Market Update, 100% Cash, and Upcoming new positions
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- Опубликовано: 31 дек 2024
- www.markmeldrum.com
I touch on a number of issues in this video, and will follow up over the next few weeks with dedicated videos on each topic along with ways to gain exposure to those themes.
Only video where I'm happy that it's 50 mins.
haha yeah, good one, same here
We would listen and watch until the end of the video even it was 5 hours long! Love your stuff Mark! Thank you for producing such great content for us.
Watching this 3 years later proves how prescient you are sir.
I’m really happy how he keeps politics and emotions aside and just focuses on the financial markets how they present themselves. Really honest stuff, love it
Been waiting since you posted on LinkedIn, thank you!
Definitely one of the most interesting financial commentators around. A deep dive into the underpinnings of the economy. Much appreciated.
Prof. Meldrum's analysis and perspectives are always backed by facts, logic and sound reasoning .Love his videos and eagerly await the opportunity to listen to the new releases.Thank you, Prof!!
I absolutely get excited to listen and learn from these after work.
Meldrum Sensei out here turning us into bonafide CIOs... Lovin it!
Thanks so much Mark - always fantastic hearing from you. Have a great week; let's hear from you again soon.
What a great start to my day - been looking forward to it since your post. Thank you for sharing your insights; can't wait for the next!
Your knowledge and rationale is refreshing Doc! Thank you for posting this video. Would watch it even if it was 3 hours. Great job on educating the world.
You are delight to listen to. Could listen to you for hours.
Haha then try listening to the hours and hours of videos he has for the CFA
Thank you for the content Dr Meldrum. Nothing but value added here
Thank you very much Sir. Your Last video few months back regarding how to manage one's own portfolio was excellent .Your guidance has made such a huge difference to how I manage my positions. This one too is a gem.
Fantastic video! Nice to hear a Canadian perspective on investing in American companies. Your call on the s&p being 3500-4000 helped me stay in the market when all I could see was "market crash!" everywhere. Thanks and hope you and you're family are healthy and happy
"if you have watched all the way to the end" Of course, why wouldn't I?. Thank you Prof.
Hi Mark. Thank you for the video, it is a pleasure to listen to you.
@Mark Meldrum ... the video can be 5 hour long and I'd still listen to all of it (well, maybe not all in one-shot, but still). This is the only channel on RUclips where I can say that. Super interesting stuff from a man who clearly knows what he's talking about. Certainly, more interesting to listen to than a lot of "analysts" that go on CNBC.
Looking forward for your upcoming videos and seeing what positions you're getting into.
Best 50 mins spent! Looking forward to more such videos sir
Dear Dr. Mark, do you have a new market update? Always interesting to hear your thoughts.
Appreciate that you share your point of view. As always concise and straight to the point.
I would love to hear more about the commodities cycle.
selling puts is my new favorite way of buying any stocks :)
Likewise
these videos are more precious then Gold, really do appreciate you taking them time to share your thoughts on the market.
Dr. Meldrum. I felt that you mainly focused on US market. It will be nice to have your thoughts on Canadian ones that are still lower than their pre-covid prices. I understand that with the huge deficit of the Canadian government, Canada's conditions is not that better than the US. Thank you.
Mark your advice on NWH. UN a few months ago was a portfolio saver.
Thank you so much. Always enjoy your presentations. Good cents!!!
Thanks for sharing your points of view Mark.
Extremely insightful, as usual.
Thanks Dr. Meldrum
46:11 I disagree with the idea of unlimited capacity to produce even in the digital world. Firms will produce only if the demand is there, clearly there'll still be demand constraints. For exmaple, theres only so much music a consumer can listen, only so many subs a streaming service can acquire etc etc at which point your revenues will depend more on price (up to a limit no one will buy a 100 dollar netflix sub) and your growth profile becomes linked to the middle class population growth etc + inflation.
I had a question on 49:02, why would nominal rate increases result in inflow in demand for fixed income? Arent bonds (apart from floating loans , inflation linked etc) terrible hedge against inflation? I understand that equitiies are in demand now as they're the only asset class that can provide some semblance of a return to investors but there seems to be more here.
Paragraph 1: my argument is a supply side argument, not demand side. Digital output does not need to be produced more than once. Distribution is unlimited, but actual distribution will be demand dictated. Potential output is a supply side argument.
Paragraph 2: as the nominal rate increases, bond prices decline. At the margin, this shifts current unwilling fixed-income investors back into the asset class. Rising rates hurt existing holders, but lower prices attract new investment. Investors have never been very good at managing real returns. they tend to look at nominal returns. And if that nominal return is coming primarily from the inflation component, so be it. And yes, fixed coupon bonds are a poor hedge against inflation. However, as prices begin to drop on bonds, it will attract money back in for the marginal investor.
@@MarkMeldrum Makes sense on both counts thanks for the response sir. Looking forward to your next couple of videos!
Dr. Mark, regarding the risk reversal on SPY - in one of your previous videos (series 26 , 19m 30s) you've mentioned that you would manage the loss in case of price going significantly lower the put strike. Would be great if you could touch on that in more detail, share your approach and reasoning in upcoming videos. Thank you!
Great video Mark. Had been waiting for another one of these application videos and this did not disappoint. Looking forward to the next few.
Great video, Mark! I can’t wait to continue learning the CFA material so that I can hopefully be as knowledgeable as you.
Your videos are real gem professor.
Thanks Mark - really looking forward to the follow-up videos!
Totally agree on the large vs small cap thesis. Although, feels like digitization might be stretching the marginal cost curve instead of changing the entire shape. There’s a real cost and physical constraints associated with data transfer and storage. If we truly flattened the MC curve then I’d think risk reversals on QQQ would be the way to play it. Maybe even leaps on cable, wireline, wireless, data storage reits, etc companies
Love the applied content. Would definitely watch more of these. Thanks!
Thank you for your video, professor! Looking forward to the follow-up videos. Particularly on commodities, I´d love to know what ETFs you're looking at (if you're building positions via ETFs, that is). I would be also interested to hear about your stance on copper (in light of EV) and rare earth metals (in light of your view on the localization trend and despite the huge rally we've seen in those already). Thank you once again!
To badger you with a couple questions...
-What do you think about the current all time high short position on the 30yr? I don't see rates at least in the short term going much higher as they have barely moved over the last couple months despite the absolutely massive short position.
-With QE essentially only providing bank reserves in exchange for liquid treasuries, isn't that in a sense removing liquidity from the market rather than providing liquidity? Banks are extraordinarily tight right now, and hence barely any new dollars are being created at the moment, as people pay back loans and are unable to take out more. To me at least, this seems dollar bullish in the short term, especially as demand for dollars increases when all the current forbearances expire
-Any thoughts on the current market situation with the neverstopping slew of SPAC's, which somehow retail investors continue to just mindlessly dump into, alongside companies like SNOW trading at a 200x revenue multiple because of a controlled low float? Options volume is also about 3x higher yoy, with retail investors for the first time ever buying more options than institutional investors. This alongside the complete skew towards calls, with the P/C ratio at an all time low, just feels very, very bubbly to me. I personally just don't see any chance of this subsiding and markets rebalancing on their own without a massive correction.
Thanks for your time if you read all of this... its truly appreciated
Thanks for another great video mark! EV and the Green movement should play well for your Commodities as well. We need a lot more copper infrastructure to transmit Electricity on a city grid type scale and plenty of cobalt and nickel to store at grid capacity as well. I find it fascinating how most people in the EV camp doesnt realize that if you drive in the lower half of the US almost all your electricity is still generated from coal... so much for your green tesla cars in Texas folks. Thats why I am bullish on the copper miners. RIO BBL (non US miners).
Thoroughly enjoyed that update, thanks Mr. M!
Thank you, Mark. Are you willing to share a handful of the broad commodity ETFs ex/energy? Hard to find these...are these ag ETFs, precious metal ETFs, etc.?
Good question
Fantastic video, there is so much value in here.
Professor some questions: As a canadian should we favour CAD stocks/investments if we see weakness in the USD? Does Mega cap tech keep winning, even with new growth stock regime coming into play? Do you think option spreads are a good way to play tough times in the market or any market condition given the retail investor knows what they are doing? Sorry for the bunch of questions professor, wish we could sit down and chat about the market! Let me get back to Lvl 2 prep. Thanks for sharing these videos Professor!
I love these videos Mark. Keep them coming please!
Dollar has been weakening for so long and everybody expecting it to be weaken ahead. The dollar short is a very crowded space. Everyone knows inflation could be a problem, stimulus etc which leads to this. Is there any more ‘unknown’ catalyst to implode this further? I agree with the dollar weakness but what else more can trigger another 10% drop? Would like to hear your thoughts. Thanks
Great ! Looking forward for the next videos, awesome content !
Disagree with your analysis on Tesla and GM. Yes, GM already has factories built but they’re not currently 100% suited for EV like Tesla is. Also Tesla’s main niche isn’t going to be the fact that it’s EV, but more so their FSD software. GM partnered with Nikola and that was a disaster and says something as to what management knows about in the EV space.
Regardless, appreciate the videos. Love how everything I’ve learned from CFA makes even more sense with these applied series videos.
Thanks for the video Mark. I was wondering why you expect localization to continue ... isn't it hard for more expensive products to be competitive against cheaper products with global supply chains?
Even as Fox watching ( as well as CNN MSNBC CNBC BLOOM) conservative you are GREAT....as taking your lev 3 and reviews are immense at 2X speed baby
How are real asset prices like housing be a good hedge against inflation if cap rates are also increasing (downward price pressure)?
Because the house price or land value to be technical - notice its the house price not NOI - increase still goes up with inflation (to an extent and within a range), yet NOI isn't increasing by as much as anticipated; you now have a lower numerator and higher denominator. Cap Rate = NOI/r-g. There is no house price in that formula.
CRE is valued based on the income it provides. Residential housing is priced based on the utility it provides. CRE cap rates are based on required returns for risk assumed and growth rates in NOI. Residential housing's value is derived in part by replacement value (that is where inflation supports higher replacement value) and in part by interest rates (lower rates = higher housing prices since homeowners manage their monthly payment, not the purchase price).
Thanks Mark. Have been waiting for your market update! Look forwards to your next videos for more detailed analysis. Some questions if you don't mind 1) As you think 2021 Q1 Q2 might go into recession, should we wait until 2021 Q1 to do the risk reversal on SPY (higher premium on put and lower cost of call); 2) If we expect USD declines, do you think the CAD-hedged S&P ETF (eg. XSP, VSP) would outperform the SPY.
Good video sir! From my end, you are free to make them take as long as you want.
So governments get a double bonus on inflation when they have a lot of debt...
1) the item you explained about higher costs times whatever tax rate gives higher tax revenue
2) for debt owed to other countries, they can inflate it away
It’s interesting to rewatch this 3.5 years later, quite a few things actually turned out to be true.
These are like free 1 hour lessons which are totally worth it..
Hi Dr. Mark, great video as always. One counter argument to the large cap vs small cap point, aren't small caps more nimble and therefore more agile to move their procedures to digital? I get the capex that may be required to do this, but at the moment, markets seem to be allocating capital to even the small caps. Look forward to your thoughts.
Hi Mark, thanks for your video. I'm wondering about two things: 1- If inflation appears and makes the commodities prices go up, should it do the same effect on the real state prices? it should increase the R but not much because of the low-interest rate level. 2- The scale economies have always been here, and small companies that have a good product have risen to compete with the big ones, (Netflix case for example), why it should be different now?
We are seen a lot of absurd valuations ins the small caps and the last IPO, It seems the more cash are you burning, the highest valuation you have. But i think that some small companies that are in a boring sector and they do things well, they could fight with the big ones.
Thanks again for your video
What about emerging markets like China or India. With the dollar weakening and other things on the horizon, will it make more sense to invest in those markets?
Love the effort you put into your content!
Trying to relate this to the L2 curriculum, and wanted to see if I got this right. When at 30:20 you say the companies will have foreign currency translation gains, that would only be true when using the temporal rate method right? Considering that the current rate method is more widely used, those translation adjustments would flow right to the balance sheet. So even though the translation adjustment would be beneficial for the company, it would not explicitly raise net income for the year, and thus might not result in a more favorable valuation. Just want to check if I'm interpreting this correctly.
Thanks again!
Raghav Grover interesting, would like to know as well.
26:00 really hits the nail on the head. Mark, you talk of the importance of economies of scale in the digital world. How bigger companies will accrue wealth disproportionately at the expense of smaller competitors. This argument can be similarly used to explain the demise of what is traditionally known as "value" investing (although intelligent people hate that false dichotomy it is a useful way to split stocks). James Anderson (the UK investment manager) said that value investing died as soon as Microsoft listed before the pandemic even happened! Big tech are capable of acquiring AND retaining customers at incredibly low costs and the cost to produce and sell another version of Microsoft teams, an Amazon AWS subscription or a Netflix sub is so small albeit there is initial R&D that must be expensed to develop proprietary software. This is a different landscape to the Nifty fifty companies (Kodak anyone?), Big oil etc all of whom required huge amounts of ongoing capex and opex to grow. What this essentially means is that the market up until now has OVERestimated the mean reversion process for high flying companies, expecting their return on capital to return to mean levels much faster than they have. Happy for you to add any extra thoughts on this Mark.
Does that mean that no one is ever going to invest in oil, consumer goods etc? No, people will keep investing in them but they are repriced since cash flows are discounted at a higher rate (accounting for slower growth). This is more of an explanation for differences in PE ratios between growth and value than the "death of value". And only wait until inflation picks up, who is going to raise prices with inflation? Value companies who produce food, medicines and equipment people can't live without. Digital can't feed us.
@@cristoux I don't think I ever said that no one is going to invest in oil. I'm reiterating that the big and powerful (tech) in this age are only going to get bigger and more powerful due to the laws of increasing returns (driven by network effects, low marginal costs, high fixed cost, high switching costs nature of big tech which all have resulted in de facto monopolies). You'd do well investing in cyclical companies at cyclical lows as you always would have done, but its a different ball game now and those larger firms have an extremely defensible position for a lot longer than what traditional economics has taught us about mean reversion.
Also "digital cant feed us" isnt an investment thesis and consumer usability has not been the best driver of investment returns. Barriers to entry, product differentiation, pricing power all are and at the moment big tech have that in buckets.
One final thing, I didnt write my explanation to make the distinction between value and growth as i said its a convenient divider. Value investing is essential, buying assets below intrinsic value is most important driver of an investor's returns, but saying that a company is trading at 50x earnings is uninvestable because Ben graham said so 60 years ago is down right dumb in 2020 due to the reasons i mentioned above.
You're welcome for the free lesson.
@@majedti4126 Maybe it's you who needs a reading comprehension lesson. I said high and low PE ratios can exist in the market for companies priced correctly. Your argument is an explanation to that. I agree with you. A company trading at 40x can be as wise as an investment as one trading at 15x if that accounts for cost structure and market dominance. Tell your ego to calm down, this is not wall street.
Hey mark, thank you for your content. I have learned a lot from you!
Dr. Mark Thanks for this long-waited video. I enjoyed every second of it. In the follow-up videos, will you touch on growth vs value on large cap space? I am really curious to hear your stance on what you favor at this time. Thanks!
The Doc is back! I'm ecstatic!
Hello Professor, thanks for the video, was really looking forward to it since reading the post on Linkedin.
Just wanted to let you know that it would be really interesting to know your views on the energy sector overall in one of your videos, specially oil and uranium, the latter being an underivested sector for the last decade which generate zero-emission (feeding into the green energy wave).
Also what the transition to EVs would do to the demand of electricity/mining.
Thanks for your time!
I will go into more detail on my GM pick in an upcoming video. And why i am interested in commodities less energy.
I don’t have any doubts about short puts on GM as a good idea on EV play. But collecting premium on a boomer legacy company is really just leaving too big of a slice of the cake on the table when we are presented with one of the most surefire disruptive industries in recent human history - one that is still in the shakeout stage nevertheless
Two of the reasons that WS hasn’t warmed up that much to the entrance into EV by Detroit Three is that 1) building a serious charging network is a much much daunting task than just inserting chips into cars 2) all three of them have quite badly fucked up their progress in China, EV or not (not an insignificant reason why those three musketeers have gone up so much). This stalled advance ties back in your earlier analysis on currency translation as well to form a revenue and currency loss double whammy effect.
On the macro level though, I agree with all your broad points. Great video & excellence enunciation on the steps of your insights, as always.
And thanks for the great mocks. Really needed the challenge for what came this past weekend with L3
Selling puts require $0 investment on my part. Other securities in my portfolio will act as margin. So my ROI is highly convex. This is the initial leg of a multi-year strategy. Once we see how the Hummer brand performs in fall of 2021, I can then step into a risk reversal and buy OTM LEAP calls.
@@MarkMeldrum Got it. I didn’t quite catch the importance of convexity in your thinking during the video. Hope it works out both in the near term and thereafter!
Why GM and not Toyota? They are part of the currency transport, they have great positioning/factory, and they have some technology there already.
Thanks Mark for the amazing insight again. Loving these contents as always. Just a quick question, if you expect a correction between Q1-Q2 next year, wouldnt it be better to make the risk reversal strategy after the correction to get a better premium? But of cos, time value will decrease due to negative theta, if this is the reason why you would want to deploy the risk reversal now instead.
side note, take care of yourself and your family members! keep those amazing content coming! Cheers!
My view is probabilistic, not deterministic. As such, there is a probability a recession may not occur. So beginning positioning now accounts for the probabilistic nature of all forecasts and expectations.
I have enjoyed the entire 50 mins of this video and thank you, instead, again. You are too courteous, saying that you are holding us up for this long video. Dont worry about it!! the longer the video, the beneficial it will be for us!
@@MarkMeldrum Thank you Mark!! Appreciated this reply and thanks again for taking your time to create this amazing content for us!
Dear Mr Meldrum, would you please share your journey in the investing world ?
Hi Professor, thank you for sharing your expertise with us, insightuful as always. I am a level 1 candidate trying to understand how options work. I would like to ask you two questions (from min 40:53):
1. You said you are with GM, but you won't own GM shares now because you don't want to hedge out the dollar constantly. Could you please elaborate on this?
2. You are looking at around 200-300 GM 40 puts with a premium of 5.60. Let's say you will sell 200 puts, am I correct to say that you would actually sit on 800k (200 x (40 x 100)) to get a premium of 112k (200 x (5.6 x 100))? If that's right, would you have to own the equivalent amount of GM shares prior to the contract expiration or you will have to buy only if the price goes down and you will be required from the buyer of the put?
Thanks!
1. I don't know that any elaboration is needed. Holding GM means I have a USD asset. Don't want that.
2. Other assets in my portfolio act as margin, don't actually need the cash specifically. I am comfortable having the shares put to me. DO NOT do this if you are not.
Thank you for the video. Is there any resorces you can recommend that would help with building a foundation for developing our own fundamental analysis?
Hey Mark, love you video as always. Is it possible to make a video share your steps and thought process when you build a case? When I try to build a case and express an opinion, I found a hard time how to structure my thinking and tight things up. I think it will be great if you can share, thanks!
Any commodity indices you have on your watchlist?
Thanks mark!
The problem with real estate and REITs is that they are also competing against private investment companies. They didn't hit their investment targets in 2020 and many of those companies NEED acquisitions to survive on the corporate level, develop economies of scale, or attract new capital. Almost all of these companies expect 2021 to be a good year and they are ALL listening to the same data providers (Axiometrics, Costar, Green Street).
People are buying old apartment buildings < 1970's for a sub 6% cap rate and some new for under 5%... all with dreamy projections on rent growth, expanding margins, and compressing cap rates.
Also, IMVH (REITworld 2020 in November) thinks that their investment strategy won't be impacted when a massive influx of companies are moving away from their target areas 😂 and homes valuations are declining. Companies moving in their market for 30 years and valuations increasing is what made building to rent profitable.
Great video Mark and loved the discussion on the USD and implications for companies.
I'm also sitting on 80% cash after the large run up as well.
Regarding currencies I'm curious about your thoughts on crypto going forward since so many countries have been rapidly increasing their money supply over the past year.
Thank you so much for this post, very insightful. Would you agree that although being in cash can give you a more clear view, that someone 100% cash can really only be bearish? Or at the very least would create a bias
Well, would I like to see the market pull back 20%? Sure. But my cash position did not create my bias, my expectation (or bias if you prefer) created my cash position.
@@MarkMeldrum I understand now, thanks!
Thank you Mark !
@40:59 Hi Mark, why not buy GM shares on XET or FRA exchanges for Euro exposure rather than USD and get to own the underlying shares? Many thanks
That does not get rid of currency exposure. If the price of GM does not change, but the USD weakens, the EUR price of GM drops.
@@MarkMeldrum thanks for reply. would be interested to know how that works in practice if you could point me somewhere? might be missing the obvious..
You don't need a book. If you are holding an asset priced in EUR that is priced in USD, the EUR price is just the USD price * spot exchange rate. Change the spot exchange rate, you change the EUR price.
@@MarkMeldrum got you. Thanks
Thank you for the video! What do you think about EM market prospects?
What are your thoughts on Mid-Cap Value equities?
What investment horizon are you assuming for yourself when you talking about selling puts instead of buying GM stock because of the expected weakening of the dollar? Would it be wise to buy the stock if my investment horizon is about 5 years or more?
I am using Jan 2022. I am not making a recommendation on anything here - I share what I am doing as examples of how I would implement certain ideas I have. This is 99% education, 1% ideas. Do not copy me unless you have the ability to determine on your own when this idea will no longer work. I do not have, as with anybody in the history of this game, a 100% correct record.
@@MarkMeldrum thanks for the answer and great video!
Hi Mark, glad you are doing these videos again.
I agree with you on the dollar outlook. My worry is that global monetary policy is all trending the same direction and supply has gone up in almost every country. In many countries the increase in debt as a percentage of GDP has been higher than that of the U.S. It seems like at some point the U.S. will look like one of the "less ugly houses" in the global block and the dollar will find some support. What are your thoughts on global currency and capital flows? Thanks.
hi Mark, very excited about this video! what's happening with your ABR position?
Does anyone know what Mark thinks about btc and crypto in general
Thanks Mark, what's yours view on GBP versus USD. It seams the UK has a cheap version of the vaccine that is stored at fridge temperature. I also think brexit is keeping the GBP against the USD lower than it should be.
Have no given it much thought. Looking more at AUD and NZD as commodity currencies.
@@MarkMeldrum In other words you’re looking at CNY/CNH
These videos are extremely informative. One question for someone sitting on that usd exposure (as a European investor). What's the most convenient way to hedge out that risk by myself? I doubt I can get access to forwards and the options I have access to with my broker don't cover individual US stocks. Thanks!
Switch to Interactive Brokers.
Nice to hear from you on markets after a long time and thank you very much for sharing your thoughts... In your view, isn’t there still a case for certain reits given that they are in general inflation-hedge? I get your point about the cap rates and inability of most of the reits to increase rent in near future but what about, for example, the industrial reits with the continuing growth in online shopping (while there is lack of inventory space globally)?
Also related to this: isn’t the current situation where FED and other central banks are artificially keeping the rates low to reach negative real yield and they vow to do it by 2023 creates a special opportunity for reits to finance their new development and refinance their debt and increase their FFO?
Thanks again!
Well, its not the FED that will lend them money, its investors or banks - and they will price in their own credit spreads. And no, not all REITs are troubled. However, cap rates will increase across all sectors - they are historically low. I also see a significant wave of firm exists in the economy over the next 2-3 quarters which will unlock quite a bit of space. I think CRE will be oversupplied as a result for a number of years.
finally Mark you are posting updates!
Greetings Prof - just wondering what your take is on largecaps doing M&A and paying heavily for the rich valuations (eg. Sales Force on the Slack aquisition). Shouldn't liquidity be more of a focus during this time period and if most M&As lead to a loss in value for the aquirer (do they?) what should be strategy for investing in large caps
I am not stock picking, I am riding the index for beta exposure. While the components have a history of M&A, the index also has a long history of appreciation. So an observation at a micro level (M&A destroys value) seems to be well washed out at the macro level.
Mr. Mark, what about Global REITs, you can't use your expertise there? or specialized REITs like data centers or Timberland? you will just leave REITs for the next 10 years?
Not leaving REITs, but will bring them down to less than 15% allocation from almost 80%.
@@MarkMeldrum Mark, is ABR still a hold or is taking chips off the table warranted? My basis is $7 from March.
This was phenomenal Dr Meldrum, thank you for putting this out! Any thoughts you could share regarding crypto currencies?
Cool video great to hear your veiw. Though I'm not sure I understand your current aversion to US equity. I agree with your thoughts on inflation, but if the company is growing in real terms shouldn't the equity grow in real terms as well?
When you sell a put, aren't you betting that GM will fall? But you expect it to rise? Do you have to own shares to sell options?
Selling a put is a bet it won’t drop in price. You may be thinking of buying puts.
Hi Mark, love the video. I'd like to touch on the US dollar a little bit more and tie it to my portfolio. I have a very long investment horizon, and I am not that concerned with the USD weakening against the EUR because I am expecting a reversal in 3+ years where I would like to get my first gains and convert them to EUR ( I am adding quarterly flows to my portfolio from my salaries so I am cost averaging up my EURUSD price ). Am I wrong? Should I think about some hedging if I'd like to pay myself in 3 to 5 years from my gains ( by pay I mean some small percentage of my gains )? Thank you for the video can't wait for more!
Predicting currencies out three years is like flipping a coin. A currency is a random walk from a time series perspective, but it does have short-term drift. that is the best outlook you will gain - short-term.
Hi Mark,
I would appreciate your input on the below thoughts:
If you think USD will fall then why not go into EM or Developed ex-US markets? i.e. instead of SPY that you mentioned.
Also, if bond yields go up BECAUSE of inflation expectations going up, I don't see why bonds will become a competitor to equities, as investors will become scared of bonds since inflation will have become an ISSUE on their minds, so I see the opposite effect, i.e. more people going into equities instead of bonds, before more feared inflation ends up taking bonds to zero or negative REAL returns.
Keep these videos coming!
Thanks,
George
SPY is an international index. A bearish USD is not necessarily a bullish EM story. One is a currency the other is an equity market. Second Q - investors manage nominal returns, not real returns. The dividend yield on the SPY is nominal, and will suffer the same decay in purchasing power with inflation. So it's a competition between nominal returns, not real returns.
@@MarkMeldrum Your point about managing nominal returns is clear to me. What I mean to say is that once inflation spikes, I believe most people will prefer equities over bonds because of fear of even higher inflation (i.e. going out of control) which will mean that bonds will suffer a lot (being "fixed" income) while equities have at least some pricing power to fight higher inflation.
Regarding USD, I understand that you are not necessarily bullish EM, even though a weak USD is supposed to help those equity markets.
I guess one can play your USD thesis via a direct FX trade, e.g. short DXY, instead of trying to play it via an equity index such as SPY.
Thanks for the videos. About 43:15...Are you actually 100% cash with all of your assets? You said that with portfolio margining other securities in your portfolio, then you said will be planning on keeping. Are you fully 100% cash all assets? Or is this just 100% cash your trading portfolio. Maybe you already stated this, sorry if you did, just wanted clarification. Thanks!
100% cash in accounts I control. I do have pension asset exposure in accounts I do not control. I have started to build positions in GM puts and SPY risk reversals.
@@MarkMeldrum Thank you for the answer. I really hope people listen to your warning about not trying to do this themselves unless they truly have the time/skill to do it. You have worked hard and built backstops (through pension and the sheer amount of your portfolio). This isn't something someone should be doing with their whole retirement (which you clearly state, just reiterating).
Amazing video Mark, thank you! Just wondering if you consider buying VIX index at a time like this?
Great video Mark! Curious of your opinion of using REITs as an Hedge during a higher inflation environment?
Mark is my favorite RUclipsr.
Another big bull case for GM is Cadillac super cruise. A lot of reviews say it rivals or even out matches Tesla’s autopilot. On a different note though Mark, looking on a macro level here; do you think the recession you predict from the digital evolution will be exacerbated by the massive corporate debt increase we’ve seen since 2008. There are a ridiculous amount of zombie companies on their last breadth being propped up by the central banks of the world in the name of keeping people employed and avoiding such a dramatic shift of resources. What happens if it’s strong enough to topple the house of cards the fed built? The destruction of credit, waves of bankruptcies, unemployment, etc. is a scary thought! Do you think it could lead to further economic scarring?
Recession usually bring bankruptcies due to lack of cash flow and inability to continue to service debt. At the very least, a potential recession will cause a re-pricing of risk, so companies with higher debt burdens will see downward share price pressures. However, the debt burden, governments and business alike, can only be ignored for so long without significant growth.
If you read the Consumer Reports article that states the Super Cruise has better autopilot, it outperformed Tesla vehicles only in categories such as evaluating if the driver is paying attention and evaluating if and when the driver should take over. This doesn't mean it has better automation, just better training wheels
The comments/ pushback I’d have with the thesis is the following:
1) Europe currently going through the second Covid spike and market has shrugged it off. Why would the US be different in this case
2) Everyone knows that growth will slow and may go negative in the coming month or so and market hasn’t yet cared. I.e. the fears aren’t about something unknown.
3) The relationship between the dollar and performance of large vs. Small caps is unclear. If anything over a 20 year period it looks like large cap outperforms when the dollar rises. The reason for this is the dollar usually does well when growth slows (goes negative) so people sell risk and go into less risky companies, which are usually bigger. Also worth noting that a weaker dollar is *good* for risk assets!
4) When you have this known positive catalyst (vaccine) coming up, how much sense does it make to sell now, and buy a few months later? How much appetite does the market really have to sell off dramatically in this situation? I’d say not very, and any sell off will be met by a wall of buyers who are willing to see through nearer term weakness.
5) It looks like some sort of stimulus package will be passed (albeit smaller than originally discussed) which should help cushion the below that many businesses and families will face in coming months. That helps take you to point B (Q2/3 next year) in a better position.
6) The localisation vs globalisation point is so long term that I don’t think it should be a factor for anyone who’s looking 1-2 years out. I think we do see inflation acceleration on a transitory basis going forward as commodity prices will be up against weak comps. See here: twitter.com/vkmacro_mania/status/1336007881737592832?s=21
Where I struggle:
1) How much is actually priced in, and when do we really say the market is now too optimistic (I think we’re close)
2) Can the market see through potentially 2 quarters of deteriorating growth? I posit yes, but still clearly a risk.