Kuppy on Inflation

[RichardGibbons]

2 hours ago, Spekulatius said:

Seems to me that if you like a commodity, you should just buy the commodity.

 

The main reason you're wrong about this is because businesses can have huge amounts of leverage to the price of the commodity so that a 50% increase in a commodity can lead to a 500% increase in the value of the business.

 

e.g. if you take a different timeframe of Resolute, it's gone from the low $2 range to $16 as lumber moved from $300 to $700.

[Gregmal]

Yea it’s unique and nuanced. I don’t have an opinion on iron ore other than higher for longer so CLF works. I think crude rips and I hate oil and gas companies so I just want the sure thing. But if you know a company well gibbons is right. I don’t. I’ve gotten some RIG, NOV, SLB leaps and a few others. There’s a varying spectrum of probability and outcome, but also correct is you don’t want to pick the idiots who hedged out the whole book and some future production and then….whoops.

[Spekulatius]

1 hour ago, RichardGibbons said:

 

The main reason you're wrong about this is because businesses can have huge amounts of leverage to the price of the commodity so that a 50% increase in a commodity can lead to a 500% increase in the value of the business.

 

e.g. if you take a different timeframe of Resolute, it's gone from the low $2 range to $16 as lumber moved from $300 to $700.

You are correct regarding RFP but I would add that it went to $2 (and below) because of perceived bankruptcy risk, not just because of low lumber prices. That’s a whole new dimension of risk you are taking beyond commodity prices.  
 

Regarding SLB - if you want to cry in your sheets regarding missed opportunities look at old annual reports from Schlumberger, which you can still find on SLB IR site:

 

Here is an old one from 1981:

 

They actually had ~$1.7B in cash in 1981 and only 440M in debt (bank loans). 280M shares outstanding worth about $55 each (stock had fallen from $80 in 1980) for about $15.5B market cap.

 

Market cap 40 years later……drumroll….$47B.

 

Edited October 16, 2021 by Spekulatius

[Gregmal]

Yea I certainly wouldn’t go too wild on any of the specific companies. But that’s kinda the point of just settling on some long dated calls and then letting it be. Very little money upfront and solid long duration upside optionality. 90% of my exposure is between the futures options and index calls. 

[Gregmal]

So with oil now pushing mid 80s we figure what? another $5 or so before we're told "transitory", another $20 or so before we're told "higher for longer but still gonna come back down" and another $50-75 before voters change things up? Crude calls are hot fire. 

[Gregmal]

https://seekingalpha.com/news/3756853-twitter-ceo-jack-dorsey-wanrs-of-hyperinflation

[spartansaver]

9 hours ago, Gregmal said:

https://seekingalpha.com/news/3756853-twitter-ceo-jack-dorsey-wanrs-of-hyperinflation

The psychology of it all is scary. Doesn't fit well into a model. One day people may wake up and think a lot harder about how all of their bills are going up. Then reflexivity takes hold.

 

Maybe it doesn't take hold, but in current times it seems like there is little upside to defending against deflation (and a lot of downside), and a lot up upside to defending against inflation (and not a lot of downside). 

[SharperDingaan]

On 10/13/2021 at 3:31 PM, rohitc99 said:

https://www.cnn.com/2021/10/13/politics/social-security-cost-of-living-adjustment/index.html

 

Social Security recipients will receive an annual cost of living adjustment of 5.9% next year, the largest increase since 1982, the Social Security Administration announced Wednesday

 

Just to build on this...

 

All across Europe, Canada, Asia, etc - similar 2022 increases are being quietly discussed. Most indexing annually, with the announcement in the early part of the new year. Between now and then ... rising fuel/heating costs, and rising food costs from increasingly disrupted supply lines.  

 

Add 5.9% inflation to the US treasury yield curve, and nominal discount rates are 7%+. Even if the global 'average' inflation is only half this (or 3.0%), the nominal US discount rate is close to doubling within 3-4 months. Yet there's very little - if any, discussion about any of this in the financial press? All fixed income values should drop, equiity valuations should drop - the only folks making coin should be the drug dealers, and the unhedged energy producers 

 

Hopefully somebody has a plan ....

And may we all wish him/her a successful execution!

 

SD 

 

Edited October 25, 2021 by SharperDingaan

[Viking]

I was listening to an economist talking about inflation continuing at high levels well into 2022 and then saying he thought it would be transitory. It made me laugh… 2021+2022+? 
 

it appears the definition for transitory is ‘not long term’. 
 

The inflation data in Canada came out last week very high. It was in all the various news media. High inflation is becoming embedded into expectations.

 

what i really do not understand is the bond market. With inflation running at +4% annual clip and likely to stay high into 2022 and perhaps longer who in their right mind owns fixed income today? They are losing a bunch of money. For years. Guaranteed. 
 

Lots of very old retired people are super risk averse (like my 89 year old mother-in-law). Only ever invested in GIC type investments. The current government/central bank policy is effectively a huge tax on people who have savings and are very risk averse (lots of older people). They are paying $2,000 or $3,000 in purchasing power each and every year for every $100,000 they have in the bank. Small example. But at some point high inflation is going to start to really piss people off. Especially if interest rates stay where they are.

[SharperDingaan]

Bond market thing ...

 

The fundamentals clearly point to higher nominal rates. Furthermore, Liquity Prefernce Theory (LPT) has NOT been repealed, so there should be a steep rise across the curve as well.

 

There are only 2-ways by which the yield curve can be where it is. 1) Real returns are stongly negative; ie: simplified, the -3% real + 5% inflation = the 2% nominal we see on the curve. 2) Flooded supply at each point along the cuve; ie: simplified, the cost of money at that term lowered via increasing supply through quantitative easing (QE).

 

Central banks are tapering; most would agree that if uniformly applied, reduced QE supply, should raise interest rates across all points on the yield curve. The only way this doesn't become a problem (as central banks seem to expect), is if the real rate of return has materially worsened; in the example, the real rate is no longer -3%, it's -5%.

 

The 5% inflation rate is 'main street', the real rate is 'wall street'.

The result is lots of press simulaneusly talking about the higher cost of lliving, and the very real risk of asset deflation. However, most would expect that long term covid impacts, ESG transition, China transition, and growing supply chain shocks are indeed worsening the real return. 

 

So what?  Pick your spots - simplify, and go long only the things that matter to main street; energy, food, etc.

 

Different POV.

 

SD

 

 

Edited October 25, 2021 by SharperDingaan

[Xerxes]

Exxon is reporting this week i believe. Had own it pre-Covid, have added it throughout 2020. if i read correctly expectation is that they will book around $4 billion in earning compared to last year's Q3, which was around minus $600 million. The power of operating leverage.

 

I would push back on the comments oil futures vs. oil companies. The assumption is that people would buy the likes of Exxon, to capture the rally in prices. Sure, there is a subset of investors going for that, but a lot of investor owns Chevron and the Exxon's of the world as a long-term play on infrastructure. Now it is true we are no longer in the secular bull market in oil as we were in the 90s and the BRIC rally of early 2000s, but it does not make the un-investable either. 

[spartansaver]

Larry Summers recommended this. Essentially provides a different way of measuring slack in the labor market. Part of the analysis demonstrates that labor market tightness is similar to the 60s. I've been wondering what incentive Summers has stick his neck out about inflation. He's going against his party, and making bold statements which if you're wrong can make you look like an idiot. 

 

https://www.frbsf.org/economic-research/publications/economic-letter/2021/october/is-american-rescue-plan-taking-us-back-to-1960s/

[Gregmal]

 

 

 

But yo, like, he liked tanker stocks that went down and I THINK.....HIS STRATEGY...is risky. These are lifetime returns for some folks LOL.

[Guest]

On 10/26/2021 at 8:35 PM, Gregmal said:

 

 

 

But yo, like, he liked tanker stocks that went down and I THINK.....HIS STRATEGY...is risky. These are lifetime returns for some folks LOL.

 

 

Kuppy's been around for what, 15 years or something? Why is he only showing his returns since...umm, 2019? You don't find that at least a little questionable? I'm assuming his other fund(s) weren't all that great or else that would be published too. 

[Gregmal]

6 minutes ago, stahleyp said:

 

 

Kuppy's been around for what, 15 years or something? Why is he only showing his returns since...umm, 2019? You don't find that at least a little questionable? I'm assuming his other fund(s) weren't all that great or else that would be published too. 

No idea. I don’t follow it that closely and it doesn’t really matter to me either way. I read a lot and if it makes sense I give it merit. His current numbers just show that he s on point with his reads given the current market dynamics.

 

Generally though my point was that people have this bizarre habit of deciding that “he got one wrong” is reason to reject or cast a fictitious conclusion and when you think about it there is no sense to it. No better example of this than Bill Ackman. Dude is straight money as an investor. There’s few better at picking downright great businesses and outperforming with a simple buy and hold strategy. And yet, there are no shortage of mouth pieces that love to run in and go “yea but what about VRX” or “he s blown up before” or some crap like that. And it’s like ok great, we know he s not perfect. Whew! Otherwise everyone who invests gets stuff right and wrong. It’s just lame to have such a low standard for dismissing things when the reality is “he gets a lot right in a big way and occasionally gets one wrong as well”….I can’t see how this is a reason to write someone with a great mind off. There s literally nobody in the history of investing who hasn’t gotten one wrong. But a lot of times we like to apply “getting one wrong” as a disqualifying trait for the best investors out there…..strange 

[Guest]

2 minutes ago, Gregmal said:

No idea. I don’t follow it that closely and it doesn’t really matter to me either way. I read a lot and if it makes sense I give it merit. His current numbers just show that he s on point with his reads given the current market dynamics.

 

Generally though my point was that people have this bizarre habit of deciding that “he got one wrong” is reason to reject or cast a fictitious conclusion and when you think about it there is no sense to it. No better example of this than Bill Ackman. Dude is straight money as an investor. There’s few better at picking downright great businesses and outperforming with a simple buy and hold strategy. And yet, there are no shortage of mouth pieces that love to run in and go “yea but what about VRX” or “he s blown up before” or some crap like that. And it’s like ok great, we know he s not perfect. Whew! Otherwise everyone who invests gets stuff right and wrong. It’s just lame to have such a low standard for dismissing things when the reality is “he gets a lot right in a big way and occasionally gets one wrong as well”….I can’t see how this is a reason to write someone with a great mind off. There s literally nobody in the history of investing who hasn’t gotten one wrong. But a lot of times we like to apply “getting one wrong” as a disqualifying trait for the best investors out there…..strange 

 

I don't deny his returns since 2019 are phenomenal. I just think it's at least questionable to not publish long term returns. I mean, you can take on a ton of risk and blow up, close and then open again and eventually, you don't blow up for a few years from sheer luck - if you try enough times.

 

I even tried finding information about him a couple years ago but didn't have much success.

 

Heck, even Mongolian Growth Group is down almost 80% over the past 10 years. 

 

 

[Gregmal]

LOL yea I don’t even know what Mongolian growth is or why it exists but all these finance guys do this shit where they get to play Buffett for a day job. 
 

But back to his performance, who knows? Someone told me he never even had a real job and was bankrolled by family money straight out of school….again though, what business is it of mine? I don’t care if he worked to earn his money or not… I just like guys who can think outside the box and source ideas or spark new ideas. It’s up to me to see the shots and hit them. So on that note, I have nothing but the highest levels of respect for the dude. And right now, his reads on the market have been lights out. 

[Guest]

17 minutes ago, Gregmal said:

LOL yea I don’t even know what Mongolian growth is or why it exists but all these finance guys do this shit where they get to play Buffett for a day job. 
 

But back to his performance, who knows? Someone told me he never even had a real job and was bankrolled by family money straight out of school….again though, what business is it of mine? I don’t care if he worked to earn his money or not… I just like guys who can think outside the box and source ideas or spark new ideas. It’s up to me to see the shots and hit them. So on that note, I have nothing but the highest levels of respect for the dude. And right now, his reads on the market have been lights out. 

 

 

I'm willing to bet that you're a better investor than he is. I also think that you're far less likely to blow up. Just my mostly worthless thoughts though.

[Gregmal]

Haha appreciate the kind words. I personally don’t consider myself to be all that good of an investor. Too much ADD. Why wait for 10% annualized returns when every day or week or month there’s stuff doing those types of numbers? Really I just try to make money. As fast and as risk adjustedly reasonable as possible.
 

 I am exceptionally good at two things; recognizing patterns and processing a lot of shit real quick and getting out of it what I need to make a quick decision. Specifically with qualitative shit like narratives and risks that either seem to be present/warranted but aren’t or vice versa.
 

But there are significantly better investors than I out there, for sure. I try not to wear a badge one way or the other. Be what you gotta be to make the money. 

[bathtime]

20 hours ago, stahleyp said:

 

 

I'm willing to bet that you're a better investor than he is. I also think that you're far less likely to blow up. Just my mostly worthless thoughts though.

Well here’s Kuppy’s latest thinking out of the box

 

 

[bathtime]

19 hours ago, Gregmal said:

Haha appreciate the kind words. I personally don’t consider myself to be all that good of an investor. Too much ADD. Why wait for 10% annualized returns when every day or week or month there’s stuff doing those types of numbers? Really I just try to make money. As fast and as risk adjustedly reasonable as possible.
 

 I am exceptionally good at two things; recognizing patterns and processing a lot of shit real quick and getting out of it what I need to make a quick decision. Specifically with qualitative shit like narratives and risks that either seem to be present/warranted but aren’t or vice versa.
 

But there are significantly better investors than I out there, for sure. I try not to wear a badge one way or the other. Be what you gotta be to make the money. 

Do you feel like volatility has increased in individual equities compared to 5 or 10 years ago? I feel like it has significantly. But maybe there are stats on that somewhere. 

[Gregmal]

31 minutes ago, bathtime said:

Do you feel like volatility has increased in individual equities compared to 5 or 10 years ago? I feel like it has significantly. But maybe there are stats on that somewhere. 

Haha I don’t know. If anything I think it’s less. All I remember from 10 years ago is that investing had consequences. A bad earnings miss would cause a 25% haircut. Now just look at big tech. Goog and MSFT crush it and go up 5% and AMZN and NFLX post putrid numbers and are down 2% for a day and then in a week go up 5% too. 
 

As a fan of history and with respect for the markets and their inherent cycles….I would take that macro type of psychological driver of the herds into consideration as far as making and planning future investment strategies.

[COBFInfinity]

Gregmal, I am going to upgrade your hero from politically motivated idiot to mentally unstable. I guess your logic is he had some good trades, so just assume he'll have some more. My logic says don't trust the stock picks of someone who lives in a fantasy world.

 

 

[Gregmal]

6 minutes ago, COBFInfinity said:

Gregmal, I am going to upgrade your hero from politically motivated idiot to mentally unstable. I guess your logic is he had some good trades, so just assume he'll have some more. My logic says don't trust the stock picks of someone who lives in a fantasy world.

 

 

And your judgment has led to what kind of performance? I would almost guarantee the political motivated idiot has crushed yours? Which makes you?
 

 It’s amazing people just ignore ideas because they find something to disagree with….or are afraid of out of the box mental exercises. People who have proven to be able to generate alpha trump people who just give a worthless opinion with little else attached to it. 
 

I mean what would you call it if you wasted a significant amount of time and more importantly money being long the GSEs? 

[Gregmal]

I mean, there’s ALREADY been SOOO much money made in the inflation trade, it’s surprising that there’s even anything to debate on the merits of the idea at this point. However I guess I fail to appreciate how some folks refuse to make money from an idea that comes from someone who has different beliefs elsewhere than they do. How dumb.