Is The Bottom Almost Here?

[Sinbius]

On 9/30/2022 at 8:09 PM, Gregmal said:

I guess just one semi relevant question I’d have on the logic of “the E falling off the market next year”….why are we giving so much weight to one year in the grand scheme of things? Didn’t we just go through this with COVID? Like there was literally a full 2-4 quarter period where not only did companies see “the E decline”, but they lost absolutely staggering amounts of money. Seems short sighted to me. 

There are people that don't think it will be just next year...

This is a global economic crisis...

People used to say inflation is transitory...now recession is transitory I guess...well in a sense it will be...

 

Edited October 3, 2022 by Sinbius

[Gregmal]

3 minutes ago, Sinbius said:

There are people that don't think it will be just next year...

This is a global economic crisis...

People used to say inflation is transitory...now recession is transitory I guess...well in a sense it will be...

 

It’s really funny when you thoroughly think about it and this whole situation. Most of the real inflation occurred through 2021 and early 2022. Screw the rigged and backward looking metrics, use your eyes. The $12 2x4s, steel prices, bidding wars on homes, used cars appreciating, toilet paper price gauging, etc…all that shit. And I don’t think there’s many who wouldn’t say 2021 was a great year for the economy and all. Not even talking about the stock market, the real economy.
 

So the inflation works it’s way through just like with used cars and 2x4s and even the spac and Ponzi scheme stocks and wouldn’t you know it, corrects itself on its own if given enough times. Capitalism works. But then, out of nowhere, the central banks all decide they need to blow up the economy and potentially causes what I guess you and others are saying may be a “multi year economic crisis”…..this is truly one of the most bizarre events I’ve ever witness in my lifetime. More so even than COVID. Everyone gets together and decides they need to destroy any single positive thing about the economy, globally, to fight this ever changing thing called inflation. Pretty remarkable.

[Spekulatius]

Market is terribly oversold and ready to rip. One decent inflation report trending in the right direction and we are back at 4200for the SP500.

 

Nobody gives a damn about CAPE ratios and all that stuff.

 

From Spek's market forecast that is worth exactly what you are paying for it.

[Guest]

What is wrong with you guys?? We are going to go through another Great Depression. Maybe even worse than that!!!! 

 

 

 

 

[Ulti]

https://podcasts.apple.com/us/podcast/odd-lots/id1056200096?i=1000581366234
 

episode is all about inflation….good bit about rent and healthcare and how they are measured in cpi…. While mortgage interest is not anymore ( since they dropped it during Volkers time)

[UK]

2 hours ago, Gregmal said:

It’s really funny when you thoroughly think about it and this whole situation. Most of the real inflation occurred through 2021 and early 2022. Screw the rigged and backward looking metrics, use your eyes. The $12 2x4s, steel prices, bidding wars on homes, used cars appreciating, toilet paper price gauging, etc…all that shit. And I don’t think there’s many who wouldn’t say 2021 was a great year for the economy and all. Not even talking about the stock market, the real economy.
 

So the inflation works it’s way through just like with used cars and 2x4s and even the spac and Ponzi scheme stocks and wouldn’t you know it, corrects itself on its own if given enough times. Capitalism works. But then, out of nowhere, the central banks all decide they need to blow up the economy and potentially causes what I guess you and others are saying may be a “multi year economic crisis”…..this is truly one of the most bizarre events I’ve ever witness in my lifetime. More so even than COVID. Everyone gets together and decides they need to destroy any single positive thing about the economy, globally, to fight this ever changing thing called inflation. Pretty remarkable.

 

Re rates: but the good news is that more and more of good news, which is bad news:), are turning into bad news, which is good news:)

 

Re self correction: i am not sure if FED or any other CB, at least if they care about not turning country into some banana style economy (and US has worlds reserve currency, some call this exorbitant privilege or something), can choose not to react to situation. Usually by making mistakes to both directions:)

 

Again, look at Turkey, they kept rates way lower than inflation for quite some time now, and it seems it is not working very well:

 

 

 

Personally I have no idea if infliation is transitory or not and even if somewhat normal rates is such a bad thing. It is easier perhaps to look on relative basis and it seems US is ina quite good position comparing to almost every place in the world:

 

https://www.bloomberg.com/news/articles/2022-10-03/inflation-in-europe-now-looks-even-less-transitory-than-in-us

 

Edited October 3, 2022 by UK

[Spekulatius]

I think one development to watch for is what happens to the UK / BOE. The UK almost had a Lehman moment. It may have been the first case, where market participants told a central bank to back off from MMT. There is probably more to come on that trajectory.

 

As for Turkey, I think that's a case where Wile E Coyote went already past the cliffs edge. Remember that Erdogan guaranteed the value of Turkish Lira deposits relative to hard currencies. I wonder how this is going to be paid out if depositors call in this insurance blanket policy...

Edited October 3, 2022 by Spekulatius

[Gregmal]

There’s nothing wrong with raising rates. There’s something wrong with thinking that destroying the economy and the average workers bargaining power is a resolution to prices going up temporarily. Supply and demand capitalism fixes that on its own. Turkey is a third world country compared to the US or Canada or UK. Same with the South American countries that saw hyperinflation.
 

What the Fed has done SO FAR, imo, is perfectly fine. Going further would be potentially disastrous. You can’t have the country currently in the most robust shape, being the most aggressive on the rate hike game trying to destroy its own economy. It just hurts others globally to magnitudes greater than here. And if you turn a good economy here into shit, it’ll just further deteriorate things. 
 

Way too much academic bullshit being experimented with here when too much of the problem is political and too much else of it is not terribly effective w/ rates regardless.

[UK]

19 minutes ago, Gregmal said:

There’s nothing wrong with raising rates. There’s something wrong with thinking that destroying the economy and the average workers bargaining power is a resolution to prices going up temporarily. Supply and demand capitalism fixes that on its own. Turkey is a third world country compared to the US or Canada or UK. Same with the South American countries that saw hyperinflation.
 

What the Fed has done SO FAR, imo, is perfectly fine. Going further would be potentially disastrous. You can’t have the country currently in the most robust shape, being the most aggressive on the rate hike game trying to destroy its own economy. It just hurts others globally to magnitudes greater than here. And if you turn a good economy here into shit, it’ll just further deteriorate things. 
 

Way too much academic bullshit being experimented with here when too much of the problem is political and too much else of it is not terribly effective w/ rates regardless.

 

i agree. At first they overdid it to one side, now, maybe they are overdoing to another:). Maybe summer rally shocked them and they just wanted financial conditions to tighten, so they started to talk about all this pain in order to bring infliation down, just that markets would get a message. Gee, FED pivoted in 2018 end after just 20 market drop. Maybe they wiil stop soon, before something really brokes, or maybe only after. I think nowbody knows. Perhaps better to turn attention to questions such as FB or GOOG is a better buy:)))

Edited October 3, 2022 by UK

[Gregmal]

10 minutes ago, UK said:

 

i agree. At first they overdid it to one side, now, maybe they are overdoing to another:). Maybe summer rally shocked them and they just wanted financial conditions to tighten, so they started to talk abaut all this pain in order to bring infliation down, just that markets would get a message. Gee, FED pivoted in 2018 end after just 20 market drop. Maybe they wiil stop soon, before something really brokes, or maybe only after something, I think nowbody knows. Perhaps better to turn attention to questions such as FB or GOOG is a better buy:)))

Yea look idk exactly other than to just evaluate businesses I wanna own on their individuals metrics, regardless of all this outside bullshit. They stopped the notion of raising in 2018 and what happened? A giant nothing. There probably wasn’t a need or a point to raise, again, it’s all this academic bullshit from the same folks who spouted money printing inflation rhetoric and were wrong for the past decade. 
 

The bigger problem(or opportunity) is just how knee jerk and group think everyone has become trained to be. First the Fed controls the stock market, but wait then analyst estimates are too high, so I guess the analysts control the stock market. But wait I wonder what this person or that person is gonna say…it’s all so hilarious and all such bull shit. Imagine if we applied this same nonsense to everything else we put our money into in life? Hmmm I wonder what Kovalic at JPM thinks about getting that new Subaru lease? Hmmm, good time to buy some strawberries Mr. Biden? Hmmm, I need a place to raise my family, would Kashkari find this a good time to do so? Did Bill Ackman control Herbalife because he talked about it and for a while it did nothing but go down?
 

These sort of episodes are great exercises in terms of sharpening your investing tools. Nothing says grow a pair of nuts and nothing rewards with bigger fortunes than going against the crowd and being able to independently do your own work. If something is attractive it should be absolute and if not then find something better. Fuck if the entire basket of stocks this past generation of passive investors likes does +/- $20 in earnings on the “consensus” that some paper pushing bunch of jerk offs arrives at on their excel spreads.

Edited October 3, 2022 by Gregmal

[Xerxes]

3 hours ago, Gregmal said:

It’s really funny when you thoroughly think about it and this whole situation. Most of the real inflation occurred through 2021 and early 2022. Screw the rigged and backward looking metrics, use your eyes. The $12 2x4s, steel prices, bidding wars on homes, used cars appreciating, toilet paper price gauging, etc…all that shit. And I don’t think there’s many who wouldn’t say 2021 was a great year for the economy and all. Not even talking about the stock market, the real economy.
 

So the inflation works it’s way through just like with used cars and 2x4s and even the spac and Ponzi scheme stocks and wouldn’t you know it, corrects itself on its own if given enough times. Capitalism works. But then, out of nowhere, the central banks all decide they need to blow up the economy and potentially causes what I guess you and others are saying may be a “multi year economic crisis”…..this is truly one of the most bizarre events I’ve ever witness in my lifetime. More so even than COVID. Everyone gets together and decides they need to destroy any single positive thing about the economy, globally, to fight this ever changing thing called inflation. Pretty remarkable.

 

listen to the professor going wild on CNBC

 

 

[Viking]

What we are learning is how well positioned the US is today. The country is economically positioned much better than any other major economy in the world. And it is not even close.
- China? Property bubble is popping. Xi is returning country to its communist roots. Globalization is dead. Zero covid is a joke. Its like the guy running North Korea has a long lost brother who we discover is now running China (for life). Happy thought for the day.
- Western Europe: without cheap energy you are screwed. Will take years to fix. Higher interest rates will kill southern Europe. The ECB is screwed.

- Japan: economy can only function if interest rates remain at zero. Good luck with that if inflation remains elevated for years. 
- Canada: housing bubble is popping. Only question is how hard is the landing. Immigration, resources and having US as neighbour will get country through the tough period coming.

[Parsad]

38 minutes ago, Viking said:

What we are learning is how well positioned the US is today. The country is economically positioned much better than any other major economy in the world. And it is not even close.
- China? Property bubble is popping. Xi is returning country to its communist roots. Globalization is dead. Zero covid is a joke. Its like the guy running North Korea has a long lost brother who we discover is now running China (for life). Happy thought for the day.
- Western Europe: without cheap energy you are screwed. Will take years to fix. Higher interest rates will kill southern Europe. The ECB is screwed.

- Japan: economy can only function if interest rates remain at zero. Good luck with that if inflation remains elevated for years. 
- Canada: housing bubble is popping. Only question is how hard is the landing. Immigration, resources and having US as neighbour will get country through the tough period coming.

 

Agree!  Although Canada isn't positioned badly either other than housing. 

 

Now if the U.S. and Canada would only allow a little more investment in oil/gas and production/refining, both countries would be really well positioned for this environment...and self-sufficient to withstand some of the inflationary pressure. 

 

But no, we're not going to do that!  That would make sense!  Cheers!

[CorpRaider]

51 minutes ago, Viking said:

What we are learning is how well positioned the US is today. The country is economically positioned much better than any other major economy in the world. And it is not even close.
- China? Property bubble is popping. Xi is returning country to its communist roots. Globalization is dead. Zero covid is a joke. Its like the guy running North Korea has a long lost brother who we discover is now running China (for life). Happy thought for the day.
- Western Europe: without cheap energy you are screwed. Will take years to fix. Higher interest rates will kill southern Europe. The ECB is screwed.

- Japan: economy can only function if interest rates remain at zero. Good luck with that if inflation remains elevated for years. 
- Canada: housing bubble is popping. Only question is how hard is the landing. Immigration, resources and having US as neighbour will get country through the tough period coming.

U.K.:  When the pound is worth $.50 I'm buying all my clothes from savile row and getting an aston martin. 

[james22]

1 hour ago, Viking said:

What we are learning is how well positioned the US is today.

 

Exactly.

[changegonnacome]

2 hours ago, Viking said:

What we are learning is how well positioned the US is today.

 

Let's differentiate between the US economy and US stock market for a minute....the US economy, YES........I look at the SPY/QQQ.......then I look at the relative valuations, the $,  purchasing power parity.......and I think to myself......wow are large cap stocks from the US (with all their inherent internationalism) really THAT well positioned relative to ex-US alternatives......the answer is NO.....which is why I remain short the US stock market and individual names in it......more pain to go here.......with misses & earnings revisions incoming 3000 SPY is a cert in my world......the beta is MF......how low we dip below that in the panic is the only thing I'm wondering.....everything is getting slapped around right now, once its all wrestled to floor the market will do what it does best start sifting through the wreckage and high FCF beasts & pristine assets will get 'found' again and will be rewarded.........the catch is you gotta hold em in ADVANCE of the re-rating which is tough sledding but builds character

[ACooke]

1 minute ago, changegonnacome said:

with misses & earnings revisions incoming 3000 SPY is a cert in my world...

 

...once its all wrestled to floor the market will do what it does best start sifting through the wreckage and high FCF beasts & pristine assets will get 'found' again and will be rewarded.........the catch is you gotta hold em in ADVANCE of the re-rating which is tough sledding but builds character

 

Yeah this seems like the most likely outcome to me also; although, my conviction is not tightly-held.

 

 

[changegonnacome]

41 minutes ago, ACooke said:

Yeah this seems like the most likely outcome to me also; although, my conviction is not tightly-held.

 

Yeah 20 years of the Fed 'having your back' makes it feel almost impossible that the market could fall below 3000 and not have someone coming in to rescue everyones portfolios....the game has changed..........cut rates/hit QT, it used to be an asymmetric policy response, the powers that be literally couldn't lose by doing it but now that same decision isn't 'costless' they may still do it but I dont think they will.............thats where the volatility is coming from........folks are getting the sense that their feet aren't touching the bottom anymore, that their big bro at the Fed has abandoned them.

 

Buy the dip, habits die hard

 

Its why post all this - near term, so near you could almost wrap your arounds it, FCF will be valued so highly............it will be the golden age of 'value' investing IMO....I look forward to it.......for too long the market has been running on hot air & brain farts.....and we are entering a period of 'jam today' vs. 'jam tomorrow' which is where we've been

Edited October 4, 2022 by changegonnacome

[Parsad]

7 hours ago, Spekulatius said:

Market is terribly oversold and ready to rip. One decent inflation report trending in the right direction and we are back at 4200for the SP500.

 

Nobody gives a damn about CAPE ratios and all that stuff.

 

From Spek's market forecast that is worth exactly what you are paying for it.

 

It looks like things are starting to slowdown nicely...the FED should be careful how much they raise rates from here and how fast.  I would imagine no more than a 50 basis point rate hike next and maybe even do a couple of 25 basis point hikes over a couple of months rather than at once.  I think if they do this they will maintain a slow expansion...probably not 2% inflation, but acceptable levels of inflation and an economy still growing.  Cheers!

 

https://www.yahoo.com/news/u-manufacturing-activity-slowest-almost-140513525.html

[Viking]

2 hours ago, Parsad said:

 

It looks like things are starting to slowdown nicely...the FED should be careful how much they raise rates from here and how fast.  I would imagine no more than a 50 basis point rate hike next and maybe even do a couple of 25 basis point hikes over a couple of months rather than at once.  I think if they do this they will maintain a slow expansion...probably not 2% inflation, but acceptable levels of inflation and an economy still growing.  Cheers!

 

https://www.yahoo.com/news/u-manufacturing-activity-slowest-almost-140513525.html

@Parsad i think you are far too optimistic with your suggestions of what the Fed should do. Most people seem to think inflationary pressures are magically going to disappear… like the ending of a Disney movie. As soon as financial markets get a whiff the Fed might be slowing increases (or done) they will rip much, much higher. Stocks will pop. Bond yields will come down (further out on the curve). Credit spreads will tighten. The US$ will sell off. In short financial conditions will ease. (We saw this movie play out mid-June to mid-August.) And the Fed will be screwed.

 

History teaches us there  is likely only one way to solve an embedded inflation problem (like we have now). And that is a Paul Volker type of tightening that last much longer than 6 months and that likely causes a more than mild recession. Has a recession happened? No. Is it coming? Given the strong employment reports, no. The fever has not broke yet. 
—————

The dilemma the Fed has today is the rest of the world cannot handle what the US is executing. So something will likely break (like what almost happened in Japan 2 weeks ago and the UK last week). If the plumbing of the financial system breaks the Fed will have to pivot. And then inflation will likely roar again. And then Powell likely looks for a new job.

—————

Commodities will rip higher at the first sign of an economic expansion. Because production is supply constrained. And that will fuel inflation. Oil, steel and lumber are all on my watch list for when we get to the next expansion. Jeff Currie has an interesting theory about the inflation of the 1970’s… he said perhaps one of the reasons it lasted so long because it took 7-8 years to solve the significant supply constraints that existed at the beginning of the 1970’s. i wonder if we do not have a similar set up today. This means It wasn’t just Volker that slayed the 1970’s inflation dragon. If that is true, then we could see persistently high inflation for many years (because ESG/government policy will ensure new supply capacity does not get built out on the scale needed to happen). 
 

 

Edited October 4, 2022 by Viking

[Dinar]

18 minutes ago, Viking said:

@Parsad i think you are far too optimistic with your suggestions of what the Fed should do. Most people seem to think inflationary pressures are magically going to disappear… like the ending of a Disney movie. As soon as financial markets get a whiff the Fed might be slowing increases (or done) they will rip much, much higher. Stocks will pop. Bond yields will come down (further out on the curve). Credit spreads will tighten. The US$ will sell off. In short financial conditions will ease. (We saw this movie play out mid-June to mid-August.) And the Fed will be screwed.

 

History teaches us there  is likely only one way to solve an embedded inflation problem (like we have now). And that is a Paul Volker type of tightening that last much longer than 6 months and that likely causes a more than mild recession. Has a recession happened? No. Is it coming? Given the strong employment reports, no. The fever has not broke yet. 
—————

The dilemma the Fed has today is the rest of the world cannot handle what the US is executing. So something will likely break (like what almost happened in Japan 2 weeks ago and the UK last week). If the plumbing of the financial system breaks the Fed will have to pivot. And then inflation will likely roar again. And then Powell likely looks for a new job.

—————

Commodities will rip higher at the first sign of an economic expansion. Because production is supply constrained. And that will fuel inflation. Oil, steel and lumber are all on my watch list for when we get to the next expansion. Jeff Currie has an interesting theory about the inflation of the 1970’s… he said perhaps one of the reasons it lasted so long because it took 7-8 years to solve the significant supply constraints that existed at the beginning of the 1970’s. i wonder if we do not have a similar set up today. This means It wasn’t just Volker that slayed the 1970’s inflation dragon. If that is true, then we could see persistently high inflation for many years (because ESG/government policy will ensure new supply capacity does not get built out on the scale needed to happen). 
 

 

I beg to differ.  I think that inflation is in the rear view mirror.   The inflation in goods - used car prices, etc is about to flatline and may be go in reverse.  I am looking for a new car, leases do not seem more expensive than they were ten months ago despite higher interest rates.   I  think that supply of labor in US is going up sharply (massive swing from positive to negative wealth effect, millions pouring over the Southern border, Ukrainian and Russian refugees, people fed up with President Xi), meanwhile demand for labor is declining sharply - corporates are firing, construction/real estate is firing.  So hard to see labor inflation.  As for commodities, what implication does shrinking Chinese population and end of Chinese construction boom have on demand for cement, iron ore, lumber and oil?  

[matthew2129]

32 minutes ago, Viking said:

As soon as financial markets get a whiff the Fed might be slowing increases (or done) they will rip much, much higher. Stocks will pop. Bond yields will come down (further out on the curve). Credit spreads will tighten. The US$ will sell off. In short financial conditions will ease. (We saw this movie play out mid-June to mid-August.) And the Fed will be screwed.

Popping stocks, dropping yields and tight credit spreads didn't do much for inflation during the 2010's decade 

[Parsad]

57 minutes ago, Viking said:

@Parsad i think you are far too optimistic with your suggestions of what the Fed should do. Most people seem to think inflationary pressures are magically going to disappear… like the ending of a Disney movie. As soon as financial markets get a whiff the Fed might be slowing increases (or done) they will rip much, much higher. Stocks will pop. Bond yields will come down (further out on the curve). Credit spreads will tighten. The US$ will sell off. In short financial conditions will ease. (We saw this movie play out mid-June to mid-August.) And the Fed will be screwed.

 

History teaches us there  is likely only one way to solve an embedded inflation problem (like we have now). And that is a Paul Volker type of tightening that last much longer than 6 months and that likely causes a more than mild recession. Has a recession happened? No. Is it coming? Given the strong employment reports, no. The fever has not broke yet. 
—————

The dilemma the Fed has today is the rest of the world cannot handle what the US is executing. So something will likely break (like what almost happened in Japan 2 weeks ago and the UK last week). If the plumbing of the financial system breaks the Fed will have to pivot. And then inflation will likely roar again. And then Powell likely looks for a new job.

—————

Commodities will rip higher at the first sign of an economic expansion. Because production is supply constrained. And that will fuel inflation. Oil, steel and lumber are all on my watch list for when we get to the next expansion. Jeff Currie has an interesting theory about the inflation of the 1970’s… he said perhaps one of the reasons it lasted so long because it took 7-8 years to solve the significant supply constraints that existed at the beginning of the 1970’s. i wonder if we do not have a similar set up today. This means It wasn’t just Volker that slayed the 1970’s inflation dragon. If that is true, then we could see persistently high inflation for many years (because ESG/government policy will ensure new supply capacity does not get built out on the scale needed to happen). 
 

 

 

I'm a firm believer that history is never the same, but may rhyme.  So everyone fearing a Volker like environment is probably wrong.  That doesn't mean we don't see higher rates than the last decade, but it also means that we aren't going to see a draconian attack on inflation.  

 

The economy needs to slow, not seize.  Volker killed inflation, but he also killed the economy at the time.  This is a healthy U.S. economy, but one that overheated.  The current rash of rate hikes, and possibly a couple more, should have the necessary effect of cooling it, but not shutting it down.  The numbers are finally starting to show that.  Just like the FED was late to the party, we don't want them to overshoot either.  There is a lag between when rates rise and the actual impact to the economy from producers, wholesalers, manufacturers and retail.  

 

The FED has often been late...think Greenspan's 12-15 rate cuts in the late 1990's and then sudden 15 consecutive rate hikes between 2000 and 2002.  Or their ignorance of what was happening in 2007 and then desperate attempts to save the world in 2008/2009.  This is no different.  They should have started raising rates gradually a year earlier...you could see input costs rising and supply chain disruptions.  Now they've been swinging fast and loose to catch up.

 

Last November, no one was talking about rate hikes or a reset in asset prices.  Today, they are panicking that it is the next Great Depression and the market bottom will never be reached.  I don't know how this ends, but I know how it rhymes!  Cheers!

 

 

[Viking]

Here is a quote of Druckenmiller’s from the CNBC Seeking Alpha conference just held:

 

STANLEY DRUCKENMILLER: …. But right now, I like everything I’m hearing out of the Fed, and I hope they finish the job.  They made a big mistake.  They seem to have owned it, but it’s easy to own it when employment is strong.  Let’s see what happens if we get a hard landing.  I just hope they stick to their guns because this stuff was terrible in the ’70s.  You have to slay the dragon.  And the chair is right.  You’re probably going to have some pain.

—————

The Fed is in the Disney phase of tightening - employment is strong. Can the Fed continue to do what is necessary to slay inflation when the economy turns down hard and employment weakens a great deal? We should have our answer by the end of 2023. Given this Feds track record i am not optimistic - but i remain open minded (to steal one of Druckenmiller’s favourite lines. 

[crs223]

The Schiff/goldbug/pessimist in me says “a 13 year bender of low interest rates is all negated in six months.  With FFR below CPI during this hiking cycle.  B.S.“

 

But my Schiff/goldbug/pessimist psyche has been wrong for 15 years.  Now I just own BRK and let  Warren/Todd/Ted figure it all out.