Going into 2024 markets were pricing in cyclical perfection (with small differences accross the developed world) , low risk premiums in the US, and low volatility. The goal here is to give secular perspective and to clearly describe what kind of world markets are pricing. I’ve been writing these yearly for a long-time. Link

Japan’s pressure to tighten is less acute, but the direction of travel is more obvious and the downside risks of being short are smaller. Deflation is no longer a problem, the yen is weakening, Japanese equities are finally working, and short-rates are up. 0.9% bond yields is the wrong interest rate. Link.

I have been a paying member of the shipping service Value Investor’s Edge for many years, and here I just interview J Mintzmyer and James Caitlin in a Bridgewater podcast. The goal is to connect shipping to macro, which they do beautifully here. I have and continue to have a meaningful personal allocation to the sector and VIE is by far the most impressive and useful investment service I subscribe to. For me it is the combination of the macro linkages, the bombed out small cap capital cycle story after the massive overinvestment as China came online, the diversity of subsectors, and the amazing expert community that VIE is that makes sector so interesting. And good micro ideas like this have really helped when I get the macro wrong as I am sure I will do with some frequency Link.

By mid 2022 I thought the odds a US recession were very high (~80%). There had been major tightening cycles even half as big without recessions. I wasn’t sure what would break, but usually something does (often in opaque corners of the financial system). Equities were down a lot in mid 2022. By May of 2023, I thought I was likely wrong. Mostly because the things that broke were small. Fiscal policy was huge. And liquidity and assets rebounded. This is a deep dive on how small the broken things were. Link.

I’ve never been a gold bug or cared about gold miners.

The fiat currency system led by technocratic central banks in place since the 1970s like most human institutions is flawed and can be run poorly. But it’s track record is good and better than any historical alternative. And yet, gold looks good today in a world of easy central banks, higher inflation, high asset prices, and strong demand from countries that can no longer rely on the dollar. It continues to be a good portfolio diversifier.

Gold mining is a terrible business, with a track record of funding huge exploration projects with debt and dilutive equity raises in what were historically expensive l lottery tickets. Everything from valuation to the capital cycle looks different today. Link.

OK, writing a bearish piece and shorting bubble stocks in April 2023 was arguably insightful with great perspective, and yet completely wrong. Economic strength and substantial liquidity despite higher rates led to new highs being taken out.

There are better and worse ways to structure this kind of bet. Doing this in moderate size, cutting back when momentum is working against you (waiting for cracks), with a large number of stocks, regular rebalancing across names is something that makes sense and is backed up by history. Having great analysts that can parse the history was nice too. The 2020s isn’t as extreme as 2000 (when I was also short these stocks). But it is only the second period of major excesses like this in 50 years. In the 2010s extreme growth stocks worked because multiples expanded… not because the scenarios priced in played out. Sitting here in April of 2024 I am ramping up these shorts again as I see them dip (and will curtain these if they break new highs). This hasn’t been fun so far. Link

The view here had tempered a bit from the peak bearishness in mid 2022 when stocks were down. Here it was a combo of base rates (tightening’s half as big always led to recession) plus a thought that the Fed would force a recession to get inflation down (turned out inflation fell more than I expected, and the Fed was more tolerant than I expected). Mid 2022-Mid 2023 was by far my worse macro year in my career. Link

Inflation did fall less than discounted and remains a problem. But this is another way I got mid 2022 to mid 2023 wrong… because markets continued to trade as if inflation would continue to fall. And inflation did fall a lot more than what I expected (given how strong the economy remained). Link

By mid 2021 it was obvious that the fiscal response and supply chain challenges had more than offset the covid drop. The Fed and bond pricing were discounting nothing. This was probably the strongest conviction macro bet since the GFC (when no easing was priced in for some time). Link

I liked the naked bond short better. But the diff made sense too… stocks would rip if bond yields stayed near secular lows. Another good call. Good historical perspectives. Link.

We all now know how far behind the curve the Fed was. It took them 6months from this point to begin to move or for much to be priced in. Again the SR short bet here was a generationally great trade. Link

The actual title of the piece raises the question on whether the discounted end of oil could actually be right. It is always easier to know in retrospect. I was personally very long the oil companies (and short green tech insanity), in what also turned out to be a great trade. Good perspectives. Link

I wasn’t sure it would be in March. By April it was clear the response was huge and large enough in the US and a few other countries. It would continue to rise and become insanely big. Link

Understanding the reaction function of central banks is useful. It is much more similar than different across countries and time. Their guidance is based on their economic expectations which just aren’t that good (they will in the end react to conditions as they play out). Markets pay a lot of deference to guidance for some reason. Study on the poor track record here. Link

Analytical work on how terrible Brexit was for the UK. Good to keep in mind as we move into potentially new trade shocks. Link

This was a boring time. Good reminder of how markets consistently incorrectly priced normalization in the 2010s thinking in level of rates terms instead of changes. There was just no reason to tighten when everything was OK. By 2017 gradually normalization made sense and is largely what subsequently occurred. Link.

Mostly cool backward looking exercise on how big the effects were on growth of various countries. I think the call of peak globalization is somewhat overstated here. But we may be getting close now. Markets were boring in 2016. Link