Is The Bottom Almost Here?

[changegonnacome]

Druckenmiller takes aim at dollar in sole conviction trade
https://on.ft.com/44fqmDJ

 

The Druck joins me in hard landing camp……

[thowed]

16 hours ago, Spooky said:

The only problem is how do I identify these businesses that will stand the test of time.

 

 

It's the million dollar question!  If I knew the answer, I wouldn't be on this board.

 

If you haven't already, I'd recommend reading the Fundsmith Owner's Manual, which is very good on long-term compounders & the concept of 'don't try to be too clever, stick with the ones that you know have endured.  Also the think-pieces on Lindsell Train's website.  They both have concentrated buy&hold portfolios of 'boring' compounders, esp. stuff like Pepsi, & McCormick's, Diageo, Brown-Forman.  It feels like certain industries are less likely to be disrupted - will women stop using cosmetics? (L'Oreal & Estee Lauder).  People will spend money on their health.  People will want insurance.

 

Anyway, just some thoughts.

 

And I'm very jealous of your large exposure to Constellation - congrats for that, & I am presuming it's a good place to work too!

 

 

[Dinar]

1 hour ago, thowed said:

 

It's the million dollar question!  If I knew the answer, I wouldn't be on this board.

 

If you haven't already, I'd recommend reading the Fundsmith Owner's Manual, which is very good on long-term compounders & the concept of 'don't try to be too clever, stick with the ones that you know have endured.  Also the think-pieces on Lindsell Train's website.  They both have concentrated buy&hold portfolios of 'boring' compounders, esp. stuff like Pepsi, & McCormick's, Diageo, Brown-Forman.  It feels like certain industries are less likely to be disrupted - will women stop using cosmetics? (L'Oreal & Estee Lauder).  People will spend money on their health.  People will want insurance.

 

Anyway, just some thoughts.

 

And I'm very jealous of your large exposure to Constellation - congrats for that, & I am presuming it's a good place to work too!

 

 

True, but look at performance of Revlon and even Estee Lauder over time....  Revlon was a wipe-out and EL has not been fun over the last couple of years.

[thowed]

Of course, Revlon, that's why it's not easy.  Though with EL, I think what we're discussing per @Spooky and @dealrakeris stuff that you can hold for decades, things will drift, but the longer-term performance has been pretty decent.  The difficulty is having the confidence that management won't screw up like Revlon, & if there is a family input like the Bettancourt's, that generational hand-over works, or they successfully delegate to a Pro.

 

Another method could be - decide on the Sectors you thing have long-term durability & buy Sector ETFs - e.g. Consumer Staples, Healthcare, Tech. (this is not dissimilar to Fundsmith).  

[Sweet]

13 hours ago, changegonnacome said:

Druckenmiller takes aim at dollar in sole conviction trade
https://on.ft.com/44fqmDJ

 

The Druck joins me in hard landing camp……

Stan has been making recession and stock implosion calls for years…. wrongly. 

Go look.

 

He makes his money in-spite of his shit macro calls not because of them.

[Sweet]

When is this imminent recession going to happen?

[Ulti]

https://markethuddle.com/podcast/the-convenient-recession-guest-vincent-deluard/

 

Interesting take, listened to the 1st hour.

He looks at the global macro... Sees current positive growth in Europe and asia.

Measures things like income tax reciepts, state coffers in 2023 to conclude no recession this year...

[TwoCitiesCapital]

21 minutes ago, Sweet said:

When is this imminent recession going to happen?

 

An official recession? Whenever the NBER decides. 

 

My thoughts on timing? Probably sometime in the next 6 months given how bad leading indicators are, cracks starting to show in employment, and coincident indicators beginning to show stress. 

 

The bear market? Already been underway for over a year now. To continue for at least a few more months. 

Edited April 26, 2023 by TwoCitiesCapital

[changegonnacome]

1 hour ago, Sweet said:

When is this imminent recession going to happen?

 

I would be SHOCKED if it doesn't happen before year end. Shocked, stunned & floored.

 

Just based on the credit contraction data being indicated in loan officer surveys & continuing jobless claims relentlessly climbing as I shared in previous post......and a Fed I think that will continue to invert the yield curve via additional raises until they know for sure employment has cracked.....we are IMO hitting crunch time on this.......and even then they will hold the line (no cuts in 2023) and let the economy deteriorate a little further into the back end of the year to ensure a round of wage setting across the economy is being done with a poor macro backdrop.

 

Tactically the next couple of FOMC meetings are super important to secure that outcome in the back half of this year. 

 

The severity of said recession I have absolutely no clue about........because 2008 was the last recession everybody anchors to that and they are i think wrong on that front.......2008 was a once in a generation, once in a century systemic crisis......I just don't see that risk out there........I expect a kind of garden variety one in line with hiking cycle driven recessions of the past......if you, as the Fed, create the recession it stands to reason the solution to bring back full employment is a loosening of financial conditions......basically steepen the yield curve, make it attractive to folks to provide credit.....but we aren't going back to zero interest rates......and when done we wont be going to 3.4% unemployment either....the Fed will attempt to float unemployment around the 4.5% area to ensure its not a contributor to inflation on a go-forward basis.....post this inflationary bout they will be very trigger happy to raise rates I think......so a higher floor for Fed fund above zero + an inclination to nudge rates up once they perceive slack to dissipating in the employment market.

 

Edited April 26, 2023 by changegonnacome

[changegonnacome]

https://www.atlantafed.org/cqer/research/gdpnow

 

Atlanta Fed 'GDPnow' estimates for Q1 GDP took a major downgrade today........you can see the evolution over time...with SVB collapse & tightening credit conditions playing a role as the estimates began to ratchet down in March.

 

Not  perfect - GDPnow's average model error rate is 0.83%...when you take their final Q estimate and compare it against the reality

 

Q2 GDPNow estimates out this Friday....which will be very interesting (if your into this stuff!)

[longlake95]

On 3/3/2023 at 9:49 AM, Luca said:

They grew revenues the past 5 years yes but it still trades at almost 20x net income. Not a bargain.

Still cheapish 

 

[Spooky]

On 4/26/2023 at 10:41 AM, thowed said:

 

It's the million dollar question!  If I knew the answer, I wouldn't be on this board.

 

If you haven't already, I'd recommend reading the Fundsmith Owner's Manual, which is very good on long-term compounders & the concept of 'don't try to be too clever, stick with the ones that you know have endured.  Also the think-pieces on Lindsell Train's website.  They both have concentrated buy&hold portfolios of 'boring' compounders, esp. stuff like Pepsi, & McCormick's, Diageo, Brown-Forman.  It feels like certain industries are less likely to be disrupted - will women stop using cosmetics? (L'Oreal & Estee Lauder).  People will spend money on their health.  People will want insurance.

 

Anyway, just some thoughts.

 

And I'm very jealous of your large exposure to Constellation - congrats for that, & I am presuming it's a good place to work too!

 

 

 

Thanks Thowed, I'll look into those materials. Another investor I've been meaning to do more research on is Tom Russo from Gardner Russo & Quinn. His performance has been exceptional and he generally has extremely long holding periods in companies like Heineken and Nestle: https://www.ivey.uwo.ca/bengrahaminvesting/resources/interviews-notes/thomas-russo/

 

 

 

[KCLarkin]

Spooky, the Nick Sleep letters are a must read. The concept of "scale economies shared" is powerful.  This framework results in a different set of companies than you would find with Russo or Fundsmith.

[Ulti]

1 hour ago, Spooky said:

Tom Russo from Gardner Russo & Quinn

And dont forget , currently approx 20% BRK

[Sweet]

23 hours ago, changegonnacome said:

https://www.atlantafed.org/cqer/research/gdpnow

 

Atlanta Fed 'GDPnow' estimates for Q1 GDP took a major downgrade today........you can see the evolution over time...with SVB collapse & tightening credit conditions playing a role as the estimates began to ratchet down in March.

 

Not  perfect - GDPnow's average model error rate is 0.83%...when you take their final Q estimate and compare it against the reality

 

Q2 GDPNow estimates out this Friday....which will be very interesting (if your into this stuff!)

1.1% is still growth, and even with the average error, still growth.  Far better than what many have been predicting.

 

 

Edited April 27, 2023 by Sweet

[Spooky]

1 hour ago, KCLarkin said:

Spooky, the Nick Sleep letters are a must read. The concept of "scale economies shared" is powerful.  This framework results in a different set of companies than you would find with Russo or Fundsmith.

 

Thanks KC, I've read these already, excellent content.

[changegonnacome]

19 minutes ago, Sweet said:

1.1% is still growth, and even with the average error, still growth.  Far better than what many have been predicting.

 

 

This is Q1............lets see what Atlanta Fed GDPNow predicts for Q2 on Friday and how those predictions evolve over the Qtr.......extrapolating some of the momentum......Q2 could go negative......but Q3 seems, to me at least, to be highly probable to go negative.......the severity and length of that negative dip.....is tough to predict......I have a view that Powell will surprise with his resoluteness in the face of a weakening economy......as Druckenmiller points though, to date, Powell has not been a profile in courage.......the right thing to do is to hold the line on rates into a weakening economy & put this inflation nonsense to bed.....to do so requires courage......courage in public officials is usually in short supply. 

[Gregmal]

https://www.cnbc.com/2023/04/27/powell-duped-by-russian-pranksters-claiming-to-be-ukraines-zelenskyy-.html
 

LOL how pitiful. Seems the Russians didn’t want the short sellers and hedge funds having all the fun. They duped this fool too. Biden needs to can him. 
 

[Parsad]

On 4/26/2023 at 7:37 AM, Sweet said:

When is this imminent recession going to happen?

 

3, 2, 1...

 

CP Rail announced the recession is here.  I suspect the U.S. is a couple of quarters off.  Cheers!

 

https://financialpost.com/transportation/rail/cn-rail-traffic-drop-signals-canada-in-recession

[changegonnacome]

https://www.nytimes.com/2023/04/28/business/wage-inflation-march.html

 

5.1% annualized wage growth.......in an economy growing productivity sub-1%........is not an economy on its way back to 2% inflation without the labour market breaking........the annualized PCE number stuck in the 4%+ range (which is what we got  today too on that front) is now the floor IMO (absent a spike in unemployment/recession).

 

I've been saying for a while the easy inflation wins (supply chains/Ukraine/energy) are rolling out of the data.......we are now in my estimation hitting the Made in America Inflation I've talked about......its a floor not a ceiling

[tnp20]

>> we are now in my estimation hitting the Made in America Inflation I've talked about......its a floor not a ceiling <<

 

I actually dont know what the true inflation number is, but the headline numbers will start going down in a big way.

 

Big part of the "floor" is the lagged rent/housing which is down significantly over last 12 months but yet not reflected in inflation data. The lag effect means its going to be crashing through the so called floor.

[changegonnacome]

7 minutes ago, tnp20 said:

I actually dont know what the true inflation number is, but the headline numbers will start going down in a big way.

 

Thats already happened - 9% to 5%........that head fake is now pretty much over.....I expect headline to drift down 4.5% and get 'stuck'

 

7 minutes ago, tnp20 said:

Big part of the "floor" is the lagged rent/housing which is down significantly over last 12 months but yet not reflected in inflation data. The lag effect means its going to be crashing through the so called floor.

 

Core PCE ex-housing...or SuperCore as some call it....is what the Fed is watching to your point.........this number is stuck and showing little signs of moving.......their focus and efforts are to drive this number down now, they can OER just like you and I can....they aint worried about.......its SuperCore....& it has shown little momentum to downside.....and hence why higher for longer

[Gregmal]

Come on man. It really never ends, does it? Months endlessly and scrupulously mulling over rounding errors and fractions of percentages. Have gotten people where? To 3000 SPY? Real inflation over 5% is a problem especially if its volatile. But clearly as we ve seen post covid, that all was fueled by things now abated. Stable Inflation under 5% is a nothing burger.

 

Especially when we fixate on month to month which will produce normal gyrations any sort of ridiculous conclusion can be drawn. If .3 goes to .4 or .2....why should anyone give a hoot? Although the story gets more exciting if we can take that .1% increase from .3 to .4 and headline it as "sticky inflation" thats beginning to "accelerate" again. Nobody in their right mind currently sees widespread or accelerating inflation. Frankly, there is more deflation occurring right now than inflation. 

[changegonnacome]

SPY/QQQ where they are & VIX @ 16............is an interesting chance to sell in May and go away via a bearish option spread on index......while holding on to your underlying......cheap-ish portfolio insurance if you ask me.......relative to some events up ahead (debt ceiling, FOMC May/June/July & looking likely recession afer etc.)

[changegonnacome]

4 minutes ago, Gregmal said:

Stable Inflation under 5% is a nothing burger.

 

Dude that just not the way it is..........4.5% inflation is not a nothing burger.........the difference is huge, cause of the magic of compounding......think of it this way......with 2% inflation the value of a dollar roughly halfs in 36 years......nobody notices, nobody cares inflation is not a 'thing' being routinely built into life.......... 'inflation phycology' is under control..........4.5% inflation however and the value of a $ drops in half in 16 yrs.......it becomes a thing, its noticeable at the grocery store......and expectations around it start to get imbedded......when inflation becomes a 'thing' in a economy.....inflation expectations can become unanchored & start getting built into unit prices in a way that feeds on itself.......wage-price spiral (which I know you think doesnt exist!) does indeed exist it doesnt have to spriral you can have what we have now which is wage-price trapped at a place that ensures 4.5% inflation persists.......but the problem is a 4.5% inflation economy is one that ends up an 8% one too easily.......its the way it works.....and why 2-ish is important.....its the level at which inflation becomes imperceptible to participants in the economy because its moving so slowly nobody year to year notices it.

 

On the same point....and maybe backing up your Joe thesis - a colleague today framed something in a new way I implicitly know.....but in a more clear way than I'd be thinking......he mentioned how property is such a great bet most of the time as long as you don't pay bubble prices.............as its way by which people, unknowingly and with 10 or even 20 times leverage, get to short a depreciating asset that by dictate will fall at least 2% a year, guaranteed almost....cause what your shorting is the US dollar.....& going long politicians printing money...all collateralized by an asset that you get to live in to make that bet............and seen as you need to live somewhere anyway and the alternative is paying rent....you might as well live in asset that allows you to make that levered trade above..............interesting way to frame the act of buying a home......and perhaps buying JOE too........guaranteed currency devaluation against a hard asset (Florida Panhandle land) with extra demand/price push coming from migration trends + smart investment in the area that increases its desirability & price.