Whereas Einhorn thinks that inflation is coming, Hoisington think this couldn’t be further from the truth (and hence think the yield curve will be anchored at zero).
“Recent articles have suggested that the Federal Reserve and the Department of the Treasury are engaged in Modern Monetary Theory (MMT) or some form of “helicopter money”, the famous Milton Friedman phrase also referred to by Ben Bernanke. The inference is that once the virus is contained, these new efforts will yield different and more powerful economic and inflation results than did the Quantitative Easing periods following the 2008-09 Global Financial Crisis (GFC). Further, the suggestion is that the fiscal policy actions taken this year totaling $2.7 trillion will be far more effective than the $2 trillion stimulus package of 2009. Are these assertions that MMT is in place and monetary and fiscal actions will spur economic and inflation rates higher true? The short answer is no.”
What follows is a rather technical economic theoretic description of what is going on.
It is worth getting one’s head around this. Especially understanding how quantitative easing leads to increased excess deposits by banks at the Fed and not borrowing (a decision that is independent) and hence economic impact.
Overall they are predicting deflation – grim reading indeed.
“One of the most influential things he [Buffet] said to me was if you want to be successful, all you need to do is look around the room and think about the classmate or classmates you most admire and what qualities they have and just decide to adopt those qualities. If you do that, your chances of being successful go up enormously.”
“I actually think that people will be that much more desperate for human connection after this experience than they were before.”
He is probably right on the last point – long human connection?
The fund is -21.5% in Q1 and down a futher -1.1% in April (despite the market rebound).
Interesting discussion of how, despite taking net from 74% to 15%, they still struggled with performance against a falling market.
Eninhorn’s value style is struggling in recent years and these markets. Despite this Greenlight is starting to market the fund again.
Letter includes interesting debate on inflation post-crisis, what to buy in that environment, his current holdings and shorts (incl TSLA), new positions. Always worth a read.
They plot the markets trailing P/E ratio against CPI inflation (right hand side) and the 10-year real treasury yield (left hand side).
The data is from 1948 to today and sourced from BofAML
As real-rates go negative or inflation falls multiples tend to be lower.
KKR analysis suggests there isn’t some funny data skewing results here.
What about today? at the current real 10-year yield of -1.5% and inflation rate of 2.3% (likely to fall) the 17.5x P/E ratio for the market (since increased) stands out as too high.
These types of equity strategy charts are good to hang on to.
Many things are forced to change and it creates lots of opportunities especially in the way people work together.
“tens of thousands of software engineers are cooped up at home getting frustrated with their current tools and wondering if they can spot some pain point, or mechanic, or small difference to the flow, and solve some opportunity that no-one ever quite realised was there.”
Success can happen even if things look entrenched. The anecdote about Dropbox is telling – everyone told Drew Houston ‘there are dozens of these already’ and he kept replying ‘yes, but which ones do you use?’
There are already some interesting new ideas in the chat app market.
It shows that the majority of the improvement in mortality since the 1900 in the United States has come from improvements in infectious disease mortality.
A really excellent post from FT Alphaville trying to understand the lockdown.
They point to analysis by Sir David Spiegelhalter, former president of the Royal Statistical Society and co-chair of the Society’s Covid-19 task force.
He produced the pictured chart.
“The pattern shows Covid deaths increase exponentially with age … this follows the pattern of normal risk. Whatever risks you’ve got, this just seems to exaggerate them — pump them up and pack a year’s worth of risk into a few weeks. Covid deaths are a fixed proportion of the people dying . ..”
Two extra points added to this are those exposed to excessive viral loads (healthcare workers) and the 10s of thousands of unnecessary deaths from less emergency care.
Moving away from the numbers – the moral discussion at the end is the most interesting part.
A really brilliant article on the state of Covid vaccine development.
It gives a great overview and introduction into vaccines in general.
There are 115 vaccines in development (78 currently active).
There is a vast range of vaccine types (as the diagram shows). The article explains what all these types are.
“We are only going to find out, in the end, by dosing people. Lots of people. With therapies targeting the immune system, there is in the end no other way to know, because of the complexities of the human immune response and its wide variation in the human population .. some of the steps are going to have to be done on a scale never before attempted … there are going to have to be some shortcuts.“
There is one thing that can’t be skipped – how long immunity lasts. This question can only be answered with time.
On safety – “Now you see the exact bind that vaccine development has always been in, because the whole point is to treat millions, even billions of people who are not currently sick, to protect them against disease while not doing more harm along the way by setting off the body’s fiercest and most alarming biological responses.“
On manufacturing – “My guess is that scale-up and manufacturing could well be the biggest chance for the timelines mentioned earlier to blow up“.
There is a willingness to pre-fund manufacturing, across all these varied types of technology, before efficacy is established by Bill Gates and others.
