Have We Hit The Top?

[frommi]

8 hours ago, Gregmal said:

All recession forecasts take time. The key is to just be a broken record and eventually you get to say I knew it 

True, but with my strategy of just buying puts over the summer months when unemployment is trending up, i just have to be right 1 out of 5 times to make money in the end. 

[mattee2264]

Is the signal as accurate in this day and age when the Fed manipulates bond prices not only through the base rate but also by QE/QT operations? Or when speculators have been buying long bonds betting on a pivot and continued disinflation due to the Fed's forward guidance? 

 

Regardless the actions of central banks such as ECB and Canada show that central banks aren't going to let the inconvenience of inflation being above target prevent them from cutting aggressively and blowing up their balance sheet via QE if we go into recession or there are any kind of issues in the financial system. 

So the moral hazard is alive and well. 

[frommi]

The inverted yield curve is not really a signal, its the root cause of why the economy doens't expand anymore. Banks lend long term and borrow short term. So if the yield curve is inverted they don't make money on new credit, which leads to reduced economic activity. At least as far as i understand this. Maybe increased government spending counteracts this a bit, but i doubt its enough to counter it in the long run.

[Gregmal]

We ve had people fixating on every little datapoint imaginable to justify recessions and reasons to be pessimistic for years. The yield curve is just one of many of those datapoints. This just fundamentally misses the point of investing. Imagine Buffett dumping Apple on every China scare or monthly economic print below expectations since 2016? 

[Sweet]

15 hours ago, TwoCitiesCapital said:

 

Not quite. There are historical observations where its been as little as 2-3 months after the inversion and historical observations where it took 12-18 months after the inversion. And while it has a 100% track record, there are so few observations of recessions that any "average" of those observations isn't likely to NOT be super predictive or the 'actual' mean of the distribution. 

 

The inversion is the warning sign that things are slowing down. It's also somewhat causal by choking off new credit creation since banks earn negative significantly reduced margin on new loans. It's when things un-invert that is basically the confirmation. You probably don't catch the top of the equity market by waiting for the reversion of the yield curve - but you typically miss out on the nastiest part of the recession and you don't get out 1-2 years too soon either. 

It doesn’t have a 100% track record, it has produced a false single before and will do again:

https://www.frbsf.org/research-and-insights/publications/economic-letter/2018/03/economic-forecasts-with-yield-curve/
 

And what use is it anyway if it doesn’t tell you a) when the recession might arrive, and b) what stocks will do anyway.

 

I remember lots of chatter about 18 months ago that the yield curve predicts a recession, and the stock market never bottoms before a recession, and yet the market has ripped to new all time highs.

[frommi]

No because its irrelevant but he also makes macro calls, they are just not as promiment. Winding up his partnership in 1969? Selling BRK-stock in 2000 and warning of the bubble? Even in the latest letter is a hint that the market is very frothy.  I am pretty sure he also looks at the yield curve and its implications. Graham told us that we should increase our cash/bond allocation at times and have it varying depending on whats available.

So its not so black and white.

For me it makes sense to look where we are in the capital cycle and invest accordingly. Theres also a book on this i think its Capital Returns: Investing through the Capital Cycle .

[TwoCitiesCapital]

2 hours ago, Sweet said:

It doesn’t have a 100% track record, it has produced a false single before and will do again:

https://www.frbsf.org/research-and-insights/publications/economic-letter/2018/03/economic-forecasts-with-yield-curve/
 

And what use is it anyway if it doesn’t tell you a) when the recession might arrive, and b) what stocks will do anyway.

 

I remember lots of chatter about 18 months ago that the yield curve predicts a recession, and the stock market never bottoms before a recession, and yet the market has ripped to new all time highs.

 

I think it depends on which rates you're using. They don't disclose, but A LOT of people focus on 2Y-10Y (which appears to match up with their chart pretty well). While similar to the 3M - 10Y, it has subtle differences and triggers at different times. 

 

The founder of the indicator prefers the 3M rate. The 2Y rate doesn't track the Fed rate perfectly (it actually leads it) which lengthens the time between the inversion firing and the eventual recession. It also is a market rate influenced by return/inflation expectations in the future and not necessarily representative of short-term bank funding which the Fed overnight rate (and the 3M rate) do a better job of approximating. 

 

What you're looking for is the choking off of credit when the bank funding rate is lower than the long-term rates they can lend at (or buy treasuries with). The 3M is a better indicator of this. I don't' believe there has been a false signal in the 3M - 10Y, but could be wrong as the Fed data for that doesn't go back to the 60s. 

 

There are others who use the % of the yield curve that is inverted instead of any singular pair. I expect that may also improve the predictive power/timing, but have not done the work myself to know. 

Edited June 7 by TwoCitiesCapital

[dealraker]

5 hours ago, Gregmal said:

We ve had people fixating on every little datapoint imaginable to justify recessions and reasons to be pessimistic for years. The yield curve is just one of many of those datapoints. This just fundamentally misses the point of investing. Imagine Buffett dumping Apple on every China scare or monthly economic print below expectations since 2016? 

Having no settle up date nor fear of time based lower stock quotes is the privilege and/or the decision of a very few.  It is somewhat liberating to be "I simply want to be in this business" focused rather having your mind racing through an endless array of complex variables- most of which the batting average to correctly predict is just awful.  

 

To me, at least from my 50 year investment perspective, the investment model that demands predicting things like recessions laced with the gotta-beat-the-market mindset slide in a heavy burden on investors, and basically all fail in attempting both.  But again I'm admittedly a long-long-long way off in my own little wonderland of total concentration towards a model of guaranteed not failing rather than beating someone.  

 

Back in 2009, about March 9th or whatever, my next door neighbor who had lost her husband to cancer came over in near emotional collapse mode asking, "Charlie...have I lost my dead husbands hard earned money and his life insurance by not selling?"  I replied, "Are you selling the trucking company?"  She responded, "Hell no!  He'd come back and haunt me!"   She and her sister-in-law own a long-long-long lived multi-generational private trucking co in High Point, NC.

 

I said back to her, "Angela (that's her name...same as my wife's) I just participate; I don't predict."

 

We went from 125 employees in the builders supply down to 22 part time back then.  Last year, with 30-some employees we made many multiple times the money we made with 125 employees pre financial crisis during a early 2000's housing boom.  We've made multiples times that earlier period for 5 years in a row.

 

Business.  Business is fun and honestly not too hard to figure out in most cases.  Economic cycles and stock prices?  Not my thing.  

[Gregmal]

Yea in a way that’s why for most just owning the index is fine. Things eb and flow. There’s cycles. Every year we hear whining about “all the returns only came from xyz” and it’s like, well, that’s the point of indexing. Similar to how energy killed it in 2022 after years of sucking while FANG got pummeled. Then next year FANG comes back. This year it takes a breather and it’s something else. It’s funny how this stuff drives people crazy cuz it’s simply doing what it’s supposed to. 

[coffeecaninvestor]

I used to spend quite a bit of time tracking spreads, yield curves, and value metrics in an attempt to market time. I read enough books to know this is a fools errand. Buying quality businesses that have good balance sheets seemed like the easier endeavor. I think it’s normal in a market like this to get smart and try to time things but Dealraker is right that riding the market is the way to go. It also definitely matters where you are in life. I still have 30+ years to invest, but if I was on the verge of retirement id have a generous pile of cash. In the mean time I’ll set and forget my investments and go bust my ass at work so I have more cash flow to invest when the time comes. 

[Kupotea]

I’ve done really well reading the macro tea leaves. Picking bottoms for cyclical stocks/industries has easily been where i’ve made the most money. That doesn’t mean i always run to cash when i see dark clouds.

 

I would say there’s a greater than 50% chance we’re heading for another slow down in the next year but i’m still fully invested because my investments should do just fine anyway. I would actually love a recession because it would be a great opportunity to pick up some copper/aluminum miners on the cheap.

 

i fully respect the I only buy and hold great businesses mentality. It’s a proven winner. That doesn’t mean it’s the only successful way to invest.

[coffeecaninvestor]

42 minutes ago, Kupotea said:

 

i fully respect the I only buy and hold great businesses mentality. It’s a proven winner. That doesn’t mean it’s the only successful way to invest.

It’s definitely not the only way. I think it comes down to the individuals temperament, the amount of time they have to devote to studying investments, and manage their portfolio. Personally I don’t have that much time with full time work and a family. I also studied my historical performance when I was more active and using macro for market timing. I realized I wasn’t outperforming and that strategy wasn’t going to work as my free time became less and less with a family and career. 

[dealraker]

I don't have Parsad's type clarity or confidence - or his all around skill - so I settle in with an old man's method.  But by dang, reading Parsad has made me one hell of a lot of money.  

 

As I often write, this is a great forum.  I mostly follow three posters, Greg, Spek, and Parsad.   My mental energy can't get too far before wearing plum out.  But this is enough for me and I just love it.  

Edited June 7 by dealraker

[Gregmal]

50 minutes ago, coffeecaninvestor said:

It’s definitely not the only way. I think it comes down to the individuals temperament, the amount of time they have to devote to studying investments, and manage their portfolio. Personally I don’t have that much time with full time work and a family. I also studied my historical performance when I was more active and using macro for market timing. I realized I wasn’t outperforming and that strategy wasn’t going to work as my free time became less and less with a family and career. 

Early on I was very active, hyper active trading, and with ease could do 30%+ a year “trading” and speculating. Eventually though I got to a point where I didn’t need to live and breathe a terminal or SEC filing. And that’s just the issue. Doing this short term shit has soooo many hurdles and that’s why 90% of people who do it, suck at it, and 98% who do it, can’t beat an index.
 

And on top of that, it’s incredibly time consuming, you need to be plugged in 24/7 and at least 6 days a week. Because the trades that you need to be putting on are constantly evolving. The only framework you have is largely gut feeling based. Instinct. All things that are useless if you aren’t plugged in. 
 

After that then you run into the fact that even if you’re doing it reasonably well, you’re giving back 40-55% of your profits bc of short term trading tax rates. 
 

So when you add it all up, to me, it’s so evident that risk/reward x quality of life factor, there’s only really one way to invest. And it’s not this short term macro guessing bullshit. 

[Blugolds]

24 minutes ago, Gregmal said:

Early on I was very active, hyper active trading, and with ease could do 30%+ a year “trading” and speculating. Eventually though I got to a point where I didn’t need to live and breathe a terminal or SEC filing. And that’s just the issue. Doing this short term shit has soooo many hurdles and that’s why 90% of people who do it, suck at it, and 98% who do it, can’t beat an index.
 

And on top of that, it’s incredibly time consuming, you need to be plugged in 24/7 and at least 6 days a week. Because the trades that you need to be putting on are constantly evolving. The only framework you have is largely gut feeling based. Instinct. All things that are useless if you aren’t plugged in. 
 

After that then you run into the fact that even if you’re doing it reasonably well, you’re giving back 40-55% of your profits bc of short term trading tax rates. 
 

So when you add it all up, to me, it’s so evident that risk/reward x quality of life factor, there’s only really one way to invest. And it’s not this short term macro guessing bullshit. 

 

^^ Basically my experience as well. The disproportionate amount of time/effort it takes for results that Uncle Sam benefits so handsomely from took fun out of it, for me at least. Plugged in, eat breathe and sleep all the info, early early mornings, late late nights, have the intestinal fortitude to stomach the occasional wrong calls, and you will make wrong calls, and even sometimes when its the right call the market can stay irrational longer than you can stay solvent etc...and after ALL that, if you do win, Uncle Sam is there to pat you on the back and stick his hand in your pocket. Your sweat, your risk and if you win, you're feeding yourself and the tax man. 

 

I think of the MIT Blackjack teams, even with statistical advantage, playing absolutely perfect there were runs that they would be down incredible amounts, but with a big enough bankroll and playing long enough, statistically it worked out in their favor. I remember reading and watching interviews where the "slump" was so long and so drastic that they began to question if they had made mistakes or were playing right, they were but there is a mental/emotional element to it also. Mental/emotional fatigue. It can be exhausting. 

 

I think it was fine when younger and hungry, hell being plugged in 24/7 in those days didnt seem exhausting because it was all I wanted to do anyway, the majority of the time I was thinking about it anyway, but as I got older and the numbers got larger, the fun/interest/passion waned. Life priorities shift, family/kids etc. The advantage of having a larger port is that eventually, when it gets big enough (hopefully everyone can quantify what is "enough") that you dont have to focus on getting the snowball as large as you can, you can pick solid performers that you can reasonably assume will continue to be solid performers for an extended period of time and produce satisfactory returns and look for times when they are at least reasonably priced and take positions. 

 

I guess it comes down to personal goals, and what the purpose of money is, is it the means? Because if you have "enough" or close, if your goal is to get as rich as possible and you're willing to sacrifice every other aspect of your life to further that, then do what you think you gotta do, but if you get to a point where even less than satisfactory, impressive or "sexy" returns still amount to more than your yearly liberal spending can burn through doing everything you want to do...spending all your time trying to increase that just for the sake of a better score at the end, seems like you're missing out on other joys/experiences of life because for me personally it couldnt be both, it was either one or the other. 

[Spooky]

35 minutes ago, Blugolds11 said:

I guess it comes down to personal goals, and what the purpose of money is, is it the means? Because if you have "enough" or close, if your goal is to get as rich as possible and you're willing to sacrifice every other aspect of your life to further that, then do what you think you gotta do, but if you get to a point where even less than satisfactory, impressive or "sexy" returns still amount to more than your yearly liberal spending can burn through doing everything you want to do...spending all your time trying to increase that just for the sake of a better score at the end, seems like you're missing out on other joys/experiences of life because for me personally it couldnt be both, it was either one or the other. 

 

Very wise. This is the realization I am coming to as well - I don't want to devote the limited time I have on this planet focused solely on the pursuit of generating more money / returns. I want to spend time on meaningful and fulfilling pursuits, focusing on my relationships with family and friends, my health, reading philosophy etc. Is my portfolio perfect? No, but as Munger would say it is good enough to hopefully compound at a respectable rate of return without any tinkering from me safely over the next decade. I see the behaviour of some of my friends that have more wealth than me and it is crazy - always trying to play short term games and follow the hot money, buying Tesla or Nvidia or the hot stock of the day or being super risky lending out money for second mortgages when all they would really need to do is park their money in some diversified ETFs and they would be set for life. Better to just try and tune out all the market noise, be invested in good companies / index funds for the long term and enjoy life. Sitting on your assets also has the inherent advantage of reducing taxes and transaction costs.

 

[Gregmal]

This is actually a tremendously honest and overall amazing interview with Bruce on the subject. I watched it when it came out originally but after talking with him and some of his friends and even his wife at the St Joe meeting really appreciated rewatching recently. Just a lot of wisdom both in relation to investing and life.

 

 

[Blugolds]

1 hour ago, Spooky said:

 

Very wise. This is the realization I am coming to as well - I don't want to devote the limited time I have on this planet focused solely on the pursuit of generating more money / returns. I want to spend time on meaningful and fulfilling pursuits, focusing on my relationships with family and friends, my health, reading philosophy etc. Is my portfolio perfect? No, but as Munger would say it is good enough to hopefully compound at a respectable rate of return without any tinkering from me safely over the next decade. I see the behaviour of some of my friends that have more wealth than me and it is crazy - always trying to play short term games and follow the hot money, buying Tesla or Nvidia or the hot stock of the day or being super risky lending out money for second mortgages when all they would really need to do is park their money in some diversified ETFs and they would be set for life. Better to just try and tune out all the market noise, be invested in good companies / index funds for the long term and enjoy life. Sitting on your assets also has the inherent advantage of reducing taxes and transaction costs.

 

 

I came to the realization on my own, but also have to give some credit to Andrew Carnegie, I read a biography about him years ago and came across a letter he wrote to himself. Obviously the sums are quite different, but the age was pretty close and the sentiment was the same. 

 

At age 33, Andrew Carnegie took an inventory of his own heart and wrote this note to himself:

Man must have an idol — The amassing of wealth is one of the worst species of idolatry. No idol more debasing than the worship of money. Whatever I engage in I must push inordinately therefore should I be careful to choose the life which will be the most elevating in character. To continue much longer overwhelmed by business cares and with most of my thoughts wholly upon the way to make more money in the shortest time, must degrade me beyond hope of permanent recovery. I will resign business at Thirty five, but during the ensuing two years, I wish to spend the afternoons in securing instruction , and in reading systematically.

[John Hjorth]

15 hours ago, Gregmal said:

This is actually a tremendously honest and overall amazing interview with Bruce on the subject. I watched it when it came out originally but after talking with him and some of his friends and even his wife at the St Joe meeting really appreciated rewatching recently. Just a lot of wisdom both in relation to investing and life.

 

 

 

Greg [ @Gregmal],

 

This morning I spent the needed almost two hours listening to this interview of Bruce Berkowitz. It's really great. It turns out that my loose [and subjective!] perception of this man has been totally wrong, based on some of his past doings.

 

He appears fairly straightforward, well connnected to Mother Earth, and most of all he appears very clarified and settled bout his business and what else matters to his own life, - I would say in an uncommon degree, even considering his age. I would personally even call him a bit humble, while it's evident, that he has done very well.

 

I like him.

 

Thank you for sharing.

Edited June 8 by John Hjorth
Spelling

[coffeecaninvestor]

1 hour ago, John Hjorth said:

 

Greg [ @Gregmal],

 

This morning I spent the needed almost two hours listening to this interview of Bruce Berkowitz. It's really great. It turns out that my loose [and subjective!] perception of this man has been totally wrong, based on some of his past doings.

 

He appear fairly straightforward, well connnected to Mother Earth, and most of all he appears very clarified and settled bout his business and what else matters to his own life, - I would say in an uncommon degree, even considering his age. I would personally even call him a bit humble, while it's evident, that he has done very well.

 

I like him.

 

Thank you for sharing.

+1. I listened this morning since my son woke me up at 5am. I didn’t know much about him before but seemed down to earth and I really liked the conviction he has in his investments. It made me want to buy some JOE. 

[John Hjorth]

50 minutes ago, coffeecaninvestor said:

+1. ... It made me want to buy some JOE. 

 

#metoo. With good long term investments it's seldom too late to engage. About USD 55 per share by now.

[Spooky]

On 6/8/2024 at 2:32 AM, Gregmal said:

This is actually a tremendously honest and overall amazing interview with Bruce on the subject. I watched it when it came out originally but after talking with him and some of his friends and even his wife at the St Joe meeting really appreciated rewatching recently. Just a lot of wisdom both in relation to investing and life.

 

 

 

Thanks for sharing! Really impressed by Bruce and his attitude. Especially the part where he talks about how he wants all Joe shareholders to do well, not just him, and he is taking no salary or shares. Contrasting this to the behaviour of Shari Redstone at Paramount is pretty eye opening. Also liked his goal of at some point distributing shares of JOE to the shareholders of his fund similar to what Buffett did with Berkshire.

 

His ability to be so heavily concentrated in a single position is also impressive, he must have absolute conviction. Think I need to get on the Joe train. The part of the podcast where he was talking about regulatory confiscation / nationalization was pretty interesting. Wonder if that is the reason he has been selling down his position in Berkshire. Wish Greene had asked him to expand more on his comment about preparing for potential turbulence in the future and the change in behaviour if a single nuke were to go off. Seems like he is expecting some interesting times ahead.

[Gregmal]

Yea from several different angles that interview is informative. I’ve said it so many times that people always ask me about Bruce and accessibility during the AGM. And they think I’m kidding when I’m like yea just go talk to him. Or wait for him to come say what’s up and introduce himself. Guy is a people’s champ. He’s totally checked out from the institutional game. And yes, as John noticed, it’s bizarre but he’s so friggin humble. Someone asked him about his success with banks in the early 90s and he was just like “ya know, I still don’t know whether or not I just got lucky”. Compare that to the answer someone like Ackman would give, or heck even Buffett whom seems to have some swagger talking about how obvious his ideas seemed to him at the time, and it’s impressive. 
 

I wish he’d fix the Fairholme situation because it’s clearly putting a bit of a lid on JOEs stock price, but at the same time it’s hard not to admire how he’s doing things on his own terms and even with keeping Fairholme going, seems to be doing it for the right reasons, ie “for those that want to be with me”. He s a unique guy for sure. 

Edited June 10 by Gregmal

[Kupotea]

On 6/7/2024 at 8:09 PM, Gregmal said:

Early on I was very active, hyper active trading, and with ease could do 30%+ a year “trading” and speculating. Eventually though I got to a point where I didn’t need to live and breathe a terminal or SEC filing. And that’s just the issue. Doing this short term shit has soooo many hurdles and that’s why 90% of people who do it, suck at it, and 98% who do it, can’t beat an index.
 

And on top of that, it’s incredibly time consuming, you need to be plugged in 24/7 and at least 6 days a week. Because the trades that you need to be putting on are constantly evolving. The only framework you have is largely gut feeling based. Instinct. All things that are useless if you aren’t plugged in. 
 

After that then you run into the fact that even if you’re doing it reasonably well, you’re giving back 40-55% of your profits bc of short term trading tax rates. 
 

So when you add it all up, to me, it’s so evident that risk/reward x quality of life factor, there’s only really one way to invest. And it’s not this short term macro guessing bullshit. 

 

@Gregmal I’m glad you found something that works well for you. My average holding timeframe is 1-2 years. I use macro to help find undervalued securities based on the cycle. Being a value investor and keeping on top of the macro situation aren’t mutually exclusive. 
 

as an aside, I did try my hand at short term market timing and I promptly lost a bunch of money. I’m sure certain people are good at it but i’m not one of them.  At least it was a valuable lesson to stick with what you’re good at. 

[Ulti]

10 hours ago, Gregmal said:

with banks in the early 90s and he was just like “ya know, I still don’t know whether or not I just got lucky”. Compare that to the answer someone like

For someone who got burned by regulators and the Supreme Court, and his now aversion to investing in banks because of this; I find it interesting that he invests in MLP… another highly regulated industry