Have We Hit The Top?

[Castanza]

 

23 hours ago, Ross812 said:

I think a wealth tax of 2 to 3% a year, maintain FICA (with no income limit), and a 10% VAT tax would be far more "fair" than the income tax system we have now.  FICA and VAT are essentially flat taxes that tax everyone equally based on income and consumption. The wealth tax would tax those in proportion to the wealth they hold.   

Why not just go to a straight flat tax then? Why all the extra hoops? People tend to forget that for the majority of this countries existence we never had a Federal Income tax. And it was supposed to be temporary. 

[Ross812]

2 minutes ago, Castanza said:

 

Why not just go to a straight flat tax then? Why all the extra hoops? People tend to forget that for the majority of this countries existence we never had a Federal Income tax. And it was supposed to be temporary. 

 

Because a wealth tax taxes those by the percentage of all the goods they control. The top 10% own 70% of the wealth and will pay 70% of the wealth tax. The bottom 50% hold 2.5% of the wealth and pay in proportion. 2% wealth tax would collect 3.2T and a 3% wealth tax would collect 4.8T so the wealth tax collects the lions share of tax receipts and is progressive. 

[Spekulatius]

Pretty good article on the recent market swings and narratives:

https://www.wsj.com/finance/investing/whats-behind-the-markets-wild-overreactions-cae05ade

[mattee2264]

Saw an interesting chart that ex-US global stock markets are below their 2007 peak. US stock markets are three times higher. It really has been a case of tech eating the world. 

 

Historically that kind of divergence of performance would argue for loading up on EAFE and Jeremy Grantham is a big advocate of avoiding USA. Fairly neat way to avoid all the question marks about US debt and whether tech can continue its outperformance with current starting valuations. 

 

 

 

 

 

 

[james22]

1 hour ago, mattee2264 said:

Historically that kind of divergence of performance would argue for loading up on EAFE ...

 

And exactly the wrong thing to do if the 'second half of the chessboard' scenario comes about.

[changegonnacome]

12 hours ago, SharperDingaan said:

Oil is the most manipulated commodity price on earth; wouldn't read much into the current price level.

 

The big inventory build is per an EIA report, following a two-week reporting silence. Whereas, the intervening API reports showed a cumulative crude build that was well under the EIA number; and is consistent with the reduced demand of the concurrent refinery maintenance season. Most would surmise it's simply market overreaction to EIA modelling quirks.

 

The US wants prices < USD 70 for SPR refill; the ME wants prices in the USD 80-90 range for budget purposes. Most would expect WTI range bound between USD 70-80 with periodic spikes up/down; all nothing new for o/g!

 

Within NA, heavy oil is the temporary exception, Demand continues to rise, and supply essentially remains flat (why Cushing has been draining); the imbalance showing up in smaller differentials. Cushing storage is currently so low, that it will take months of expanded TMP flow to restore normality. 

 

Global oil prices aren't going to change much until Iran/Iraq egress is reduced. OPEC+ can extend cuts for another 6 months, but until there are reductions in the sanctioned flow ... don't expect price hikes to stick. Iranian oil flowing out of an Iraqi pipe, looks like it is Iraqi oil ... especially when both flows come from the same reservoir.

 

The US is in a tough place, and will act accordingly. 

Welcome to higher volatility.

 

SD 

Interesting stuff - appreciate you explaining the deeper context - the supply dynamics appear to be winning the day.

 

Have you given much taught to the mischief making ability of Iran, Russia & even the Saudis may have in 2024 to spear a Biden presidency via spiking energy prices by cutting production. Especially when it seems like the Biden admin has shot their shot with the SPR drawdown.

 

I mean fake bots on Facebook can help swing a few votes to da Donald…..but $120 oil feeding into the gas pumps & spiking inflation, engineering inflation & a weaker economy sure would swing voters to the Donald…whom folks fondly remember presiding over an economy with no inflation etc.

 

I say all this not as a Donald or Biden supporter….but simply in the context of what I think is factual….Donald’s America First philosophy is really, in the foreign policy space, emperors new clothes for a very old thing…American isolationism …..which if your Russia, Iran etc creates certainly more strategic elbow room in your local hood. Would it be worth their while forgoing some many billions in oil sales in 2024 to get a president uninterested in being the world’s policeman vs. Biden? Is there any historical precedent for that in the oil market.

[SharperDingaan]

2024, we expect that both the US and Canada end up with new government; primarily from existing incumbents losing, vs the opposition winning. No matter what, both end up more conservative; toss up as to whether Canada has another minority government, versus a majority.

 

We would also expect the faces to change fairly soon after the governments do. Most of the incumbents are toxic; losers have incentive to toss early after their loss, winners after they find out who the new opposition is, Darth Sidious when it serves his purpose. 

 

O/G fairly low on the mischief list, independence challenges to the BoC/Fed Reserve (heads on sticks) much higher. Energy wise, our own candidates are reinstatement of Keystone XL, dropping of Kyoto commitments, and a two-stage more rationale energy policy/carbon tax regime; Canada wide first, then Canada/US integration. The industry objection to carbon sequester is the truly-gifted, incompetent policy implementation; the idea itself, is generally well supported.

 

The Kyoto thing, primarily stemming from a realization that the climate models upon which Kyoto was based, are so deeply flawed as to be unusable. They did not adequately allow for the multiple global firestorms of late, arctic melting releasing spumes of methane, ocean waters as warm as bathwater, volcanic activity, etc. Good intent remains, but implementation needs to change.    

 

Comes back to strategic swing trading, and the use of liquidity/options to exploit the extremes. One of the better avenues being the sale of out-of-the-money puts, with the intent of getting called; simply 'cause if you were going to buy anyways, you might as well get paid for it as well  

 

You don't own O/G, you rent it.

 

SD

   

 

 

Edited November 18, 2023 by SharperDingaan

[changegonnacome]

27 minutes ago, SharperDingaan said:

One of the better avenues being the sale of out-of-the-money puts, with the intent of getting called; simply 'cause if you were going to buy anyways, you might as well get paid for it as well  

 

One of my favourite strategies.

[Spekulatius]

Chanos is quitting? Must be close to the top.

 

[Gregmal]

38 minutes ago, Spekulatius said:

Chanos is quitting? Must be close to the top.

 

LOL that’s what happens when your analysis is so poor that you look at a company like Veris and walk away with the conclusion of “30x EBITDA, great short!”.
 

His desperation the last few years was pathetic. Every chance he got to go on Twitter or TV and bash stocks he took; hoping to make his shorts work. It was cringy. 

[Parsad]

Gary's been at our dinner in Toronto a couple of times and he's a very nice guy and good analyst.  But like many bears after 2008/2009, they've been wrong for a long-time.  I think he's going to be right sometime next year...but not for at least another 4-5 months as the economy seems to be still powering through and consumers keep fighting inflationary pressures.  Cheers!
 

https://finance.yahoo.com/news/prepare-stocks-plummet-30-recession-195209069.html

[Spekulatius]

11 hours ago, Gregmal said:

LOL that’s what happens when your analysis is so poor that you look at a company like Veris and walk away with the conclusion of “30x EBITDA, great short!”.
 

His desperation the last few years was pathetic. Every chance he got to go on Twitter or TV and bash stocks he took; hoping to make his shorts work. It was cringy. 

I am sort of sad to see him go though. He did have valid contrarian views in many cases.

 

The biggest surprise for me was that he had only ~$200M in AUM left, not exactly big boy territory any more. I guess that was not enough to keep the lights on and that’s why he shut down his fund.

[Gamecock-YT]

13 hours ago, Spekulatius said:

Chanos is quitting? Must be close to the top.

 

 

 

Up there with Druck top ticking the tech bubble.

 

[Gregmal]

Nah I’ll again take the other side. Druck buying tech was capitulation. Chanos finally shutting down was a 3 legged dog finally realizing it shouldn’t be trying to qualify for the Kentucky Derby…after a decade of trying.
 

He’s been a disgrace for two decades now and outside of trying to suck up credit for fundamental calls during instances when simply everything went down, he hadn’t done shit but grift and freeload.

Edited November 18, 2023 by Gregmal

[Parsad]

1 hour ago, Gregmal said:

Nah I’ll again take the other side. Druck buying tech was capitulation. Chanos finally shutting down was a 3 legged dog finally realizing it shouldn’t be trying to qualify for the Kentucky Derby…after a decade of trying.
 

He’s been a disgrace for two decades now and outside of trying to suck up credit for fundamental calls during instances when simply everything went down, he hadn’t done shit but grift and freeload.

 

+1!  Cheers!

[changegonnacome]

 

https://fred.stlouisfed.org/series/MEHOINUSA672N

 

I was kind of shocked by this - the fall in real median household income (4.7%) since 2019 belies the strong economy narrative......and when Biden doesn't get reelected the above is what will have done it.

 

2023 will likely have a modest real gain in incomes perhaps 1% due inflation dipping below wage increases......but the reality will be median folks incomes have been falling for the last three years straight in real terms and it might be the mid-2020's or later before they get back to 2019 levels.

 

Folks aren't dummies - I'm sure the WH looks at the unemployment rate & GDP figures and says we cant catch a break in the polls....but what the voters know at the grocery counter is that they were better off four years ago than they are today....and usually thats what gets a president kicked out of office.

[Parsad]

On 11/1/2023 at 8:22 PM, Parsad said:

In terms of the "top or bottom"...I think the worst of it is over in terms of interest rate hikes.  While stocks aren't cheap overall, they aren't expensive as earnings year over year are growing well.  This has been one strange economy...strong jobs market and salaries; tight savings and budgets; strong earnings and growth; increased credit losses and writedowns on balance sheets...bizarre!

 

I think there may be some downside still relative to the risk free rate...but if rate hikes stop next year and/or decrease a bit, markets will rally until the next crisis.  Banks should also rally next year...earnings remain powerful, bond losses have slowed/stopped, prices are close to tangible book, balance sheets are still strong.  Maybe some headwinds from RE and CRE, but the balance sheets and earnings will eat up those losses. 

 

Still holding cash paying a risk free rate of 4.75-5.00%, but comfortable with my stock holdings too!  Cheers! 

 

Well the rebound came faster than expected.  I don't see it slowing any time soon as prices are falling slowly, interest rates have essentially peaked...long-term treasuries are falling.  Revenues might be somewhat flat heading into next year, but earnings should remain strong as many companies tightened their belts.  Question should be figuring out when we hit the "top" because the bottom happened around the time I posted the above!  Going into an election year, I'm sure the government will keep pumping the gas to consumers.  Cheers!

 

https://www.cnn.com/2023/11/20/politics/white-house-thanksgiving-prices/index.html

[changegonnacome]

Not so sure @Parsad prices aren’t coming down per se….what the WH means is that the acceleration in prices is coming down….from 8% to 3%….its a big difference….nominal prices for lots of things have reset permanently at a higher level vs. 2019…..against nominal wages that never kept up….such that those wages are down now in REAL terms vs. 2019 as per my chart (4.7% down).

 

The headline economic numbers + stock market vs. the general unease in surveys of the general public about the economy tell a different story…..and it’s the real median wages having fallen every year since 2019 issue that the median voter feels and the WH needs to be worried about. 

 

The 3m - 10yr inversion is still strongly present (& increased in the latest bond rally) but it serves as a disincentive to create new credit and the higher for longer Fed policy against the underlying progress in inflation is pointing towards ever tighter (in real terms) financial conditions. Not to mention the MTM impairment of tangible capital from banks treasury security bets which the BTFP liquidity fixes for now but that stuff sits there with losses….stalking bank balance sheets and hurting earnings….there is however no CRE-TFP and those losses and future impairment to capital are coming. It’s a recipe to shrink your loan book and build up TBV.

If your the CRO at a regional bank looking at your TBV in the context of the 3M-10 inversion AND the loan loss provisions you may have to take in the future on maturing CRE loans….….id certainly be hoarding regulatory capital if the 3m-10yr spread wasn’t enough already to back away from expanding loans. Long yields coming down against lower inflation expectations but with Fed funds at  5% are just increasing the incentive to reduce credit creation.

 

The one plus in all this is where banks/ consumers reduce their credit consumption….Joe & Co. are increasing theirs….I’ve a feeling Joe & Co though might have prematurely stimulated….the effects of which were felt late last year and this year and where deceleration from monetary + RoW factors are gonna overwhelm the fiscal largesse much of which I’m positive is effectively torched in government inefficiency & stupidity….reminds me of China’s GDP games….bridges to nowhere juice GDP in the Qtr or half year but do nothing to enhance the long term productivity growth of your economy while creating tonnes of future debt.
 

Building semiconductor fabs that are uneconomic relative to the price of overseas sourcing is almost the same thing as a bridge to nowhere….building the fab boosts GDP in Qtr or the year it’s built….but once it starts pumping out $50 chips with $50 of gov subsidies built in for a grand total of a real $100 price tag…versus the chip you used to buy from Taiwan for $49 that consumed none of your countries labor or capital….well you haven’t enhanced your productivity at all…you’ve enhanced your security maybe but not your productivity. You aren’t producing/consuming more with less….your consuming the same but now it’s consuming more resources relative to the past…..its not a good productivity trade over the long pull.
 

Lots of the BBB & IRA has this short stimi politically expedient half life….great in Qtr the ‘thing’ is built but negligible or negative longer term….like building electric charging stations for example….this isn’t the productivity enhancing boom that was building the interstate highway system…..it’s the functional equivalent of Eisenhower saying let’s build another I-95 (EV Charging stations) beside the old I95 that still works (gas stations). It’s a subtle point but an important one - the wealth of nations over the long pull is about productivity growth…it’s what matters....put simply lots of this Biden stuff is almost maintenance capex at best as opposed to growth capex. Much of it had to be done for climate change or to address the deficits of the past……there’s a big difference between a new airport and fixing up a battered old one.

 

Both maybe get you re-elected….but only one makes your grandkids genuinely better off.

Edited November 21, 2023 by changegonnacome

[Parsad]

3 hours ago, changegonnacome said:

Not so sure @Parsad prices aren’t coming down per se….what the WH means is that the acceleration in prices is coming down….from 8% to 3%….its a big difference….nominal prices for lots of things have reset permanently at a higher level vs. 2019…..against nominal wages that never kept up….such that those wages are down now in REAL terms vs. 2019 as per my chart (4.7% down).

 

Prices are higher than 2019, but have come down and continue to come down significantly from the peaks of last year and this year.  Especially in areas that are important to consumers...gas, groceries, heating/utilities, some other commodities, retail prices, and I expect mortgage rates to drop slightly next year.  That means more dollars in the pockets of people who have been struggling for the last year and had to tighten their belts.  When you've been suffering for a while, any money you get in your pockets, you feel like spending...we saw that with travel after the pandemic...we're seeing that in beauty retail sales right now...spending money makes the horrible disappear for a while.  Don't know how long the turn will last, but I don't see spending slowing for the next six months.  Maybe as mortgages renew later next year, credit limits get stretched...we may see a slowdown...but I don't see that happening in the near-term.  Cheers!

[mattee2264]

Cost of living crisis is starting to ease. I'm also seeing grocery prices starting to fall. And energy prices have fallen as well. Even rents are starting to come down a little. So this is a positive. Although some of the additional funds available will be used to replenish savings or pay down credit card bills and other debt. And to the extent that consumers did take on additional debt to survive the cost of living crisis they will need to service that debt at still very high interest rates. And spending power might also come down because consumers have probably exhausted by now any excess savings built up over the pandemic so are limited to what is available from their income after taxes, debt service etc. We are at full employment and there are some indicators that labour markets are starting to weaken and that is going to have a negative impact on consumer spending. And most recent real consumer spending growth was 2.4% which is going to be a hard comparative figure to match. And in nominal terms with inflation coming down as well nominal spending growth will almost certainly be lower and that will have a negative impact on nominal corporate earnings. Although agree that absent a massive increase in unemployment it is difficult to imagine consumer spending falling off a cliff and that increases the chances of a soft landing. 

 

Agree that multi-trillion dollar deficits are also going to be very supportive to the economy. It is a very underestimated factor and probably explains a lot of the comparative strength of the US economy compared to the ROW. And in an election year they are going to continue. 

 

Not so convinced about cost cuts. Over the last year or two  cost cutting supported earnings growth even as revenue growth softened. But as most of the easy efficiencies have probably been achieved by now further cost cuts will be more difficult and may require reductions in headcount which is a negative factor for the overall economy and therefore corporate earnings generally. And again comparatives will be tough because in 2022 and 2023 earnings benefited from cost cuts and revenues held up better than expected because the economy avoided recession. If there is some kind of soft landing next year it will mean even weaker revenue growth and absent major cost cuts that is going to mean much lower earnings growth than in previous years and we have all seen that the stock market punishes that harshly. 

 

 

 

Edited November 21, 2023 by mattee2264

[changegonnacome]

On 11/21/2023 at 5:32 AM, mattee2264 said:

Cost of living crisis is starting to ease. I'm also seeing grocery prices starting to fall. And energy prices have fallen as well. Even rents are starting to come down a little. So this is a positive.

 

If true deflation has taken hold (to be clear MoM data is not showing actual broad deflation yet, its showing slowing inflation).......it is indeed a positive for price stability.......it is not however if ture a positive sign for the economy in the short run. True deflation the trip from 3 to 2% is one where the economy and labor market do badly....as if you look at the math around nominal spending growth & productivity growth to get back to 2% - it requires requires a contraction in nominal spend from previous levels....one persons spending is another persons income etc....so contractions in nominal spend are the spark that starts a broader based economic slowdown........if we are at the early innings of this we are the early innings of an economic slowdown. 

 

On 11/21/2023 at 5:32 AM, mattee2264 said:

And again comparatives will be tough because in 2022 and 2023 earnings benefited from cost cuts and revenues held up better than expected because the economy avoided recession. If there is some kind of soft landing next year it will mean even weaker revenue growth and absent major cost cuts that is going to mean much lower earnings growth than in previous years and we have all seen that the stock market punishes that harshly. 

 

Yeah it's an interesting mix on the corporate side - again if true deflation is in place and Im not quite sure it is yet....you clearly cant push price anymore & volumes by definition are a problem.....you've also cut obvious costs (the fat) in 2022/23 but those labor costs that remained you've had to pay them more and you've promised to pay them more into the future (2024)......your ability to deliver on those promises without hurting your margin are impaired.....needless to say its a recipe for things to disimprove on the margin side if that's the case.

 

I dont quite see true progress on underlying monetary inflation yet.....say the sticky ~100-150bps above the 2% baseline....we continue to track to 3.x% inflation rates......so in that respect I dont quite see the weakness occuring in the US economy either. I think it comes, its ETA will be sign posted by this true MoM disinflation or severe flattening of inflation.

 

Lets see its very interesting to see how it plays out.

[changegonnacome]

 

Holy moly….never saw it written down like this……imagine the productivity gains the private sector could have achieved if given control of this amount of capital to invest……instead we got inflation and the private sector is now paying 8%+ on access to its productivity enhancing capital.

[mattee2264]

Amazing really especially when you compare to the sums spent during the GFC. 

 

Fiscal policy also operates with some lags so I think the cumulative spend since the pandemic has played a massive role in keeping the US economy from falling back into recession and has clearly dominated the impact of monetary policy tightening except for very interest rate sensitive sectors. 

 

Obviously becoming less productive as even without a decrease in spending more of the spending will go on interest payments rather than handouts. 

 

Long term also pretty scary especially as if AI fulfils its promise there is going to be a massive amount of structural unemployment and global corporations are a lot harder to tax than individuals. 

 

 

[Parsad]

Shoppers are spending money this year so far!  Cheers!

 

https://finance.yahoo.com/news/energized-shoppers-break-one-day-190741866.html

[Parsad]

7 minutes ago, Parsad said:

Shoppers are spending money this year so far!  Cheers!

 

https://finance.yahoo.com/news/energized-shoppers-break-one-day-190741866.html

 

Canada too!  Cheers!

 

https://finance.yahoo.com/news/canada-retail-sales-jump-0-133001320.html