Is The Bottom Almost Here?

[no_free_lunch]

I sometimes will hold broad index funds James.  I only do it when I'm short on ideas and afraid to hold cash.  For the past 6 months it's been easier to find stuff and so I don't know if I own any etfs today.

[LC]

Only in forced accounts where my options are limited. I look at it like a balancing hedge on the overall portfolio. But really it’s because I have no other option. It’s about 25%.

[ourkid8]

2 hours ago, james22 said:

How many here invest in a S&P 500 or TSM index fund? Anyone?

 

Only for my work DC pension as the options are pretty limited.  

[changegonnacome]

https://www.bloomberg.com/news/articles/2023-02-23/fed-powell-worry-about-south-s-inflation-fueling-job-market?srnd=premium&sref=7zqHEcxJ

 

Single digit margins businesses when they have to pay their workers more pass through 100% of the increased labor costs to the underlying prices of the goods/services they sell.......why wouldn't they........accepting lower margins in this sector of the economy is akin to becoming a not-for-profit charity organization.

 

When you think about where the bottom one third of households by income actually spend the majority of their income....its mainly with businesses that operate in this minuscule margin economy.....and so this bottom one third "feels" and actually experiences inflation to a greater degree both in nominal terms (the prices they see) and in relative terms (the proportion of their income that is exposed to rising prices). People wonder why the consumer sentiment surveys are coming back with such negativity.....but is it any surprise when you overlay the above.

[Gregmal]

Nice. So now wage price spiral has devolved into “wage price spiral in specific markets”. Dem goalposts keep moving for Mr Powell annd co.
 

 Also easily explained by migration rather than some all else equal theory, and fully supported by economic growth in those regions. There really isn’t much of a reason for the pre COVID gaps between pay/prices in Atlanta or Miami vs coastal anymore. 

[Gregmal]

Powell is basically the new Fauci. Like we get it bro, you enjoyed the spotlight, but the gig has run its course, move on. Please stop lingering around trying to scrape together more reasons to be relevant. 
 

Meanwhile the bear camp keeps doing its thing. One side of the mouth “OMG inflation is rearing its ugly head again, used car sales ticked up. Economy running too hot. Must. Raise. Rates. More!” Other side of the mouth? “Oh look, GM idling plants because of plummeting demand. I knew the economy was deteriorating!” 

[TwoCitiesCapital]

18 hours ago, james22 said:

How many here invest in a S&P 500 or TSM index fund? Anyone?

 

I am limited to mutual funds/ETFs in my HSAs and 401ks which makes up a reasonably sizable portion of my savings. 

 

Only my IRAs and taxable accounts are self directed. While a reasonably large portion of my portfolio, I'm still stuck with index beta OR other people's tracking error on a large portion of my funds. 

[changegonnacome]

2 minutes ago, Gregmal said:

Nice. So now wage price spiral has devolved into “wage price spiral in specific markets”. Dem goalposts keep moving for Mr Powell annd co.

 

To be clear I am not saying that! 

 

Nationwide BLS wage data from January + 2022 Productivity data speaks to an inflation problem across the nation.......as we've talked about.......in a full output/employment economy with flat productivity......you cannot pass through ~4-5% annualized nominal pay increases, that then translates into nominal spending increasing by a similar amount against effectively a relatively fixed (due to poor productivity) basket of domestic and goods services that even if they are increasing its barely at all..........and then turnaround and expect prices of those goods and services to rise at about 2%......like you cant get simpler than that........based on those figures your looking at a pretty in-grained 5% inflation rate on what the Fed calls core non-housing services.....I refer to the same thing as domestic goods and services.

 

I've said it before to help folks understand it.....but think of nominal wages/spending.....as kind of like shares in a company.......increasing the share count (wages/spending).....does nothing to change the underlying amount of goods/services being produced in the economy........it only serves to change the quoted price of those goods/services.......in the exact same way that issuing new shares in a company simply serves to dilute existing holders of shares........it does nothing to change the underlying economic intrinsic value of the entity in question. The pizza and slices analogy is the most commonly used with stock splits.........and its equally as applicable to the current macro economic situation......the pizza isn't really growing at all (output).........but increases in nominal wages translating into nominal spending growing are in a significant way......and all its really doing is slicing the USA Inc. pizza pie into slimmer and slimmer slices.....manifesting in your dollar bill YoY commanding less and less. Your dollars 'slice' of goods & services is getting smaller.

[james22]

Maybe I underestimated the fraction of portfolios here included savings plans with limited options.

 

 Just don't seem to remember S&P 500 or TSM funds showing up in the Portfolio thread.

 

 

[Spekulatius]

3 hours ago, james22 said:

Maybe I underestimated the fraction of portfolios here included savings plans with limited options.

 

 Just don't seem to remember S&P 500 or TSM funds showing up in the Portfolio thread.

 

 

Chances are that if you are working and have a 401k or equivalent, then you also have exposure to index funds. That’s the case for me and my wife and pretty much anyone I know,

[Blugolds]

1 hour ago, Spekulatius said:

Chances are that if you are working and have a 401k or equivalent, then you also have exposure to index funds. That’s the case for me and my wife and pretty much anyone I know,

Same, Im that guy with savings plan (401K) with limited options, all high ER funds with mediocre to poor returns vs SP, so the index with ultra low ER and DCA makes it appealing, not ideal, just better than other options in that account.

 

Ironically, I have more options investing HSA funds than in my 401K, IRA is also self directed with unlimited options. Taxable holds significantly more than 401K and obviously you can do what you like with that, so I view the 401K as the set and forget, dont pay much attention to it even though its maxed every year for the last decade plus. 

 

Can only play the hand you're dealt as best you can. 

 

Out of all investment dollars, I've always mentally considered 401k and Pension as a cherry on top, main focus has always been IRA,HSA and taxable accounts, these hold the bulk anyhow and the only which I can "control". 

[Spooky]

I have a chunk of VOO in my RRSP and my spouse contributes regularly to a robo-advisor, Wealth Simple. Insurance in case I fuck up picking individual stocks and lets me take some more risks with the rest of the portfolio. If I am able to one day quit my day job and pick stocks full time I would move to a totally concentrated portfolio of 6-10 individual securities. 

[changegonnacome]

Fed’s Preferred Inflation Gauge Accelerates, Adding Pressure for More Rate Hike

https://www.bloomberg.com/news/articles/2023-02-24/us-pce-inflation-accelerates-adding-pressure-for-more-fed-hikes?srnd=premium&sref=7zqHEcxJ

 

This is what I expected based on BLS wage data from Jan - workers/social security retirees took their newly minted 2023 pay increases..............and unsurprisingly turned pay increases into aggregate nominal spending growth.........the increase in NOMINAL spending of course, and this is the PROBLEM,  flowed into a basket of REAL domestic goods and services that had increased not at all over the prior year because..........well everybody with a pulse is already working and in a developed economy like the USA there are no easy productivity enhancing PP&E investments to be made anymore. The USA is not Nicaragua where you automate a production line for the first time & get a productivity/output windfall....all those types of investments were made long ago....and if they werent made long ago.....they were certainly made during ZIRP where the hurdle rate for any PP&E productivity investments was basically 0% so they got green lit.

 

We are hitting, as I've said before, the sticky underbelly of monetary inflation..........the Made in China, Energy, supply chain disinflation was real but it masked a core domestic monetary inflation problem that wont go away.....it was a head fake around a linear fall to 2%........as we've talked about the journey from 5% inflation to 2% is gonna be a bitch. It can only be achieved really, given what I've said about poor prospects for productivity growth, by reducing aggregate nominal spend significantly......reducing credit creation which turns into nominal spend wont do the job on its own..........you've got to get the consumer to moderate spending......unfortunately thats usually achieved by putting a proportion of the population out of work & then those remaining in-work fearful enough that they begin to save more of their income.....reducing overall aggregate spend. Its more commonly referred to as a recession.

[Dinar]

3 minutes ago, changegonnacome said:

Fed’s Preferred Inflation Gauge Accelerates, Adding Pressure for More Rate Hike

https://www.bloomberg.com/news/articles/2023-02-24/us-pce-inflation-accelerates-adding-pressure-for-more-fed-hikes?srnd=premium&sref=7zqHEcxJ

 

This is what I expected based on BLS wage data from Jan - workers/social security retirees took their newly minted 2023 pay increases..............and unsurprisingly turned pay increases into aggregate nominal spending growth.........the increase in NOMINAL spending of course, and this is the PROBLEM,  flowed into a basket of REAL domestic goods and services that had increased not at all over the prior year because..........well everybody with a pulse is already working and in a developed economy like the USA there are no easy productivity enhancing PP&E investments to be made anymore. The USA is not Nicaragua where you automate a production line for the first time & get a productivity/output windfall....all those types of investments were made long ago....and if they werent made long ago.....they were certainly made during ZIRP where the hurdle rate for any PP&E productivity investments was basically 0% so they got green lit.

 

We are hitting, as I've said before, the sticky underbelly of monetary inflation..........the Made in China, Energy, supply chain disinflation was real but it masked a core domestic monetary inflation problem that wont go away.....it was a head fake around a linear fall to 2%........as we've talked about the journey from 5% inflation to 2% is gonna be a bitch. It can only be achieved really, given what I've said about poor prospects for productivity growth, by reducing aggregate nominal spend significantly......reducing credit creation which turns into nominal spend wont do the job on its own..........you've got to get the consumer to moderate spending......unfortunately thats usually achieved by putting a proportion of the population out of work & then those remaining in-work fearful enough that they begin to save more of their income.....reducing overall aggregate spend. Its more commonly referred to as a recession.

When NY State has 40% of the population on Medicaid, the assertion that everybody with a pulse is already working is clearly wrong.    

 

There are plenty of misallocated resources.  I was at the Intrepid yesterday with my kids, the place could be run with half of the employees.   Google, Facebook, Microsoft, et all added 200,000+ jobs in the past couple of years, what are all of those people doing?  How many people are engaged in diversity/equity/inclusion racket?   Colleges are bloated with admin staff, today Harvard has more administrators than professors.   Start taxing endowment gains and take away Pell Grants and federally subsidized student loans, and watch colleges magically cut tuition and expenses.  

 

Raising productivity is doable in the US, it starts with good schools, and not subsidizing college degrees in English/Cultural Anthropology/Art History while looking down at trade schools and closing vocational high schools.  Take away college subsidies and see how greatly labor force will increase.  

[Gregmal]

11 minutes ago, Dinar said:

Raising productivity is doable in the US, it starts with good schools, and not subsidizing college degrees in English/Cultural Anthropology/Art History while looking down at trade schools and closing vocational high schools.  Take away college subsidies and see how greatly labor force will increase.  

Totally. It’s nuanced and divided much like the blue collar vs white collar dynamic in the labor market. At the same time, there’s the noise. Todays spending was another indicator of consumer strength. What do they do? Scream for more destructive hikes or blame credit cards endlessly. The South is too robust…wage price spiral! Ignore the deflation elsewhere. Oh but energy will be a problem! Energy falls…back to touting used car prices. The only way to win this game is just to ignore the noise and focus on individual fundamentals. The ironic part in all of this…like 90% of my friends and contacts who are vividly in the bear camp…didn’t even make money last year and got ripped in q1 so far. Sometime just sticking to your preferred knitting is best. The inflation/recession/economy too strong game is just a self serving shit show for the people selling it.

Edited February 24, 2023 by Gregmal

[changegonnacome]

6 minutes ago, Dinar said:

When NY State has 40% of the population on Medicaid, the assertion that everybody with a pulse is already working is clearly wrong.  

 

What odds would you give that this fact, even if true, is going to change any time soon such that productivity is going to sky rocket? I rest my case. I deal in reality......not fantasy.  

[Gregmal]

Change the case rests on monthly .2s, .4s, .6s….which have always bounced around and now do so more than ever.

[changegonnacome]

2 minutes ago, Gregmal said:

Change the case rests on monthly .2s, .4s, .6s….which have always bounced around and now do so more than ever.

 

It isnt the monthly's & it isnt decimal points here as I've said........its nominal aggregate spend increasing substantially in 2022.......while output remained flat = inflation.........yearly 2022 figures are in, it aint MoM noise.........the base level economic characteristics that would suggest 2023 would be different than 2022 in terms of wages, spending & productivity aren't there yet...............so 2023 is shaping up to look alot like 2022.......wages up, nominal spend up & productivity flat = inflation........this is the Fed's problem.....they know the math has to change somewhere........wage increases need to moderate, aggregate spending growth needs to decelerate and/or productivity needs to skyrocket.

 

If things stay like this 2023 will have a CPI figure in the 5's........something has to give.......whatever can give in the variables I've outlined is not good for the market.

 

If you really believe in a productivity miracle for the USA to get us out of this........I'm really sorry......that part is completely deluded.....social security programs are not getting cut........the diversity and inclusion, ESG cult is not going away......and what fat exists in silicon valley......is not all of sudden going to show up in factories in the Rust belt......or chicken processing plants in Idaho.

 

15 minutes ago, Gregmal said:

like 90% of my friend and contacts who are vividly in the bear camp…didn’t even make money last year and got ripped in q1 so far.

 

Bear market rallies can be epic.......i agree that everybody needs to stick to their knitting.......very few people in history, like Druckenmiller or Soros, have shown an ability to be able to profitability trade market psychology/gyrations around a base macro thesis. The moves can be too epic that you get shaken out. I remain a slightly less than fully invested bear.....with some macro-esque bear-ish hedges. It made me money, at the margins, in 2022........and I expect them to make me money in 2023......as of today I'm re-opening some shorts on fallen angels, that turned back into angels for a while.......the much higher, for much longer trade is here.

[Dinar]

32 minutes ago, changegonnacome said:

 

What odds would you give that this fact, even if true, is going to change any time soon such that productivity is going to sky rocket? I rest my case. I deal in reality......not fantasy.  

Even if true?  Rather than accuse me of lying, care to check for yourself and see?  As for change, sooner than you think, as tax base flees NY, reforms become inevitable

[Gregmal]

Think by summer we are easily below that and ultimately sub 5%(I won’t argue over tenths of a point) is fine as are 4-5% rates. That’s probably overall pretty good and healthy longer term.
 

I just want consistency from the bear camp though. They’re so full of it. We ve already seen more than I care for in 2023. Energy prices are gonna be a problem they say. Energy falls..ignore it and move on the used car prices after previously abandoning that argument last time they cratered. Then ignore new car production and sales while simultaneously declaring it proof of a slowdown. Claim the consumer is tapped out. Then point to rabid consumer spending and demand hikes cuz the economy is too hot. While claiming all spending is simply cuz of credit cards. At least be consistent!

Edited February 24, 2023 by Gregmal

[changegonnacome]

1 minute ago, Dinar said:

ven if true?  Rather than accuse me of lying, care to check for yourself and see?  As for change, sooner than you think, as tax base flees NY, reforms become inevitable

 

Dude - i didnt acuse you of lying....your being hyper-senstive.....I said even if true....exactly cause I couldnt be bothered to check.......because if thats the case in NY or anywhere else.....it isnt changing the productivity/output/wages math in any timeline that matters....maybe over 5-10 year period we get a federal/state fiscal crisis or something thats get you the cathartic cleansing of lay-abouts your dreaming about.....but it aint fixing inflation this side of Christmas! Like think we can agree on that? Anyway did not mean to be offensive to your point it was simply I dont think its gonna help with this inflationary bout we are dealing with, thats all.

[TwoCitiesCapital]

21 minutes ago, Gregmal said:

Think by summer we are easily below that and ultimately sub 5%(I won’t argue over tenths of a point) is fine as are 4-5% rates. That’s probably overall pretty good and healthy longer term.
 

I just want consistency from the bear camp though. They’re so full of it. We ve already seen more than I care for in 2023. Energy prices are gonna be a problem they say. Energy falls..ignore it and move on the used car prices after previously abandoning that argument last time they cratered. Then ignore new car production and sales while simultaneously declaring it proof of a slowdown. Claim the consumer is tapped out. Then point to rabid consumer spending and demand hikes cuz the economy is too hot. While claiming all spending is simply cuz of credit cards. At least be consistent!

 

Energy is still a problem. It's flat year over year despite a massive flood of supply from the SPR and the world's largest consumer going through rolling lockdowns. 

 

Neither is those will be true or 2023 and I think a replay of a 2008 scenario where energy despite economic weakness is a possibility in 2023. 

 

Beyond that, I think the case most bears here I've seen is that margins are contracting and earnings will fall which playing out right now. Some might've blamed inflation, or economic weakness, or whatever catalyst, but the hypothesized end state is occurring. Pick your poison for the cause if you don't believe they're related

[james22]

15 hours ago, Spekulatius said:

Chances are that if you are working and have a 401k or equivalent, then you also have exposure to index funds. That’s the case for me and my wife and pretty much anyone I know,

 

Sure, I did as well.

 

But I also had factor, International, and sector funds available.

 

Maybe I was just lucky.

[Spooky]

Fuck the short term noise. Invest in good companies with pricing power and a margin of safety.

[changegonnacome]

 

Never heard of Bob........but he might be my brother from another mother