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.

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

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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?

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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

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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

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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.