John Polomny: How Stupid Are Things Getting In The Everything Bubble? Pretty Freaking Stupid.

Businessweek says on its cover that sneakers are a "new asset class". Valuations for most assets are through the roof. People with no idea how markets work and no knowledge of valuing companies or understanding what they are buying are making money hand over fist. Is this normal or is it a result of too much money being created by central banks that is enabling rampant specualtion.

Meb Faber: Episode #290: Bill Smead, Smead Capital Management, “There’s Less Respect For Stock Picking Experts Right At This Moment Than There Has Been Since The Peak Of The Dot-Com Bubble”

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In today’s episode, Bill explains why he believes the market is undergoing a tide change. He starts with a look back on the 2000 tech bubble and uses Cisco as an example of why it’s important to separate a good business from a good stock. After talking about parts of the market he doesn’t like, we move on to the parts he finds attractive, including home-builders, energy, suburban mall REITs, and financials. As we wind down, Bill touches on the antitrust case for big tech and what the investment implications may be.

Crescat Capital: The FED Is Trapped

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The year is just getting started and the US fiscal deficit already reached another record, now at its worst level in 70 years. The Fed is facing its worst predicament yet. The current fiscal spending path will lead to record Treasury issuance this year. Foreign investors are unlikely to be the ones funding this operation. With 2020 as a guide, there are no buyers of any size for those securities outside of US banks and the Fed. Major foreign holders of US debt only bought about 5.2% of all Treasuries issued last year. In the face of this enormous new government debt issuance, the Fed faces the impossible task of continuing to prop up already historic asset bubbles while also preventing inflation. The current extreme fiscal imbalances put the central bank on a crash course to fail at both.

For many reasons, the path of least resistance at this stage in the economic cycle is indeed the inflationary one. After years of underinvestment in the basic resources of the “old economy”, the world is facing commodity supply shortages. When combined with the fiscal stimulus driven boost in demand, hard assets are already starting to catch fire. A commodity boom is contributing to reflexive macro inflationary pressures, including investment demand for inflation protection, as well as rising industrial demand in a fiscal stimulus driven economy attempting to both recover from Covid and transition to a cleaner, greener economy. Rising inflation starts with rising basic materials, energy, and agriculture prices. The recent 12-year breakout in commodities is rock solid.

Smead Capital Management: Beating Bobbie Fischer

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During the 1998 Berkshire Hathaway meeting, Warren Buffett and Charlie Munger were asked a question about the return-on-equity of American banks. They commented on the topic in a typical Berkshire-like fashion. They then got off on a tangent that provided a truth of biblical proportion.

So it’s not at all clear that if all American management were dramatically better, leaving out the competition against foreign enterprises, that returns on equity would be a lot better. They might very well drive things down. That’s what, to some extent, can easily happen in securities markets. It’s way better to be in securities markets if you have a 100 IQ and everybody else operating has an 80, than if you have 140 and all the rest of them also have 140.

So the secret of life is weak competition, you know. (Laughter)

Somebody said, “How do you beat Bobby Fischer?” You play him in any game except chess.

John Polomny: Baby It's Cold Outside. AIA Weekly 2-20-21

 

I discuss the recent cold snap in Texas and the reasons why generating plants were not able to deal with the abnormal cold weather the state experienced.

Copper above $4 a pound and French oil giant says we need massive investment in oil to stave off a supply crunch in a few years.

Jesse Felder: One For The Ages Part Tres

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Last year I started a series of posts titled, “One For The Ages,” (here are Part One and Part Deux) intended to chronicle what I see as a frenzy in speculative activity in the markets that typically comes around only once in a generation (although it seems my generation has had more than its fair share). This is the third in the series.

J.P. Morgan famously said, “Nothing so undermines your financial judgement as the sight of your neighbor getting rich.” And only in the age of social media could we ever have as many neighbors getting so fabulously rich all at the same time as we do today.

Smead Capital Management: Vexing Today’s Convex Pricing Behavior

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After getting into our offices around 8:30am Eastern on Monday morning, I was lucky enough to catch an interview with famed short seller Carson Block of Muddy Waters. As expected, CNBC anchor Andrew Ross Sorkin asked about GameStop and short sellers. Block provided his answer, but then went on to say:

…But the bigger issue really is that when you get down to what actually causes this. I’m going to throw something out there that I suspect a vast majority of your listeners have not heard, but a lot of this disfunction is being driven by the prevalence of passive investing. I want to say one thing before questions come my way. Yes, I knew about the robo-bid and I knew that fundamentals are irrelevant to the robo-bid or passive investors. What I didn’t appreciate is that as passive grows in a float that It actually creates convex pricing behavior. It basically becomes the driver of growth and it is in my mind, based on my understanding now, it’s the single biggest explanation for why growth as a style has massively outperformed value. Again, it’s not tied to fundamentals. It’s tied to supply and demand.