Is The Bottom Almost Here?

[changegonnacome]

2 hours ago, Spekulatius said:

That's a very narrow stock market.

 

Yep kind of the prototypical end of a market cycle behavior......as an institution you want to keep dancing while optimizing for career/client risk.....you pile into this stuff safe in the knowledge that all your colleagues & competitors are too.

 

"Worldly wisdom teaches us that it is better for reputation to fail conventionally than to succeed unconventionally." - Keynes

 

Wall St. the institutional kind can be pretty much summed up in that sentence.........and if Mark's et al are right about the 'sea change' and I very much agree with them.........this type of market with its lack of breath is exactly what one would expect before we transition into the new paradigm.

[John Hjorth]

2 hours ago, dealraker said:

So for years, years, and years over on the Berk Manlobbi (old TMF) board all I hear is the S & P is hyper-incredibly-stupidly over-valued and Berkshire is a screaming burn-down-the-barn bargain.  And the posters...what do they promote as their favorites other than their Berkshire?   Always a randon assortment of APPL, MSFT, AMZN, GOOG, META, TSLA, NVDA...

 

And I'm like, "What the hell?"

 

@dealraker,

 

Well, in a way it is like sex, everybody practicing it, with or without a margin a safety, some  even without [downside] protection.

 

Just take a look at the socalled superinvestors at Dataroma, and their positions, several of them so called sworn-in value investors. Personally, I still have no idea about how to create an estimate for a price that provides a reasonable margin of safety for any of the names mentioned by you above. To me, there is no doubt, that at least some of them are fantastic companies, but that does not neccesarily make them good investments going forward.

 

That Dataroma observation of mine, what is it? : I don't know, perhaps some kind of FOMO combined with appropriate position sizing, relative to conviction? Fine with me, if so.

Edited May 2, 2023 by John Hjorth

[Ulti]

[changegonnacome]

2 hours ago, Ulti said:

 

Yep quicker & steeper..........its a challenge for this Fed........this isn't Europe where Christine Lagarde raises & next month the average European mortgage holder has 100 euro less to spend in the real economy........Europe should be able to get inflation under control much much quicker & with less collateral damage........in the US the Fed raises......and the average mortgage holder couldn't care less........sure prospective mortgage holders do.....but its very hard to effect the monthly FCF of a US household...interest rates are such a blunt tool but interest rates in a post-ZIRP decade are really blunted. Higher for longer is the logical conclusion from the rate & term structure of debt in the USA.....and unfortunately the downside of the venerable 30yr fixed rate mortgage....is that in an inflationary period it almost guarantees that the monetary authorities HAVE to hit the US labour market in meaningful way to moderate spending.

 

Its a challenge - but the cautionary piece of this that Powell should be paying attention too........is that as someone who is currently struggling desperately to temper spending via interest rates.......he must remember that once he accomplishes his mission of getting back to 2........the same problem awaits him on the backside of this........bringing the USA out of recession wont be so easy either for the exact same reasons........because coming out of the next recession we are unlikely to see rates go so low that Joe Sixpack is refinancing his existing 3% mortgage and improving his monthly FCF.......its also unlikely that Joe Sixpacks home value has appreciated relative to heady day of 2021 when he did his last cash out refi.....so no 'cash out' magic is waiting in the next cutting cycle......it will be a slow credit lead recovery (unless the fiscal authorities swoop in with helicopter stimulus).

Edited May 3, 2023 by changegonnacome

[Gregmal]

What are the magic words we are hanging onto our hats waiting for during the presser? Any specific phrases? Im eagerly on standby waiting to mash sell buttons!

[Sweet]

Don’t understand another rate rise at this moment.  Seems like self harm.

[Gregmal]

This guy has been lost and following the wrong data for 4 years now. Nothing new.

[Sweet]

9 minutes ago, Gregmal said:

This guy has been lost and following the wrong data for 4 years now. Nothing new.

Too slow to tighten, too slow to stop.

 

There is no point raising rates now if it means cutting in a few months.

 

Why not pause.

Edited May 3, 2023 by Sweet

[Gregmal]

The same reason he let inflation run wild so he could get renominated is the same reason he’s doing the tough guy things here. It’s all about Jerome and what he thinks his people think of him and his “credibility”. Literally Fauci 2.0. Guy needs to go find a parking spot on the train tracks. 

[TwoCitiesCapital]

7 hours ago, gfp said:

Warren Mosler makes a great point that with government debt held by the public at around 105% of GDP (triple what it was in the last cycle), the rate increases are actually net stimulative (and highly regressive - watch Berkshire's treasury bill profits skyrocket this weekend) and the Fed has essentially mixed up the accelerator for the brake.

 

We are running a fiscal deficit of about 7% of GDP (highly stimulative) and around half of the deficit is interest.  So continuing these rate increases actually risks further over-stimulating the economy, working against the goal of reducing inflation.  (and going a long way towards explaining why the most predicted recession in history continues to fail to materialize)

 

I'm not sure that's the case. 

 

Sure, anyone owning T-bills is doing alright. But short term bonds were down 5-7% last year. Owners of that are probably doing alright too. Probably neutral to positive. 

 

Owners of intermediate bonds? Down 10-15% last year and monthly income up only modestly as only a percentage of the bonds have rolled at higher rates.  That's a negative on spending from the negative wealth effect. 

 

Owners of long bonds? Absolutely slaughtered with basically zero pickup in income. That's a negative on spending from negative wealth effect. 

 

Anyone living on a fixed income doesn't get to reinvest at higher rates, but does pay higher prices. That's a negative from higher rates as their bond equity/bond portfolios look miserable while their incomes haven't improved. 

 

Sure - over a multiyear period there is the potential for higher rates to bleed through and increase incomes - but it takes years at these levels (which I doubt we have) and it primarily increases the income/spending of the wealthy/retirement plans/pension plans who would tend to save/compound most of the additional gains - not the average person who would spend them and circulate it. 

Edited May 3, 2023 by TwoCitiesCapital

[changegonnacome]

I'd say he needs to be very careful moving forward this version of the US economy post ZIRP has a balance sheet hitched to 3% fixed rates married to house prices that expanded in value to something of cyclical high.........the consumer & labor market has shown a resilience to 500bps rise in rates in a very short period which is surprising.....but not surprising in the context of 10+ years of ZIRP & everybody's fixed rate balance sheets..........if/when the economy deteriorates he needs IMO to remember just how rate insensitive spending was as he tried to wrestle the US economy to the floor.........cause it might be the exact same as he tries to stimulate it to grow again & get it up off the floor. There are no significant cash out refis happening in 2024. 

 

As regards what happens next......I remain in the hard landing camp........and we are where I've said we would be........sticky, disappointing, not budging MOM super core/made in America inflation that cant be blamed on Putin or supply chains.....unfortunately it can only be blamed on reckless politicians and dumb central bankers who continued to buy MBS's and enact fiscal giveaways.........this inflation were hitting now is domestic spending growth fueled with wage increases that exceed productivity gains by significant margin.......barring the labor market breaking to the down side.......I expect inflation now month after month to disappoint as the big headline CPI 'wins' roll off and headline rates converge with the super core inflation number......which just isn't living up to the inflation magically going away narrative that folks are telling themselves.

 

The Fed sees what I see...500bps of rate rises and numerous bank failures later....and SuperCore inflation has barely flinched.......meaning headline CPI has zero chance of getting anywhere near 2%, anytime soon...........its clear now that you can only get to SuperCore via the labour market........I really do hope moderating wage increases is enough....but its not likely to be barring an early productivity miracle from ChatGPT implementations.

[Gregmal]

All this guy is doing is wrecking the banks he s in charge of regulating. It’s glorious. Been saying it since before the first raise last year, but interest rates don’t really have anything to do with solving the “core” issues….but keeping raising em anyway. Total fool this guy is. 

[CorpRaider]

Yeah that stimulative theory doesn't make sense to me.  Even if every dollar in increased interest is just transferring from one pocket in the economy to another, those who earn interest are almost certainly going to have lower marginal utility for dollars and propensity to spend.  Not to mention credit grinding to a halt and a much higher opportunity cost for everything.

Edited May 4, 2023 by CorpRaider

[Ulti]

https://bilello.blog/2023/the-week-in-charts-5-2-23
 

nice review of a variety of things   Banking housing Meta etc in charts

[gfp]

9 hours ago, CorpRaider said:

Yeah that stimulative theory doesn't make sense to me.  Even if every dollar in increased interest is just transferring from one pocket in the economy to another, those who earn interest are almost certainly going to have lower marginal utility for dollars and propensity to spend.  Not to mention credit grinding to a halt and a much higher opportunity cost for everything.

 

I wasn't talking about interest transferring from one pocket in the economy to another, I was describing the increased interest payments flowing directly from the governments pocket to the private sector's pocket as increased deficit spending.  Conventional thinking is wrong on this.  Money is spent into existence by the government.  That is the only place new money can come from.

[CorpRaider]

Hmm ok, I think I follow you.  Maybe that is an overlooked complicating factor (monetary policy impacts "~with long and variable lag.")  I thought maybe they should favor QT over hikes at least until they removed prior QE; especially once the curve got flat.

Edited May 4, 2023 by CorpRaider

[gfp]

Look at those rates!  Berkshire gonna get paid on that cash.  (I'm sure this is related to fears of possible delay in getting your money if the government defaults for a few days...  57-day bill went at 5.5%)

 

 

Edited May 4, 2023 by gfp

[Gregmal]

Shhhh! If you listen closely, you can hear the sounds of the recession goalposts being moved!

[gfp]

Highly recommend this live feed of Hugh Hendry at this hedgeye conference going on right now.  Hopefully they post the video from the beginning because it's been great from the start.  Love this wacko

 

https://app.hedgeye.com/insights/132814-free-access-a-macro-reality-check-with-hugh-hendry-keith-mcculloug?type=macro%2Cmarket-insights

[LC]

2 hours ago, Gregmal said:

Shhhh! If you listen closely, you can hear the sounds of the recession goalposts being moved!

A recession is defined as 2 quarters of negative GDP growth, OR anytime any metric I choose goes down so I can smugly say I told you so.

[TwoCitiesCapital]

7 hours ago, LC said:

A recession is defined as 2 quarters of negative GDP growth, OR anytime any metric I choose goes down so I can smugly say I told you so.

 

They're determined by the NBER and not by any rule of thumb like two quarters of anything. There's been a debate above re: historical recessions that didn't fit that definition either. 

 

I'm sticking with my "within 6 months" call. 

 

ADP data is telling a slightly different story than NFP. No idea which one is more accurate, but they're not both right and one is signalling weakness while the other comes in strong and then gets revised downward. 

 

New job openings are still elevated relative to history, but coming down fast. 

 

Leading indicators have been significantly negative for 11+ months now. Coincident indicators are showing weakness. Fed is STILL hiking despite acknowledging that the bank failures are likely to tighten financial conditions which isn't showing up in data yet. 

 

MoM inflation is trending at 1-2% annualized and housing prices and used car prices are still falling which will take it down further in coming months. 

 

Corporate earnings are accelerating to the downside. 

 

Revolving credit is going through the roof signaling consumers maybe tapped out on excess savings. 

 

And, we still have several months left to feel the full effect of prior hikes let alone the tightening of credit from banks. 

 

This is going to accelerate downward quickly IMO - and like always - jobs will be the last thing to go. 

 

 

Edited May 5, 2023 by TwoCitiesCapital

[Parsad]

11 hours ago, Gregmal said:

Shhhh! If you listen closely, you can hear the sounds of the recession goalposts being moved!

 

Alot of things remain strong with the economy even with rising rates...jobs, mortgage delinquencies remain low, etc.

 

https://www.federalreserve.gov/releases/chargeoff/delallsa.htm

 

But while the goalposts move, there is no avoiding a recession in the future...late 2023/early 2024 is still my pick as rates rise, debt burdens become onerous and lending tightens.  

 

https://finance.yahoo.com/news/us-consumer-borrowing-climbs-surge-191715949.html

 

Cheers!

[Gregmal]

Yea idk I think the only real way to win the recession game longer term is to just not play it. If I see something attractive I just buy it. Tone deaf and happily oblivious. We ve already seen tons of fruit bore from last years crop. Imagine waiting it out over fear of something that still hasn’t happened? I’ve spent a lot of time studying this and have yet to really find a good company, that was reasonably priced, that was permanently impaired/done in by a regular old recession. They just come out stronger and often times, significant value is created during those recessions. Just play the long game. Problem easily solved.

[Parsad]

18 minutes ago, Gregmal said:

Yea idk I think the only real way to win the recession game longer term is to just not play it. If I see something attractive I just buy it. Tone deaf and happily oblivious. We ve already seen tons of fruit bore from last years crop. Imagine waiting it out over fear of something that still hasn’t happened? I’ve spent a lot of time studying this and have yet to really find a good company, that was reasonably priced, that was permanently impaired/done in by a regular old recession. They just come out stronger and often times, significant value is created during those recessions. Just play the long game. Problem easily solved.

 

+1!  Totally agree. 

 

Even though I think a recession is coming, I bought stocks in one of the most vulnerable areas...retail.  A few of them are just so damn cheap...stupid cheap!  I'll just keep averaging down if the price falls.

 

Cheers!

[dealraker]

57 minutes ago, Parsad said:

 

Alot of things remain strong with the economy even with rising rates...jobs, mortgage delinquencies remain low, etc.

 

https://www.federalreserve.gov/releases/chargeoff/delallsa.htm

 

But while the goalposts move, there is no avoiding a recession in the future...late 2023/early 2024 is still my pick as rates rise, debt burdens become onerous and lending tightens.  

 

https://finance.yahoo.com/news/us-consumer-borrowing-climbs-surge-191715949.html

 

Cheers!

High probability this is correct.