Is The Bottom Almost Here?

[copelandlewis]

29 minutes ago, rogermunibond said:

Interesting I wonder if that cross correlates with disability claims

Those do tend to be states with the highest rates of obesity and opioid use.

 

31 minutes ago, rogermunibond said:

Interesting I wonder if that cross correlates with disability claims

 

[changegonnacome]

16 hours ago, Spekulatius said:

It should also be noted that even  Japan has recently shown inflation. It went to 4% which is a 25 year high as well. The last spike on inflation was from a consumption tax rise in 2014 (causing a one off effect) , but the nature of the recent rise is different in nature.

 

 

Japan was one economy as deflationary as you can make one up, but not any more.

 

Yep - Japan finally during COVID.......stopped letting the BOJ drive the bus with financial instrument chicanery and the fiscal authorities got out the bazooka.....and did stimulus that results in direct aggregate demand/spending in the real economy (not just financial instruments)......and surprise surprise they got the inflation they dreamed off...positive some supply chain inflation in there too related to COVID etc. but there is also monetary inflation. - https://www.piie.com/research/piie-charts/japans-government-spent-less-covid-19-stimulus-headline-numbers-suggest

[Spekulatius]

@changegonnacome I don’t think Japans inflation has to do with COVID-19 spending at all. I think some of their inflation is imported and the other part has seeped in the general economy (services etc). I don’t really know for sure.

 

Its quite interesting because if this inflation is here to stay, many Japanese dirt cheap value  stocks with huge cash reserves (that now get some interest) and decreasing topline could look much better going forward.

Edited February 5, 2023 by Spekulatius

[changegonnacome]

12 hours ago, Parsad said:

Change enjoys this stuff!  So if you enjoy it...more power to you.  But for the average investor on here...this is all irrelevant. 

 

Buy cheap, sell dear, ignore the noise!

 

Cheers!

 

I wholeheartedly agree - and echo the sentiment. I like it.....but even as much as I like it......I'm buying cheap and selling dear......for all my macro musings......I'm still up to my neck in cheap stocks that will do well regardless of Fed funds at 6%, the economy printing negative GDP etc. 

 

One important macro musings outside my ramblings is the sentiment in Howard Mark's Sea Change memo - we are moving from a low return world to likely a fair return world.....folks on COBF will do fine given the value investing bias....but paying outrageously high multiples on things was always dangerous.....doubly so now.....further incremental multiple expansion bailed alot of people of out errs of judgement in the recent past.....that tail wind to investors is receding I think

[changegonnacome]

3 hours ago, thepupil said:

22 hours ago, changegonnacome said:

https://www.cmegroup.com/markets/interest-rates/stirs/eurodollar.html
 

I think what you’re looking for is futures and options on futures related to short term FI. 
 

they are accessible to the everyday Joe on interactive brokers. I have never traded them in a personal or prod context, therefore don’t want to provide any more specifics, but if you want the purest form of short term rate speculation, it’s somewhere in there.

 

Appreciate that - I'll do some digging

[changegonnacome]

7 minutes ago, Spekulatius said:

I don’t think Japans inflation has to do with COVID-19 spending at all. I think some of their inflation is imported and the other part has seeped in the general economy (services etc). I don’t really know for sure.

 

Its quite interesting because if this inflation is here to stay, many Japanese dirt cheap value  stocks with huge cash reserves (that now get some interest) and decreasing topline could look much better going forward.

 

Re:inflation possibly your right - I haven't dug into it in huge amount of detail to have a super strong conviction....my impression was from gleaning some of the data was that direct COVID fiscal stimulus had done what BOJ had failed to do for 2010's which was get inflation up........but think your right now too which is FX starting in mid-2021 chipped in greatly too.......Japan maintaining relatively low interest rates while RoW started to move theirs has weakened the Yen......and so yeah the rest of the world is exporting them their inflation and they are happily importing it. Dollar/Yen chart is scary in that regard.....imagine whats happened to a theoretical basket of US/dollar denominated goods and services in Japan...ouch. DXY strength is such an advantage for US consumers & the inflation fight here:

 

 

 

 

[KJP]

21 hours ago, Spekulatius said:

The real problem with labor force participation is in the south:

https://fred.stlouisfed.org/release/tables?rid=446&eid=784070

 

Alabama, Arkansas, Kentucky, South Carolina, West Virginia, Mississippi .

All MAGA land.

 

The only Blue state coming close is Maine

Some things don't change much.  That data series appears to go back almost 50 years to January 1976.  Here are the bottom 10 states in labor force participation then and now:

 

Jan 1976 [For context, national was 61.3%]

West Virginia - 51.7%

Florida - 54.6%  [Dec. 2022:  59.6% -- surprising to me given the number of retirees]

Louisiana - 55.7%

Alabama - 55.9%

Arkansas - 56.3%

Mississippi - 57.5%

New York - 57.6%  [60.1%]

Pennsylvania - 57.6%  [61.6%]

Tennessee - 58%

Arizona - 58.5%  [61.4%]

 

 

Dec 2022 [National was 62.3%]

Mississippi - 54.1%

West Virginia - 54.2%

New Mexico - 55.8%  [Jan 1976:  59.3%]

South Carolina - 55.9%  [64.3% -- huge decline.  Loss of textile manufacturing with insufficient new industry or increase in retirees?]

Arkansas - 56.2%

Alabama - 56.8%

Kentucky - 57.2%  [59.5%]

Maine - 57.5%  [60.6%]

Tennessee - 58.5%

Louisiana - 58.5%

 

 

West Virginia, Mississippi, Alabama, Louisiana, Arkansas, and Tennessee make both lists, and New Mexico and Kentucky nearly did.  So whatever the underlying causes are for relatively low labor force participation in those states, they appear to go back a long time. 

 

 

 

 

[Dinar]

2 hours ago, KJP said:

Some things don't change much.  That data series appears to go back almost 50 years to January 1976.  Here are the bottom 10 states in labor force participation then and now:

 

Jan 1976 [For context, national was 61.3%]

West Virginia - 51.7%

Florida - 54.6%  [Dec. 2022:  59.6% -- surprising to me given the number of retirees]

Louisiana - 55.7%

Alabama - 55.9%

Arkansas - 56.3%

Mississippi - 57.5%

New York - 57.6%  [60.1%]

Pennsylvania - 57.6%  [61.6%]

Tennessee - 58%

Arizona - 58.5%  [61.4%]

 

 

Dec 2022 [National was 62.3%]

Mississippi - 54.1%

West Virginia - 54.2%

New Mexico - 55.8%  [Jan 1976:  59.3%]

South Carolina - 55.9%  [64.3% -- huge decline.  Loss of textile manufacturing with insufficient new industry or increase in retirees?]

Arkansas - 56.2%

Alabama - 56.8%

Kentucky - 57.2%  [59.5%]

Maine - 57.5%  [60.6%]

Tennessee - 58.5%

Louisiana - 58.5%

 

 

West Virginia, Mississippi, Alabama, Louisiana, Arkansas, and Tennessee make both lists, and New Mexico and Kentucky nearly did.  So whatever the underlying causes are for relatively low labor force participation in those states, they appear to go back a long time. 

 

 

 

 

Yeah, and it is cultural!  There is a reason why Chinese thrive in every country they are in!  Culture matters and trumps almost everything!

[ValueArb]

I believe the widespread adoption of workplace air conditioning is what dropped Arizona from the list;)

[Cigarbutt]

Maybe this all babbling babble but (FWIW) i do enjoy this thread.

Inflation in Japan was just mentioned.

There is a currency and and a balance of payments effect as Japan imports a lot of energy and food/commodities. Once this part is removed, there's not that much inflation despite huge efforts that pretend to wake inflation up.

During 2020, there was a very similar MMT-type policy that Japan accomplished (similar to the US, about a third of all government debt ended up in commercial banks (on their asset side linked to a new money deposit)) which, with a lag, at least stirred some inflation spirits. Below, the blue lines are QE-type transactions, Japan-style and the red line shows the significant uptake of JGBs by city banks.

It's likely mostly babble but there doesn't seem to be wide recognition that MMT was tried in a way and...now yield curves have become massively inverted. Why?

 

[Jaygo]

8 hours ago, KJP said:

Some things don't change much.  That data series appears to go back almost 50 years to January 1976.  Here are the bottom 10 states in labor force participation then and now:

 

Jan 1976 [For context, national was 61.3%]

West Virginia - 51.7%

Florida - 54.6%  [Dec. 2022:  59.6% -- surprising to me given the number of retirees]

Louisiana - 55.7%

Alabama - 55.9%

Arkansas - 56.3%

Mississippi - 57.5%

New York - 57.6%  [60.1%]

Pennsylvania - 57.6%  [61.6%]

Tennessee - 58%

Arizona - 58.5%  [61.4%]

 

 

Dec 2022 [National was 62.3%]

Mississippi - 54.1%

West Virginia - 54.2%

New Mexico - 55.8%  [Jan 1976:  59.3%]

South Carolina - 55.9%  [64.3% -- huge decline.  Loss of textile manufacturing with insufficient new industry or increase in retirees?]

Arkansas - 56.2%

Alabama - 56.8%

Kentucky - 57.2%  [59.5%]

Maine - 57.5%  [60.6%]

Tennessee - 58.5%

Louisiana - 58.5%

 

 

West Virginia, Mississippi, Alabama, Louisiana, Arkansas, and Tennessee make both lists, and New Mexico and Kentucky nearly did.  So whatever the underlying causes are for relatively low labor force participation in those states, they appear to go back a long time. 

 

 

 

 

These are the rust belt states. Japan ate their lunch in the 60-80s the eastern block and China afterwards. 
 

They are all east of the Mississippi and we’re river barge industrial states. I’m just surprised Michigan is not on there.
 

Also places with a consistent winter season will always have lower participation rates. Cash for plowing is a thing and seasonal works is very much part of the system 

[Gregmal]

I’m just wondering, if there’s an official spokesperson for the super bear camp…when is the official

goalpost moving ceremony on the hard landing date? I still loosely have it as H1 2023, but I’m starting to see a lot of the same folks now saying Q3/4 2023 or Q1 2024….

[StevieV]

53 minutes ago, Gregmal said:

I’m just wondering, if there’s an official spokesperson for the super bear camp…when is the official

goalpost moving ceremony on the hard landing date? I still loosely have it as H1 2023, but I’m starting to see a lot of the same folks now saying Q3/4 2023 or Q1 2024….

 

Sometime in '23, or it might slip into '24, or a few years after that, or thereabout.  Usually best to avoid being specific about these things.

 

Myself, I'll leave the strong macro takes to others.

[Parsad]

1 hour ago, Gregmal said:

I’m just wondering, if there’s an official spokesperson for the super bear camp…when is the official

goalpost moving ceremony on the hard landing date? I still loosely have it as H1 2023, but I’m starting to see a lot of the same folks now saying Q3/4 2023 or Q1 2024….

 

Flexibility is important in being right.  So let's say some time in the next 5 years!    Cheers!

[dealraker]

Most likely when chief economists of any political leanings begin speaking in "Cinderella" or "Goldilocks" tongues as in 2007.

[nafregnum]

I thought this was an interesting neutral opinion and commentary, similar to a lot of what's been said here as well:

 

https://adventuresincapitalism.com/2023/02/01/i-just-dont-know/

 

[John Hjorth]

On 2/4/2023 at 12:11 PM, mattee2264 said:

The next decade probably isn't going to be that great for stock investors. ...

 

@mattee2264,

 

To who is this message of yours directed, and to who does it matter?

 

-We all just need to make specific judgements/assessments about potential expected returns relative to potential assumed risks for each potential investment case.

 

There is always something to do, no matter the environment.

[Gregmal]

CNBC: Stocks slip as investors brace themselves for remarks from Fed chair Powell…

 

Brace themselves huh? Lol, my goodness

[changegonnacome]

 

Kashkari does a descent job here of saying what I've been saying - best case 1% productivity growth (but in reality productivity growth is likely to be flat for 2023).......in a full employment/full spend economy where wages are going up ~4-5% equals persistently higher inflation well above 2% certainly in the "non-housing services" category for sure (which is a huge part of the US economy).......that alone forces the Fed hands re:cuts later this year......and lets not forget the energy/commodity goldilocks scenario we've had these past few months which has helped drive dis-inflationary pressures that have flattered the numbers.....that tailwind reverses and joins the non-housing services inflation that hasnt moved diddly squat in all that time.........well.....you've got MoM inflation data that starts going UP again

[Gregmal]

So again, he s at 5.4 and we are currently at 4.5-4.75. Everyone and their mom is cool with one or two more. What exactly is the payoff here if we get 1-2 additional tiny hikes? Is it just some pump and dump like short term sell off on headlines? Cuz otherwise it just seems like trying to squeeze the literal last drop of blood from a stone. This is sooo last years trade.

[CorpRaider]

Kashkari is just a team player to the max isn't he?  haha.  I was forced to get long in my trend + value stuff so it's time for a big drawdown.  It's funny how my subconscious rooting interest changes depending on the posture of that "system" even though it's not yuge relative to my capital.

 

 

Edited February 7, 2023 by CorpRaider

[TwoCitiesCapital]

26 minutes ago, Gregmal said:

So again, he s at 5.4 and we are currently at 4.5-4.75. Everyone and their mom is cool with one or two more. What exactly is the payoff here if we get 1-2 additional tiny hikes? Is it just some pump and dump like short term sell off on headlines? Cuz otherwise it just seems like trying to squeeze the literal last drop of blood from a stone. This is sooo last years trade.

 

The difference is hundreds of billions of corporate bottom lines, discretionary spending from consumers, and federal spending as more money flows are devoted to, and tied up in, interest payments. 

[RedLion]

20 hours ago, Parsad said:

 

Flexibility is important in being right.  

LMAO!!

[Gregmal]

If 50-100bps, let alone 25-50 are the difference between investing and not investing, probably better off just throwing everything in the garbage. I can’t imagine tailoring my investment decisions around something so arbitrary. A shit company is still a shit company whether FF is at 3, 5, or 10. Same goes for a great asset.

[changegonnacome]

45 minutes ago, Gregmal said:

If 50-100bps, let alone 25-50 are the difference between investing and not investing, probably better off just throwing everything in the garbage. I can’t imagine tailoring my investment decisions around something so arbitrary. A shit company is still a shit company whether FF is at 3, 5, or 10. Same goes for a great asset.

 

True re: underwriting a company for sure

 

I think your too focused on the FF terminal rate itself..........whats important right now........and mis-priced in the market and therefore an opportunity long or short or by sector........is the length of TIME at the terminal rate......then the wider question of average interest rates 2025-2030 (lets call it the secular normalization of interest rates question which is unknowable with any uncertainty at all)......but right here, right now its the timing mismatch between what Powell says and what I personally think the data shows which persistent domestic non-housing services inflation not budging........... and what the markets expects........which are FF cuts coming Q4 2023.

 

The timing piece is important - the longer we sit at higher rates......the more damage is being done that will only show up later.......higher for longer = greater propensity for negative surprises later.

 

For example:

 

FF @ 5.5% for homebuilders for another 6 months is whatever....cuts come, mortgage rates drop, they support volume & home prices get supported and were back to the races...........however the recent rally in homebuilders is directly correlated to this expectation, that cuts come post-September 2023.............however FF at 5.5% for the rest of this year and all of next (with consequences for the real economy), followed then by a Fed funds for the proceeding 3yrs that never dips below 3%.......well it materially changes a housebuilder's margins IMO moving forward.......I think they can do the same volume of units given demand, the demand is there......but affordability isn't with mortgage rates sitting permanently higher...........but as discussed to restore affordability and move same volume of units.....homebuilders will have to give up margin.........or put another way house prices have to fall.....all while homebuilders labor costs I suspect continue to rise.

 

Homebuilders earnings get whacked! As per the E, dropping of a cliff thesis.

 

To your point on a good company or a shit company - a high margin efficient homebuilder has margin to give up to maintain/grow volume and keep acceptable RoE's....you just need to underwrite lower margins and not use 21/22 data.....a shit homebuilder/company is one that can only make money at 2019/2020/2021 house prices & FF at 0%........without looking i suspect there are a few of these around.

 

See housing affordability chart below........we can quibble with the data driving it...........but for example I'd appreciate someone pointing me in the direction of a listed homebuilder that earned relatively or absolutely poor margins/RoE in the period marked in red and/or built a substantial portion of their landbank in that period. If that homebuilder exists I'd like to short it they are in trouble........a scaled recognizable efficient/ low cost producer of starter homes I'd like to own at the right price.

Edited February 7, 2023 by changegonnacome