"Macro" Musings

[Liberty]

http://scottgrannis.blogspot.ca/2015/07/commodity-prices-in-perspective.html

[ni-co]

Global Macro Investor July 2015 Monthly

Seeing as it's already in the public domain I thought I would release it fully myself...!

 

https://www.hvst.com/posts/47293-global-macro-investor-july-2015-monthly

 

The price for Raoul Pal's monthly newsletter is $60,000/year – might be worth a look…

[Lance]

Thanks for posting ni-co.  Interesting read.

 

Thanks,

Lance

[Liberty]

Waiting for a 'normal time' to invest?

 

https://theirrelevantinvestor.wordpress.com/2015/08/04/waiting-for-normal/

 

[rb]

Waiting for a 'normal time' to invest?

 

https://theirrelevantinvestor.wordpress.com/2015/08/04/waiting-for-normal/

 

 

WOW! I know it was bad, but when put in context the 2000s look like a total disaster! I know we starter at a high and finished at a low but still WOW.

[Liberty]

Waiting for a 'normal time' to invest?

 

https://theirrelevantinvestor.wordpress.com/2015/08/04/waiting-for-normal/

 

 

WOW! I know it was bad, but when put in context the 2000s look like a total disaster! I know we starter at a high and finished at a low but still WOW.

 

Well, this is what people expect will be repeated all the time going forward, apparently...

[rb]

I'm not so sure about that. If that would be the market expectation I don't think we'd see the multiples we have today.

[Guest]

To play devil's advocate, couldn't one make the argument that the 80s and 90s were so far above those averages liberty listed that this current decade may also be low to compensate for the excess?

[Liberty]

I'm not so sure about that. If that would be the market expectation I don't think we'd see the multiples we have today.

 

Multiples aren't that high compared to interest rates. If we had those multiples with 8% or 18% interest rate, that would be something else.

 

Not making a macro call, just saying that what would be much weirder would be to have 10x multiples with almost 0% interest rates...

[Guest]

I can't argue with that

[rb]

I'm not so sure about that. If that would be the market expectation I don't think we'd see the multiples we have today.

 

Multiples aren't that high compared to interest rates. If we had those multiples with 8% or 18% interest rate, that would be something else.

 

Not making a macro call, just saying that what would be much weirder would be to have 10x multiples with almost 0% interest rates...

 

You're right. If I were to look at it from the efficient market view, based on the current interest rates the multiples imply fair prices if everything stays the same.

 

What scares me is that you have record high margins, low inflation, zero interest rates, and these multiples. Not much improvement to be had on all those fronts. So if all stays the same then you have fair prices and get something like 7-8% pa returns. If anything changes, the market is overpriced and you'll have bad returns.

 

To invert the situation, if you're looking at the early 80s you had low multiples, low margins, high inflation, and high rates. A lot of the great returns from 80s and 90s came from improvements in those factors. Now we're in the opposite situation where all those levers have been used up and all the changes can really only go in the opposite direction.

 

I'm not making any calls either. Just food for thought.

[Liberty]

I'm not so sure about that. If that would be the market expectation I don't think we'd see the multiples we have today.

 

Multiples aren't that high compared to interest rates. If we had those multiples with 8% or 18% interest rate, that would be something else.

 

Not making a macro call, just saying that what would be much weirder would be to have 10x multiples with almost 0% interest rates...

 

You're right. If I were to look at it from the efficient market view, based on the current interest rates the multiples imply fair prices if everything stays the same.

 

What scares me is that you have record high margins, low inflation, zero interest rates, and these multiples. Not much improvement to be had on all those fronts. So if all stays the same then you have fair prices and get something like 7-8% pa returns. If anything changes, the market is overpriced and you'll have bad returns.

 

To invert the situation, if you're looking at the early 80s you had low multiples, low margins, high inflation, and high rates. A lot of the great returns from 80s and 90s came from improvements in those factors. Now we're in the opposite situation where all those levers have been used up and all the changes can really only go in the opposite direction.

 

I'm not making any calls either. Just food for thought.

 

True. But in the 80s people were looking back at the horrible 70s and expected more of that. Their low multiples didn't seem that low to them at those interest rates at the time, which they expected to stay high longer (because they expected inflation to continue for a long time, even Buffett wrote about inflation a lot). Now we're looking back at the horrible 2000s and expecting more of that. Just from a different angle in both cases. Who knows?

[original mungerville]

Great post Liberty. I love the inversion - its very true. Also good reply RB.

 

Liberty's post definitely means future returns from these levels will be nowhere near the returns in the 1980s/90s - at least in real terms. If we get major inflation or hyperinflation, returns could be very high from these levels measured against paper currencies.

 

 

[original mungerville]

I'm not so sure about that. If that would be the market expectation I don't think we'd see the multiples we have today.

 

Multiples aren't that high compared to interest rates. If we had those multiples with 8% or 18% interest rate, that would be something else.

 

Not making a macro call, just saying that what would be much weirder would be to have 10x multiples with almost 0% interest rates...

 

You're right. If I were to look at it from the efficient market view, based on the current interest rates the multiples imply fair prices if everything stays the same.

 

What scares me is that you have record high margins, low inflation, zero interest rates, and these multiples. Not much improvement to be had on all those fronts. So if all stays the same then you have fair prices and get something like 7-8% pa returns. If anything changes, the market is overpriced and you'll have bad returns.

 

To invert the situation, if you're looking at the early 80s you had low multiples, low margins, high inflation, and high rates. A lot of the great returns from 80s and 90s came from improvements in those factors. Now we're in the opposite situation where all those levers have been used up and all the changes can really only go in the opposite direction.

 

I'm not making any calls either. Just food for thought.

 

True. But in the 80s people were looking back at the horrible 70s and expected more of that. Their low multiples didn't seem that low to them at those interest rates at the time, which they expected to stay high longer (because they expected inflation to continue for a long time, even Buffett wrote about inflation a lot). Now we're looking back at the horrible 2000s and expecting more of that. Just from a different angle in both cases. Who knows?

 

RB,

 

Keep in mind that the 2000s were not horrible at all given the valuation level from which they started (arguably the biggest US stock market bubble of all time)...but the Fed just keeps stepping in to rescue the system as they did at the end of the 2000s one more time.

 

There are only so many times the Fed can do this until the markets overwhelm them. So I would add that to Liberty's inversion list. The Fed had credibility with Volcker in charge in the early 80s, currently a lot of their credibility has been used up although the great majority of investors do not yet see it that way.

[Liberty]

Some perspective on the yuan:

 

http://scottgrannis.blogspot.com/2015/08/chinas-currency-move-not-big-deal.html

[roughlyright]

Today I read a statistic that from 2011 to  2013, in three years, China produced more concrete than the United States did in the entire 20th century. This comment comes from Aristides Fund LP monthly letter. I found that little piece of information certainly scary!

 

He also referred to these charts, which speak for themselves.

 

http://mebfaber.com/2015/05/31/10-bearish-charts-1-bullish-chart/

 

Roughly right

[Guest longinvestor]

Today I read a statistic that from 2011 to  2013, in three years, China produced more concrete than the United States did in the entire 20th century. This comment comes from Aristides Fund LP monthly letter. I found that little piece of information certainly scary!

 

He also referred to these charts, which speak for themselves.

 

http://mebfaber.com/2015/05/31/10-bearish-charts-1-bullish-chart/

 

Roughly right

 

While dated, another snippet I came across in a prior employment was that Shanghai had more high rise elevators installed in the years 2001-02 than the rest of the world put together.

[mcliu]

Another incredible data point, approximately 70 billion square feet of real estate currently under construction in China.

 

"In the first seven months, the floor space under construction by the real estate development enterprises accounted for 6,541.72 million square meters, up by 3.4 percent year-on-year, dropped 0.9 percentage points over the first six months. Of which, the floor space of residential building construction area was 4,560.08 million square meters, up by 1.0 percent. The floor space started this year was 817.31 millions square meters, down by 16.8 percent, and the pace of decline expanded by 1.0 percentage points. Specifically, the floor space of residential buildings started in the year amounted to 566.84 million square meters, down by 17.9 percent. The floor space of buildings completed stood at 378.33 million square meters, went down by 13.1 percent, and the pace of decline narrowed by 0.7 percentage points. Of which, the floor space completed of residential buildings stood at 280.77 million square meters, went down by 15.6 percent."

 

http://www.stats.gov.cn/english/PressRelease/201508/t20150813_1229936.html

[roughlyright]

That is so amazing! 70 billion square feet just this year for country with a population of 1.2 billion!

[Jurgis]

70 billion square feet just this year

 

Not really. Read the article. That's about 10 years from start to completion.

 

The floor space started this year was 817.31 millions square meters, down by 16.8 percent, and the pace of decline expanded by 1.0 percentage points. Specifically, the floor space of residential buildings started in the year amounted to 566.84 million square meters, down by 17.9 percent. The floor space of buildings completed stood at 378.33 million square meters, went down by 13.1 percent, and the pace of decline narrowed by 0.7 percentage points. Of which, the floor space completed of residential buildings stood at 280.77 million square meters, went down by 15.6 percent."

[Liberty]

Thoughts this was interesting:

 

http://scottgrannis.blogspot.ca/2015/09/job-openings-surge.html

[frommi]

https://stockcharts.com/articles/decisionpoint/2015/10/sp-500-earnings-trending-downward.html

 

 

[ni-co]

Felix Zulauf shares in an interview what is essentially my macro thesis, too (except that I think that China is highly likely to devalue the yuan by more than 30% this year and that as a consequence the FED will answer with negative interest rates and/or QE4):

 

http://mobile.fuw.ch/article/from-buy-the-dips-to-sell-the-rallies/

[petec]

Amusing to see our macro threads have gone dead.  Must mean the crash is finally coming ;)

[Liberty]

Amusing to see our macro threads have gone dead.  Must mean the crash is finally coming ;)

 

Until after the US election, macro is just politics now.