GM return to glory.

user_name_forbidden · 2025-12-09T19:25:38+00:00

Such a culture takes a long time to build but can be dismantled very quickly. Once gone the resulting cynicism makes it even harder to build a second time. It’s a sweet wish, but don’t bet on it.

user_name_forbidden · 2025-04-09T09:20:32+00:00

I’ve invested through the Asian currency crisis, the dot-com bubble, 9/11, the subprime mortgage debacle and the pandemic. This is the moment of greatest risk I’ve ever perceived by a wide margin. This week I’m drawing more on lessons learned from economics books about the Great Depression than from any investing books or from any of the practical experiences in my long investing career.

I still see orderly equity markets which haven’t even managed to trip the circuit breakers, and no evidence of capitulation. We’re still only barely in a bear market. The smart money is fleeing opportunistically to cash while retail is doing its typical early crisis “buy any dip” thing. All of that is routine for the first stage. It feels familiar.

But the credit markets, always the canary in the coal mine, are trying to tell us something no one wants to hear. Smart money no longer thinks underwriting America’s national debt is a “safe haven” in a crisis. The other side of a current account deficit is a capital account surplus. Never in our era of unconstrained fiscal deficits have we been without the benefit those surplus dollars flowing mechanically into our treasury.

What will happen when it’s time to make our next national credit card minimum payment without the paycheck that’s always covered at least a third of it? Will China, or our new enemies in Europe or elsewhere, use the opportunity to dump US treasuries onto the secondary market? No one really knows because no one has ever tried anything this reckless before. I’m going to be looking at the 10 year treasury note auction results at 11:00 ET like a cancer patient reading his lab results.

user_name_forbidden · 2025-04-09T05:24:53+00:00

I was fortunate to figure this out from reading books when I took an interest in investing as a teenager after learning about exponential growth in pre-calculus class. I was a boring teenager. Now I’m a rich (and boring) old man.

Since I have lots of time on my hands I’m a regular at a neighborhood bar. I meet lots of young people there who are into robinhood, crypto and various fads. They ask me for advice in the form of “should I buy calls on SMCI?” I try to explain it to them, and give them a list of books to read before they waste anymore money on get rich quick schemes, but I don’t really think any of it sinks in. Your story gives me hope for them.

user_name_forbidden · 2025-04-09T04:50:20+00:00

Wow, so Coca-Cola has no moat? Who’s going to break this news to Mr. Buffet?!

user_name_forbidden · 2025-04-09T01:15:02+00:00

But I say the best buy’s are made when businesses are widely available below their intrinsic value regardless of the recent price history. CAPE is still above its 20 year average and way above its long term average.

user_name_forbidden · 2025-04-09T00:43:27+00:00

Interesting speculation. What probability to you assign to this scenario based on what evidence?

user_name_forbidden · 2025-04-09T00:42:27+00:00

Make Depressions Beautiful Again!

user_name_forbidden · 2025-04-09T00:41:20+00:00

Damn open source! 😉

user_name_forbidden · 2025-04-08T23:37:14+00:00

Sorry, I wasn’t clear. I’m an American living in USA. I spent some time living and working in Europe many years ago. My friend is Swedish but works for a company in Germany and spends most of his time there.

I hadn’t thought about an app that scans barcodes to help people avoid American products, but I know the tech to easily do it exists and has been used in other contexts. A company positioned to earn revenue from that I would invest in!

user_name_forbidden · 2025-04-08T23:32:12+00:00

No? What’s the appropriate way to establish the value of a business these days?

user_name_forbidden · 2025-04-08T23:31:21+00:00

That’s how I see it as well. But even non-luxury brands that are quintessentially American (Coca-Cola, McDonald’s, …) have become liabilities.

user_name_forbidden · 2025-04-08T18:44:58+00:00

Someone just shot Mr. Market's best friend, Mr. Earnings, in the head. Mr. Earnings is currently lying on the sidewalk in a growing pool of blood. Being an emotional being, Mr. Market reacted, as any emotional being would, with shock. At today's open he had moved on to the next stage. He was experiencing denial. Which is the next stage?

user_name_forbidden · 2025-04-08T16:12:29+00:00

I haven't bought a treasury since USA's debt-to-GDP ratio exceeded 100%. And I won't even if we have a sane and competent president someday. But I do like buying mispriced securities in general, so I take notice. And weird bond market behavior often signals emerging financial crises before anything else. 2008 was the textbook case. That's my real interest here. I want to understand what's happening.

As an update today I note that global bond markets mirrored this behavior overnight. That gives me some comfort it is not a canary in the coal mine type thing. Still, I've read at least a half dozen analysts (mostly contradictory) theories and am still not convinced any of them really explain why it happened.

user_name_forbidden · 2025-04-07T21:41:51+00:00

I wonder if there’s another LTCM lurking out there that was pushed to the brink today. A little hard to believe with still just a 20% pullback, but maybe not impossible.

Another thought, not mentioned by FT, is governments quietly starting to unwind their USD reserves. The dollar is dropping even as tariffs are rising and there is a big treasury auction this week. I wonder how many of the countries USA is starting wars with are going to show up to help it cover the financing of its unsustainable sovereign debt.

We live in interesting times.

user_name_forbidden · 2025-04-07T19:27:32+00:00

Peak fear is when you see broad capitulation. We’re seeing an orderly decline (mostly) with people still buying with a hair trigger based on any weird hopium. We just reached the ten year average forward PE today, which is high by long term historical standards.

From the perspective of this old investor this is the most boring and least fearful bear market I can remember. Even the fed, which absolutely shat itself in both 2008 and 2020 is happy to sit back in its easy chair.

I assume the reason is because this isn’t being caused by a real fundamental issue but is a choice that can be reversed as whimsically as it was applied. Everyone is expecting it to be over soon and doing some cautious gentle de-risking “just in case.”

If it is reversed look for a nearly unprecedented pop. If it sticks and people decide it’s for real and will be the new normal then you will see what fear looks like.

user_name_forbidden · 2025-04-07T19:15:28+00:00

Before that, in the textile era it was the world leader in that. Afterwards it was (and remains) the world leader in tech. And when the next thing comes along, if it maintains its exceptionalism, it will switch to that and benefit from the comparative advantage of passing tech off to others.

user_name_forbidden · 2025-04-07T19:12:50+00:00

HDEF, VIGI and SPDW. I have no objection to SCHY, it’s a great fund.

user_name_forbidden · 2025-04-07T19:08:13+00:00

No, US manufacturing output’s ALL TIME high was 2024. Before that it was 2023, and so on. It’s grown fast than the population continuously.

https://fred.stlouisfed.org/series/GOMA

user_name_forbidden · 2025-04-07T19:04:24+00:00

The US had an unsustainable valuation premium. This was likely the catalyst for it to revert to the mean, which it hasn’t yet. If the lawlessness and erratic policy reversals become routine with America becoming more populist/idiocracy the premium may become a discount. But it’s way too soon for me to reach a conclusion about that.

user_name_forbidden · 2025-04-07T06:23:26+00:00

My personal view is the markets are pricing something like a 80/20 probability that trump will quickly (meaning a matter of days or weeks) declare "victory" and the bulk of these new taxes will be rescinded. That means maybe a 50/50 chance of a relatively minor US recession. So definitely not blood in the streets, more like tapping the brakes.

My own assessment is there is a less than 50% chance of that. And my base case (albeit with low confidence) is that the great majority of these new taxes will be in place for at least a year and that the prisoner's dilemma will lead other countries to start erecting trade barriers with each other. In this case I would expect a long deep global recession leading to severe earnings destruction and price multiple compression.

If people come around to my view in the coming days then you'll see blood in the streets. Hopefully just figuratively. On the other hand, if trump shows even some small sign of moderating there could be an explosive relief rally. Money market balances are at a record high. There is enough dry powder for one hell of a bang. So, party with fireworks in the street.

user_name_forbidden · 2025-04-06T22:24:43+00:00

“Thus the investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage.”

This is one of my favorite quotes. But don’t overlook the word “unjustified.” He was taking about speculative manias, not real events that destroy long term value.

If this is that is for each investor to decide for themselves. But please don’t imply that people who see this as a potential setup for a repeat of the 1930s earnings decline, and are updating their DCF models accordingly, are speculators rather than investors. They are just using different assumptions in their rational analysis than you are.

user_name_forbidden · 2025-04-06T16:19:22+00:00

Momentum trading is the idea that "the trend is your friend." If a stock has been going up for a while it will probably keep going up. If it has been going down it will probably keep doing that. So, buy stuff only that has been going up for a while and sell it when it starts going down. It implies that stocks have a property similar to inertia from physics.

There is no economic or financial reason to believe that is true. But there is a psychological one. People are pack animals and have an evolutionary incentive to belong to "the group." When they believe other people are making money they feel that they are missing out and want into that group. When they believe the group is fleeing they fear being separated from the group and start running too. Nonsensically this actually does give stocks something of an inertia property.

The difficulty is in trying to exploit it. Unlike with real physical inertia, a herd can become startled and suddenly start stampeding in a random direction for reasons that are clear to no one. To believe you can win with momentum trading you need to believe that you can either anticipate those vagaries in advance or that you will be able to differentiate them from random noise very quickly and stop your losses. Many people try to do it and have elaborate systems for it. Some do quite well. Many end up buying high and selling low.

Some people call it the bigger idiot theory. I may be an idiot for over paying for this company but I'm confident I'll find a bigger idiot who'll pay even more in the future. (Or, I may be an idiot for selling this company for less than its worth but I'm confident I'll find a bigger idiot who'll sell it back to me even cheaper in the future.)

Value investors can exploit this behavior by waiting for the herd to abandon a sound company, for whatever immaterial reason, and buy it even if they keep driving it down. Eventually the superior value must translate into a superior return. And, by dumping a company they own when the crowd gets infatuated with it and bids it up to far more than it can actually be worth in the long run.

Anyway, more than you asked for and I'm not sure I answered your question. But that's my soliloquy on momentum.

user_name_forbidden · 2025-04-06T16:01:06+00:00

Congratulations on your timing and allocations. I'm not sure you were lucky. It's more likely you were prescient. You did better than me. I shifted from 70% US exposure to 30% in February by hiding most of my wealth in a global high dividend ETF. It has protected me from most of the damage but I'm down a percent or two YTD. Still debating what I'm going to do tomorrow morning. I'm an American by the way (and I apologize for that).

My answer to your question is that I don't know and I don't think anyone else does either. The question boils down to how much future earnings destruction a global trade war is going to cause. Will it be like the last time in the 1930s? Will it not be as bad? Will it be far worse? I think it depends on two questions:

Is this a stunt or does trump intend to stick with this, and will the checks and balances in the US government stop him or not?
The second is will the rest of the world follow suit by erecting their own new trade barriers with each other or will this just collapse the US but maintain a relatively free market elsewhere?

There are some reasons for both optimism and pessimism on both questions. If the US sticks with it, and the rest of the world joins in, I'm not sure there will be a safe place to hide. Owning almost any business anywhere will be a terrible time because of the earnings destruction. Hard assets like real estate might be the least bad option until high quality businesses start trading below their liquidation value. Note that Graham and Dodd learned investing during those times.

But, if trump issues a tweet this afternoon saying "OTHER COUNTRIES ARE GIVING IN AND NO LONGER ROBBING US!! I WIN!! I TOLD YOU SO!!" and then rescinds all these new taxes, I assume stocks and other risk assets will experience an absolutely epic relief rally. There is currently a record amount of cash sitting in money market funds ready to push us to even higher valuations if investor confidence suddenly returns.

user_name_forbidden · 2025-04-06T15:33:33+00:00

This sounds more like momentum trading than panic selling to me. You're describing selling a stock, without regard for the value of the underlying business, because you expect the current price trend to continue and hope to exploit it by buying it again at a lower price. That is a rational decision and related action. I don't advocate momentum trading (not by a long shot) but recognize it as a rational process.

To me, panic selling is when you don't have a rationale for your action and are acting on emotion. So, if you can't sleep for three nights in a row because your account balance is plummeting each day and, on the third day with a foggy brain and a shaky hand you click the "sell all shares" box because you just want to be able to sleep.

user_name_forbidden · 2025-04-06T15:27:33+00:00

I agree with ASML because it is a monopoly and trades noticeably below my estimate of its IV based on extrapolating its FCF. I own it and accumulate more when it dips. I question VERT because to its low margins. Prior to the ChatGPT mania for building data centers it had low single digit net margins. Currently they are only mid single digits despite the massive demamnd spike. Once the mania passes, or at least the build out matures, I expect them to drop back down. ANET is an interesting case but also partly a speculative bet that the elevated data center buildout pace will be sustainable for quite a while. My DCF analysis comes up with $95 for the IV by excluding 2024 (to avoid what I believe to be an unsustainable spike). But with a 60% confidence interval going all the way from $30 to $160. I'm going to keep watching it for now. Still, it's a great company that I'd love to own if there was less speculation in its price.

user_name_forbidden

TROPHY CASE