
8. Wells Fargo
9. See’s Candies

I also think it might be interesting to rank them by impact but it sounds like quite the challenge.

 

National Indemnity, See's, Buffalo Evening News, GEICO, Scott Fetzer, hiring Jain, KO, AXP, Mid-American, BNSF, AAPL.

 

Scott Fetzer is a very underrated acquisition.  Berkshire paid $235m net in 1986, took out $244m (net income = FCF) in first 5 years, $309m in next 5 years, and in year 11 earned $82m net, with Scott Fetzer segment at $32m net income (peak), Kirby at $39m (peak) and World Book still earning $10m.  The entire thing did about 24% IRR with minimal leverage.  All that cash went into equities and other businesses at attractive prices between 1986-2000.

[brobro777]

27 minutes ago, ValueArb said:

#1 - Sanborn Maps

#2 - American Exoress

 

 

because the earliest big wins are what enables the later winners.

 

Yes AXP Salad Oil scandal

[brk64311]

MCO, from 2000 IPO to now, 30plus X

[ValueArb]

Just catching up my podcasts and in middle of last weeks value after hours with Jim Carroll as the guest where he's talking about how hard it is for the market makers to hedge these new zero day options. Gives me flash crash vibes...