OT: Random Thoughts

Everything is awesome, and no one is happy.
–Louis C.K.

France, for the first time in decades, has one of the fastest growing economies in Europe and unemployment in France is near a 40-year low. Macron was re-elected with a 17 point margin of victory, yet the only thing the press can talk about is “discontent.”

Unemployment in the USA is near a 50-year low, the number of jobs created in the past 12 months is the highest in decades, home prices are at record-highs, and wages are rising. Yet, the defining narrative is inflation and lack of supply, as if those two were not integrally connected.

Ukraine has valiantly repelled the Russian advance. The Russian military has been exposed as poorly trained and poorly equipped. It isn’t over by any means, but the media stubbornly sticks to a narrative that Russian victory is “inevitable”–even if that means moving the goalposts to Donbas and Crimea–areas the Russians already controlled before the war began.

Yes, there is discontent in the world. The working class is angry because the price of everything is going up, other people are getting rich, and they are not. Business owners are angry because the cost of raw materials and labor are increasing. I am hacked off because the service from my suppliers has become terrible–deliveries are consistently late, everyone is raising prices, and it is impossible to get anyone to answer the phone.

Why is this a problem? Because business is booming. Businesses can’t get truck drivers, there is a shortage of pallets, wine producers can’t get bottles or corks. Wood, steel, computer chips, and all kinds of other materials are in short supply. Commodity plastics which used to be in stock at any distributor now have a 14-week lead time. There has never been a boom like this in my life–it crosses every sector and spans the world. Over the past few weeks I’ve spoken to people in France, Portugal, Kansas, Arizona, Philadelphia, and Germany. Buying a house anywhere is difficult. Properties are sold within days, if not hours. Prices are extremely high. All-cash offers are common.

I guess after the tech bubble and the housing bubble we’ve been conditioned to believe that it can only end badly. Every boom is a bubble that can only end in a bust. However, what I also learned from those bubbles is that conditions can persist for several years beyond when you think they will end. Greenspan said “irrational exuberance” 3 years before the tech bubble burst. There were plenty of people warning about the housing bubble in 2004-2005, but it didn’t end until 2007-2008.

So, I’m going to ride this thing as long as it lasts. I refuse to engage in “discontent.” I look around and truly believe things have never been this good. How does it end? I don’t know and I’m not going to worry about it.

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I seem to have everything I need in Portugal.

Last week I bought grapefruit from South Africa!

Maybe Portugal is “out of this world!”

The Captain

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I’ve been going through my stock files and tax returns going back years to get accurate cost basis of stocks. I have files of sold stocks as well. Going through these particularly during the down years, the late 80’s and the early 2000’s, boy oh boy, they were a sight to behold and savor the lessons I learned from back then.

It’s easy to think we know it all and all will be well, but it’s really painful to see how things, the stock market and overall economy can change and stay negative for awhile. I’ve been noticing for months now, the negatives in stock market prices….heck, look at the performance of mutual funds so far……negatives. This isn’t a good time to be “playing” in the market less you’re extremely smart and incredibly good looking and using someone else’s money. :slight_smile:

Lucky Dog

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However, what I also learned from those bubbles is that conditions can persist for several years beyond when you think they will end.

So, I’m going to ride this thing as long as it lasts. I refuse to engage in “discontent.” I look around and truly believe things have never been this good. How does it end? I don’t know and I’m not going to worry about it.

I definitely am one of those that acts too soon in terminating a winning position. It’s worked quite well for me in the past, but we have absolutely left money on the table this time around. And I am OK with that. No income coming in to throw into a burst market as we did in the past, or to compensate for living expenses that depend on evaporating values, so we are in risk reduction mode. We have not bought new positions as we changed our investments around and are very cash heavy, but I have confidence that I will throw that money back into the market when the time comes. We are adding to that cash position by selling a rental property, (great time to exit a profession I no longer want to be in,) but we still have our residence and vacation homes that will be a place holder in the housing market as we start the nomadic portion of our life in a year or two. In the process now of developing a plan to allow us to have someone have eyes on our properties while we put them in the home share industry to build points for us to use other people’s homes in our travels, while not changing the tax implications of the residence or subject ourselves to depreciation recapture.

Figure out how investments fit into your lifestyle. What are your goals. What you want from your investments, your risk tolerance, may be very different from another’s. Don’t lose sight of your goals when handling your investments. There’s more than one way to do investments.

IP

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“It is really hard to make predictions. Especially about the future.”

So, I’m going to ride this thing as long as it lasts. I refuse to engage in “discontent.” I look around and truly believe things have never been this good. How does it end? I don’t know and I’m not going to worry about it.

“Someone, please give me a one handed economist.”

By June I will have made and extra $20,000 in overtime. We are short handed and the construction never stops. Hopefully we will be fully staffed in June and I will return to my life of retired in place.

At our favorite place oysters went from 13.85 to 18.90 a dozen. This happened in a one month period. That didn’t keep me away, but the 1 and half hour wait to get in has put me off.

On the other hand, every recession I have ever seen has been preceded by oil prices above the ten year moving average.

https://schrts.co/GGQQKKbD

This is not a spike. Both the daily price and the one year moving average are above the 10
year moving average. This is a huge annual chunk of cash being removed from the economy.

This will leave a mark.

On the other hand. (What is worse than a two handed economist, a three handed one!)

I have been watching innovation in technology and in business for a long time. It is accelerating. This acceleration is happening world wide and is spreading. While battery technology and its fundamental source of improvement, materials science, capture my attention most often, there are advances in every field every day. Just typing that gives me a surge of excitement. (Or it could be the coffee)

in general economic terms, I foresee a time in the not too distant future when the world is no longer enslaved to oil. This will mean my indicator of high oil prices followed by recession will fail. This will disrupt money flows, (think, an economic mess followed by very high growth)

In the mean time, I have got to get to work, lots to do and another 60 hour week is not out of the question.

Cheers
Qazulight

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This isn’t a good time to be “playing” in the market less you’re extremely smart and incredibly good looking and using someone else’s money. :slight_smile:

Investor brilliance seems to wax and wane with market cycles. Correlation is not proof of causation, but…

Conviction and staying power seem to me to be the important traits. Today I was in for a shock. Years ago I was very much interested in retail and Lululemon (LULU) was one of my favorites. They had some growing up problems transitioning from founder to professional management. I got tired of it and sold on December 9, 2015 at 46.74.

https://bigcharts.marketwatch.com/advchart/frames/frames.asp…

An 8 bagger in 6 years since! Ooooops!

The Captain

LULU lost its luster

We have all read about the various missteps and mishaps at lululemon over the past few months and the latest earnings report shows their effect on the company’s results. They are not “bad” but just a shade of the great results LULU used to have.

https://discussion.fool.com/lulu-lost-its-luster-31017376.aspx?s…

We have not bought new positions as we changed our investments around and are very cash heavy, but I have confidence that I will throw that money back into the market when the time comes.

As far as the market is concerned, I’m mostly in this camp–aside from a few “balancing” purchases of raw materials stocks and reductions elsewhere to raise cash.

Rather, my current situation is closer to what qazu described–my company is doing better than ever before.

Figure out how investments fit into your lifestyle. What are your goals. What you want from your investments, your risk tolerance, may be very different from another’s. Don’t lose sight of your goals when handling your investments. There’s more than one way to do investments.

Good advice.

On the other hand. (What is worse than a two handed economist, a three handed one!)

Well, there’s always “On the gripping hand.”

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“It is really hard to make predictions. Especially about the future.”

“It’s tough to make predictions, especially about the future.”
? Yogi Berra

“Someone, please give me a one handed economist.”

“Give me a one-handed Economist. All my economists say ‘on hand…’, then 'but on the other…”
? Harry Truman

And the hand-out economists.

The Captain

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On the other hand, every recession I have ever seen has been preceded by oil prices above the ten year moving average.

Except the most recent one. :slight_smile:

DB2

< I refuse to engage in “discontent.” I look around and truly believe things have never been this good. >

Thank you for your cheerful observations! I’m so glad that business is booming for you!

< How does it end? >

The next recession will begin like the last 7 recessions…when the Fed raises interest rates. In past recessions, the Fed only controlled the fed funds (overnight) rate. At this time, the Fed controls the long duration yields also due to their unprededented buying of long-dated Treasuries and mortgage bonds since 2020. Which they now intend to stop and gradually shed.

https://fred.stlouisfed.org/series/FEDFUNDS

https://fred.stlouisfed.org/series/WALCL

https://home.treasury.gov/resource-center/data-chart-center/…

The numbers tell the story. That’s why I do a Control Panel every week.

Wendy

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The next recession will begin like the last 7 recessions…when the Fed raises interest rates.

Well, not the last recession. The Fed stopped raising interest rates by the end of 2018 and then lowered it three times before the corona crash.

As for the Great Recession, Fed rates peaked in the middle of 2006, followed by three rate cuts in 2007. As you remember, the recession began at the end of 2007.

DB2

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Well, there’s always “On the gripping hand.”

I see what you did there.

Everything is awesome, and no one is happy.
–Louis C.K.

Because the mob’s mind is shaped by the media, and the media figured out hype and hysteria about train wrecks collects eyeballs. I started barking about “severe weather” hype several years ago. Now, not only is weather “severe” daily, all news is “breaking news” even if the story is days old, everything is “shocking”, “alarming”, “wild”.

Unfortunately, seems most of the mob can’t filter the hype and hysteria out, and gets swept along on a tidal wave of nonsense.

Steve

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The next recession will begin like the last 7 recessions…when the Fed raises interest rates.

True, the numbers tell the story, and I appreciate the Control Panel every week. Obviously, if there were a direct correlation to investing, it would be easy and we’d all be rich, so I’m not dismissing the numbers.

However… looking at the Fed series, the recessions seem to hit 3-8 years after the Fed starts to raise rates. That’s why I’m optimistically riding the wave–at least with my business. My brokerage account, well, that’s another story.

I’m not claiming “it’s different this time” in that it won’t end, or that it won’t end badly. I’m not even saying it won’t end in the next 6 months. I just have no idea. I am saying “it’s not like anything I’ve seen” and I was born in the 60’s. It’s the shortages of everything that are really surprising–like suppliers across the supply chain are behind the demand in a race for wood, steel, minerals, real estate, computer chips, truck drivers, cars, pallets…

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It’s the shortages of everything that are really surprising–like suppliers across the supply chain are behind the demand in a race for wood, steel, minerals, real estate, computer chips, truck drivers, cars, pallets…

The supply chain problems and parts shortages are a feature, not a bug. As long as they allow job creators to raise prices well beyond the increased costs, the stock market should do fine.

intercst

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At this time, the Fed controls the long duration yields also due to their unprededented buying of long-dated Treasuries and mortgage bonds since 2020. Which they now intend to stop and gradually shed.

There have been some indications that they don’t want to do it so gradually. Close to $100B a month of “shedding” has been bandied about recently.

I just don’t see how they sell their mortgage bonds that quickly. For example, the FHLM 2.15s of Jul-2040 … they acquired them roughly at par, but if they sell them in quantity now (and they can only sell in quantity since they own so much), they will be lucky to get 70 or 75! So tight off the bat there is a large capital loss that has to be accounted for somehow. But even if it doesn’t have to be accounted for, if they sell, let’s say, $100M of them, someone is paying them $100M for those bonds instead of buying other, perhaps new issue, mortgage bonds. That can only drive rates up some more, as the market has to attract an additional $100M from bond buyers. Now make that tens of billions every month being sold, and mortgage rates will keep rising until equilibrium is reached.

BUT, the fed being the fed, if they see mortgage rates shoot up too quickly, and price people out of the market, or worse, cause the market to seize up, will panic and suddenly stop their [mortgage] bond selling. So equilibrium will not be reached (just like we haven’t seen equilibrium in the bond market at all recently due to fed actions using their essentially unlimited balance sheet) In essence, they will add yet another mandate to their roster … keeping housing sales orderly and flowing. Eventually they end up with conflicting mandates, and really can’t do everything they want to do.

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The supply chain problems and parts shortages are a feature, not a bug. As long as they allow job creators to raise prices well beyond the increased costs, the stock market should do fine.

But it seems like the numbers are showing that this isn’t true. The Producer Price Index has been rising slightly faster than the Consumer Price Index recently (at least the last few months, I haven’t looked at the data closely).

Also keep in mind that if an oil company sells gasoline at $3 with a 10% margin, they will earn 30 cents gross. But if they sell gasoline at $4 with a 10% margin, they will earn 40 cents gross.

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Also keep in mind that if an oil company sells gasoline at $3 with a 10% margin, they will earn 30 cents gross. But if they sell gasoline at $4 with a 10% margin, they will earn 40 cents gross.

If profits were flat that would be true, but profits do not appear to be flat.

https://fortune.com/2022/03/31/us-companies-record-profits-2…
U.S. companies post their biggest profit growth in decades by jacking up prices during the pandemic

Projections for the first quarter are for lower corporate profits.

https://www.ft.com/content/e347aae3-8098-4f82-a97a-28d17769f…

But inflation would only be one of the contributing factors if that prediction is true.

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