Videos Of The Week
Videos Of The Week
A Look Ahead To What Is In Store For Markets And Macro For 2024
Before I jump into the post, I’d like to wish everyone a Merry Christmas. I’m looking forward to tomorrow and I’m sure many of you are as well. This week I have a couple videos as we look ahead to 2024.
I don’t know if anyone is paying close attention to what is going on in the Red Sea with Yemen, but it looks like that situation isn’t going to calm down anytime soon. I’m not in the habit of pretending to be an expert on geopolitics and shipping lanes, but I do think it is something to keep an eye on. I also don’t make it a secret that I’m bullish on oil. I’m not a permabull on any asset (or sector) because these things go in cycles, but I haven’t seen anything that dramatically changes my 3 to 5 year outlook on crude oil prices. One of the things that I think could happen as we roll into 2024 is that we could see higher oil prices with some geopolitical premium as things heat up in the Middle East.
Palisades Gold Radio w/ Dave Collum, Tom Luongo, and Rudy Havenstein
Host Tom Bodrovics brings on three of my favorite macro and markets commentators for an episode of Palisades Gold Radio. If you want a window into how I’m looking at the 2024 Presidential Election, this video is the one for you. It also lines up well with the post I’m working on for later this week. They talk about the different candidates, election integrity, and what the see for the election heading into 2024. They also cover potential rate cuts from the Federal Reserve in 2024 and how it might impact markets. While everyone looks at interest rate increases as a drag, the real problem was more than a decade of ZIRP (zero interest rate policy).
I agree with all the guests that 0% rates creates malinvestment across a variety of sectors, and I won’t have any sympathy for the people that go bankrupt due to rising interest rates. If a business doesn’t work with base rates at 5%, it probably shouldn’t be in business in the first place. They also talk about the fact that the US, for all of its faults, is set up better than most other developed countries. To simplify it, the US looks like the cleanest shirt in the laundry. They think that despite the overvaluation of broader equity markets, the US markets will see inflows compared to other markets like Europe. They also spend some time talking about the generational divide and the current gerontocracy, which is only going to become more obvious over the next couple years.
Ger·on·toc·ra·cy
noun: gerontocracy; plural noun: gerontocracies
a state, society, or group governed by old people.
a government based on rule by old people.
You can watch the preview on YouTube, but the full version is on Rumble for censorship reasons. Here is the link to Rumble for the full version:
Palisades Gold Radio w/ Dave Collum, Tom Luongo, and Rudy Havenstein
Wall Street For Main Street w/ Zach Abraham
Zach Abraham joined Jason Burack and had a wide ranging discussion on a bunch of topics that I have talked about in the past. They discussed the macro picture, interest rates, and a potential recession in 2024 among other things. They talk about inflation, the generational gap and how it impacts real estate, among other topics. I don’t go searching for investment videos that specifically talk about generational divide or conflict, so it’s interesting that this topic has started to pop up more frequently as we head into 2024.
They also talk about bank balance sheets, commercial real estate and the office sector potentially being a ticking time bomb over the next couple years depending on interest rates. He poses an interesting question: what happens if we don’t go into a recession in 2024? His firm’s base case is that we are going to see a recession next year, unless the money printer gets put on overdrive and distorts things (again). In my opinion, we have so many distortions in financial markets today, driven by ZIRP, quantitative easing, and indexing/passive investment, to name a few. Markets aren’t efficient, but despite all the distortions, I think they trend towards efficiency. If I didn’t hold this view, I wouldn’t be following markets and actively picking stocks that I thought were undervalued.
Zach was on fire during the interview and repeatedly hit on valuations, and broader financial markets. I wanted to drop some quotes below that stuck out to me.
Apple has four consecutive quarters of declining revenues, declining profits, and declining margins, while in the midst of the greatest interest rate hike of all time, and the stock’s multiple has blown out by 50% this year. I’ve just never seen moves like this.
- Zach Abraham
On broader markets and macro, he predicted the Fed balance sheet would be at $30-$40 Trillion (or more) in ten years. I wouldn’t be surprised, but the path to get there will almost certainly be messy. There were a couple one liners that also are worth including.
“All financial assets are relative.”
At first this might seem obvious, but it definitely provides some perspective. Do you want a tech company that is front page news and trading at 50x revenues? Or the coal company that is trading at 2-3x earnings with a massive capital return program?
“The most risk dumb market that has ever existed.”
I will agree on the risk in the market, which I talked about with some of the distortions above. The problem with today’s market is that there is not much intelligent decision making going on in markets today. Algorithmic trading, passive investing, and unintelligent money flows have been driving markets for awhile now. I’m not saying that you have to follow my process to make intelligent investment decisions, but there is literally no logic behind passive investing, and algorithms are driven by whole bunch of different factors, but most have no view that buying a stock is buying a piece of a business. If the logic happens to be buying something at 50x revenues because number goes up, all I have to say to that investor is good luck.
I will wrap up with a quote (and maybe some confirmation bias for myself) on the energy sector.
The energy companies to me right now are one of the biggest slam dunks in investment history. The balance sheets are cleaner than they have ever been in 25-30 years, a lot of these things are trading at sub-8x earnings, a lot of these things are throwing off cash flows that are 15, 20, 25% of market cap. It’s maybe a little bit overstated saying a lot of them are, but they’re out there. Then you look at that and (some people) say they’re a garbage business. The earnings yield on Microsoft is 1.9%. If I’m going to get a 15% earnings yield compared to 1.9%, I’m okay if people think it’s a garbage business. Why? Because my margin of safety is pretty dang good.