I saw that it was the artificial needs of life that made me a slave, the real needs of life were few.
- William James Dawson, A Guide To The Good Life
It’s tough to make predictions, especially about the future
- Yogi Berra
The main thing is to keep the main thing the main thing.
- Steven Covey
A. Project Zimbabwe ?
Liquidity trumps all.
Don’t read what the newspapers tell you, or what the banks are saying, go listen to Jerome Powell himself.
For investors, the magic starts at 53:00, but the whole thing is worth a listen.
What I heard was: the FED’s focus is unemployment and inflation. They don’t care what asset markets do and whether a bubble is created. They will work to move unemployment rates down, but are humble about their actions having an impact on inflation.
Step 1: yield curve control out to 2 years.
Step 2: ?
This is coming on the back of a FED balance sheet that is now over $7 trillion.
Where does this leave investors, what investment quadrant are we in ?
I think investors fear bottom left, but I reckon we head into the top right.
You may argue that, the FED can push asset prices, but they can’t really fix unemployment, they can’t create jobs. I think that’s fair, but they don’t happen to believe that……
Which begs the question: Where does all the cash go that is being created and pumped into the economy. What impact does it have ? How big does the divide between the real and financial economy get ?
Either velocity picks up and we find that real world inflation goes up, or the liquidity goes into asset markets, as it historically has.
Even if you choose to ignore the FED and the liquidity they are pumping into the economy, I found a recent report by UBS useful in thinking about what are leading, coincident and lagging indicators.
What economic data should we be watching ?
If you believe, as I do that economic data will continue to improve, then cyclicals will be where we need to focus.
I was on a Goldman Sachs call a few days ago, when they were discussing whether Tech is a bubble. Two charts from a recent report stayed with me….
I’ll let you draw your conclusions.
B. A Few Things Worth Checking Out
1. Jeremy Grantham, the (G in GMO) was on the Invest Like The Best podcast. He is one of the investment thinkers I learned from after the 2000 tech bubble burst. His investment letters and research are an education on their own.
He spends half the time discussing commodities, which I think could outperform financial assets in the next decade.
It was interesting to hear from someone who has been doing public market investing since the 1970’s say that he has 70% of his personal portfolio in venture capital, because unlike PE or public equities, you aren’t shuffling pieces of paper between players, but actually creating something.
A thoughtful quote:
"If an individual had a policy which is to maximize my self-interest, you'd say he was a sociopath. It's a workable definition of a sociopath. Basically, we have sociopathic companies proud of that mantra."
2. Robert Sapolsky's Stanford Lectures: A series of 40 lectures from a legendary Stanford professor who wrote Behave, one of the best biology books of the past decade. I am still in the first third of then book.
3. One of the books I read in May was Bethany McLean’s Saudi America, it’s a great discussion about the relationship between the US energy industry and Saudi Arabia. She also wrote a great book about the GFC titled “All The Devils Are Here” and one about Enron titled “The Smartest Guys In The Room”.
Bethany was recently on the Knowledge Project podcast (Shane Parrish) discussing: Crafting A Narrative.
There’s this idea that the business world is hard and cold and rational, and it’s not. It’s incredibly emotional. And everybody is biased toward belief, because most people stand to make money if a stock goes up. It’s that great quote from the end of The Sun Also Rises, “Isn’t it pretty to think so?” It’s always prettier to think so then to not think so.
4. An idea I discuss with my kids is the learning journey and the importance of being both humble and persistent (below from Wait But Why).
5. If you are interested in public market investing in Asia, Fred Liu at Hayden Capital is a must follow. He was recently interviewed by valueDACH. I listened to it twice.