Quotes
Moravec’s Paradox
Contrary to traditional assumptions, reasoning requires very little computation, but sensorimotor skills require enormous computational resources.
A Mandelbrot set
On preparation and mental strength
Position your portfolio on the receiving end of money flowsWhen too much money chases too few things, prices rise.
Money flows from two sources = financial system (central banks and banking system) which are responsible for the credit cycle (creating money out of thin air) and the economic system (corporation and productive assets generating excess cash flows). The name of the thematic investing game is to understand the mechanics of where all of this money flows to and which side of the balance sheet (source of funds or use of funds) to favour
Liquidity drives FX and bond markets such that the entire yield curve can be described as the chart of liquidity moving from the financial assets (low yield curve steepening) going to productive economic assets once the spreads or "term premium" warrants it.
World financial asset prices are going vertical because excess liquidity is flooding into financial assets before being the real economy
What starts as a financial asset price inflation then feeds into economic price inflation. The equity market leads, the economy follows.As a rule, liquidity injections during recessions come from the Fed (or a central bank), the buying of short duration bonds is injecting liquidity in the banking system. This direct link explains why fixed income securities and FX tend to be 80% explained by fundamentals and 20% psychology in the short term, while in the case of equities the ratio is rather 80% psychology and 20% fundamental in the short term (though it will turn out to be 80% earnings and 20% sentiment after 3-5 years). The link between yields and activity is clear (see PMI and Yield). When purchasing managers survey are restocking, they do sell their bonds and even borrow to buy inventory, which effectively anticipates a return of rising price of goods (inflation).
Nowhere is this link between money flows and economic growth more visible than in emerging markets.
Of course, too much liquidity has ramification on the value of the currency. FX tends to like real growth and higher prospective yields. Lose fiscal policies combined with tightening cycles are the most bullish combo for FX and vice versa.
Markets & Macro news
Dow 30,000
Gold, Copper, Emerging Markets all rallying hard on recovery hopes
Greed everywhere = danger zone
Correlation is back to “normal” though. So do not expect a collapse, but a healthy correction within a normal rotation phase
Indeed, DSI index not so concerned by bullishness
Speculation is not investment:
The stock market will need real earnings and real investments to support its gains
Asked about “zero savings rates”, Yellen already commented when she was Fed chairman “it’s what we must sacrifice for our grand children”. At the current pace of debt issuance, the world could start 2021 on USD 300tn of debt. Given the median maturity of debt is 5 years, this means USD 60tn a year of refinancing will be needed. This means not only that the world economy depends on the financial market more than than the financial market depends on the economy. But it also means that governments must focus on policies that create productive growth rather than policies that create debt.
US dollar debasement has started, in line with its 7-8 year cycle pattern
The new world is being built on a flow of dollars:
21% of all dollars created have been created in 2020
Gold does not like economic recovery scenarios and is testing important support levels
Platinum looks cheap relative to Gold. there was a time when Platinum used to be considered as more precious...
Themes, Sectors & Corporate news
Invest in "bionic companies" says BCG.
The third wave will see big winners and big losers. Those old economy companies that are capable of leveraging new technologies will make big strides. The other will disappear.
The rise of giant fundings led by the growing influence of Softbank Vision Fund led to a surge in venture capital activity since 2017.
VC fundings get bigger, more institutional and focused on tech second rounders. Venture Capital is early stage investment in promising start up. As an asset class, it is a high risk and illiquid option considered as an “alternative investment” that tends to do well at the end of bull markets. Latest figures by Crunchbase suggest 2019 was a peak year, but that 2020 held up well, courtesy of giant second round fundings, now accounting for 55% of all funding.
Stocks in the travel & leisure sector and air travel value chain in particular are reacting well to Covid vaccine news.
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