WM 30 April 2022
Quotes
Lessons & Thoughts
Normal comes from a word meaning the carpenter's square, which eventually become the rule of the majority and the normal pattern.
The bell curve
How can one expect a return to "normal" when nothing since the start of this decade is normal?
or fear
Normality is the neurosis of our time/civilisation
The Feynman chessboard
Richard Feynman is a hero of mine. The American physicist won his nobel price for his work on quantum physics (and also ironically for his contribution to the Manahattan project). His curiosity was contagious and solved more than one puzzle. One of those puzzles was the search for the cause(s) of the space shuttle Challenger's explosion. His investigation started looking for a variable, ie what could have changed and exposed to conditions that were not normal on the day of the launch. He noticed that the temperature was such a variable, as Florida was cold on that fatal day. This gave him a clue for a theory that a part that was not conceived for such conditions was the flaw. It proved right and found out that NASA political pressures had led NASA directors to ignore the known risk before launch.
Shelby Davis transformed USD 50000 investment into USD 900m or 23% CAGR over 47 years. He was 50% leveraged. He focused on what he knew best: insurance companies and use the cycle and his understanding of the value of the float and relevance of management and capital allocation for his picks. Davis was a buy and hold guy, buy cheap and before big earnings move. Some of the names he held he kept for his entire career, letting his best ideas compound and minimizing the frictional costs of trading in and out of the position.
Davis double play EPS growth and PE expansion
Antony Bolton: "ignore charts at your peril"
Antony Bolton is a bottom up investor and former portfolio manager of the Fidelity Special Situation Fund. He does not pay attention to the macro, bar for the bull/bear market, sentiment indicators and long term valuation. He also look at balance sheets and technical analysis.
My wife is pilot. Her cockpit shows
- altitude (trend)
- speed (momentum)
- air pressure (buoyance)
- variometre (speed at which goes up or down, volatility)
Want to be a good investor?
Behavioural
Dalio's empire
French election: the youth has nothing to lose and avoid the socio-liberal middle ground to vote for the extreme left or right
If energy is what matters then: what gave me energy?
Insuline
Team
Trend following
Reversal
Bubble bursting classic
Bubble are good short ideas. Try not to be too early. Look for parabolic advances. Then wait for the advance to be less than volatility or vertical ascent
I disagree with this chart. You need the 50D MAV to be going downward to have a correct set up or know something that the market does know ahead of time, which is harder or even sometime plain illegal
Do not assume short-selling is easy. Even the best will tell you, it is easier to be long bonds or USD, than short equities.
Odds: long term investors have better odds than short term investors
That being said, secular bull markets can be followed by long bear/range bound markets. So don't be fooled by averages and make sure you focus on value (see in Appendix)
Everything is relative
How many generations?
FL (tower) =A
Macro news
Money's too tight to mention
The worst tightening cycle since 2008
Money and liquidity
The role of an investor is to position its portfolio on the receiving end of money flows. It means understanding how money is created (credit cycle) and how money moves from one asset class to the next and to the economy and back and forth. Liquidity leads, asset prices and economic growth follow
The yield curve lags liquidity by 6 months. The economy lags the yield curve by 9-18 months. Liquidity follows a clear cyclical pattern (credit cycle)
Let me make a prediction: it's about to change
The world's balance sheet and P&L
Asset side
- Real estate USD 326tn
- Equities USD 107tn
- Bonds + ST debt = USD 124tn + 176tn = USD 300tn
- Gold USD 12tn
- Bitcoin & Crypto USD 2tn
- Others (small in comparison)
Total = USD 747tn / NAV = USD 447tn
Global GDP = USD 90tn
inc. USD 3.6tn energy
inc. USD 21.5tn rents/DA
inc. 60tn wages
inc. 3-5tn interests
Profit = 1...
So beware that the all system is about to need money. If Fed removes USD 2tn from its balance sheet. That's 20tn of liquidity gone over the next 2 years. Wage growth 5-10% = USD 3-6tn = negative profits. Asset prices have to come down to be "liquified" into income. Be afraid, be very afraid
Money growth 11%, but GDP growth > that when adjusted for inflation...
GDP
Slowing
And China is now in full lockdown
Why does China matter?
Earnings are going... down
Full employment in the US
Disposable income
Inflation
Peak inflation
Second hand car prices rolling over
Peak inflation = prepare for a recession and a sharp fall in commodity prices, jobs and prices
Yield curve says = high inflation, slower growth
Precious metals
Silver demand reached 1101.9m ounce in 2021.This created a deficit of 51.8m ounce. And yet, liquidity will take it down too
Bitcoin & crypto
Wishful thinking?
FX
US dollar strength is bearish.
The Japanese Yen collapse makes sense = quantitative easing maintained just as the economy will feel the brunt of an economic slow down and commodity spike as well as competition of Yuan's debasement. Will soon be painful for the market, as yen repatriation = USD 6-7tn of liquidity invested in foreign assets.
The Euro will bounce later this year. The ECB will follow the Fed. Inflation is a political problem and a strong Euro may be needed.
AUD/CAD: a long for the next decade?
Commodity currencies should be favoured yes. Australian fund managers are short the AUD and buying foreign assets because Australia is overweight commodities and does not have much else to offer other than a big real estate asset bubble. So wait for the asset bubble to collapse in the next recession and then go long AUD.
Global debt = USD 300tn now
Note that average maturity of these bonds is 5y. This means USD 60tn must be refinanced every year. From 0% to 2% on the ST end, this USD1.2tn extra interest costs.
No more negative yielding debt?
The demographic trend has been deflationary and bullish for bonds. Are we know seeing a reversal?
EM bonds
Credit spreads
Equities
Equity = USD 107tn
DAX
At least the Chinese are not hiding their intention when it comes to manipulate asset prices
Nasdaq in bear market: FA(A)NG = decimated.
When the leaders of the previous bull fall, this is it: bear market
P/Sales high
A/D
IPOs? No more
Margin debt down but still high, margin calls soon?
Too much debt chasing too little equity
Bulls make money, bears make money, retail pigs get slaughtered
Oversold/overbought
More bears than bulls? AAII and ETFs say yes
Put/Call ratio
1y ROC: now is the time to panic
Seasonality: sell in May and go away (buy in Oct-Nov)
Which bear market are you in? BoA think the analog with the 1970s is the strongest (war + oil shock + baby boomer demand shock driving inflation)
Commodities
Energy= the trade of the decade, but beware of recessions
Descending triangle is... bearish
Tightening of belt coming
Themes, Sectors & Corporate news
Onshoring and supply chain control (TICS?)
Some like it hot
Metaverse
FA(A)NG
Even Youtube is slowing
Entrepreneurs
The raiders of the lost Ark
Cloud
Catalyst insider fund = INSAX. Insax sinked
Jim Cramer is long Ethereum
Peak Elon?
What do you need in a bear market? Moats like Nestlé (win if they raise price, win if commodity prices fall)?
The age of fraud
Carvana (Apollo will wipe out shareholders with debt deal), Archegos (how can you borrow so much from your prime brokers?), Russian oligarchs' web of offshore accounts, shell companies and banking/political relationships. When a mega bubble burst, we know who's been swimming naked.
Appendix: what is the closest analog to our bear market? Internet bubble 2.0? 1970s bear with supply shock and bear or 1940s with massive post war debt and changing world order before great bull market? Below history of the Dow Jones by decades
And of course since then
Comments
Post a Comment