We run an internal concentrated equity portfolio and will always have a significant long bias for the simple reason that markets go up over time. We believe that if a country protects private property and allows its people to benefit from their hard work and creativity, then a stock market index that is reflective of the country’s underlying economy will trend higher over time. Despite this belief, we do not advocate for being fully invested at all times-- no equity portfolio is immune from large market sell-offs. Given markets are out-of-equilibrium systems prone to booms and busts, being fully invested is an inferior strategy to...
In recent years, the Federal Reserve has played an increasingly important role in our economy and financial markets. "Fed Watchers," including journalists and investment professionals, dedicate their careers to predicting and gaining insight into the Fed's actions and statements. It seems odd that in a market-based economy, so much focus and importance are placed on what is effectively a government institution. The Fed's dual mandate, which has remained unchanged for almost 50 years, is to promote maximum employment and stable prices. Despite this, the Fed's influence has grown significantly...
Due to the CPI-inflation we are experiencing today, market participants are starting to draw strong parallels with The Great Inflation period from 1965-1985 (“TGI”). It is always a point of suspicion for us when the foundation for a market narrative is based on comparing the contemporaneous period to only a single period in history. A full treatment of the differences in periods involves a lot of work and it is often, instead, more tempting to run with the quickest explanation to support one’s fears. We hope to provide a proper comparison of the periods and explain why inflation will not persist in the current environment as...
The media is having a field day with Evergrande's 300-billion dollar debt overhang. Bull markets and easy access to debt will inevitably lead to the unproductive extension of credit and this has been China’s cocktail for quite some time. Market participants have been discussing China's debt problems for years as their GDP has slowed while their debt levels have rapidly risen- not the best combination. These facts assisted with troubling anecdotes of overbuilding, property bubbles and ghost towns have led the media to purport that the day of reckoning is near and that Evergrande could be the next Lehman Brothers...
If you invested in Amazon in 2001 with this opinion and remained steadfast in your ownership, we are guessing you probably did okay. Even then, we would argue that for you to have maintained conviction in Amazon, you must have had at least a partial macro-opinion. Maybe not of where interest rates are headed but perhaps of how the internet would change the world and how the penetration rate of e-commerce would evolve in the decades ahead. In this piece, we will define what we mean by macro and explain the two dimensions of our macro view: the “inside view” & portfolio positioning. We will conclude...
