The Most Expected Bear Market
Netflix and crash, end of the dollar, observations vs insights, the rise of the substack PM's & SYS IRL, maybe?
Hi all hope you had a great long weekend! The talk of the easter dinner table seemed to revolve around whether Macron will win the French election (verdict: 90% chance) and whether Elon Musk will buy twitter (verdict: just trolling. But like, maybe?). It could be about seizing the memes of production (thanks, rampcapital) .
Ever wondered why ** every single ** private equity fund has a since inception "return" of 25% per year? Yeah, nah, it doesn't mean what you think it means. Ludovic Phalippou explains on our podcast. Takeaway: insist on PME's and MOICs instead of IRRs. (web |apple)
Markets have been busy fading up and down like a Bon Iver song…
Stockmarkets are roughly were they were two weeks ago, which is roughly where they’ve been for most of the year. Down a little bit. Not much to see here, except …
Equity markets to COB 20th April
Netflix and crash. The streaming service has done a “full-meta” since a second dodgy earnings announcement showed flattish subscriber growth (Netflix down 62% ytd, meta now -40%). People did not like it.
Still, I thought we all agreed that Netflix was removed from the FAANGs back in 2018, being replaced by Nvidia? With a market cap now smaller than Apple’s cash pile it surely isn’t in the same bracket anymore. What we can seem to say is that savage re-ratings of high growth stocks are certainly possible, but this hasn’t seriously brought down the wider market - at this point anyway.
The themes in the stock market are all as-you-were: energy and commodity up, banks & healthcare flattish, tech and comms, down.
Bonds.
The real story though is in bond markets where yields have shot higher faster than an Elon Musk viral tweet , up about another 0.4% from 2 weeks ago and over 0.5% since a month ago. The US-10 year is up close to the peak of the last 2018 cycle, and the move higher has already exceeded the “taper tantrum” of 2013 that seemed to cause so much stress at the time.
The US-10 year real yield also zommed higher into stratospheric territory -turning positive that is - earlier this week.
What does that mean for bond funds? They are down of course: 8-12% falls year to date in all your benchmark bond funds. Including - perhaps confusingly - your inflation-protected bonds …
As I seem to keep saying, the markets have already priced in one hell of a fast interest rate hiking cycle (I’ll spare you the walking boots joke, yet again). Could it be that the markets have actually brought forward and done the Fed’s work for them at this point? That while we’re all debating/fretting about the impacts of a rate hiking cycle it actually just took place in plain sight. Wouldn’t surprise me if this ends up being the peak of the cycle.
Is this bond selloff the most expected bear market in history? It’s been fretted about since at least 2013. Still, I don't blame Jim Bianco here for asking the question when one of the largest and most global asset classes loses trillions in value.
3 things I’m reading
1. Worrying about fall of the dollar as a reserve currency seems a peculiarly American obsession right now. I get it, you can see why there's more attachement to the dollar of course while maybe us Europeans who long ago saw currencies lose that status and realised that life goes on. (Ray Dalio , Allison Schrager, Zoltan Poszar on Oddlots, Kyla). The offlots conversation with Zoltan Poszar - head of global strategy at Credit Suisse - is a good listen for a persepctive on what a new Bretton Woods -3 system might be like.
2. Insights vs observations vs data. Remember that “data is the new oil” cliche? Yeah, that didn’t really age so well did it. This from Forbes really got me thinking. Too often these days the problem is too much data, too many observations but too little insight. What is insight? Here's 3 rules to distinguish observation from Insight: A shift in understanding, from a surprising source, that aligns with what we are trying to achieve.
3. Deepdive: The rise of the substack Portfolio Manager. I’ve long said that the quality of the information and research that’s widely available today challenges what was the exclusive preserve of high-cost MBAs or years spent working in top investment bank just a decade or so ago. the substack portfolio managers are a great example of this. The quality of the investment analysis and portfolio thinking is – quite honestly – probably on a par with what I see in the institutional world. And the tools to illustrate performance and holdings probably ahead. Two you should follow: Austin Lieberman who is building a $1m portfolio on a 10 year timeframe and TSOH who writes some of the best analysis I’ve seen on the likes of Amazon, AirBnB and Spotify.
Sure, their portfolios would give most stuffy institutional managers a heart attack, but they are really looking at innovative ways to grapple with valuation for new kinds of business which sure beats lazy application of P/E ratios and who’s to say Snowflake, Gitlab or Monday won’t be the trillion dollar companies of the future. If you think you have an edge in valuation, why wouldn't you go for the hardest-to-value sectors rather than cranking out the same old stuff you read about in the CFA 20 years ago. To be honest a lot of the research that gets done generally out there is from another era, this could be the future. You need to think of these accounts too when you’re next tempted to dismiss “retail traders” as naive or ill-informed.
2 things I’m listening to
1. Great Emerging Markets Debate - Trillions. Forget all the waffle about the Fed, I think one of the biggest questions facing long-term investors right now is if and how to “do” emerging markets. There are a lot of issues. This debate is essential listening, including discussng how you can invest in emerging markets while filtering for principles of freedom and liberty which screen out investment in autocracies (which otherwise represent ~40% of the index). (web | apple )
2. Rangan Chatterjee speaks to Jonny Wilkinson. It doesn’t take long looking at the Sunday Times bestseller list these days to see that people are yearning for positivity and a path to meaning. Rangan Chatterjee is a great follow in this space, been a big fan of his work since seeing him at an event a few years ago. This episode is special as it combines with another - perhaps surprising - deep thinker in the search for meaning: Jonny Wilkinson. This podcast will definitely challenge you and it’s one for a re-listen. Fave quote: “who you are now isn’t so much a reflection of the past as the past is a reflection of who you are now”. (web | apple)
Bonus froth
In this week's entry for "hmm but is it an April fools" we have this headline that Coinbase has hired an institutional head of Pensions! Look, I try not to be one of those people that sniggers and snipes at cryptocurrency - it’s a $2T asset class now after all, way bigger than the private debt and high yield markets we all spend so much time on. Still, this seems like, a lot.
Noah Smith has a good piece that really resonated with me: how to stay optimistic in dark times. I feel like this is an important point right now.
See you soon? Like, IRL? I feel like we’re gearing up for a good May/June time of in person eventing pre-summer. **touches wood**. I do hope so. Seems like the first real window that event planners have been able to reliably plan for. There’s a few big events in the diary for me that I’m looking forward to. I do hope to see some of you! Have we forgotten how to do small talk - or even how to socialise entirely? We shall see.
One thing to brighten your day - Dan Toomey talks us through the story of the moment
Thanks for the mention and kind words!