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28 Nov, 4 tweets, 2 min read
1/n Yes, @LawrenceLepard chart is misleading. (1) datasets are not comparable. Substantive devaluations of the USD vs gold occurred in 1932 and 1971. These were political and not Fed. Debatable whether post-2000 is CB related or whether gold is really expensive.
2/n The UNIQUE inflation of the 1960s and 1970s is largely misunderstood. From my perspective, the story of "stagflation" in this period is false. There was no "slow growth" in the 1970s -- fastest growth rates for housing and jobs in US history.
3/n This becomes relevant as we think about what Fed has "actually" been doing -- staving off rampant DEFLATION. Were we still on the gold std, we'd be facing events of deflation similar to Great Depression since 2000. Instead, a "flexible" currency has encouraged "stability"
4/4 However, as a society I'd argue we've lost sight of "how to progress." Using energy is not bad, it's GOOD. And the malaise of the 1970s is obvious in this chart... as is the reason for growing dissatisfaction since the 1990s. We need an energy revolution (nuclear).

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Michael Profile picture
24 Nov
1/n It's looking pretty good for the "I told you so" value crowd (and my DMs have been full of "I told you so"). However, there is a big difference between "Value" and "Anti-Momentum". The "value" factor has not actually done anything when adjusted for the anti-momentum dynamic
2/n When we look at the Value factor alone (Value longs vs Value shorts), it's interesting that it looks exactly like economic recoveries in 2002-3 and 2009-10. In contrast, in 2000, a VERY different dynamic occurred
3/n And when we look at market neutral momentum, we have unwound virtually ALL of the momentum outperformance YTD and are now below the 5y moving average and almost at the post GFC trendline that has sustained prior "corrections".
Read 7 tweets
Michael Profile picture
2 Oct
@jam_croissant @mre2all 1/n Thanks for this. While I actually agree with some of the fundamentals here, I'm a bit skeptical of the mechanics. Companies like AMZN, AAPL, MSFT, etc have remarkably strong cash flows and have not had to tap capital markets except to subsidize employee compensation
@jam_croissant @mre2all 2/n While we can argue Fed support helped these corps, it seems more likely that the Fed has net hurt these corporations by keeping funding flowing to their weaker competitors. In fact, highly rated corp debt growth has been restrained while lower quality debt has grown rapidly
@jam_croissant @mre2all 3/n I'd go further and note that the holders of "value" stocks continue to be active managers. @choffstein recent piece does a good job of illustrating this. Unless you can create a mechanism for passive funds to flow into actively managed vehicles, I don't see how this reverses
Read 5 tweets
Michael Profile picture
7 Jul
@KennyDegu @SuperMugatu @CioEnd @MarkGutman9 1/n Millenials are too old for college and largely too old for advice, so splitting this response. One of the best pieces of advice I ever received was from Mary Modahl (@marymodahl). People are either horses or mules. A horse will work themselves to death given encouragement
@KennyDegu @SuperMugatu @CioEnd @MarkGutman9 @marymodahl 2/n while a mule will work at their own pace regardless. Know which one you are. I was a horse and worked myself until I burned out, convinced I was changing the world. In your 20s, you will almost never change the world. Pace yourself.
@KennyDegu @SuperMugatu @CioEnd @MarkGutman9 @marymodahl 3/n Your 20s are a time of self-discovery. Learning curves are steep and you rarely have time to question convention. Develop excellence in execution. Work hard, but learn how to work SMART. Take vacations. Not to exotic locales, but quiet spaces that let you examine assumptions.
Read 6 tweets
Michael Profile picture
11 Jun
1/n This is an interesting question we've tried to calibrate. The challenge is the term "valuation". Makes sense when money resides with discretionary investors where cash is base asset and securities are purchased based on forward expected return. Presumably, a scenario
2/n exists where a discretionary manager finds nothing priced for positive expected return and sits 100% in cash. Obviously restrictions on portfolio construction reduce the proportion of cash allowed. Rodriguez at FPA was last I remember with 50% cash and he caught huge flack
3/n This ability to “flex” cash levels is largely what determines valuations. Ultimately if I buy and you sell, “cash levels” don’t change. The urgency which I get rid of my securities relative to your urgency to sell cash determines price which changes cash % of market
Read 8 tweets
Michael Profile picture
14 Mar
1/n This is why this game is hard. @ValueStockGeek should be applauded for putting himself out there. However, I have to highlight a few salient points from his post valuestockgeek.com/2020/03/14/im-… which should be read
2/n @ValueStockGeek highlights depths of previous drawdowns in small value, but its worth pointing out that we have ALREADY exceeded two of these events (1990 and 2000) in Russell 2000 Value. From Aug 18 peak VBR fell 38% both in price and NAV
3/n This pales in comparison to the drawdown in “pure” value (RZV) which eliminates overlap between growth and value embedded in VBR. Down a “staggering” 56% over same period
Read 10 tweets
Michael Profile picture
10 Mar
1/n When speaking to institutional clients and regulators, I often share a video to explain the short vol/gamma phenomenon. Most are familiar with some variant of the “positive gamma, positive theta” market position for dealers. This is created by systematic vol selling
2/n This vol selling typically takes the form of single stock — overwrites, worst of, buybacks — and is then repackaged into index vol and sold at a premium generating the positive theta (time decay). However, this is not riskless as there is an implicit short correlation bet
3/n which kicks in at lower prices/more violent moves. The past few days have seen nearly all stocks in the S&P 500move in same direction, hence dealers find themselves underwater having sold much more vol (Vega) than they thought they did.
Read 6 tweets

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