Author Archives: SMS

That’s A Bunch of…

Reading Time: < 1 minute

Attempting to avoid some of the politics here, I would like to pose a question:

Where haven’t they found classified documents?

Another question, again, attempting to avoid the politics of the situation:

Who the hell is in charge of securing classified documents in this country?

Excel Template: Bridge Waterfall

Influential Reads – December 2022

Reading Time: 2 minutes

“We tend to assume that the worst that has happened is the worst that can happen, and then prepare for that. We forget that “the worst” smashed a previous understanding of what was the worst..” – Brain Food: Figuring it Out (https://fs.blog/brain-food/december-11-2022/)

Happy New Year!

First post of 2023. I’ve set a goal for posting more. Competing priorities last year, especially the fourth quarter, hampered my ability to read, write, and post.

However, we successfully sold the business to a new set of investors, delivering a great outcome for our prior shareholders. So with that behind me, I hope to be spending more time here.

Note on the book reading front – I did knock out the entire Travis McGee series.

Here are my most influential reads for the month – in no particular order:

Take Calculated Risks – “Making an unconventional decision can be a very lonely action. Yet, when the person making it has intimate knowledge of a situation and has calculated the risks involved, it often proves to be precisely the right one.”
3Q 2022 GMO Quarterly Letter – ” Looked at in this way, it seems as if a value strategy in the U.S. should be avoiding the “shallow value” stocks that are mildly cheap relative to the market and focusing solely on the “deep value” quintile. “
Summary of My Post-CPI Tweets – “Overall Core ex-housing (which includes core goods) is down to 5.2% y/y. That’s the lowest since…well, September 2021. Going the right direction but unless core services start to decelerate, there’s a limit to how good this picture can be.”
The Fed is Dead – “In fact, rather than slowing corporate price increases, the Fed’s rate hikes seem to be having the opposite effect.”
Billionaire David Tepper Is Betting Against the Stock Market Because of the Federal Reserve – ” I think the upside/downside [risk here] just doesn’t make sense to me when I have so many central banks telling me what they are going to do”
Q&A with Scott Reardon: Great Investor Track Records – “Generally they were looking for companies where free cash flow yield + growth rate equaled 20% or more. In other words, they were looking for returns double the market average, which is exactly what all of them achieved over their long careers.”
How private markets became an escape from reality – “Private equity firms reported gains of about 3 per cent this year, when public markets were down 20 per cent or more and tighter money battered all markets similarly.”
How to Hedge Inflation and Avoid the Biggest Bond Risk – “Inflation is the biggest long-term risk for bond investors.”
BNP Paribas studied 100 years of market crashes – “A typical recession bear market is 1.5 years in length, with a median drawdown of 38% and a median peak in the VIX of 40.5. “
TeamDynamix Secures Investment to Deliver Rapid Innovation for IT Automation – ” TeamDynamix, a leading IT automation provider, today announced that it has secured an investment from New York-based Level Equity Management while existing investor, K1 Investment Management, will roll a material portion of its proceeds from its exit into the business.”

Note: This is based on when I read the article, not necessarily when it was first published. Unfortunately, my backlog of things I would like to read always seems to dwarf the amount of time I can devote to reading.

Updated stats:

	Read Articles	Books
January	89	1
February	110	0
March	102	3
April	103	2
May	134	3
June	74	0
July	82	2
August	112	7
September	72	4
October	61	4
November	81	5
December	76	5
Total	1,096	36

Influential Reads – November 2022

Reading Time: 2 minutes

“Nothing gets people to look the other way like easy money.” – Does Not Compute, Collaborative Fund

I am very tired of seeing articles about FTX and SBF.

Here are my most influential reads for the month – in no particular order:

Getting Wealthy vs. Staying Wealthy – “But there’s only one way to stay wealthy: some combination of frugality and paranoia.”
That Sound You Hear Is the Fed Breaking Something – “As I have stated before, the Fed will keep hiking until something breaks, and clearly the cracks are forming.”
Borrowing Surge Makes Quick End to Rate Hikes Unlikely – “Even as money growth is stalling, Joseph Carson, former chief economist at AllianceBernstein, points out that bank credit growth is booming. “
The Munger Operating System: A Life That Works – “You want to deliver to the world what you would buy if you were on the other end.”
Inflation Tends to Linger. Could It Last a Decade This Time? – “Given that U.S. inflation has run above 6% for the past year and over 8% for the seven months through September (before dipping to 7.8% in October), history indicates that the median time it will take before inflation eases below 3% is 10 years. “
Here’s How Quitting Can be Your Competitive Advantage – “Imagine it’s a year from now and you stayed in your current position. What are the chances that you’re happy?”
Papa Doble. Hemingway Revisited. – “The toolbox for achieving great financial outcomes has changed quickly, as have the accompanying implications of these higher, risk-free, short-term rates.”
The Pandemic Housing Bubble is bursting—U.S. home prices falling 15% looks ‘conservative’ – “That Pandemic Housing Boom coincided with a staggering 42% jump in U.S. home prices between March 2020 and June 2022. At least 60% of that appreciation, researchers at the Federal Reserve Bank of San Francisco estimate, can be attributed to the elevated demand for “space” that occurred during the pandemic.”
Committed & Unattached: A Powerful Way to Work – “But while you’re committed to making it happen, you are unattached to the outcome.”
Higher Interest Rates Alone Won’t Fix the Inflation Problem – “The problem is that the longer the Fed’s balance sheet stays elevated, the more likely it is that QE becomes irreversible.”

Top clicks across the site last month:

Updated stats:

	Read Articles	Books
January	89	1
February	110	0
March	102	3
April	103	2
May	134	3
June	74	0
July	82	2
August	112	7
September	72	4
October	61	4
November	81	5
December
Total	1,020	31

Bears Watching: Housing

Reading Time: 2 minutes

This draft has been sitting in my folder for a couple months now. And is possibly some bandwagon jumping. Although at least I have been on the bandwagon a bit (Bears Watching: Observations In Real Estate). However, the transition to lower prices requires a psychological shift in the market, especially on the part of sellers, and that is going to happen reluctantly (and slowly).

I realize the residential real estate market is large and diverse. And, most homeowners are not transacting frequently making price moves somewhat less relevant for many.

However, I might be nervous if:

I bought a house in the last 18 months – to the right of the line on the price history chart below.
In an area with a price history chart that looks like this one.

I am not really a practitioner of technical chart analysis. But that is starting to look a lot like a head and shoulders pattern.

The question is – is how much of runups like the one above are due to inflation vs. speculation / an asset bubble driven by low interest rates. The inflation component is unlikely to subside. Or said differently, slowing inflation will not cause prices to retrace their prior ascent. Only deflation will cause that.

However, the component fueled by historically low rates stemming from monetary and fiscal policies that appear to be in the rear view mirror are at risk of reversing. In fact, they are reversing – you just have to squint a bit and adjust for the rapidly declining transaction volumes. Also realizing that asking prices on Zillow are not indicative of transaction prices.

But sellers will be slow to acknowledge that their houses have not doubled in price in the last two years and will be until forced to do so.

Another Prediction

Reading Time: < 1 minute

There’s a lot of commentary out there about how forecasting is fruitless.

Fruitless but fun.

So, let me call another peak (I called a couple here). You have seen peak Joe Manchin.

With the Nevada senate seat win giving the Democrats 50 and a solid and improving chance to prevail in the Georgia run-off now that the implications for control are gone (i.e., less Republic turnout), that would result in not depending on Joe Manchin for a deciding vote.

Good riddance.

Who would have thought that would be a result of the mid-term elections? Seems like folks are getting tired of bat shit crazy.

Ukraine is on the offensive and retaking their country. Election deniers got the short end of the stick. You may have seen peak Donald – too early to call.

I haven’t been this optimistic in months.

Influential Reads – October 2022

Reading Time: 3 minutes

“If you stick to a path that is no longer worth pursuing, whether it’s a relationship that isn’t going well, or a stock that you’re invested in that’s losing money, or an employee that you’ve hired who isn’t performing, that is when you lose ground.” – Brain Food, Farnam Street

I have some thoughts here, but have not had the time to put them into writing. So I am not sure if they are good thoughts or not.

I continue to feel the risks here are massive and still mostly hidden, and there is a good chance of getting squished. Which I would prefer not to have happen. Squishing mechanisms include but are not limited to U.S. treasury market illiquidity, imbalances created by the currency market / massive USD strength, and real estate market trend changes.

Midterm elections will be interesting. But I cannot watch. There seems to be a faction of people that are “bat shit” crazy. And there is not a rational middle ground between “bat shit” crazy and not “bat shit crazy”. So, we should just stop trying. But tolerating “bat shit” crazy is not a good option.

And, I think you have witnessed peak Zuckerberg and Musk, but for slightly different reasons. Do you want to be bold and call peak Private Equity while we are at it?

Continuing to notch some “easy” reads:

And that got me to my objective:

Here are my most influential reads for the month – in no particular order:

Rare Skills – “People don’t like leaving opportunities on the table, and it’s counterintuitive to realize that you’ll likely end up with more than those whose appetite for more is insatiable.”
Brief amicus curiae of The Onion filed – “Rising from its humble beginnings as a print newspaper in 1756, The Onion now enjoys a daily readership of 4.3 trillion and has grown into the single most powerful and influential organization in human history.” SMS: Not a follower of the Onion, but this is some inspirational writing.
August JOLTS report: the game of reverse musical chairs in the jobs market is ending – “This is simply more confirmation that consumption leads employment, and we should expect monthly jobs numbers to decelerate further, and go to virtually zero m/m by early next year.”
Harvard predicts looming markdowns to private assets – ” Private funds, however, have not been adjusted to reflect new market conditions, and many have gained in value through to the end of mid-year — a disconnect Harvard predicts will hit portfolios later.”
What to Buy? Bonds. When? Now. – “Looking at the latter half of the 1970s, however, rates increased from 5% to 10%, yet bonds kept making money.”
Summary of My Post-CPI Tweets – “It’s a mistake, the same one people are making in rents & home prices. Rates of change could mean-revert. Prices will not. Prices are permanently higher, b/c the amount of money in the system is permanently higher. This chart shows the price level. Not going back to the old days.”
E-Bikes Need Their Own Classification System on Public Land – “Rapidly increasing E-mountain bike (eMTB) use on non-motorized trails is increasing these conflicts and impacts.” SMS: Explain to me how a eMTB is not a motorized vehicle? Is a Tesla not motorized?
You weren’t supposed to see that – “In total, the Federal government created $4.3 trillion in direct economic stimulus of which $3.95 trillion was dropped onto the economy, as if by helicopter, in a period of under 18 months.”
3 Reasons International Investing Hasn’t Paid Off – “…the U.S. dollar has recently enjoyed its strongest run in 20 years.”
The bond market massacre of September 2022 – “The fear is that as central banks end the long period in which they systematically supported bond markets, deep cracks will be exposed. “

Top clicks across the site last month:

Updated stats:

	Read Articles	Books
January	89	1
February	110	0
March	102	3
April	103	2
May	134	3
June	74	0
July	82	2
August	112	7
September	72	4
October	61	4
November
December
Total	939	26

That’s A Bunch of…

Reading Time: < 1 minute

“Rep. Marjorie Taylor Greene (R-Ga.) recently attacked Transportation Secretary Pete Buttigieg for trying to “emasculate the way we drive.” Asked about the remark, he said he could barely make sense of her complaint.” – Huffington Post

I have a new product idea.

I think all these contractors and tradespeople – driving around in their big diesel pickup trucks are feeling emasculated – because most of their hand-held power tools are battery or electric powered.

Now, if they were diesel powered…

Influential Reads – September 2022

Reading Time: 3 minutes

“When you are a Bear of Very Little Brain, and you Think of Things, you find sometimes that a Thing which seemed very Thingish inside you is quite different when it gets out into the open and has other people looking at it.” ― The House at Pooh Corner by A.A Milne”

Writers that can consistently and frequently write new and interesting pieces always impress me. I am pretty thrilled if I have what I consider to be one new and unique thought a month. Then have the luck to capture that fleeting moment down in writing. And, that generally turns into the Winnie the Pooh moment described above.

That previous paragraph may be an awkward way of explaining why I have been fairly quiet these days, on top of just being busy at work.

For similar reasons, reading was a bit off this month – although I did notch some easy reads.

Correct, I am a touch out of order on the Travis Mcgee series, but that does not seem to matter too much.

Here are my most influential reads for the month – in no particular order:

You’re not good at this. – “Zero percent interest rates plus fiscal and monetary stimulus with housing up 40% and stocks at an all-time high was a ridiculous policy.”
Entering the Superbubble’s Final Act – “The current superbubble features the most dangerous mix of these factors in modern times: all three major asset classes – housing, stocks, and bonds – were critically historically overvalued at the end of last year.”
A Housing Bubble and Kim Kardashian: More Troubling News for Markets – “Pumped up by Federal Reserve expansionary policies, the public’s wealth in equities and residential real estate has ballooned, relative to the economy, even faster and more furiously than during the housing bubble of the 2000s and the dot-com daffiness of the 1990s.”
Three Things I Think I Think – It’s Breaking – “At 7% the math is totally broken. “
Grim (equity) tidings – “A Fed paper says tax and interest rates can’t fall much further, and that bodes poorly for stocks.”
Quantitative Tightening Is About to Ramp Up. What It Means for Markets. – “Market pricing is determined by supply and demand, and in the coming years, there is going to be a tremendous supply of Treasuries coming from two sources.”
Seeing Red – “Is China our enemy or competitor? The answer is yes.”
Would You Still Buy A Tesla? – “I used to be a fan of Elon Musk, no longer. The guy is irrational, and he believes the rules don’t apply to him. And he acts like he’s the only one who owns the truth, who can move us into the future, and that’s just hogwash.”
Pillow fight – “That’s like going to a Dallas Cowboys football game at AT&T Stadium, seeing 80,000 fans dressed in silver and blue with stars painted on their faces, all cheering wildly when the Cowboys score. Then, based on that experience, determining everyone across the nation is a rabid Cowboys fan and the 82,500 people at MetLife Stadium cheering for the Giants simply just can’t be real.”
One Of The Smartest Things Anyone Has Ever Said To Me – ” I was finished with my Righteous Indignation phase and had settled more into a phase I would maybe call Please Just Don’t Hit Me With Your Car.”