NEW PIECE: Climbing the Maturity Wall of Worry
We examine how a higher-for-longer interest rate condition would impact S&P 500 EPS, down to the sector level. Written w/
@FactorInvestor
.
LOTS of new charts. Been awhile since the last one, hope you enjoy!
A 30-something making $125,000 is in the top 3% of earners nationwide. About to receive a $10K stimulus check from the government, without a dime going to anyone outside of the college world.
A person with nothing, whose situation is reliably improving, is happier than a person with everything, whose situation is deteriorating and under threat.
THREAD: New Toy
1/x Just finished building a new toy in python, gotta share. How it works: you type in a stock, group of stocks, index, sector, industry, factor, WHATEVER, plus date range. It then goes into OSAM research database & builds massive graphical report, 130 chart pdf.
Imagine that after every choice you made in your life, you could see exactly what would have happened under every different choice that you almost made. Trading and investing is one of the few activities in life that tortures its participants with this knowledge.
Hard to tell, but the video below is a digitally-generated beauty-augmented face superimposed onto a normal person's body. Thousands of likes and simps in the comments, and the creators make money by having the character put out periodic shitcoin ads.
OK, here's the new piece!
The Earnings Mirage: Why Corporate Profits are Overstated and What It Means for Investors
Executive Summary (from
@patrick_oshag
):
Main Piece:
Hope you enjoy!
I genuinely believe that even 1,000 years from now, if people are still here, they will look back at crypto as having been the biggest bubble in the history of the world.
If government loans can be converted into taxpayer losses completely outside of the legislative process, at the sole whim of a president seeking to shore up support, then we need to get the government out of the lending business immediately.
@jakeshieldsajj
@KonstantinKisin
Jake, this tweet makes you look like you have absolutely no idea what you're talking about. Seriously, you should delete it.
You can empathize with Palestinian people and oppose the way the Israeli government treats them w/out saying such ridiculous nonsense.
A powerful insight from the real Jesse Livermore:
"Losing money is the least of my troubles. A loss never troubles me after I take it. I forget it overnight... But being wrong–not taking the loss–that is what does the damage to the pocket book and to the soul.”
THREAD: 👇👇👇
This fragile 50/50 majority is shaping up to be fiscal goldilocks.
(1) Enough to get fiscal stimulus through.
(2) Not enough to pass a corporate tax increase.
Sad news about Charlie Munger, but he had a heck of a good run. 99 years, healthy until the end, and spent his time doing what he most enjoyed. Can't really ask for much more in life.
Interestingly, today is the same day that Jesse Livermore died, 83 years ago.
Last year, they tried to sell BTC as a way of protecting yourself from reckless Fed policy around inflation. A year later, they're on TV begging the Fed to stop worrying abt inflation. The whole farce is just self-interested people talking their books, in whatever direction.
"No amount of sophistication is going to allay the fact that all your knowledge is about the past and all your decisions are about the future."
--
@_Kolossus
.
Probably the best profile quote I've seen on this site.
Can we finally get a mea culpa from Krugman, MMT clique & other transitory truthers?
Would be congratulating themselves like crazy rn if data were good, despite 2 yrs too late.
PISS POOR analysis & forecasting, confidently issued w/ political motives & no actual insight. OWN IT
For every S&P 500 stock on 12/31/2009, take its price on that date and divide by what its EPS ended up being 10 yrs later. Assume dividends are instead used to buy back shares, so that dividend payers get credit for them in the form of EPS growth.
Cheapest Stocks on 12/31/2009:
If Powell gets his soft landing, he'll have a pretty good argument for being the best Fed chair of all time. No other Fed chair has had to manage both sides of the dual mandate in the way that he has.
The best reflexivity of all would be if Gamestop experiences a genuine business turnaround resulting from the attention, publicity, name recognition and free advertising that it's getting.
The experience of the last two years reveals what actually works as an inflation hedge. The only thing that has worked are... stocks in companies that make the things whose prices have been inflating! The rest is hot air.
Imagine if investors & economists from the 70s and 80s could come here and watch people fret over a Fed member proposing a quick hike to...
<gasp>...
<brace for it>...
<trigger warning>...
A 1% interest rate. While at full employment, w/ CPI continuing to blaze above 7%.
One thing that I think is missing from the inflation data over the last four years is how so many things seem to have declined in quality. Material used, craftsmanship, service. Sounds arrogant, but it's almost undeniable at this point.
Suppose u knew that all the companies in the stock market were actually frauds, w/ no earnings & no prospects of ever having any. Others knew too, but didn't care, & kept buying. Would u feel compelled to chase?
That's how I feel about gold, crypto, ugly art, etc. Enjoy!
These unrealized bank losses are the flip side of everyone having a locked-in 2.7% mortgage right now. Monetary policy doubly-impaired--by bank solvency concerns on one side, & a reduced ability to transmit tighter conditions to the real economy on the other.
If we're going to allow the executive branch to buy votes in advance of elections, we need a constraint to ensure the money is disbursed equally to everyone w/ need. And properly paid for by those getting the sweet deals in society, rather than by unlucky inflation bagholders.
"Nature abhors an undiversified bet"
Related to Kris' poll results below, here's a talk from MIT's Andrew Lo in which he elegantly works through an evolutionary explanation for the puzzle of probability matching. Technical at certain points, but he goes on to make it intuitive.
$BABA - very oversold, bounce may be imminent, but help me understand the longer-term bull case.
Is it that the CCP is going to let the company earn monopoly profits on the backs of Chinese consumers, and then distribute those profits to wealthy shareholders abroad?
If you borrowed money to get an education, & now have a job paying over $100K, that's mission accomplished. You have the skills & income to pay the money back.
So why do other people, who have nothing to do with the situation, need to intervene & pay it back for you?
Master List: Cheapest & Most Expensive stocks in the S&P 500 as of 1999 & 1989, measured by FWD P/E (price on date in question divided by 2019 EPS, w/ all interim dividends converted into buybacks that boost 2019 EPS). 1979 & 1969 to follow in the next tweet:
Crypto is the purest form of financial masturbation imaginable. There really is no other way to describe it, the whole charade. Utterly pointless and useless.
Why does anyone think WSB is the good guy here, & Melvin Capital the bad guy? He never called attention to the shorts in his long/short strategy. The government *made* him disclose those positions (the puts). WSB is now using that disclosure to try to explode his portfolio...
Times likes these help us remember that for all the direspect & condescension they receive in financial circles, commodity companies are out here doing real stuff. Producing the essential ingredients of modern life, not some useless tech toy that we could give up in a heartbeat.
THREAD: Stock returns by category from Dec 1976 to Dec 2019 for MSCI US, Japan, Europe ex-UK and UK indices, each separated into growth, broad market and value. Description and discussion below, to include charts of different sub-periods.
If you ever wondered whether you would have had the confidence to be a contrarian during the tech bubble, you're getting a chance to find out right now.
Has "temperature screening" detected even a single case of Covid-19 anywhere? Has to be the biggest piece of security theatre out there right now, detrimental b/c gives people completely false sense of security (which then encourages mask laziness, etc.).
Investing motto I'm using for the 2020's decade:
(1) International over Domestic
(2) Value over Growth
(3) Small over Large
Charts below are P/E & CAPE (absolute, normalized to avg, relative) for INTL DM (EAFE) Small-Mid Cap Value and US Large Cap w/ Value removed. Very cheap!
SEC needs to drop a bomb on this. Imagine if the scenario were inverted, & short sellers were to use an online forum to advertise & attract participants into an option-driven attack that sunk a stock by 90%.
"It shall be unlawful for any person, directly or indirectly..."
So excited to share this one.
My conversation with the anonymous master
@Jesse_Livermore
- intuition vs. analytical, vs. statistical inference
- market valuation
- trend strategies
- preferred stocks
- much more
Fun housing facts to ponder amid the current inflation mess:
(1) Since 2019, the total number of housing units in the U.S. has grown by MORE than the U.S. population.
(2) The current trailing 2-yr excess of housing unit growth over population growth is the HIGHEST since 2008.
Whenever asked a "yes or no" question, where it's obvious what your answer should be, but context needs to be given, say the right answer first, THEN give the context, implying that it's obvious. DO NOT go straight to the context, especially not in an evasive tone.
If you get
The presidents of
@Harvard
,
@MIT
, and
@Penn
were all asked the following question under oath at today’s congressional hearing on antisemitism:
Does calling for the genocide of Jews violate [your university’s] code of conduct or rules regarding bullying or harassment?
The
One of my all-time favourites. Stare at the red dot on the woman's nose for 30 seconds, then look at an empty wall while blinking quickly. Promise it's worth it...
@Stephen_Geiger
Find a way to make your risks systemic and the government will be forced to eliminate them as risks. If it can't build a legislative consensus to eliminate them beforehand through regulation, it will have to eliminate them afterwards using emergency powers already delegated.
A blue wave would mean:
(1) MMT-style stimulus w/ ZIRP --> weaker dollar
(2) Walkback of Trade War
(3) Possible Tax Increase (but only for U.S. companies)
Great setup for EAFE/EM, which is also doing better on the virus front.
Assume that next week, Fed comes out and says the following:
"We were paying 75 bps interest on reserves. We are now increasing that to 500 bps. We will keep the rate at 500 bps until core PCE falls below 3%."
What would break?
"If you put a spoonful of wine in a barrel full of sewage, you get sewage. If you put a spoonful of sewage in a barrel full of wine, you get... sewage."
--Arthur Schopenhauer (1788-1860)
Reminder that the alternative to having markets allocate resources consensually based on economic incentives is to have politicians allocate them by force based on personal incentives.
California's new $20 minimum wage rule will exempt restaurants that sell bread, handing a lucrative break on wages to the Panera chain and one of Governor Gavin Newsom’s longtime allies
Imagine going back to the year 1995 and showing people the price of a pocket phone w/ 50x the speed and 1,000x the memory of the best computer available at the time. And then showing them the price of a half-decent piece of furniture.
This is the easiest market to invest in since the Tech bubble. Things you can do now that you couldn't do 3 years ago:
(1) Not have a view, and collect 5%+ risk-free.
(2) Allocate long-term 60/40 & earn a real return on *both* sides, w/ hedge potential on the bond side.
THREAD: Want to share an excellent free resource that investors can use to evaluate and compare ETFs & mutual funds with respect to returns, sector & factor exposures, fundamental properties of the underlying holdings, and much more.
Annoying twitterisms that King Elon needs to immediately ban:
"There it is. That's the tweet."
"Checks notes."
"What's the best <thing> and why is it <my pick>?"
“I was today years old when..."
"X called, they want their Y back."
"Tell me _____ without telling me _____"
THREAD: Research Package w/ Chart Guide
Regions: US, Eurozone, Japan
Factors: Large, Small, Old, Young, Value, Growth, Low Vol, Quality, Shareholder Yield
Sectors: Energy, Mat, Indu, Disc, Staples, HC, Fins, Tech, Telco, Utes
Link to PDF at the end
Closest: WSJ, Bloomberg, Financial Times. Sources that are trying to provide factual information to sophisticated financial market participants who have financial motives for finding out the truth as quickly as possible.
Gasoline situation seems likely to get brutal into year end.
Best Biden could do IMO, economically & politically, would be to issue some emergency order to mass WFH if possible to save fuel. Lowest hanging fruit available, other than releasing SPR & jeopardizing security.
Having to sign for credit card purchases = STUPID requirement. Signature never used by the store, easy to forge/fake/scribble in a fraud. Only serves to transmit illness as 100s of people hold the same pen with their hands each day. Great candidate for phase-out amid
#COVID2019
.
The current federal interest outlay is ~$1T per year, straight into financial portfolios. If you think that outlay is inflationary, imagine how inflationary it was last year when the U.S. stock market rose 30% from trough to peak. 30% is worth $12T to those SAME financial
When did the "growth stocks = duration proxy" meme become so popular? As rates were making new lows 10 years ago, not a single soul on here was thinking or saying such a thing.
Best kept secret in the world right now: in person, in office, in reality, is far more productive, far more effective. WFH is just easier for the employee. Those who know, know.
@Jesse_Livermore
Since I started traveling again, I'm getting way more information and feedback from people. In a world where information is valuable, I think those who continue to travel and interact in the physical world will significantly outperform those who don't.
Percentage of companies w/ negative earnings & negative EBITDA as of Dec 31, 2020. US Small-Mid Cap space at ~50% and ~25%, respectively. Increase negative earners may be attributable to changes in EPS accounting. But increase in negative EBITDAers must be due to other factors.
Imagine how perfect this would have been:
For QE in '20, Fed buys oil at $40, rather than 10 yr treasuries at 70 bps. FRA amended to allow oil purchase, delivery taken, stored in SPR.
Then, for balance sheet unwind in '22, Fed sells the oil back to the mkt. Dumps it en masse.
The bull case for stocks is this: inflation was transitory after all, headed to 2% on its own, independently of monetary policy; the Fed will eventually realize this & soften its stance; the economy is robust enough to withstand the tightness that will persist in the meantime.
The Fed should experiment with a 100 bps hike. And communicate to markets that it's not necessarily to signal a higher end-state, but to test the path and see if the tip-toe exercise is all that necessary. Crazy that rates are still < 1%, a year into 6+% core inflation.
Question: Thinking strictly in terms of the future cash flows that will be generated relative to current price, what is the most attractive asset or asset class in the world right now, on a 10 year holding period?
"If you put a spoonful of wine in a barrel of sewage, you get sewage. If you put a spoonful of sewage in a barrel of wine, you get sewage."
--Arthur Schopenhauer
Next time this place is drunk on Gamestop, crypto jpegs, and the rest of that stupidity, please remind me to sell everything I own and come back at least a year-and-a-half later, maybe longer.
Big fan of Andrew Yang the person & candidate, but hard to think of a macroeconomic view that was more wrong circa 2019 than...
"We need a UBI b/c a massive coming technological boom will make human jobs scarce, especially in trucking."
This is not the 1850's. Deposit flight is not itself the problem. If sound, any of these banks can obtain funding directly from the Fed.
The problem is that SVB did not manage its interest rate risk, and therefore cannot afford to pay a proper market rate on its funding.
Joe Rogan just interviewed Bernie Sanders. Brought his usual curiosity, inquisitiveness, fairness, goodwill and respect--PERFECT. Entire debate circus should be replaced w/ 3 a hour JRE interview for each candidate: