#162 - Pessimists Sound Smart and Optimists Make Money, Zeihan on The Future of Alberta, And The Masculinity Crisis
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- Peter Zeihan on Alberta’s Future
- Recap of the Fed Meeting
- Rashida Gets Dunked On By Jamie Dimon
- Putins Golden Bridge and Alex Karp
- The World Will Never Be The Same - Globe and Mail article
- Crisis In Male Masculinity
- FINALLY SOME TAX POLICY CHANGES IN CANADA
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👉 For specific investment questions or advice contact Joel @ Gold Investment Management.
While the Fed doesn’t normally predict recessions, they got pretty close when Powell said:
“No one knows whether this process will lead to a recession or if so, how significant that recession would be… The chances of a soft landing are likely to diminish to the extent that policy needs to be more restrictive, or restrictive for longer. Nonetheless, we’re committed to getting inflation back down to 2%.”
The main meeting takeaways:
Interest rates = Faster, Higher, Longer
Inflation = Stickier core PCE
Jobs = Too strong now but we will see cracks
Housing = Look out below
Recession = Likely
What to do?
Determining the appropriate risk posture for a given point in time is more complex than most people think. There can’t be a right answer for everyone. There can’t be a right answer for every asset class. If pundits say “Buy,” you should ask, “Buy what?” And at the time that you’re supposed to buy, is there anything you should sell (or anything you should buy if it’s time to sell)? Doesn’t it depend on individual risk tolerance? Doesn’t it depend on how people are positioned at the time? If someone’s portfolio is very liquid and a commentator concludes that it’s not a good time to own assets because the macro outlook is poor, might the investor already be in the right position for the future? Blanket advice to buy (or sell) isn’t very useful.
We know what has happened in the macro environment and what is happening today. We know what most people think will happen in the macro environment moving forward, and we know where security prices are today. What we don’t know is how much of what we think will happen in the macro (or what others think will happen) is reflected in today’s prices. Since future conditions (as opposed to present conditions) may already be incorporated in prices, a poor macro outlook isn’t necessarily synonymous with prices declining, and a good macro outlook needn’t be synonymous with prices rising. Investors should be wary of sweeping generalizations about whether it’s time to buy or sell.
On to the Prices:
DOW falls into bear market
S&P new closing low for 2022
Now at lowest since December 2020
10-day Advance/decline dropped to record low yesterday
Breadth over last 10 days = weakest in 32 years:
Durable Goods Orders: -0.2% vs -0.4% expected
Biggest decline since February - Fed likes this
Case-Shiller Home Price: +16.1% vs +17% expected
10:00 am - New Home Sales, CB Consumer Confidence, Richmond Fed Manufacturing/Services
10:30 am - Dallas Fed Services
Fed speakers: Evans (6:15 am), Bullard (9:55 am), Daly (8:35 pm)
Buy the dip?
Strategy hasn't paid off in 2022
SPX averaging 1.2% drop on days following loss of 1% of more:
US bond market hurting
Closed above 4% on Monday: 1, 2, 3, 5, and 7 year Treasury yields
Broad pain across the curve:
Worst YTD performance by far for US investment grade bonds:
Nord Stream 1 sabotage?
Operators announced "unprecedented" damage
Leaks caused sudden drops in pressure to 3 underwater lines in Baltic Sea
2 lines part of Nord Stream 1 (other = Nord Stream 2)
Timeframe to restore operations unknown
"It is hard to imagine that it is accidental" - Danish Prime Minister
Pessimists Sound Smart and Optimists Make Money
We’re trading at a 15x forward PE ratio (below the five-year average of 18) on the S&P500 and cash is now yielding ~4%.
WAYYYY back in September of 2021, a year ago, the central banks were signaling that no interest rate hikes would be necessary for the entirety of 2022.
“Lower for longer”
As a result, cash was yielding zero and stocks were selling for 24 times earnings.
Which environment is a better one for investors, that of one year ago today or the one we are currently facing?
My Answer: This one.
The most value creation for investors comes from the actions they take in falling markets, not rising ones. If you’re not yet in retirement and not finished putting money into your retirement accounts, compression in multiples in the market is an increased opportunity for you to buy things that will be worth much more in the future when you eventually sell them.
Creating value today that will be realized at some point tomorrow.
Market environments like this one are where all of the value creation resides.
With today’s lower prices and falling valuations, we are laying the foundation for tomorrow’s success. It may not feel that way at the moment, but this is what separates successful investors from those that fail.
Trust the process.
💸Reformed Millennials - Post of The Week
You notice how no one wanted to hedge their portfolios when the stock market was topping out in Q1 of 2021?
But now after a 19+ month bear market, investors have decided that it's now time to hedge. In fact, they've never wanted to hedge as badly as they did this week.
Jason Goepfert put out a good look at this activity this week as well.
"Retail traders spent $18 billion buying put option protection last week, a record. They're holding $46 billion worth of index futures net short, a record. Leveraged traders are betting on very, very bad things happening very, very soon."
When everyone is betting on really bad things, is that when bad things happen?
How have you seen this play out in your experience?
Best Video of The Week
Keynote – Peter Zeihan - 2022
+ Alex Karp on Putin Golden Bridge
🎙Podcast Recommendations Of The Week🎙
Why America Has a Crisis of Masculinity - Plain English with Derek Thompson
Education - gap in college (60% of attendees are women) its not 15% more likely that a woman will get a degree in America than men. That gap in 1972 was only 13% for men over women
Most men today earn less today than most men did in 1973
If men was a nation today, it would make less money adjusted for inflation than it did 50 years
Least powerful men have been left adrift and outside of the family as they haven’t been able to find placement in the household
Morgan Housel - The Psychology of Money (Your Questions Answered)
Morgan Housel touches on topics from his best-selling book, The Psychology of Money, and answers questions around his writing process, how to teach your children good financial habits, and more
🔮Best Links of The Week🔮
Will the US Cannabis Industry Survive? - Cannabis Confidential
Peter Zeihan On The Alberta Opportunity - Youtube
💸 Can Cloudflare buy its way to the top of the cloud computing space? - Techcrunch
Rents drop for the first time in two years. - Mansion Global
YouTube expands payouts - TY Blog