I was asked if I could make time to go to this webinar this morning (9-10am), and I could, so I did, and of course, I took notes. I always take notes. And I'm continuing to share them - so hopefully they are useful to someone out there. I have to say, I saw Danielle DiMartino Booth in an interview for the first time last week - and was superbly impressed. Today, she went from being a self-proclaimed "old timer" who hedges with GLD (Gold) - to someone who might finally understand the great big case for BTC (Bitcoin). WOW. And Jeff Booth did an amazing job building up the case and really pushing for logical thinking and thought experiments. Now, I am following @JeffBooth - as I am also a newly minted fan.
Here are their bios for reference (I don't think they are related.):
Feedback welcome on the notes. Too much? Too little? Different format? Let me know! And here's the link to the full interview: https://blockworksgroup.io/ia-inflation-vs-deflation?SQF_SOURCE=webinararchive
[Jeff Booth] Technology is driving deflation - exponential efficiency, exponentially deflationary. People are trying to plug the hole from technology deflation. Everything else is a by product of that. Why does anyone use technology - it’s to FREE OUR TIME. It removes labor. That’s why prices should go down. We are fighting that natural order - which is concentration wealth, power, etc.
Michael - There has to be a reset one way or another. It’s an epic battle of our time. Do you agree? —>
[Danielle] Same but different prism. COVID acted as an accelerant. Small businesses employed 40% of people in the US - found US labor for their purposes was cheap. Now they are automating even more now. Customers want EVEN LESS human interaction than before because of COVID. 26,000,000 collecting unemployment - that’s DEFLATIONARY itself. 1/3 of American households have lost income - Still have households that have lost income. Jay Powell is running like a mouse on a wheel by trying to create asset price inflation. Only works if the banks will lend. Asset price inflation in stocks. The old Alan Greenspan playbook is in play too - Fannie is all about refinancing, all in the last 6 months. People are pulling out of cash out of their homes - interest rates at 2.6%, all of this engineered by Jay Powell. Wealth effect NEVER trickles done. The bottom of the “K” is where we are seeing deflation. The Fed is creating a housing bubble. The Fed cannot print JOBS. The Fed cannot create cashflow.
Michael - The K shaped recovery is the best manefestiation of the Fed. They inflate asset prices so people feel wealthy. This is causing real dispersion. Real income inequality. What’s the outcome? ——>
[Jeff] This isn’t just the FED. This is a global phenomenon. Logical step by step. If Tech is deflationary at the rate I am talking about, and IF as you print more money and more capitalism - it’ll force businesses to implement technology faster. Period. Full Stop. Means everything else globally, if you’re trying to drive inflation, you’re trying to drive WAGE deflation, You’re trying to make debt cheaper. You’re picking the pockets of the people LEAST able to do that. You’re driving society breaking. They’re pointing at each other. Fundamentally - revolution, political divide, …. The system is being forced to change. This is the most important topic of our time. If that cannot work together, monetary cycle and inflation. 1) let it happen. - capitalism would call for this. Assets are so overpriced. And they will fall by 80-90%. Banks would fail… It’s not bad people anywhere. They are TRAPPED. The time to fix this was 20 years ago, Instead of fixing it they made it worse by making bigger and bigger bubbles. Populations on booth sides are pointing at each other. …. then it’ll be “Euro’s fault”, “China’s fault”… the only other way is to drive inflation. At some point, treasury might coop the Fed, the next step, then you’ll get more inflation, in the name of HELPING people. Whole people cannot pay for these prices (inflation). Then people will come back and say ’Save me!” — massive printing all around the world will be picking the pockets of people (wages, savings) — which will cause revolutions in the street. The Fed is the firefighters, but also the arsonists.
Michael - The Fed feels trapped. Enemy of the Fed has transitioned.
[Danielle] Jay Powell came into office, the Dow Jones closed in triple digits in January 2018. He thought it was not the Fed’s job to backstop Wall Street. Fed has been inflating the household bubble, and now the exchange market bubble. Massive disconnect. He said QE was a bad idea - and then he reversed that statement because the Fed is Trapped, because of the magnitude of the bubbles. There’s also massive proliferation of dollars throughout the world. The weight of the world is on the shoulders here too. It’s a MESS.
Michael - it’s a tough situation. Money printer go “brrrrrr”. The Fed is in an unfortunate position. Fiscal policy will play a bigger role. Lots of deflationary forces.
[Danielle] If you create a working class that doesn’t have opportunities, we're going to be in trouble. Germany in 2005 took opportunity to retrain their workforce. US is doing the opposite thing - stimulus bandaids. This is going to head to a STAGflationary situation. This will swing too far on the other side…. Rising interest rates, people out of work… this may be the worst of the 1970s.
[Jeff] They have to try and create inflation (let’s thought experiment). Take it logically. Deflation is happening from technology - which SHOULD bring prices down, which SHOULD be a benefit for society. Where’s the evidence? Last 20 years, preCOVD, we had 35 trillion global debt. … the problem is that is looking backwards. Technology is moving forward. 30 trillion dollar debt, it’s nothing compared to what’s going to happen. It has to explode mathematically. That money is going into asset prices. It’s robbing from the free market, because it’s trying to protect the value of the money. China takes their money out and puts it into real estate - to protect its value. That steals from the economy. It’ll move into authoritarianism. THere’s no way out of this right now. There will be hyper inflationary. It won’t be right now. When the FISCAL side comes on - it’ll be stagflation, hyper inflation, etc… at that point, as currencies are destroyed all around the world. The feedback is like what we’re seeing in Turkey. Remove that market from exports, the feedback will race around the world and take it down. You’ll just keep on going. We have to LOWER our dollar value in relation to the world. Now, how does the Treasury get out of the debt box? Inflation is trying to make the debt cheaper? What government will take this on? The fed has taken the risk. The bank has taken the risk. You’ll collapse the entire economy and the Fed, because the Fed has absorbed the entire risk of the market. I really wish these weren’t as binary situations…. But we cannot. The next 10 years…. In order to get stronger, the dollar HAS to get weaker. Where in safety is that? Where are you personally going to do? How to look out for your family? That’s the greater conversation for our time.
Michael - Absolutely. How do you position yourself in this crazy world? What does the transition look like over the next 10 years? Stagflation, hyperflation, this is globally something we haven’t seen for a very long time? How does this look for the next 10 years for the dollar?
[Danielle] Correlation between Euro and growth of the US balance sheet = is like 80%. Jay needs more product. Whoever is winning the balance sheet battle… Christine has more product and is winning right now. You can see the Fed will have 3-5 trillion out there between now and Q1. That’s when the Cares act goes away. Trying to buy time - but not in a productive way. The currency, whoever is printing more money the fastest will win. Jeff’s scenario is dire. In the background, as you become more authoritarian and more dependent on the state and not spending on infrastructure - and throwing NONproductive stimulus cash of people NOT working. We will DEglobalize - this is what will SET off the authoritarian state. Events folded from 1914 - 1930, and the war was decided on who had the least amount of debt.
[Jeff] Let me build on what Danielle just said. Why infrastructure projects? US should spend on infrastructure projects - not just printing. A road, bridge - this will decrease time between home and office, the short term benefit of labor, long term benefit of faster commute which is more productivity. Here’s the problem with that today. Everything we do, zoom calls, digital doesn’t care about this. Where does the money need to go to have long term benefit? There’s no job in Canada from zoom. Technology is borderless. IF tech is coming in right now. Lots of working from home forever. I don’t need real estate - real estate will crash. If labor can work from anywhere, wouldn’t you hire the best at the cheapest? Talent is extraordinary anywhere. If we are working from home - how fast tech is deflationary is incredible. We have a house of cards that’ll kill people. You cannot train fast enough once this all falls. This will force businesses to look for better cheaper everywhere. I wish that would be the debate. If we start having this debate - on how we PROSPER fro this, instead of feeding a system built for a different time - you’ll see what saves humanity makes all of the abundance broadly based, is right in front of our nose. Let’s question the system? Can it work any more?
Michael - this is the system today. It’s not working for everyone. It’s contributing to economic inequality. Russia and China are working on alternatives. We can see evidence that the system today is NOT working. Question is what a transition OFF of the US dollar will look like? 80% of global trade in USD, how do you even do this? It’ll be messy. Current system is not working. What does the new global monetary system look like?
[Danielle] As messy as it will inevitably be - as long as you have 1 government that is methodical about it. World history doesn’t work like that. Egos don’t work like that. China will be methodical. They are methodically reducing their treasury from $1trillion to $800billion. They put it in writing. Think again about an economy that has it’s people relying on its government leads to socialism leads to authoritarianism…. It leads to something like the Roman Empire. There is no alternative to the Yuan. There’s no viability. It’ll come about in a military kind of way.
[Jeff] I agree with Danielle says, look at the pendulum of time. What we are seeing, this is history repeating itself. Go to to China as an example. No country ever that has created debt to GDP as fast as China. It’s a house of cards exponentially. Why do they want their own digital currency - if they can do that, they OWN the world. That’s why the US is going to create a digital currency. It leads to more and more control and isolation. Game theory perspective. What government in the world, after seeing a fiat currency in the US that can be manipulated, which exports their problem to the rest of the world? Absolute power corrupts absolutely. Last week — Chinese billionaire in real estate went to jail for 15 years because he comment publicly on China. That’s what happens. … Take a business landscape look at this. What happens to an existing business, like Blockbuster, … it wasn’t bad executives. The minute download speeds change. Their business relied on people driving to the business. Netflix hence took off. There’s nothing that the government can do - they’re just adding “candy isles” to the business - making the problem worse like blockbuster. Bitcoin is a new business - it’s a new monetary policy. It works on a network effect. I suspect governments will be forced to peg to it to bring ORDER. What is trust? What is money? As that happens, …. Small folks, small businesses, small nations, … this problem will be solved by something NEW. It deals with game theory. It becomes an incentive for governments to peg to this earlier. The incentive structure built into it is greed - which drives early adoption. At least that’s the hope. If Bitcoin went to zero, and if we could safely transition in a safe way, … I think it’s the safest way to transition society. It’s the biggest benefit for society without wars.
[Danielle] I’m bitter about the fall of the Roman Empire (being Italian blood). I don’t know how to get there. It’s the most peaceful route what Jeff said. That means cooler heads prevail and there’s order to it. Greg Iprit wrote a Wall Street society about dominance of China in the tech space on telecom equipment - 30% market share on equipment. If China passes the 50% mark on marketshare, we’ll be in trouble. Australia is looking into the origins of COVID, and is speaking out against China (116 countries joined in) — technology is the future of where power lies, then if there’s not 1 country where all the power lies, then we can have a more ORDERLY way to transition. 5G, AI, etc… that changes the game.
Michael - Let's dig deeper into this. There’s a lot of stigma around Bitcoin. … regardless of your thoughts on Bitcoin, a form of sovereign free currency possible? Game theory. It’s like the prisoner’s dilemma being played out on the global stage. Our currency is causing a lot of problems today. Game theory - there actually is a strong possibility of a sovereignless currency.
[Danielle] If you have a gas station on one corner, and Costco comes across the street with better cheaper gas. There as to be a peaceful change of power. This has to be REALLY different this time to be able to happen. I’m FED UP with undisciplined monetary policy. I would rather the purpose be more peaceful. I’m worried about human nature.
[Jeff] That’s why I use the example of Blockbuster. It’s not bad executives, their business model was around something that didn’t scale. You can’t charge for things that are in abundance. Technology creates that abundance. WE are trying to manipulate the system - and we’ve made the system more fragile by design. Very rarely in the existing system, do people look at anything holistically? Do you believe housing already goes up? People individually - people are in the system and cannot see the big change that’s already happen. People are STUCK in the system (matrix). Banks fail. They only see it in the way of the system. Bitcoin is the release valve - that’s what’s going to happen. People are starting to understand. It’s network effect. The more people understand it in relation to currencies - more people will trust it. This will happen country after country. The onramps - the trust to Bitcoin will get higher and higher. The value to the entire network will become extremely value - it’ll take time. The existing system will not go quietly into the night. Bitcoin is the safer more peaceful route to change.
MIchael - it seems like minor disagreements. The one key takeaway is that we are going through a period of transition. A lot of volatility. How can I preserve my wealth? Asset prices could fall 80-90%? How do I make sure that my wealth can be protected from a downdraft that serious?
[Danielle] We express it in gold. In deflationary times, gold outperforms as long as there’s enough disruption. Personal philosophy, if you see an extraordinary company and you see an opportunity to seed it, do it. There will be survivorship. There will be great companies coming out of this.
[Jeff] I’m fortunate because I get to work with leading technology companies at early stage. I spend the majority of my time in tech. You can do very well in tech companies. Mike you made a good point that if asset prices drop 80%, and governments stop printing - they you’ll want to get out of assets and into currency. You’ll want to get out of banks too as the system clears. BUT Governments have no choice. They have to keep printing. This is binary in nature. Opposite example —— governments will continue to print. Need more leverage and get into assets, that should do well if governments keep printing. The problem with that is that later on governments will have to tax this at different rates. This will happen thorough history. All assets will be in local currency - houses, businesses, assets, etc…. - than you go through a reset at some point and there’s no way out. In times like this you get the rise of authoritarian regimes. If you looked at Germany in 1920s-1930s. People were wheelbarrowing money to get bread. Extreme joblessness. People didn’t realize it. … Once you’re stuck in a currency and all your wealth is in that currency. How do you leave? People don’t leave because they feel richer as society is getting poorer. IF I leave, then I become a refugee in another country because I can’t take my wealth with me. That’s another case for Bitcoin - you can take it anywhere.
Michael - feeling the need to end on a positive note…..
[Jeff] Technology should happen on its natural course, there would be abundance in the world. Let it happen. Stop trying to manipulate it. For the first time in history, we can solve the abundance problem for society.
Michael - how can people reach out?
[Danielle] I can barely keep up with Twitter. Find me on Quillintelligence.cmo
[Jeff] @jeffbooth on twitter.
These are my personal notes from attending conferences/webinars/talks - and this one is from this past weekend in watching a couple sessions from the Trading Investment Summit: Investing Notes: Lyn Alden 9/26/2020. I recently started following Lyn on Twitter too - after discovering that some of my favorite investors also follow Lyn, so thought it'd be a good opportunity to catch an interview live to learn a little more about her perspectives.
Here's a link to her BIO, with some additional resources she's created.
Hope this helps! (And feedback always welcome.)
Investing Notes: Lyn Alden 9/26/2020
Lyn Alden Interview
Lyn founded LynAlden Investment Strategy. Free newsletter every 6 weeks. Engineering background. Started investing before studying as an electrical engineer.
How has the banks/markets responded to Covid? What’s your view on this, esp regarding employment/supply chain? ——> April 2020 - looking forward square root sign curve regarding employment. Falls, small recovery, then will be a very slow recovery. So far, that’s what we will see. We have a credit cycle playing out - permanent job losses are happening. Going forward, this will be an issue. Fiscal policy is what to watch out for - will dictate how “K shaped” this will be. If you see more fiscal, you can see a narrowing of the K.
How to get this trickle down effect of QE over these years. Helicopter money into people’s accounts has a good short term effect. ——> Central bank have been trying to address this problem of the global financial crisis - we have had low rates for so long, so it is miss pricing risk. Negative rates destroy the economy. It’s an over reliance on monetary policy - it’s like the 30s-40s. We need more fiscal policy - in the 40s, that’s what happened after the war. Lot of the deficits is tied to structural, an aging demographic. Fiscal versus monetary policy. This recessions we got a lot of direct to consumer earlier. Now it comes down to what happens next. We’re in a normal recession right now.
Apple issuing debt even with their cash pile of billions. Is it sustainable for low rates? It’s good for real estate, taking out low 30 year fixed rates. It’s good for stocks. But what else? ——> Whole yield curve is so low. Looking at the long term debt cycle, in a typical biz cycle, you might get more leverage in the system, then you get an external catalyst, and then a small recession. Then monetary policy comes in and ends it. Over multiple short term multiple biz cycles, then you’ll get more debt in the systems, … then you get lower interest rates, then you hit zero. The last time we hit zero bound was 1930. This will be a big deleveraging event - but they play out differently. Very challenging time for markets. Not a lot of safe havens right now - because they are not good places for holding right now. No safe haven to put your money right now.
The FED has announced a symmetrical period… how will this affect the dollar. Interest rates will not be volatile because central bank will hold. You’ll get more currency volatility. 1940s, when we were getting off of 0 bound, they said won’t let the 10 year yield go above 2.5%. Inflation reached double digits - it was inflationary and contained. In 2020, we’ll see a scenario like that. They will cap treasury yields - and let treasury underperform. We’ll come down to fiscal policy. Central bank will put the breaks on it - so it’s all about fiscal policy.
How calculating inflation has changed so much. Inflation is basically which is reported is different. Central banks changed different from tightening to easing pretty quickly. The pain problem is the debt - everywhere, not just the US. So much debt - how will central banks get out of it? —> Long term debt cycle will be done by inflating a large chunk of the debt away. It’ll be like 1940 — they capped yield below inflation rate. You get all of your money bank nominally - but you lost 30% off your purchasing power. We’ll be in that period. We’ll get inflation. Real yields will be negative for awhile. Over the next many years, negative real yields. 40 year period from late 1930s to mid 1970s, you mostly failed to keep up with inflation. We’re in that situation. Yields are so low - only short term trades is where you might gain.
Look at total debt to money supply — our debt is building up nominally, but it peaked in 2007 and has been in decline because of the money supply growth faster than debt. US came out of the 1940s as the only country as the global creditor nation with a large industrial nation. Now it is the largest debtor nation. This one is different. People point to “Japanification”. It’ll maybe stagnation? Japan is currently is the world’s largest creditor nation - they own more foreign assets than foreigners own their assets. That’s not our case. I’m in the dollar-bear camp. Over the next 10 years, the dollar will lose value against some major currencies. Japan also owns a lot of their own debt, btw.
Since we had massive QE, zero rates - have we seen inflation? QE and zero rates are more deflationary. Housing going up Disposable income has been getting reduced of the average person - because most people don’t have all these extra assets. Thoughts? ——> Some extent. View a similar outcome from a different lens. QE mostly props up asset prices. Fiscal policy working with banks - that’s more generally inflationary. Need to point more to fiscal policy. This happened in the 1930s, you didn’t see broad price inflation until 1940s where they saw the broad price inflation. Fiscal policy more than more central bank monetary policy.
1930s we had twin budget surpluses in the early 1930s, The starting point was positive. We have twin deficits right now going into this. ——> This is more of a inflationary variable. We have slower population growth. Rapid tech growth. Deflationary forces, that are offset by trade deficit, debtor nation, etc…. More vulnerable currency than back then. Over the next 10 years, we’ll see the dollar decline (maybe more 5 years). Depends on more fiscal policy. It might go down to the “70s”. It’ll depends on fiscal policy between all the countries.
Fiscal policy that leads us to the most event of the year, the US elections. What is a risk-positive or risk-negative outcome? Trump with Senate Red, House Blue = lot of things can happen. Depends on the decisiveness of the election. You’ll get large deficits no matter what. Size of deficit is all about the gridlock. There will be a volatility period.
What is the breaking point? The confidence level? Where’s the limit? ——> FED is trying to do tightening. Domestic balance sheets are tapped out, even with the deficit oof 5% of GDP. Now QE happening to buy treasuries. We’re getting into a fiscal issue. We can’t float the treasuries to the foreign sector. Much slower rate of purchase than before, so we are self-funding them. These deficits are not going away anytime soon. You’ll still get large deficits, the central bank buying a large amount of it. If you look into 2021-2023, that narrative will change with so much deficit.
One of the most popular asset classes, Gold, Silver views on the next 1-2 years? ——>. 1 year I’m neutral. Out 3 years, I’m bullish on it. I turned bullish on this back in 2018. It’s really correlated to real interest rates. Sentiment layer on top of it. Real rates are less negative than 1 month ago. How well gold does really depends on stimulus? Are we getting disinflation? Inflation? How big will the stimulus be? Especially for the middle class. The wealth concentration (like the 20s-30s), …. Part of the inflation debate will depend on middle class, this is key. History repeats itself.
Dollar losing its reserve currency status. What’s your view? Will this happen? ——> Good question. Most people ask the wrong question? We are at the point where there is no one currency that can do this. This is a weird period in history. Previous periods didn’t have such a lock globally. The dollar since the 1940s have been in a super entrenched position. After WWII,US was 40% of global GDP, rise of emerging markets, …. The US is now 20% of global GDP. We’ve run many large trade deficits. We exported our industrial base and our currency to the world. US used to have 80% of the world’s global GOLD reserves. Going forward, the trick is not to look for which currency will replace the dollar. You could have regional trading currencies. Trade between Russia and China, used to be 80% of dollars, but now it’s got more Euro. But Russia/China are antagonist towards the US. A handful of currencies will be used to price commodities. Going forward, central banks buy less gold/treasuries. The dollar will be A reserve currency, not the ONLY currency to price commodities. Just a part of the system.
These are my personal notes from attending an interview with Danielle Booth today: Investing Notes: Danielle DiMartino Booth 9/25/2020. I think my fingers got a major workout for the 45 minutes she was being interviewed trying to type/write as much as I could from what she was saying. Super smart, savvy woman who obviously knows her stuff and does not apologize at all about her opinions. The "Speak Truth to Power" type of stuff - which I'm a personal big fan of. In a sea of men that were presenting today at this 3 day investor conference, it was so refreshing to see and hear her.
Took a screenshot (sorry, not the most flattering I know if you see this Danielle) - see below. Here's a link to her bio too.
Anyways - hope these notes are helpful. Feedback welcome. Normally I wouldn't be sharing my notes with everyone so forgive me if they're a little rough. Trying something out (sharing).
Notes from the conference on this talk: Danielle DiMartino Booth will be interviewed live by our hosts, where she will give a brief overview of the recent global developments and their potential economic effects. She will undoubtedly discuss central bank action and the likely scenarios for equities, interest rates and various asset classes.
Her ability to create really useful analysis and her Markets Briefings was how she made her mark and gained the attention of the great investors (Warren Buffet and Charlie Munger for example). They saw some of her work and invited her to Omaha to meet with them personally (she couldn't because she had a 5 month old baby - and they said no problem, they would provide childcare so she took the whole family.) Worked in the Fed, Speaks truth AND she doesn’t do sensitivity training. :) LOL. In the Fall 2015, inside the Fed, she was given special instruction to pay attention to only Jay Powell. An outsider insider. Danielle was not liked at the Fed.
Covid was a bump or the catalyst, from October 2018. She really understands the markets and the behaviors, the impact to the market. Jay Powell really understands the credit markets. What’s going to happen going forward does she think? A doomsday policy was in place after junk bond issuance freezing. May 2019, Neiman Marcus issued debt and the bond market froze. Jay Powell talked about easing so the markets over again. Again, there already was a doomsday policy. Morgan Stanley did the math. Jay Powell already knew TRIPLE B was an accident happening. Any downgraded debt was eligible for purchase by the Fed — so even if anything was junk, the investors had to treat it with respect.
The problem is that today, the market is losing confidence. Jay Powell cannot create cashflow. He hates Trump (even though he’s a Republican). He will not buy stocks 39 days before an election. Optimically and narratively it’s more damning. It’s ready to deploy - but he will likely do nothing. He will not do negative interest rates. Other countries can. Everything will break. Someone needs to have a reference free rate.
Jay Powell spoke yesterday. Downside risk is out there without further federal aid. The Fed is begging congress to do something. The growth of fed balance sheet is correlated with the S&P. The Fed wants more stimulus. “I wouldn’t say we are out of ammo”. Did he say it? He kind of did. They need “product” = They need “paper”.
Is the Fed influenced by the president? Danielle says no. Jay is afraid of the credit markets. He doesn’t care about supporting Trump. One thing to note, is that Munichen and Powell speak the same language. What the Fed is doing is doing now against the law. During WWII there was yield control and there was a cap. The Fed and the Government were severed in 1951 - Fed was separated from government. There was an accord. Now because of what's going on, future politicians will have to RE-separate the Fed to be nonpolitical.
Rhethoric today for Powell, is one of his biggest tools. The briefcase indicator. Powell likes to “play” with investors. What happens if the investing public loses confidence in the Fed? You’re already seeing that. He blows it on Jackson Hole on August 27. The whole world freaked out as a regime change. F1c statement to 2023, with a target of 1.7%. Market took a step back. The Fed, before this rhetoric, the Fed had been buying up all kinds of stuff. The Fed is creating the narrative. 26 million people are collecting unemployment, when there’s deflation knocking on the door. Powell is trying to bring up inflation. Rent is coming down. Housing is the main # into every model.
The Fed gauges inflation how? Fed has to hide behind inflation. Our health care inflation is not medicare/medicaid rates. They know that. They know we spend more on housing. They have to have this broken metric to support the Contant QE. They can’t change this. They are trapped. QE is important. They cannot turn the facilities, they cannot turn off the printing presses. If they decide to become the printing press for hire. We’re going to go from deflation too STAGflation.
What is the breaking point that will push yields? Traders are all waiting for this. Dallas, Scottsdale - Jay Powell has created the housing boom. The Housing is the most leading of all sectors. He bought all mortgage back securities in 5 minutes. You have rates of 1.99%. Ed Pinto (Fannie’s former economist). IN 6 months, cash out refinancing is HOT. The appraisals are not even happening. Fed is creating the narrative that there is this hot market. Wealthy people are renting homes for $75k. People who have money? FHA lending is still 3.5% down — people who are not wealthy are hurting. If you see the riots now, it’s going to be worse in March. Once banks can start to foreclose - this is going to cause mayhem. This is all caused by the Fed.
You’re bullish precious metals? Gold? What will drive prices higher. Right now investors are going after the traditional next. Miniature repeat of March/April 2020. People are calling bluff of Fed and selling Gold. Gold is still outperforming in both deflationary and inflationary markets, and with volatility. If you’re looking for protection - Buy the Move.
How do you feel about cryptocurrencies? The trading community is favoring it as a hedge. It’s like TikTok instead of the walkman. People that want to make a name for themselves buy Bitcoin. The old people want Gold. If we go over the line into quantum and it becomes more economical to mine this stuff. People are disgusted with the fiat currency. Danielle owns gold.
Lot of people look at what the Fed is doing, expanding the balance sheet. $1.5Billion/hour worldwide is what is being printed. Will asset prices will go higher? Is this a V shaped recovery? No, it’s a VERY K SHAPED RECOVERY. Small businesses hire most of the Americans and have been left behind. Great innovations. Great new industries. Lots of people left behind. The K may not be permanent. Raymond James, law firms are laying off. Indeed.com — job postings for high income are down 24% year over year. If we have more white collar jobs lost, then we’re in trouble. The stimulus really helped - if you see white collar layoffs, they the K will not happen. It’ll be a W shape.
What about Japan and the bank of Japan? The rates are at 0. US to Japan is apples and oranges, but is there anything to compare? Yes and no. The No is that the fact about 1/3 of treasuries are owned by foreigners. It’s owned by the post office. Banks own 40% of CLOs. Good luck Japan. We are not Japan in the sense that we don’t have a long runway to start the printing presses because we pushed it so far. We are not at the point to being a recovery. Starting points matter. It’d be more convenient if we were Japan. The whole world is in recession. Japan is going in and out of recession despite it all. Nothing cataclysmic has happened - they’re an innovative country that’s moved that innovation to China. @bondstrategist on Twitter — sent out a poll a few weeks ago. We believe we’re in the Great Financial Crisis 2.0 because of the Credit issue.
Is there a way for the Fed to get out of the box? They keep buying ever increasing debt. She wrote a book “fed up” as she’s not a fan of the Fed. That’s the trillion dollar question? The answer is you have to look at 2019. Russell 2000 and the broader stock have not ever gotten back to ATH’s off 2018, when the Fed tried to get out of it. They think they can do this for 10 years. I don’t think the market will not allow it. Bondage vigilantes have been hibernating for a long time - they will come out. The Fed can continue this for much longer - what they want us to believe. As long as there’s deflation, they will continue.
If Biden wins? Remember, the debt ceiling was passed - it was because the Democrats asked for no debt ceiling until 2021. From now until June 2021, there’s no debt ceiling. The bond investors will hit their pain threshold soon. Who knows when or what will happen.
How to find Danielle? Come to Quillintelligence.com — we publish/write every day. Macro investing is hot again. Data means something now again. They put unvarnished best research. She says @dimartinobooth follow on Twitter.
As an insider at the Fed, is the plunge protection thing real at the Treasury? It is. It’s not inside the Fed. It involves more than the Fed and Treasury. It’s like you need a Lehman Brothers. That’s because they already had the Doomsday plan ready to go.
These are my personal notes from a talk I attended from the Investment Institute: Investing Notes: Brady Dougan 9/24/2020. I decided to attend this one because SPACs (Special Purpose Acquisition Companies) are all the rage right now and VERY INTERESTING as a vehicle for cash preservation (with some upside), and also for fundraising (as a company who's ready to scale and interested in doing an IPO (Initial Public Offering - when a company goes from being private to public), with a lot more support). SPACs remind me of the ICO (Initial Coin Offering) world, from which I got my first taste of this. They are sometimes called "Blank Check Companies". Some people will criticize and ridicule it. I am a believer and think this is a trend that'll be sticking around.
Hope these notes are helpful to someone out there. Feedback always welcome.
Here are the bios of the folks that were in the presentation:
Brady Dougan (Interviewee)
Brady Dougan is an American banker and CEO of Exos. From 2007 to 2015, he was the Chief Executive Officer of Credit Suisse. Before this, Dougan was CEO of Investment Banking and acting CEO of Credit Suisse Americas. After starting his career in the derivatives group at Bankers Trust, Dougan was hired by Allen Wheat to join Credit Suisse Financial Products in 1990. In 1996 he was named Head of the Equities division, a position he held for five years before being appointed Global Head of the Securities division in 2001. From 2002 to July 2004, he was Co-President, Institutional Services at Credit Suisse First Boston, and from 2004 until the merger with Credit Suisse in May 2005, he was Chief Executive Officer of Credit Suisse First Boston. Dougan received a BA in Economics in 1981 from the University of Chicago and an MBA in Finance in 1982 from the University of Chicago Booth School of Business.
Ted Seides (Interviewer)
Ted Seides, CFA is the Founder of Capital Allocators LLC, which he created in 2016 to explore best practices in the asset management industry from the perspective of asset owners, asset managers, and other relevant players. He hosts the Capital Allocators podcast and serves as an advisor to allocators and asset managers. Previously, Ted was a founder and served as President and Co-Chief Investment Officer of Protégé Partners, LLC, where he spent 14 years at a leading multi-billion-dollar alternative investment firm that invested in and seeded hedge funds. Ted began his career in 1992 under the tutelage of David Swensen at the Yale University Investments Office. During his five years at Yale, Ted focused on external public equity managers and internal fixed income portfolio management. Following business school, he spent two years investing directly at two of Yale’s managers.
Investing Notes: Brady Dougan 9/24/2020 Interview
Brady Dougan Talk notes:
What is the functionality of financial institutions? What are the aspects of a bank that you took to Exos? Answer: The basic function is to intermediate the financial flows, and to do so in a productive way. This can be done a lot more efficiently through modern technology:
SPAC investing opportunity. How to approach framework for investment fund in SPACs.
Then he talks about a special fund that Exos and Morgan Creek are doing together. It's called the "SPAC Plus Fund":
What about crypto/stablecoins/etc?
How do you allocate your time across all these different things?
What’s the biggest unexpected challenge of being a CEO of Exos versus Credit Suisse?
Here are some recent "Investing Notes" from two talks I attended this past week by Mark Yusko. I'm a very big fan of Mark Yusko. We personally had a chance to meet him at a Morgan Creek investor luncheon in early 2019 (I think I was pregnant with our second baby when we first met him). He is the first person I've ever met that has managed or manages more than a BILLION dollars. Mind blowing the number of zeros. And, Mark was the first interview we did on our podcast. I can remember being so nervous. He turned out to be a really nice person, with some really good words of wisdom. One of my favorite words he said that I say quite frequently, is "health is wealth".
You'll see that Mark's general tone is that of a bear... he's bearish for sure.
Link to the original Mark Yusko podcast interview (episode 22), if anyone wants to check him out. We spent a lot of the time trying to learn about who he is as a person, how he thinks, how his mind is wired, and his character - not just him as an investor. We have the interview on over 12 different audio platforms, including:
Also, Mark Yusko's bio here, if you want to know more about him.
Investing Notes on Mark Yusko Talk from 9/24/2020
From the weekly Webinar from Hedge fund investor and CIO (Chief Investment Officer), Mark Yusko (also of Morgan Creek) notes.
Mark Yusko went on a road trip across the company. NC, NV, KY, AR, OK, NM, AZ, CA, AZ, NM, TX, LA, MS, AL, GA, SC, and NC. Not as many signs out on lawns showing support for Trump. Economy is hurting. Global tourism will contract 75-80% in 2020.
Trends seen from being on the road:
We’re in a recession - even with the market bounces, we’re in a global financial crisis. We have lost 62million jobs over the last 26 weeks (this doesn’t count federal #’s). This is worse than the peak of the Global Financial Crisis (2008-2010). This is bad. Small business are the most effected by the global lockdown.
Central bankers have hit “control P” - and they are printing money. The Fed is committed to low rates for many more years. Interest rates are ugly. 10 year treasury is going down. Oil prices are suffering, the demand is just NOT there. South Korea loves QE (Qualitative Easing) but it is fading. Another market trend that's going on: Everyone wants to be a day trader - and everyone is buying the same stocks. If you become the largest top market cap leader…. If you buy the top stocks, you may not make money. EBITDA is flat and starting to roll over. Debt is supporting everything. The DEBT is skyrocketing in order to maintain the illusion of growth. In the last 3 weeks, they are all down, and we’re just getting started. Risk happens fast. These stocks are really overvalued. Don’t just own what everyone else is owning.
Focus on healthy cash flow. Ecommerce is a global phenomenon. Cloud/software is eating the world. S&P is up 10% over the past 2 years. NASDAQ up 35%. FANG is up 40% (FB, Amazon, NFLX, Googl). Gold Miners is up 115%. C Limited is up 950% (Asia). TWLO (is up 180%) over the past 2 years. JD.com (China) up 120%. You’d be a lot better if you did the other stocks over the last 2 years.
August 26 was all-new all-time highs. So be prepared: NASDAQ stocks could fall, and fall very fast. The trade is very crowded…. People are paying too much. NASDAQ is declining. Banks are falling even harder in the past week. This might mean that people are liquidating, another de-leveraging. EVERYTHING will go down. People will be forced to sell what they have to sell. This will be an across-the-board WIPEOUT as we get into October.
What kind of rational investor pays 10x revenues? A lot of them are doing that now in the market. $SNOW (Snowflake) is just the top of the bubble. "TechWreck 2.0 is coming." 227 times sales is what people paid and are paying. NOT 227 times EARNINGs. This is 227 times SALES. $SNOW falling. And it’s just getting started. Now it’s at 127 times sales.
ZOOM ($ZM) was at 95 times sales. ZM went up … Zoom is a great company, but you can’t do this kind of math as a rational investor.
TSLA is down 25% this month. AND it’s up 3.5x year to date.
NKLA is likely a fraud.
Everyone should be worried.
S&P is a money supply story - more money supply means more higher S&P. It is not going to keep up. This will be a repeat of 1930/1931,
Pay attention to money illusion. You might think that the value of your stock is up. It looks like it if you look at it in terms of nominal value. What's the REAL value? Look at them in terms of GOLD. Then you’re DOWN 44% when you look at the value.
2020 is supposed to be a panic year. Volatility crashed…. Take note, VXX (helps hedge against stock market volatility). VXX Risk/Reward is rising again. VXX has also outperformed equities - if you bought VXX early in 2020, then you’d be up 80%.
The Fed has collapsed and is reversing as people freak out. We’re having a liquidation again. People are scared and are buying “safe havens”.
Oil markets are worried. Everyone should be nervous about these energy/oil stocks. There’s too much supply. Short tech. Long oil might be a good strategy for right now. Maybe wait. Maybe buy it back after it hits the bottom.
MLPs (I don't know what this acronym is yet - trying to figure it out) is looking good, and someone is selling. We don’t know who. It’s someone BIG. Don’t fight it. Emerging Markets are selling. Is it pension funds? Is it sovereign wealth funds? TBD. Maybe there’s forced selling going on? Someone or something big is liquidating right now.
GLD and Bonds are outperforming Stocks. Gold Miners have been doing well. Gold is still very undervalued. GLD was overbought in August. THere’s been an abnormal liquidation in GLD. SIL is doing worse.
Paper currencies are getting destroyed around the world. Bitcoin is in the initial adoption phase. Still on track to be $100,000 value per Bitcoin. (Stock to Flow model). Over the long term, Bitcoin is likely to be one of the best on the planet, better than gold.
Bitcoin is the best major performing asset in 2020. Bitcoin is outperforming everything. Diversify.
Question from the audience: Are there any good public crypto mining companies? Biggest miners don’t need capital. They make a lot of money. Recommend staying away from. Better way to play is to own the CHIP manufacturers. Those prices are ahead of themselves. AMD has been a great play over the past couple years. Prices are a bit high. Better play than direct buy of mining public companies.
Question from the audience: Where should you hold cash? Cash is pretty attractive. Money market cash. Mutual fund cash. A small amount in the cash in the bank. Usually he would like GLD. But today he likes Cash. We are in a strange period. Buffet has the highest amount of cash in history. Soros has a lot of cash. Lot of really smart people in Cash right now. Probably a good place for it.
Question from the audience: Would you put cash in a SPAC fund (Morgan Creek). It’s a perfect fixed income substitute. An inverse relation to interest rate. Bonds (if interest rates rise), then you wipe out yield. Spac + fund, then you get a 10% bump from warrant. Then you get a bump post deal announcement. That’s a good question. As a cash substitute, if you don’t need the cash for 4-6 months, SPAC + is going to compound at 9-10-11%? You’ll make a good 4-5% over that time. SPACs are a great instrument.
Investing Notes on Mark Yusko Talk Interview 9/25/2020
He went across the country to see first hand what’s going on for real on "Main Street". Traveling allows you to separate reality from narrative. There’s no recovery on Main Street. 1 out of every 3 businesses boarded up in New Mexico. This focus and narrative on the stock market on highs is not good. It’s called “money allusion”. That’s because people denominate them in US dollars. Dominate them in gold, they’re down 40+%. Dominate them in Bitcoin, they’re down 80+%?
The only way out is to devalue the currency - and the rich will feel richer on paper. There will be uprisings. The divide is bigger. Mostly RED states. They used to be really RED with every yard with a Trump sign. It’ll be a very interesting election. It’ll be unexpected for people. It’s the mission of the Fed to create income and wealth inequality. It’s to make the bankers really rich. It is built to steal from the poor and middle class, and give to the top.
Bitcoin is the best performing asset of the decade, of the year. Everyone is devaluing their currency, globally. We have the illusion of prosperity. The reality is not the case.
On FAAANG - From the bottom of the crisis. $FANG has outperformed FAAANG. The new FAAANG, are up twice as much as the market. Gold miners - is there a lot of risk? These companies mint money. They are making more money in Q2 than ever in their history. Their output, gold silver is going up. Their inputs are going down (oil, gas, electricity…). Snowflake is losing money $350m on revenues of $250m and is significantly overvalued.
The Fed has kept liquidity ample. Putting off the pain. When you put off going to the dentist, that root canal is bad. This obsession of not letting failure happen and participation trophy is bad. 40% of companies cannot serve and cover their debt service with their EBITDA. Let the fail. Don’t save them. UBI is dumb - communism with a label is bad.
Leverage in the household is high. Every household up to their eyeballs in debt. Government and corporation up to their eyeballs in debt. Ray Dalio. You want an orderly de-leveraging. They don’t usually happen that way. 2002 is the better comparison - Worldcom/Enron. Nikola might be a fraud…. If there are more frauds, then it’ll get ugly more quickly.
Mark likes Gold/Gold Miners for deflation. McDonald’s is real. Deflation in real estate. Urban center real estate is in trouble. People believe inflation is a monetary phenomenon. It’s a demographic phenomenon. 25-35 year olds are not as productive = deflation, 65-85 year old are not as productive. Every baby bust company is Ono the far end of this greying. Huge deflationary. Killer deflationary. Debt is deflationary. Lacy Hunt. Demographics + Debt = Deflation.
Every interest rate in the world will be negative. Negative interest rates everywhere, within 5 years. Wouldn’t that cause huge problems? We’re at .65% on the 10 year. A year ago we were at 2%. If 40% of companies can’t pay interest with sub 1% rates? They can’t pay with higher rates.
The echo boom (kids of the baby boomers) turning 45 will get more productivity. 10-15 years out still.
The problem is because of Fear and because of lack of understanding, the whole federal government lives in the bubble nationalistic inward world. They’re fighting a fight that they cannot win. Technology - the internet of everything. Internet 1996, Mobile 2010. Internet of Value (blockchain) - 2010 the US chose social media as our technology. And, China choose AI (Artificial Intelligence) and 5G. 5G is key which allows connectivity everywhere. As a result, we’ll end up with 2 internets: 1) Chinese centric will be all over Asia, where there are billions of people. 2) America, South America, Europe will be another. Their’s will be bigger and faster. Rather than collaborate, imagine if China said, "Apple can’t sell in China." We’re fighting the wrong war - it’s not about “Made in China”. With "Made in China", the USA 20 years ago, 10 years ago we outsourced our jobs and pollution to China. We got all the cheap stuff. We "felt" richer because we could buy more with less. It’s not about “Made in China” anymore. We, the USA, are now a consumer force. That will not win. We need to focus on making stuff to SELL TO OTHERS (ESPECIALLY CHINA), Not BUY from them.
Hope these notes are helpful. Let me know if any feedback or questions. I'll keep doing them if it seems to be helping.
Attended a webinar (monthly) called HedgeD from Morgan Creek Capital today and took some investing notes that I want to share with my "Women Who Invest" Facebook group. Didn't see a good way to share it inside of Facebook - so putting my notes here for all to see. Sharing is caring, right? Here are my notes (along with my commentary).
So the market's going all crazy right now - new all time highs, everyone is a day trader, and looking a little more closely at these stock prices, the market caps are 20x, 28x, way higher than even revenues. Just so crazy expensive - and yet, when I look at these stock trading groups, people are pumping their hard earned dollars into these over priced assets. I worry.
October 2018-Present. The S&P is up 10%, which is about 5% a year (not really great). In reality, the money is actually down 40% (people just don't realize this yet.) During that same period, GLD is up 60%. Aren't we supposed to "buy cheap, sell high". People are buying high these days.... and they'll be forced to sell low. Again, in that same time period, Gold Corp is up 155%, Newman Gold is up 110%, Amazon up 55%, C Limited (Asia) is up 900%, Twilio is up 180%, and JD.com (Chinese) is up 120%.
So passive funds (index funds) are going crazy too. Everyone is putting money in, and by everyone, it's the regular people (who are not your trained professional investors). Index funds do well when the money supply is high (like right now). So more money = higher prices. Eventually, the money supply will slow down and this will go negative, fast. And so if you take a step back, and look at the S&P for example over the last 20 years, compound return is only 5%. That's TERRIBLE.
Stocks are even worse. People are buying things at stupid prices. Snowflake is the poster child for this craziness (it's at 227 times earnings or revenue.) --- WAY TOO EXPENSIVE. Zoom is at 100x revenue. And on top of it, everyone is being the same thing (the FAB4) - Apple, Microsoft, Amazon, Alphabet, Facebook.... the Valuations are too high. It's not sustainable.
Remarks on Wall Street versus Main Street. Wall Street are the professional investors. Main Street are the speculators and newly-minted "day traders". All of this money is going into stocks - and what people need to do is take a step back and realize, there's no market recovery happening. COVID19 is exacerbating inequality everywhere. Only 41% of Americans had ANY savings at all before COVID (so there are a LOT of people hurting right now.). This year alone, we're going to see over 46% of Americans become food insecure. 30% of kids that are supposed to be remote learning don't have a laptop or internet. Those that have will do even better, and those that do not have will do even worse. He said it'll be a k-shaped recovery.
The American economy is driven by consumer spending. Again, no market recovery coming. Consumer spending (even with perceived increases this summer) is still down 30% from April. High income earners are spending as a percentage 50% LESS than low income earners. Let that sink in. That means less high income earners traveling, eating out, going to bars, shopping - that hurts small businesses, restaurants, who hire even more of the low income earners. So, if Consumer Spending = GDP = S&P..... then the S&P will be in BIG trouble very shortly.
So why are the stock prices even higher? And a significant amount of the stock is going up for non earning companies. This is not sustainable. 47% of the Russell 2000 are NONearners. 15-20% of US companies are NOT profitable, they have more debt than profit (called "zombie companies" or "Stocks"). The Stock market is a raging mania and being driven by "retail investor" or more precisely, speculators. For instance, there were 3,000,000 NEW first time investors on Robinhood. And over 20% of all stock trading is coming from retail. On the otherwise, stock buybacks are not happening as much any more. Companies are not buying stocks. Bankruptcies and bad debt is soaring. And it's starting to trend that Biden will likely be the winner of the election, which means, HIGHER TAXES. Equity market is falling down.
There are still good companies out there. Look for EBITA margins greater than 50%. Look for companies that are in the digitization, consumerization off financial products, payments, etc.... you can access them through relationships (private equity side).
Then they went into their sales schpeel on hedge funds. Average hedge funds are up 3.9%, and the best are up 30%, while the average stock has had almost NO return over the past 3 years. Choose wisely.
Hope these investing notes from the webinar help give at least a perspective and is informational.
P.S. Let me know if any questions or if you want to connect. I'm happy to connect you with these folks as well. Sharing is caring! Also check out the podcast, HedgeD -- their first interview is really good with John Burbank.