Are there two sets of rules?

[Gregmal]

It’s would be great if every consumer good came with the stringent underwriting checklist that comes with, say a mortgage before the purchase. But people like material things. People like experiences. No one is talking about banks lending again, which is healthy.

 

Over and over it seems there is a need to just regurgitate last weeks headlines or repeat something that happened during the 70s just cuz it’s en vogue. I’m not sure yet where the best way to play all this is, but for sure the best fallback is always just to stick with quality and invest for the long haul. A lot of times the better assessment come from evaluating the worst case scenario. And what if the worst case scenario isn’t so bad? Ok we get a recession and 50% stock market “crash”….so what? Do you die? Does the world end the follow day? Do we never ever come back? We re already off 20% on the “indexes” and more on individual stuff. Doing anything scared is never really ideal and the beauty of the stock market is the volatility and opportunity. Then on the other side, as we ve seen plenty of time, there is also quite a bit of evidence inflation already peaked(the CPI today provided zero that dispelled this possibility) and the fear mongering crowd again does it’s thing but like so many times before turn out to be wrong.  In between there’s a lot of different possibilities as well. So I think as always it’s kinda of just prudent to buy stuff that’s reasonably valued, durable, well capitalized, and kind of let the charlatans worry about where “the markets” goes next week. Or what “the Fed” will do. Because again, the Fed hasn’t really done anything yet and they’re getting an awful lot of credit which just shows how bogus 95% of the talking head analysis is.

Edited June 10, 2022 by Gregmal

[mattee2264]

I don't see how giving up some more of the gains of the last 2 years is going to be that ruinous. Especially within the context of the last decade when the stock market returned over 10% a year in real terms. 

 

The Fed can do little about the major causes of the inflation (excessive fiscal stimulus and supply chain issues) but central banking is a confidence game and it needs to rebuild its credibility after letting inflation spiral out of control on its watch. Otherwise inflation expectations will get embedded into the system long after the root causes dissipate and moral hazard will mean that risk appetite returns and we get more misallocation of capital into ridiculous stocks and NFTs. 

 

But I agree the Fed is attributed with an unjustified omnipotence. Certainly they can move markets. But if the economy goes into recession it won't be because the Fed increased rates by a couple hundred basis points. It will be because when economies overheat there is usually a hangover and the combination of excessive stimulus and supply shocks is the equivalent of mixing drinks and will make the hangover a lot worse. 

 

 

[Spekulatius]

Moreover the asset inflation most likely has led to a lower labor force participation. Labor force participation has dropped during the pandemic, but never really recovered post pandemic, which is an obvious problem now that demand is above post pandemic levels. Fundamentally, with the rapidly rising salaries at the low end, one would expect a higher labor force participation compared to pre pandemic, yet we are still 1% below roughly. That a structural reason for wage inflation that now seeps  into core inflation and likely a reason why inflation will remain sticky.

 

Edited June 11, 2022 by Spekulatius

[scorpioncapital]

could it have something to do with ability of people to live in other places or even outside the country? 

[Guest]

This remind me of Henry Ford's (classic?) quote:

 

"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."

 

The system is even more corrupt now than it was then, in my opinion. 

[Spekulatius]

44 minutes ago, stahleyp said:

This remind me of Henry Ford's (classic?) quote:

 

"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."

 

The system is even more corrupt now than it was then, in my opinion. 

You say people do not understand the banking and monetary system? I am not surprised:

 

[Gregmal]

LOL that’s good right there. Especially the first part. Replace 2020s “but COVID!” with “but inflation!” Maybe add a one liner saying something about stealth tax or whatever, and you have 2022 in a nutshell. No need for anything else. All one has to do is so say “inflation” and the room goes silent, some gasp, and nothing further is needed to let everyone know doom and gloom is upon us and the end is near. Except this time a mask won’t help you!

[SharperDingaan]

Were the fed not doing its next rate set next week, this conversation would not be happening. The expectation is a 50bp hike, the fear is that they do something higher. A more aggressive stance next week, the indexes drop like a brick, and Wall St takes a bath.

 

Like the Fed, the BoC mandate is to manage inflation. That's it; not the housing market, not the economy, etc. They have repeatedly stated that they are going to raise rates back to historic norms, and the vehicle is repeated and aggressive hikes through to 2022 fiscal year end. We just don't like what that means for our stocks and bonds.

 

The CB's managed us out of what would have been a global Covid led economic depression. The cost was negative/ultra-low interest rates, an ongoing 'put' on the market, asset bubbles maintaining collateral levels, and 'temporary' inflation. It allowed most people to maintain/improve their livelihoods; and a great many people borrowed cheaply, invested in either RE or the stock market. Without the CB actions we would all still be trying to claw our way out.

 

Thing is - the 'put' has now been withdrawn, moral suasion is back on the table, and during the 'good times', people used the inflated house values as an ATM machine. Stock/bond values are now falling, and being sold to repay the borrow. Houses are being sold as borrowers can no longer pay the carry, and no longer have the equity to borrow against. And with the 'put' now gone - no more bailouts.

 

The 'put' has been in continuous existence since the GR - 2 entire generations of analysts have no experience with anything but continuous bail-outs. Enforcing both moral suasion and letting the zombies collapse, kills multiple birds with one stone - reduces demand, releases employees into the labour pool, and reduces the magnitude of future interest rate hikes. However, very bad news if your returns depend upon Wall Street.

 

Globally, CB's are unwinding their stimulus, and getting out of the economy - all good. As Gregmal point's out, stop digging, and let the economies reset themselves. Sure, there are some people that will get hurt, that's how economies work. It's called creative destruction.

 

Coupon interest provides a great many seniors with the money to eat - raise it from 1.5% to 4.5% and those seniors eat a lot healthier. Nothing prevents anyone from simply swing trading the indexes, the market impact of rising interest rates is widely known. The DJIA is down 13.6% YTD and continuing to fall - 'do nothing' is not an option. 

 

We might hate cash, but in the short-term it holds its value. Viking simply recognizes that while the nominal value of stocks/bonds may fall materially, the nominal value of cash remains the same. We can debate cash alternatives, but if there is no cash to start with, there is no debate.

 

The reality is that you have a once in a multi-generation series of events in front of you. If you cannot turn it into a very healthy profit in this extraordinary time, you really have only yourself to blame.

 

Good luck!

 

SD

 

 

 

 

 

 

 

 

 

Edited June 12, 2022 by SharperDingaan

[Gregmal]

Normalizing rates is a good thing, absolutely. Overdoing rates, IMO is dumb because the biggest inflation inputs are issues the Fed has no control over.
 

Their mandate may be to fight inflation, but if inflation is being caused by things beyond any of the tools they have, my guess would be that they see this and come to the conclusion that, like everyone else in government, pass the ball. 

 

Investing wise, energy is can’t miss. It’s the easiest dollar to make and has very little risk if you play it right. I’m just not an energy expert and I hate investing in the space, so I’m not being as big of a pig here as I probably should be.
 

Otherwise, I think residential real estate is also pretty easy money. Housing may slow, sure. Don’t own home builders who need volume…easy enough? But it will slow because the Fed prices people out. Which makes rents inevitably go higher…which is…Good if youre investing in rentals!

95% of existing mortgages are 30 year fixed. Most of those people have big equity. Housing can slow, sure, but all you need to tap home equity is A COMP. Sales can go from 10 per day to 1, and you can still tap home equity. As long as prices don’t decline huge there’s a fortune to be made in the space, which is hard to see things going back to pre COVID level, but even if so, the homeowner is in better shape now than in 2019. And guess what, if the Fed prices folks outta homes, guess what happens next? Government intervening and loosening lending standards or subsidizing it. And this does nothing to account for the insatiable institutional demand as housing continues to become productized.
 

So yea, not much else, just housing and energy but why try to decipher the mess that is the rest of the market? Isn’t the point just to find the easiest dollars/lowest hanging fruit and just take it? Is it really worth trying to figure out what AMZN or Netflix rerates to under so many different scenarios, most to the downside, in exchange for measly 15% annual returns? I think the biggest lesson so many can observe from the last 18 months in the market is that most people have NO CLUE what they are investing in. They buy tickers that are popular and like when it goes up. When it goes down, they hate it. They like that the stocks go up and that’s it and once it doesn’t….game over. So always ask yourself what you are really doing. I’d say even 95% of people buying something simple like GOOG, even folks here, have no clue what they’re buying. The can read the income statement and know of what Google does, but so they really understand it intimately? Nope. When shit hits the skids they either revert to blind faith(cough BABA) and just throw in the towel. No rational action. Totally the wrong approach to investing. Anything you are eying needs to be evaluated in the context of “would I make a private investment, with an exit only on a liquidity event, at the current market price?” If so, feast, if not…pass. This isn’t the type of market where you wanna be investing chasing your tail and making decisions based on guesses of whether the market is going up be down 20% in the next 3 months. Imagine doing that in 2008 or 2009?

Edited June 12, 2022 by Gregmal

[DooDiligence]

Transitory, no. Peak, no. To the moon? If you mean a cold dark place

[SharperDingaan]

Just to add to this ....

 

In the marketing (CPG ) world, a vendor sells a 'package' of product + experience + story. In the investment space: stock/mutual fund/ETF 'product' + MOMO/swing-trade/buy-hold 'experience' + creds in the cocktail circuit/locker room 'story'. Very few people have any idea as to whether they bought sh1te or not, and really don't care - all that matters is the 'experience', the 'story', and whether they can sell it higher a few days/weeks from now, and look 'expert' while they are holding it. Lots of manic depressive bunnies in the trap

 

By some accounts, NA is currently undergoing the greatest inter-generational wealth transfer in history. We also know that globally, riches to rags in 3 generations is the long-standing historic norm, and that 'real wealth' is made primarily by building/running businesses - not by trading bits of paper. It is not looking good for the bunnies.

 

However, you still need a place to live; and most would just prefer it not to be the gated community with security at the door - also known as the compound/ghetto. It is also not much fun being king, with several palaces, when everyone around you is suffering very badly - deservedly or otherwise. Be a hard ass - but find a way to give some of it back.

 

SD

 

 

 

 

 

 

 

 

 

 

Edited June 12, 2022 by SharperDingaan

[no_free_lunch]

There are two sets of rules, I don't think it's even debatable anymore.  Just a question of who the elites are.

 

I think you saw the curtain fall down during COVID when regular people were in lock down and private jets were still moving around the planet shuttling the ultra wealthy as they saw fit.

 

I believe that the bailouts in 2008 were also a blatant attempt to back up certain wealthy elites.  Regular Joe was told to absorb 50% cuts to their home equity, small business went bankrupt, blue/white collar lost jobs but bank shareholders were mostly made whole.  Yes, I realize it is more complicated and JPM was forced to take the money, etc but all in all this was clearly done to bail out rich and dumb share-holders.  There were ways for the government to keep the banks alive while also wiping out the shareholders as was deserved.

 

All you can do is try to stay one step ahead of it with your trading but when you are up against insiders who control governments it feels it's only a matter of time before you lose out.

Edited June 13, 2022 by no_free_lunch

[Guest]

On 6/11/2022 at 9:35 AM, Spekulatius said:

You say people do not understand the banking and monetary system? I am not surprised:

 

 

 

Haha, wow...I'm almost speechless.