It's the start of Q4, and Maria wants to know what I think the theme will be for earnings season. Simple, supply chains. For great firms, it's a continuation of the sustained demand and ability to pass on costs to customers. For bad firms, it's an excuse for their poor performance. My point is simple, increased demand is not a summertime problem, it's a multi-year unfolding.
The interview got cut short, which happens all the time with live TV, but you get the picture. People are concerned about inflation and that perception, that feedback loop can at times be more powerful than the underlying economics.
What does the price of opium in Afghanistan have to do with global trade? On the surface not much. But dig deeper and discover the dynamics on how Iran gets cash to keep going, how the Taliban gets oil to keep functioning, and how China conspires against them while saying they support these evil empires.
While it's all fascinating, there is not trade here. Oil supply will soon move on from the short term narrative and start to fall in line with the demand from industrial supply - remember that most foundries and factories rely on oil and natural gas for power. Increased industrial demand will provide the base demand even as alternative fuels grow.
We know what they want - my internal investment notes. What am I looking to buy or add to? What is the most beat up that I love? If I had a gun to my head and was forced to speculate or gamble - what would I look at?
The key thing to remember is that a globally diversified stock and bond portfolio is not something you trade in and out of. You plant the seed, water it, take care of it, and make small adjustments to keep it growing. On top of that, you have to add stinky stuff to the soil from time to time in order to harvest sweet smelling profits. That is my lesson for the day.
I got a call early in the morning, asking me if I wanted to be on. Of course, I checked my calendar and said yes. The open that day (July 8th) was bad. It was looking like the start of something interesting, but that faded fast. Like the last few months, we have seen a few bad days like May 12th and June 18th.
Here is my bottom line: bad days are normal. For me, unless I'm just looking to add some fresh cash (think dollar cost averaging in a long term portfolio over time) - I really need to see a few more days in a row, or a proper 10% correction. And no, it doesn't count if that lasts for 5 minutes, I want to see the close look ugly. Why? Because then you can ask yourself if this is a time to rebalance your portfolio, using volatility as your friend.
If you know what you want to own longer term, use 10% off sales to your advantage. However, that Thursday was another tease, because the market does not make anything easy.
I was asked to hang out with Steve Clemons and Richard Vague to talk about markets from high level. Specifically, is Wall Street Rigged? Well, yes, it’s rigged, but what can consumers to do prevent getting ripped off? While I literally wrote the book called Rigged Money, Richard has decades of insight and currently the Pennsylvania State Secretary of Banking and Securities.
What I really want to talk about was what we talked about off air. After the interview Richard made the comment to me that, despite my suggestion that investors should think more like institutional investors rather than retail gamblers, institutions get ripped off on a scale inconceivable compared to retail investors. You know - he’s right! In my defense, I suggested that the bulk of individual investors don’t know this, and assume that large pension funds are run by competent managers. I like to point out Calpers or very large pensions that have rid themselves of expensive underperforming hedge funds and focus on low cost index funds and reasonable strategies. Yet, I can only point to a handful that really run pensions well. In short, I was telling people to invest like they think pension funds invest, not how most actually do it. Crazy, right? And what I mean by all of this is to have a structure, a plan, and not wing it. Looking at the fundamentals of investing and not simply buying whatever your neighbor is doing for fear of missing out should be the focus. So, let us continue to lie to ourselves and believe that major pension funds make thoughtful decisions based on hard work, math, and a little bit of luck - because the truth is, an institutional investor is simply a retail investor hiding in a blue wool suit who expects a lobster dinner from a Wall Street wholesaler. . . hardly a setup for success.
Nobody wants to hear about how the aggregate size of Treasury issuance being materially below funding requirements distorts inflation expectation and causes a misunderstood rotation in equities. Well, you want to hear about, right?
And, some thoughts on volatility heading into the fall, as if we all know how this is going to play out.
It's pretty simple in my mind. Watch the 10 year Treasury closely this summer. Why? As investors and traders try to second guess the threat of inflation (as if anybody really "knows"), there may be a fade in the short term momentum of economically sensitive stocks - think value over growth. If we see the 10 year dip below 1.5%, that could give a bullish signal to tech and other long duration assets. While the future is unknowable, it's best to have a plan to rebalance or sit on your hands this summer. My view is to let the market make the first move. If you want to build a portfolio that is geared to address inflation, don't think that is a smooth ride.
Just a general rundown on how I see the inflation trade. Also, some comments on how most people don't get what drives gold. But that would suggest I in fact understand how gold trades. Markets will humble you if you forget the golden rule that, it's not what you know that hurts you, but what you think you know and don't...
As always, Yahoo is a blast with unlimited energy - and most importantly we have the time to actually discuss a topic beyond a sound bite or 8 people yelling at each other.
When asked about the tech sector I take a different view. Here I explain how you can use some basic capital weighted index funds to get an overweight in Chinese tech stocks - which are a huge part of the emerging market index just like FANG stocks are a big part of the SP500. Enjoy!
