Have We Hit The Top?

[changegonnacome]

14 minutes ago, Castanza said:

Enter stage left the digital yuan that has an expiration date

 

Yep there's no end to the tricks the CCP could do in an authoritarian state to drive spending....it will make 0% interest rates look quite quaint.

 

They had the one child policy.....how about no money left in your checking account policy....that would definitely pack out the bars & restaurants at the end of month in Shanghai or whatever Tier 3 city really needs some life in it!

Edited August 10, 2023 by changegonnacome

[Luke]

22 minutes ago, changegonnacome said:

 

Yep there's no end to the tricks the CCP could do in an authoritarian state to drive spending....it will make 0% interest rates look quite quaint.

 

They had the one child policy.....how about no money left in your checking account policy....that would definitely pack out the bars & restaurants at the end of month in Shanghai or whatever Tier 3 city really needs some life in it!

Yep!

[brobro777]

Oh man it would be so cool if NQ drops 2000 points in month or something

 

 

[changegonnacome]

47 minutes ago, brobro777 said:

Oh man it would be so cool if NQ drops 2000 points in month or something

 

Let's see - from what I can see the July CPI is the last 'easy' print that was 'in the can' so to speak.

 

Moving forward beginning with August CPI the rubber is hitting the road........headline progress will need to be matched by actual and underlying progress on supercore....the progress here, has been modest to say the least....but won't deny in the last couple of prints there has been some encouraging but very modest moves down these need to continue and in fact accelerate.

[Gregmal]

“Almost all of the monthly inflation increase came from shelter costs, which rose 0.4% and were up 7.7% from a year ago.”

LOL…and they think the answer is still hiking rates! This has to be one of the dumbest regimes we have ever had. THEY are the cause of the inflation at this stage of the game….

 

[brobro777]

1 hour ago, changegonnacome said:

 

Let's see - from what I can see the July CPI is the last 'easy' print that was 'in the can' so to speak.

 

Moving forward beginning with August CPI the rubber is hitting the road........headline progress will need to be matched by actual and underlying progress on supercore....the progress here, has been modest to say the least....but won't deny in the last couple of prints there has been some encouraging but very modest moves down these need to continue and in fact accelerate.

 

 

Well one data point I can provide from Los Angeles is that egg prices have come down to $4.99 a dozen from $6.99, but $4.99 is still higher than $2.99 pre-COVID prices. 

 

Hopefully that means good things for my QQQ puts!!!!

 

[changegonnacome]

1 hour ago, brobro777 said:

Hopefully that means good things for my QQQ puts!!!!

 

Forget eggs - your best bet is that the 30yr treasury just today took a time machine back to levels not seen since 2011.

 

Watch out for 30yr T levels last seen when Rhianna was singing about Umbrellas!

[brobro777]

1 hour ago, changegonnacome said:

 

Forget eggs - your best bet is that the 30yr treasury just today took a time machine back to levels not seen since 2011.

 

Watch out for 30yr T levels last seen when Rhianna was singing about Umbrellas!

 

I always figured that inflation would be comparatively low over time due to technological advances making everything constantly more efficient and declining birth rates everywhere and I still believe that but maybe this disruptive adjustment period will go on far longer than people expect. In addition, like Greg said, governments can do a lot of dumb things that makes everything worse... 

 

 

[Spekulatius]

4 hours ago, changegonnacome said:

 

Forget eggs - your best bet is that the 30yr treasury just today took a time machine back to levels not seen since 2011.

 

Watch out for 30yr T levels last seen when Rhianna was singing about Umbrellas!

How about Dire Straits: “Money for nothing”

[Parsad]

https://finance.yahoo.com/news/big-us-banks-reportedly-trying-000319076.html

 

Trouble a brewing!  Cheers!

[changegonnacome]

7 hours ago, Spekulatius said:

How about Dire Straits: “Money for nothing”

 

That would be more my style 

[changegonnacome]

11 hours ago, brobro777 said:

I always figured that inflation would be comparatively low over time due to technological advances making everything constantly more efficient and declining birth rates everywhere and I still believe that but maybe this disruptive adjustment period will go on far longer than people expect.

 

Good argument out there that due to Wall St.'s aversion for capex over time (see O&G) that lots industries that supply physical goods predominantly input goods acquiesced to shareholder demands & have systematically underinvested in capacity.......you know all the stats no new steel plants built in X years, refineries etc.

[Spekulatius]

47 minutes ago, changegonnacome said:

 

Good argument out there that due to Wall St.'s aversion for capex over time (see O&G) that lots industries that supply physical goods predominantly input goods acquiesced to shareholder demands & have systematically underinvested in capacity.......you know all the stats no new steel plants built in X years, refineries etc.

There were quite a few steel plants build in the US by Nucor or Steel Dynamics. However, in those business requiring huge plants, most capacity expansion projects tend to occur with brown field not green field projects, because it’s quicker and cheaper to egg it done.

 

I am not sure about systematic underinvestment in Capex either. Investors require a higher return than what the market conditions were given them and preferred to invest in China vs the USA (because that’s where the growth was) but that is now changing. I think somebody said some time ago that there are more cranes operating in China than the rest of the world

So in my opinion, it’s not that total Capex is changing I but more that investment is going to move out of China to other countries and back in the USA and possibly Mexico.

[james22]

 

Printing money will always be politically easier than cutting benefits or raising taxes.

[rkbabang]

12 hours ago, Spekulatius said:

How about Dire Straits: “Money for nothing”

 

Or the new anthem that dropped a few days ago and is going viral:

 

"... your dollar ain't shit and it's taxed to no end ..."

https://www.youtube.com/watch?v=sqSA-SY5Hro

 

 

[TwoCitiesCapital]

1 hour ago, james22 said:

 

Printing money will always be politically easier than cutting benefits or raising taxes.

 

+1 

 

Technological advancement and increasing productivity have helped keep a lid on inflation - but those aren't steady trends that go up all of the time while money printing basically does.

 

There is also some truth to the underinvestment in CapEx as demonstrated by a number of commodities that are in shortage or going to be (like energy, copper, clean steel, etc). Some of those are actual shortages based on today's demand, some will be shortages based on political decisions (like clean steel), and some of those will be shortages based on the multi-decade trend of electrifying our lives. 

 

I still think the risks are deflationary recessions - but I am betting the money spigot gets bigger every slow down, shortages will feed through to prices, and you'll get boom/busts in inflation that still lead to higher average inflation than the low-and-stable inflation of the last decade. 

Edited August 11, 2023 by TwoCitiesCapital

[brobro777]

5 hours ago, changegonnacome said:

 

Good argument out there that due to Wall St.'s aversion for capex over time (see O&G) that lots industries that supply physical goods predominantly input goods acquiesced to shareholder demands & have systematically underinvested in capacity.......you know all the stats no new steel plants built in X years, refineries etc.

 

Oh yea underinvestment in capacity is a good point. 

 

And then there is stuff like the years of delay in building a Target that I used to drive by for years - https://la.curbed.com/2018/12/20/18150750/hollywood-target-husk-construction-starting-decision

 

Government regulations, Fed keeping the cost of capital high, and factors like the Target litigation above can keep things expensive and result in boom/busts in inflation that TwoCities noted. And hey, maybe this up and down volatility can last 10 years, why not?

 

[changegonnacome]

18 minutes ago, brobro777 said:

Oh yea underinvestment in capacity is a good point. 

 

Wall St pleasing capex underinvestment + ESG mafia have for sure created bottlenecks......and doubly so as @Spekulatius says bottlenecks in on/near/friend-shore locations

[brobro777]

18 minutes ago, changegonnacome said:

 

Wall St pleasing capex underinvestment + ESG mafia have for sure created bottlenecks......and doubly so as @Spekulatius says bottlenecks in on/near/friend-shore locations

 

Well I for one welcome volatility that lasts 5-10 years due to stuff like these bottlenecks. There's gotta good opportunities that result from such volatility and I'm sure I can make money while being lazy as hell by copying good ideas from this place! haha

 

 

[Spekulatius]

6 hours ago, james22 said:

 

Printing money will always be politically easier than cutting benefits or raising taxes.

Until inflation really rears it's ugly head, that is. After that it's much less clear what is more palpable.

 

Inflation looks like free lunch but isn't.

[cubsfan]

^^^ Damn - Looks pretty damn ugly right now!!

[Luke]

On 8/6/2023 at 11:26 AM, mattee2264 said:

Since the GFC economic growth has been anaemic. Even trillion dollar emergency pandemic deficits (still ongoing!) and ZIRP and successive rounds of QE and tax cuts etc have failed to push real GDP growth above 2% for more than about five minutes. Inflation gave a little boost to nominal growth post-pandemic but that will only be temporary. 

 

Obviously the market and the large cap segment especially have done wonderfully well over the last 15 years. But the operative factors are easy to identify and are unlikely to be sustainable and may even go into reverse and become severe headwinds

 

3)Various factors have resulted in much more concentrated markets so larger companies have been benefiting at the expense of smaller companies and therefore able to post impressive earnings growth even if the overall market is growing at not much more than GDP growth. And with greater market concentration it allows better margins that are not competed away. But market share gains are also not sustainable and market growth is far more linked to GDP growth so if GDP growth is weak then that will mean much weaker growth for large caps going forward. 

 

4) Technology has a winner takes all dynamic which has meant that Big Tech companies have been able to "eat the world" and achieve mindboggling multi-trillion market caps. And of course much of the increase in the S&P 500 from the pre-COVID peak of around 3000 to the current level of around 4500 has been driven by Big Tech who enjoyed the benefits of a lot of technology investment spending being pulled forward as well as an acceleration of adoption of online retail/online advertising/cloud etc. 

Obviously the hope is that AI will extend their growth runway. But under the surface over the last few years growth has stalled and while in the short term efficiency improvements and cost cuts can sustain growth a little longer they are not sustainable. 

 

This is a very interesting post, I have been doing some research into this sort of "stagnant capitalism" thesis lately and find it interesting to consider in today's investing. 

 

Some points:

 

1) All time high SP 500 profit margins, concentraded markets, M&A+Buybacks+Dividends instead of Investing (Microsoft, Apple, Alphabet, Amazon)

2) No wage growth for median percentile earners since more than 20 years and average hourly wages have seen 0 growth adjusted for inflation since 40 years

 

 

 

3) Top 90th percentile of earners captured massive gains of economic growth which won't end up flowing into the real economy (everyday goods pushing demand and following investment into production increase) but in luxury goods and even more assets, squeezing median and lower income workers out

 

 

I listen to Yanis Varoufakis sometimes (ex finance minister greece) and although I disagree with his proposed solutions (leaving capitalism), this sort of "stagnated capitalism" with trillions of euros that are not invested, no growth for majority, increasing concentration of companies, widening wealth inequality, separation of financial markets and real economy (SP 500 booming while median person not seeing anything) rings a bell here. 

 

Its also a recipe for political disaster, right wingers rising up everywhere in the west etc. 

 

Dont know how long this party can continue, maybe still for a while but there needs to be some intervention at some point, Standard Oil 2.0? 

 

What does the board think about this sort of perspective? 

Edited August 12, 2023 by Luca

[Luke]

18 minutes ago, Luca said:

3) Top 90th percentile of earners captured massive gains of economic growth which won't end up flowing into the real economy (everyday goods pushing demand and following investment into production increase) but in luxury goods and even more assets, squeezing median and lower income workers out

This especially can keep the party afloat for a long time, top percentile earners/owners will keep buying up assets/invest into the index while most people struggle to make ends need. 

 

Then we have this trend with subscriptions, which further hides the lack of purchasing power, 50% of people leasing their iphones, Xbox Subscription, now soon monthly car subscription because most cant buy a new car etc. The mega caps that can offer these subscriptions will benefit and continue to grow, be unharmed by their position while the rest of the economy isnt looking well. 

Edited August 12, 2023 by Luca

[Spooky]

54 minutes ago, Luca said:

This is a very interesting post, I have been doing some research into this sort of "stagnant capitalism" thesis lately and find it interesting to consider in today's investing. 

 

Some points:

 

1) All time high SP 500 profit margins, concentraded markets, M&A+Buybacks+Dividends instead of Investing (Microsoft, Apple, Alphabet, Amazon)

2) No wage growth for median percentile earners since more than 20 years and average hourly wages have seen 0 growth adjusted for inflation since 40 years

 

 

 

3) Top 90th percentile of earners captured massive gains of economic growth which won't end up flowing into the real economy (everyday goods pushing demand and following investment into production increase) but in luxury goods and even more assets, squeezing median and lower income workers out

 

 

I listen to Yanis Varoufakis sometimes (ex finance minister greece) and although I disagree with his proposed solutions (leaving capitalism), this sort of "stagnated capitalism" with trillions of euros that are not invested, no growth for majority, increasing concentration of companies, widening wealth inequality, separation of financial markets and real economy (SP 500 booming while median person not seeing anything) rings a bell here. 

 

Its also a recipe for political disaster, right wingers rising up everywhere in the west etc. 

 

Dont know how long this party can continue, maybe still for a while but there needs to be some intervention at some point, Standard Oil 2.0? 

 

What does the board think about this sort of perspective? 

 

Good post and I agree, this is a big contributing factor to the rise of populism across the political spectrum. Not really sure how we get out of this malaise, delegating economic policy to central banks and printing money has not really worked other than to inflate asset prices and drive further wealth inequality. Personally, my view is that there should be much more deregulation and free trade and governments should get out of the way to create the conditions for businesses and individuals to thrive rather than picking and choosing certain industries / companies to boost.

 

 

[Luke]

7 minutes ago, Spooky said:

 

Good post and I agree, this is a big contributing factor to the rise of populism across the political spectrum. Not really sure how we get out of this malaise, delegating economic policy to central banks and printing money has not really worked other than to inflate asset prices and drive further wealth inequality. Personally, my view is that there should be much more deregulation and free trade and governments should get out of the way to create the conditions for businesses and individuals to thrive rather than picking and choosing certain industries / companies to boost.

 

I think that deregulation will just further boost market concentration, M&A and little investment, increase weakening wages, (unions have a hard time fighting for better pay against tech giants like amazon) etc 

 

What many businesses do not understand is that paying your employees will is also leading to higher demand. But because most businesses don't like to pay most employees well and some employees incredibly much, demand and sales wont increase at some point in time. The more money concentrates, the more can be spend on campaign financing, the more that campaign financing will lead to deregulation and continueing wealth gaps. It all happened before with Rockefellers standard oil or Jay Goulds rail roads. 

 

 

 

 

Regarding deregulation playing a role with no wage increases for the median earners:

 

Other factors that have been suggested include the continuing decline of labor unions; lagging educational attainment relative to other countries; noncompete clauses and other restrictions on job-switching; a large pool of potential workers who are outside the formally defined labor force, neither employed nor seeking work; and broad employment declines in manufacturing and production sectors and a consequent shift toward job growth in low-wage industries.

 

Unions are weak and frowned upon, investment in education is severely lacking (US and also EU), youth population feels left behind, increasing depression rates, that's more than every 10th person between 12-25...

 

 

https://www.apa.org/pubs/journals/releases/abn-abn0000410.pdf

 

Rates of major depressive episode in the last year increased 52% 2005–2017 (from 8.7% to 13.2%) among adolescents aged 12 to 17 and 63% 2009 –2017 (from 8.1% to 13.2%) among young adults 18 –25. Serious psychological distress in the last month and suicide-related outcomes (suicidal ideation, plans, attempts, and deaths by suicide) in the last year also increased among young adults 18 –25 from 2008 –2017 (with a 71% increase in serious psychological distress), with less consistent and weaker increases among adults ages 26 and over.

 

Drawing from the National Survey on Drug Use and Health (NSDUH; N: 611,880)

 

 

 

Jobs are becoming more and more demanding, pay is not increasing in most segments leading to financial insecurity, less family planing (birthrates), expensive housing due to speculation is the cherry on top. 

 

Its a vicious flywheel.