Mostly Borrowed Ideas Profile picture
Sep 14, 2020 10 tweets 3 min read Read on X
1/ Thread: Upside-down markets

@Jesse_Livermore recently wrote an intriguing piece on "upside-down markets. It's essentially a book (94 pages).

What is the upside-down market?

It is when good news works as bad news, and bad news works as good news for the market.
2/ In monetary policy context, if bad news lets central banks lower interest rate and if it is lowered more than the severity of the situation at hand, overall impact on market can be positive.

But rate cuts usually don't outweigh the situation at hand.
3/ Fiscal policy, on the other hand, is the "cheat code".

As long as you are willing to tolerate inflation risk, if you are motivated enough, you can achieve any level of nominal growth you want.
4/ When both monetary+fiscal policy have "whatever it takes" approach, you have foundation for the upside-down market.

Let's run through what happened in the virus hit economy to explain further.
5/ Fed cuts interest rate to zero. Your cash/bonds earn almost or literally nothing. Stocks appear more attractive.

Ungodly amount of govt securities is issued to fund spending. Relative supply of equities in the broader investment basket appears scarce.
6/ Virus also gives good excuse for companies to cut fat and improve productivity. So margins improve.

The lost income from household gets replenished from the govt through stimulus.

Overall, if you are an equity investor, it's a bonanza!
7/ At the end of 2019, investor allocation to equities was 46.2% of total portfolio wealth.

After $7.5 Tn issuance of zero yielding bonds, this allocation dropped by 4% to 42.2%.
8/ If investors want to have the same portfolio exposure to equity, $SPY has to reach 3900 assuming no equity issuance.

In a ZIRP world, the logic of TINA is sound, but not without inherent limitations.
9/ TINA makes life difficult for both bulls and bears as bulls fear the music might stop anytime whereas bears suffer from FOMO.

The whole thing makes sensitive to new information.

More explanation in the images here.
End/ If you want to read the whole thing, you can go here: osam.com/Commentary/ups…

All my twitter threads: mbi-deepdives.com/twitter-thread…

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More from @borrowed_ideas

Sep 23, 2024
Just published my Deep Dive on $VEEV
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read the full Deep Dive here: mbi-deepdives.com/veev/
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Notes from $TXN Capital Management Call today

"Market environment remains weak, with shipments below 2019 levels." Image
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Four revenue scenarios for 2026, with floor being $20 Bn. FYI, $TXN consensus estimates for '26 revenue is $20 Bn.

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I received a couple of DMs asking about "hey, what's going on in Bangladesh"

While I left Bangladesh in 2017, my almost entire family still lives there. So I'm keenly aware of what's going on. I'll briefly cover what happened and the implications.
let's start with the end result. The Prime Minister (PM) Sheikh Hasina or SH (who's the Head of State in Bangladesh) fled the country after facing intense protest from Bangladeshi students. Her exact location doesn't seem to be confirmed yet (rumored to be India or EU).
Let's back up a little and give some brief historical context.

SH came to power in 2008. Her father- Mujib was the architect in mobilizing people in Bangladesh to gain independence from Pakistan in 1971. Following independence, Mujib became the first PM of Bangladesh.
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Aug 5, 2024
Incredibly lucky to have bought these puts exactly a month ago. +130%.

Made several (but slight) changes in the portfolio today. More below.
closed my $AMZN Jan 2025 $160 calls that I wrote. 43% gain in this trade, but feels like just another lucky trade as I now think AMZN is undervalued (and I was likely too cautious to hedge it at $160 back then). Kept the $55 calls unhedged now.

sold ~1% $BRO to add to $CNSWF.

CSU's organic growth for recurring revenue will probably more or less mimic $BRO's organic growth. But CSU has ~20% ROIC vs BRO's ~10% but they trade at *almost* similar multiple. So I decided to buyback what I trimmed.



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Jul 26, 2024
Going through insurance brokers earnings now. $AON and $MMC finally growing in tandem after AON lagged MMC consistently since 2Q'21.

$BRO is the clear winner in organic growth for this quarter. (disc: long $BRO and $AON) Image
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will add to this thread later as I go through the transcript.

In the meantime, here's my Deep Dive on $BRO (also explains why I love this industry and would like to own probably most of these companies over time at "right" valuation):

mbi-deepdives.com/bro/
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Jul 26, 2024
Notes on $TXN 2Q'24 Call

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