Is The Bottom Almost Here?

[changegonnacome]

1 minute ago, crs223 said:

Im not saying that there is no inflation, just that people are not behaving like there is.

 

yep and thats exactly what Im saying in the above post.......they arent now thinking this way, which is great news in getting back to 2, makes it much easier.......but if Fed were do nothing like many seem to be suggesting....& they took a transitory stance again and for a second time it turned out not to be the case.....well it would be disaster to 'fix' then as inflation psychology would take hold in the caveman brain

[Gregmal]

Pretty much agree with the sentiment discussed. It’s pretty clear a capital injection via stimulus and COVID restrictions blew the whole thing up. The Fed got transitory wrong by 12-18 months. So now they can’t keep saying that. The have to basically stay committed out of fear of being wrong, and when it wanes as it seems destined to do(or already is in the process of doing) they can say see! We did it.
 

Oh bureaucrats!

[changegonnacome]

For sure there is an institutional / bureaucratic self-preservation element to what the Fed is doing now.......luckily and in this unique instance it also happens to be the right thing do IMO.

[TwoCitiesCapital]

1 hour ago, Gregmal said:

Pretty much agree with the sentiment discussed. It’s pretty clear a capital injection via stimulus and COVID restrictions blew the whole thing up. The Fed got transitory wrong by 12-18 months. So now they can’t keep saying that. The have to basically stay committed out of fear of being wrong, and when it wanes as it seems destined to do(or already is in the process of doing) they can say see! We did it.
 

Oh bureaucrats!

 

I agree with this sentiment. I think the Fed is going to intentionally overtighten to regain whatever credibility was lost in the 'transitory' stage where they "let" inflation get to 9.6% even while the USD rose to 20-year highs. 

 

I was originally expecting a pivot. Now I'm coming around to the idea they won't even though it's perfectly obvious the rental component of CPI lags and will be rolling over for the next 12 months. 

 

They're going to do this because we DO need to let inflation run at 3-5% for the next several years just because of the 31 trillion in federal debt - the Fed needs to let inflation run hot while keeping interests low so negative rates can work their magic. But they have to do that AND control longer term inflation expectations. 

 

So welcome to the environment of booms/bust as inflation goes from 0% to 9% back to 0% back to 6% etc.  over the next decade. 

 

How can you have a "strong" economy and cratering earnings? Revenues fall modestly, while margins crater due to higher wages/higher inputs/higher financing costs/elevated inventories/elevated uncertainty on 12-24 month outlook. 

 

Now you've got a 10-20% contraction in earnings across much of the S&P while the index will need to "rebalance" to where the earnings are - i.e. energy/commodities stay flat or rise while tech/communication/consumer discretionary all falls dramatically. 

Edited October 8, 2022 by TwoCitiesCapital

[crs223]

32 minutes ago, TwoCitiesCapital said:

They're going to do this because we DO need to let inflation run at 3-5% for the next several years just because of the 31 trillion in federal debt 

 

No way.  The fed doesn’t care about the debt that the treasury needs to pay.  As a matter of fact, nobody anywhere cares about that.  Not the treasury and not even the bond holders.  Fed is a bureaucracy and as such cares only about their mandate (price stability and employment).

 

If the fed really were worried about it, they would not have raised rates.

 

Im not saying that inflation doesn’t help debtors like the US Treasury.  Inflation does help.  I’m not saying that Fed actions don’t help the US Govt.  They often do (printing brrrr etc).  But I do not believe that any decisions the fed makes give any consideration to the indebtedness of the US Govt.

[changegonnacome]

59 minutes ago, crs223 said:

give any consideration to the indebtedness of the US Govt.

Only to the extent that raising the incremental borrow cost to the fiscal authorities can increase the potential level of fiscal responsibility….for example the infrastructure bill spending could/should be deferred till later…..every project should be progressed with haste to a shovel ready position but the real deployment of capital & labor should be deferred into an economy printing 5%+ unemployment, not 3.5%…..this is the way Keynesian economies should work….but the problem with Keynesiam isn’t Keynes it’s lizard brain politicians 

[Gregmal]

Sending people $300 per kid a month was really the match that lit the fire IMO. And they’re talking about stuffing a renewal into a year end bill making it permanent. Even as it’s almost throughly been drained from the system as it expired last December. 
 

At some point, inflation or not, this will get political. Politicians only know how to bribe with money. Their constituents will eventually demand answer for why their 401ks are getting obliterated. These aren’t people like us who allocate our own money and many do it on after tax dollars anyway. Most folks are financially dumb, check a box, and expect to see their nest egg grow. Especially for the older folks, whose major earning years have contributed the bulk of the value the past decade, gonna be some interesting questions and confrontations. How’s one of those target funds with a stock bond mix? Both off 25%+ on the year.  Another 10-15% off and they’ve had most of their savings since like 2005 wiped out. And no, 5% short term CD options doesn’t compensate for this.

 

We all live and die by our stock selection prowess, it’s 100% accountability. I bought it, I sell it, I live with the fruits or turds. Most people blindly rely on the system and are gonna want answers when yet again, it fails them. 

[crs223]

5 hours ago, Gregmal said:

Sending people $300 per kid a month was really the match that lit the fire

 

Im surprised to hear you say that.  You often say “fed raising rates isn’t going to make new oil, homes, or chips”.  As if these shortages are not due to govt.

[Gregmal]

2 hours ago, crs223 said:

 

Im surprised to hear you say that.  You often say “fed raising rates isn’t going to make new oil, homes, or chips”.  As if these shortages are not due to govt.

It was a number of thing IMO, all converging at once. Sending $300 a month, per kid, to lower and middle income families definitely had a ripple. I mentioned last year part of the “buy anything housing” bonanza was because if a family of 3 now had $900 a month for rent, those bs one or two bedroom units that used to go for $1400 a month anywhere decent in America now needed to be priced at probably $1800 minimum. This definitely reverberated. Same with groceries and entertainment. But at the end of the day, the Fed can’t drill oil, build homes or plow wheat. Their solutions only make those problems worse.

 

Which I guess is why I’m still balls to the wall long shelter, food/resources, and energy. Despite thinking the current inflation is passing and all.

[Dinar]

8 hours ago, Gregmal said:

It was a number of thing IMO, all converging at once. Sending $300 a month, per kid, to lower and middle income families definitely had a ripple. I mentioned last year part of the “buy anything housing” bonanza was because if a family of 3 now had $900 a month for rent, those bs one or two bedroom units that used to go for $1400 a month anywhere decent in America now needed to be priced at probably $1800 minimum. This definitely reverberated. Same with groceries and entertainment. But at the end of the day, the Fed can’t drill oil, build homes or plow wheat. Their solutions only make those problems worse.

 

Which I guess is why I’m still balls to the wall long shelter, food/resources, and energy. Despite thinking the current inflation is passing and all.

Greg, if you do not mind, could you please share how you are long food/resources.  I have not been able to find good agricultural plays for instance.  Thank you.

[Gregmal]

35 minutes ago, Dinar said:

Greg, if you do not mind, could you please share how you are long food/resources.  I have not been able to find good agricultural plays for instance.  Thank you.

Alico is farm/ranch land. Free cal on development upside. There’s a lot of good stuff inside Berkshire as well. CF Industries is stupid cheap. Pure Cycle obviously has a lot of water. Inflation or not these issues are structural and lasting and folks don’t just want them but they need them. Burry and Bass, two of the biggest bears I’m aware of, have often talked about the attraction of owning land and water. It’s not really sexy but it gets the job done.

[Spekulatius]

Agricultural stocks:
KWS.DE has a pretty nice family controlled seed ( non GMO) business.

CNHI is a competitor to DE , but much cheaper. They have over time systemically improved the business imo. I also think that their biggest owner (EXOR) is rational and gives strategic direction.

 

CTVA (Seed, crop protection)  is a DuPont spin-off , but way to expensive right now.

 

I guess Bayer would fit in here too, but the management is just too horrible.

Edited October 9, 2022 by Spekulatius

[Dinar]

Thank you gentlemen

[maxthetrade]

I like DE, almost bought in early July but I was too cheap and missed the opportunity. Sub $300 this is a decent buy.

[Gabriel]

Nobel economics prize just awarded to Ben Bernanke and 2 others for work on financial crises. He surely beat deflation… 

[crs223]

Did Volker get one too?

[Gregmal]

Wouldn’t it be funny to see how many chumps would trade solely off one cpi print? Like pay an intern $10k to totally fabricate something, maybe 1% or idk like 23%, numbers any half wit could tell you to throw in the garbage, and see what kind of pandemonium ensues? 

[changegonnacome]

22 hours ago, Spekulatius said:

CNHI is a competitor to DE , but much cheaper. They have over time systemically improved the business imo. I also think that their biggest owner (EXOR) is rational and gives strategic direction.

 

Mario Gabelli big fan of CNHI....and your 100% right EXOR nudges them to do the right thing for the business and the right financial engineering when it makes sense......the West is short people, the mechanization of agriculture you'd imagine is done but like lots of things where people think a trend is over....there's way more white space in precision agriculture for CNHI/DE to help farmers drive efficiency's

[Viking]

The big story today is the spike in bond yields in Europe/UK. In the UK the 30 year is up 30 basis points. Bond yields are up across the curve. The UK and Europe are a mess. What is the solution? Much lower currencies. Pound at parity to the US$ and the Euro at 0.9 is probably the optimistic scenario in the next 3-4 months.
 

The UK economic/fiscal/currency situation now resembles that of an emerging market:

1.) exit Euro: kill your economy

2.) bad long term public policy around energy: energy prices through the roof

3.) political system in disarray: increasingly desperate measures by governments leading to deterioration of confidence in financial markets

What is the end result? A slow moving train wreck. The next 6 months things could really get ugly. Europe is in better shape than the EU. But not by much. 
—————

The ‘winner’? The US. And Canada to a lesser extent. 
—————

i was joking with my nephew who lives in France that the Canadian $ might hit parity with the Euro in 1H of 2023. Needless to say, he was not amused (at some point i do expect the oil/energy angle to push the Can$ higher).

Edited October 10, 2022 by Viking

[Gregmal]

Jamie Dimon seems on board with S&P 3000

[UK]

https://www.cnbc.com/video/2022/10/10/jpmorgans-jamie-dimon-warns-us-likely-to-tip-into-recession-in-6-to-9-months.html

https://www.cnbc.com/video/2022/10/10/dimon-sp-could-yet-fall-by-another-easy-20percent-from-current-levels.html

Edited October 10, 2022 by UK

[Viking]

Great discussion of where financial markets are at today. Harley Bassman is one smart dude (sounds like he grew up in the late ‘60’s). Joseph is solid, as usual. 
 

 

Edited October 10, 2022 by Viking

[Spekulatius]

Checked out the Blockwork Macro channel and found the episode with Aswath Damodaran  pretty good:

Aswath is really a clear thinker and explain how to think about inflation , the impact on equity prices etc. Highly recommended.

 

Some of his points~ stable high inflation is not a problem for business. Companies could easily deal with let say 7% constant inflation. However, high inflation is almost never stable. When inflation is 7% it could be that next year inflation is at 5%, 2% or 10%. That’s what happened in the 70‘s.

 

Needless to say, this uncertainty is toxic for most business. Thats why the 70‘s were all over the place.

 

Edited October 10, 2022 by Spekulatius

[Parsad]

7 hours ago, Viking said:

The big story today is the spike in bond yields in Europe/UK. In the UK the 30 year is up 30 basis points. Bond yields are up across the curve. The UK and Europe are a mess. What is the solution? Much lower currencies. Pound at parity to the US$ and the Euro at 0.9 is probably the optimistic scenario in the next 3-4 months.
 

The UK economic/fiscal/currency situation now resembles that of an emerging market:

1.) exit Euro: kill your economy

2.) bad long term public policy around energy: energy prices through the roof

3.) political system in disarray: increasingly desperate measures by governments leading to deterioration of confidence in financial markets

What is the end result? A slow moving train wreck. The next 6 months things could really get ugly. Europe is in better shape than the EU. But not by much. 
—————

The ‘winner’? The US. And Canada to a lesser extent. 
—————

i was joking with my nephew who lives in France that the Canadian $ might hit parity with the Euro in 1H of 2023. Needless to say, he was not amused (at some point i do expect the oil/energy angle to push the Can$ higher).

 

One of the potential risks to the U.S. could be their insistence on fighting inflation.  If the U.S. continues to raise rates, and other countries are forced to defend their currencies by selling off more and more USD reserves, it means higher and higher rates for U.S. debt issuances as they roll over maturing debt.  Cheers!

[Parsad]

Record inventory levels.  Those with money will enjoy discounted prices this Christmas!  Cheers!

 

https://finance.yahoo.com/news/retailers-stockpiles-mean-deep-holiday-000250331.html