May 17, 2021

Is Transitory inflation ok ?

How is "transitory" inflation (high) price stability? Is the Fed violating a core tenet of its mandate? Can they make their own mandate now? 

If "transitory" inflation is OK, why isn't transitory deflation OK? Isn't transitory deflation what their "models" should have suggested with regard to COVID? Virus goes away, economy recovers. Don't need a model. Bridge the gap fine, make sure the underlying financial alchemy hangs together, but after that well why the need to react so much to a transitory theoretical deflationary situation which never even turned out to be deflationary? They may argue there is substantial risk to transitory deflation, and it could feed on itself and create a fair bit of damage. Fine, same can be said of transitory inflation as well. In fact, more economic disasters in the world have been born out of inflationary disasters as opposed to deflationary disasters. The inflationary disasters tend to seem to start with poor governance, both fiscal and monetary, that we are seeing now. 

My guess is the answer to all of this is the Fed is no longer an independent entity and has become entangled in politics. Further, the Fed has its own version of cancel culture. Follow doctrine, you are acceptable as an economist, and you become part of the group.

Disagree, well you are just an old school curmudgeon stuck in the dark ages and you don't get a seat at the table. Mix that with the aforementioned lack of independence and politicization of the Fed, and you have a dangerous condition.  


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September 17, 2020

On Snowflake, Apple and on Berkshire Hathaway


The Berkshire Hathaway thesis  I just heard on CNBC makes very little sense based upon the empirical evidence. As such, it is a silly narrative and an ill advised reason for suggesting a valuation reset. Snowflake is a minimal investment for Berkshire relative to its asset base. The promoter of the thesis suggests Warren's $AAPL (Apple) investment is further evidence that the company is no longer investing in traditional, non technology investments.

Memo to Berkshire Bull: the Apple investment was made three years ago - when some envisioned Apple as a value play (at less than 15x PE).  As to why he is not likely selling Apple now - though it is a large portion of the company's investment portfolio - probably has more to do with not wanting to pay taxes on $60 billion of unrealized gains than a desire to be invested in even greater amounts in technology. (If so, Buffett would probably have added to tech stocks in March 2020 when stocks were beaten down). He did not. 

Furthermore, Todd and Tedd have been given alot more money to manage at Berkshire in the last few years - yet there have been few individual new technology investments. Will Berkshire expand tech holdings in the future? Maybe, maybe not - but neither Apple nor Snowflake is evidence of such a future or fundamental change in Berkshire's investment strategy.


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August 20, 2020

Should monetary policies be changed ?

1. Trickle down economics has failed.

2. Monetary authorities largesse/rate supression has expanded the wealth inequality and gap.

3, The wealthy have benefited from a steady reduction in the marginal tax rate from 90% to where it is today.

4. The wealthy have benefited from carried interest, preferred real estate exchanges as well as other substantive tax loopholes that the Average Joe has not been the recipient.


April 27, 2020

A summary of my near term (three months) expectations

It has often been said that a good forecaster is not smarter than everyone else, he merely has his ignorance better organized.

Here are my expectations for the S&P Index over the next several months:

* S&P cash currently stands at 2810.

* My "fair market value" calculation is 2800 on the S&P Inde - 18x 2022 S&P EPSe of $155/share. (Don't think precision!)

* I don't expect anything near a retest of the March lows.
(In short form, my reasons are: the level of interest rate levels, a likely flattening in the curve, the size of the Fed's bazooka, generally bearish market positioning and my confidence in the scientific and health communities). 

* However, I do have growing concerns about the Administration's ability to successfully manage (and "get to work") the aforementioned fiscal bazooka ("helicopter money") as well as providing a consistent and efficacious policy towards a national "reopening" that has the potential of pushing us back into the spread of Covid-19. On the latter point, it is my strong view that our nation's response to coronavirus has been a deadly mix of arrogance and incompetence. These factors have the potential to be the next market "stories" -- pushing stocks toward the lower end of my expected range. 

* My expected three-month S&P range is 2550 (9% below intrinsic value and current S&P cash) - 2950 (5% above intrinsic value and current S&P cash).

* I believe the downside of my three-month S&P range (2550) is above consensus.

* I believe the upside of my three-month S&P range  (2950) is also above the consensus.

I offer the above for the purposes of transparency and in order for you all to better understand my positioning (and move this afternoon). I remain optimistic about the intermediate term (one year or more out!). 


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