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”

 Link:

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

 Link:

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

 Link:

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

Link:

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

 Link:

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.

Meb Faber: Jeremy Grantham, “What Day Is The Highest Level Of Optimism? It’s The Day The Market Hits The Peak”

Link:

In today’s episode, Jeremy begins by talking about the current market, which he believes will be recorded as one of the great bubbles of financial history. He puts this bubble into historical perspective by comparing it to the Japanese, technology and housing bubbles. Then he addresses the commonly cited argument that low interest rates justify high stock valuations. Next, Jeremy explains why he is so bullish on venture capital and has allocated almost 60% of his foundation to the asset class, making it, as he says, one of the most aggressive portfolios in the philanthropic world.

John Polomny: It Is The End Of The Oil Age As We Know It, And I Feel Fine

A bit of a riff on REM's song title "It Is The End Of The World As We Know It."

Lot's of talk in the media recently about the end of fossil fuels and energy transitions. How realistic is this? How long will it take? Wht are oil prices rising and will they continue?

We get into this week. Ninepoint Partners Report https://www.ninepoint.com/commentary/...​ Goehring & Rozencwajg http://gorozen.com/research/commentaries

Open Insights: US Vaccination Progress, Better Than Many Think?

Link:

43M vaccine doses administered.  That figure is stunning.  It’s stunning because of the rapidity of it.  We thought it could be high, but did we expect it?  No.  To be honest, the roll-out of the vaccines have been problematic, largely because of manufacturing constraints, logistical challenges and bureaucratic ineptitude.  Still 43M. These are vaccinations mind you, they aren’t “vials delivered” which is another 20M more (62.9M) per the CDC.  These are real vaccinations to the highest risk groups.  What’s this mean?  Well we believe we’ve already vaccinated about 20% of the target US population group and almost 40% of the highest risk group.

The Speculative Investor: Rampant Speculation

 Link:

We assume that everyone reading this has at least superficial knowledge of the incredible goings-on around the stock of GameStop (GME), a video game retailer. The GME situation became so extraordinary last week that it drew the attention of senior US policymakers, but more importantly it is representative of what’s happening throughout the stock market and is symptomatic of the US money supply’s Fed-driven explosive growth.

The underlying cause of the crazy price action is the explosive money-supply growth engineered by the Fed. This record-breaking expansion of the money supply hasn’t led to rapid rises in official measures of “price inflation” YET, but its effects are plain to see. One of the most obvious effects at the moment is the rampant speculation in parts of the stock and commodity markets.

The participants in each bubble believe that there are some fundamental considerations that make their bubble special, meaning that their bubble is believed to be not actually a bubble but a reasonable assessment of future prospects. For example, Tesla bulls believe that Tesla’s market cap makes sense considering the company’s future earnings potential, bitcoin bulls believe that bitcoin’s price rise is justifiable and is nothing compared to what’s coming, and many retail equity traders now believe that the stock market offers them a sure-fire way to make a lot of money very quickly without the need to do any real work.

Howard Marks: The Most Important Thing

 Link:

You can argue that not every stock goes up long term, in which case, you’d be right. There are plenty that stagnate, while others fall apart completely.

And how can you tell which is which, especially given the second quote: “No rule always works, the environment isn’t controllable, and circumstances rarely repeat exactly?”

To that very good question, I would make three recommendations:

Know your pain vs. pleasure tolerances.

Allocate your portfolio appropriately.

Know each company’s actual value before you buy into it.

As Marks says, “Investing requires just one thing: dealing with the future.” And the future is undoubtedly going to be filled with emotions, failures, and corrections.

John Polomny: Even The Smartest Man Ever Could Not Keep From Getting FOMO. Weekly Market Update 2-6-21

 

Sir Issac Newton, who many say was the smartest human ever, got caught up in the FOMO of the South Seas Bubble. He made some money at the start and got out. But seeing his friends get rich caused his FOMO to soar. He got in big at the top and lost most of his money. 

History repeats with the FOMO and greed that we have seen in this bubble market. 

I also discuss the 68% gain in Athabasca Oil Sands since I mentioned it in my past video from last week.

Jeremy Grantham: Why Grantham Says the Next Crash Will Rival 1929, 2000

 Jeremy Grantham, co-founder and chief investment strategist of Boston’s GMO, believes U.S. stocks have become an epic bubble and will burst in a collapse rivaling the crashes of 1929 and 2000. In this interview, he explains why, discusses the futility of Federal Reserve policy, criticizes the state of American capitalism, and shares his thoughts on gold, Bitcoin, emerging markets and climate change. He spoke exclusively to Erik Schatzker on Bloomberg’s “Front Row.”

Stan Druckenmiller: The Wildest Cocktail I Have Ever Seen

In this episode of Talks at GS, investor Stanley Druckenmiller discusses his current outlook on the market, his approach to risk management throughout his career, and his perspective on the conversation surrounding the role of capitalism in American society.

Frank Holmes: Energy and Natural Resources Market

 Link:

The best performing commodity for the week was natural gas, up 12.09%. U.S. natural gas futures extended gains through the week, amid colder weather forecasts across the country for February. The spread between March and April natural gas futures -- known as the widowmaker -- flipped to positive on Monday for the first time since January, writes Bloomberg.

Brent crude continues to make a comeback, trading near $60 a barrel, which was a low as $35 three months ago. OPEC+ said it will continue to quickly clear the oil surplus created by the pandemic and is currently withholding 7 million barrels a day of output, or around 7% of global supplies. China’s biggest offshore oil and gas producer said it will boost spending by 19% this year ahead of an expected production surge, in contrast to other global producers cutting spending.

Credit Suisse upgraded the U.S. steel sector to overweight, predicting prices could remain above the historical average of $600 a ton through the year. Bloomberg notes the firm turned bullish on Nucor, Steel Dynamics and Stelco.

Jesse Felder: The ‘Index Of The Volume Of Speculation’ Blows Off

Link:

There are all sorts of signals pointing to rampant speculation in the stock market today. And if we are to measure it by way of margin debt (normalized by the size of the economy), then what we are witnessing is, in fact, a level of speculation that dwarfs anything seen in modern times.

Not only is the overall level of margin debt hitting new highs, the 9-month increase in the total amount of margin debt also just soared to a new record. It’s hard to believe that both of these could be possible simultaneously, that off of such a massive base the amount of debt used to speculate could increase so rapidly, but there you have it.

Harris Kupperman: Talking KEDM On Real Vision

 Link:

During one of the craziest weeks I can remember in the markets, I chatted with Max Wiethe from Real Vision about what is going on. We covered a lot of ground, including an overview of why this is a golden era for Event-Driven trading and how KEDM can help you capitalize on all of the opportunity. We also go through a few historic examples so you can get a better sense of how to use KEDM. (For those of you who don’t know what I’m talking about, click here for my introduction to KEDM.Com)

By special request, my friends at Real Vision have let me distribute the interview for those who aren’t yet paid up Real Vision subscribers (Seriously?? Who wouldn’t already be a subscriber?? It’s well worth the cost).