WM 2 October 2021
Quotes
All things are difficult before they are easy
Lessons & Thoughts of the Week
The value of art is in the unknown
Narratives: weapons of mass distraction
Classic Story Telling Applied to Markets: where are we now?
Every bull market and decade has its favourite bubble : the power of Narrative. Which one will it be in the 2020’s. My bet is electricity.
Wealth. How to be very rich: concentrate. All the great family fortunes owe to one big bet on one extraordinary company
The secret = invest for the long term
My daughter turned 18 years old this year. Back when she was born I received a GBP 1000 from HM government that was invested in equities. 18 years later and despite the debacle of 2008, her pot had grown 3x or +6.6% CAGR.
The art of the matter
Do not predict, prepare
Life is like a box of chocolate, you never know what you gonna get
The way of the Tao is reversal or change as a constant
The market always underestimates the power of change
Our conscious minds tend to be linear and focus on a rather myopic steady state view of reality. Yet small changes happening in front of your eyes tend to compound, sometime in dramatic fashion. The fact that a small virus was able to sink the global economy was a perfect illustration of the critical difference between non-linear adoption and linear thinking and/or how non-linear innovation/information or viral mass adoption processes can compound exponentially through network effects. Another illustration is the imaginary situation studied by Dr Albert Bartlett. Imagine you sit on top of 100 square meter stadium 11 meter above the field, after you placed a single drop of water in the middle of the field that is going double in size every minute. How long would it take for the expanding water drop to fill the stadium? According to his calculation: just 50 minutes! „After six minutes, you only have a blob of water that would fill a thimble ». As the water level doubles every minute, you would see only 3% filled and 97% empty only five minutes before the water submerges you, by which time it might even be too late to escape. History is littered with examples of behemoths that were slow at adapting to change. Kodak was a USD 100bn business just as it realized it was about to be wiped out by the wind of technological change. This is music to their ears of small disruptors or of revolutionaries like Mahatma Gandhi: “First they ignore you, then they laugh at you, then they fight you, then you win”.
No one knows everything, so it pays to acquire an info edge, and be humble enough to know what you do not know
You can't see it, but they exist: Tardigrades are the toughest living species on the planet
Everyone is special, no one is unique. Stay humble and don't be an authority
Not about the thinking, but about the doing
However vast the darkness, we must supply our own light.
Perceptions > Facts
But
Risk and growth vs fear and safety: no pain no gain
What do you need (necessary)? What do you want (unnecessary)?
Ray Dalio's Team Dynamic Filter
Innovate or become a commodity
Everything changes, even the game of basketball
Macro News
I can't bear it, all that bull...
Money excesses receding...
When liquidity recedes, prices fall
Look at what critics of the Aldrich plan (which created the Fed) painted as a fear in 1912. Power corrupts. Absolute power corrupts absolutely.
FX: I want dollars in my pocket
AUD looks weak
Korean Won and CNY divergence
The stronger dollar is a wrecking ball for USD borrowers = EMs
Is Gold too old? Not an inflation hedge or just not liking a stronger USD
Gold miners oversold?
Crypto
Now, I am old enough to remember that Gold ATMs marked the peak of the last Gold bubble
Fixed income: reacting to inflationary pressures at last
10y Yield still below MAV
TLT, still dynamite?
Real estate: bubbles everywhere
SNB Warns of Swiss Housing Correction as Bubble Risks Mount
...danger of a correction as prices continue to rise and affordability becomes stretched, according to Fritz Zurbruegg, vice president of the country’s central bank.
Imbalances are worsening and require “vigilance” on the part of authorities. That’s because a sizable share of newly granted mortgages could become impossible to afford if borrowing costs suddenly rise.
According to some measures, Swiss property is overvalued by as much as 30%. A housing index by UBS Group AG suggests the market is near a level that would put the market in a “bubble.”
“Markets today are more vulnerable to corrections in the form of declining prices and increasing numbers of mortgage loan defaults,” Zurbruegg
A global boom in house prices saw countries from the U.S. to New Zealand record surging property prices during the coronavirus pandemic. Zurbruegg warned that continued low interest rates could worsen the situation in Switzerland by encouraging even more risky behavior.
I know you're rich, but can you afford it?
Why China housing bubble is in a league of its own... and 70% of Chinese wealth is stored in housing!
Inflation hedge
Equities
It's official: the trend is no longer your friend
Be afraid, be very afraid: next stop -4% 200D mav. Most likely, another -8% and then -35% ultimate target = correction to morph into bear market
Corrections
Buy the dip works until it doesn't
Divergences
Williams % R
It's about time
And it ain't cheap
Inflation is the killer
Especially as earnings about to feel the pinch of lower growth and rising costs
And plenty of IPO supply coming (in fact record number)
Everybody is long equity. Smart money has been selling
Too much of a good thing
Everybody is long equity and geared up to the eyeball (never been so leveraged)! Beware of the margin calls just as the tax window narrows
Seasonality still say stay away
Head & Shoulder = bearish signal
Brenner saw it
Dow theory
Generational wealth transfer
Commodities
Winter is approaching: have you got oil?
China GDP is going down
US slowing too
Lower growth and higher prices = bad
In the US, there are no problems, only solutions
This Covid thing is very political
Let's hope it is soon over
Performance
Themes, Sectors & Corporate News
Time for value
Sectors perf in September = energy wins, everything else loses
Consumer cyclicals do not like high energy costs
Nat Gas
Have you got the power? If not, will cost you EUR 120/KWH in Germany and EUR 160/KWH in Italy. Beware Bitcoin, the only true currency is the cost of energy.
After Spain, France freezes energy costs ahead of the May election
Co2 > EUR 64/tonne in Europe
Silicon = energy. Not a good week if you planned your next breast implant
Trains
Lithium prices
Another form of energy
Vegan meat main ingredient is seeing bottleneck
Space race
French telecom tycoon, Patrick Drahi bids EUR 3.2bn for Eutelsat. Space is hot, hot, hot. Why? Data
Now that Bezos is concentrating on Space, what does Transport & Retail trouble mean for Amazon? Not so amazing after Bezos left..
Fedex shareholders are not smiling
Smoking is not good for your wealth (and health)
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