An important unresolved question is whether the West has the political will to do what it takes to get inflation under control (and relatedly, fiscal deficits). Doing so is always painful. Some of that pain is starting to emerge. But West's tolerance for near term pain is low.1/2 Already we see, at the very first signs of trouble, widespread calls for bailouts, radical action to protect all depositors, calls for Fed rate cuts, etc. "Fiscal austerity" isn't even part of the lexicon, yet. It is not yet clear if the West can/will muster the necessary resolve

There is still yet to be a bank that has got into trouble/sufferred life threatening deposit flight that wasn't mismanaged & suffering major self-inflicted problems. Until that situation changes, calls for radical action including the guarantee of all bank deposits are premature. Notwithstanding Ackman et al doing everything they can to generate panic & scream systemic crisis in the proverbial banking theatre, only FRC has seen its equity plunge to near zero - it fell 47% yesterday while many/most regional bank share prices rose.

https://twitter.com/LT3000Lyall/status/1636607796052639745

The banking sector as a whole cannot experience a deposit run, nor a rise in aggregate deposit costs above average system asset yields (all in local currency), because banks in the aggregate determine how much they are willing and able to pay depositors. What can happen, is individual banks can suffer runs where depositors transfer deposits from bank A to bank B, and individual banks can suffer squeezes in deposit costs that push funding costs above their asset yields. But it can't happen for system as a whole (local currency).

Good FT article worth a read (link below). It's interesting Ukraine is doubling-down on trying to blame Russia, despite NATO states saying they have preliminary evidence the missile was Ukrainian. Either NATO is wrong (or lying), Ukraine is knowingly lying, or Ukraine is mistaken

https://twitter.com/RnaudBertrand/status/1592985673166114817

Also interesting is Russia claims it did not fire missiles at any targets near the Polish border that day, or even target Kyiv. I don't know if that's true, but if it is, it does raise the question of why there was a Ukrainian "anti air" missile fired in the vicinity of Poland.

Wasnt going to share this as id inevitably receive the typical abuse for “swallowing Russian propaganda”, but even Biden commented recently that preliminary evidence suggest trajectory made it unlikely missile originated from Russian territory.

https://twitter.com/UAWeapons/status/1592629251161075712

Note also that said account is a Ukrainian flagged account and if you look at its positing history, it is not pro Russia in its reportage. Their takes/analysis appear pretty credible, but I'm no expert and no one knows the full story as yet.

Recent USD inflation prints have benefitted from:
*17% YTD strengthening in USD (to Oct-31). Highly disinflationary (lower imported prices; induces import substitution & lowers export demand).
*A significant cyclical weakening in commodity prices (e.g. oil -30% from highs). This context should be taken into consideration when celebrating recent US inflation run-rate moderating to about 4%. Commodity & especially oil prices could recover if China lockdowns ease; USD has weakened 4% this month, & will weaken further on any "Fed pivot".

Softbank's cumulative returns on its Vision Fund & associated investments since 2017 is now negative (-US$1.5bn). This is also despite the fact that the majority of current carrying values are in privately held investments which are yet to take the marks public investments have.

What happened at FTX is straight-forward. FTX lent US$10bn of client funds to their trading arm Alameda, which used it for leveraged crypto speculation. Alameda blew up in crypto meltdown & can't repay. Ppl got whiff of this & tried to pull US$5bn from FTX. FTX didn't have it. The founder Sequoia just "loved", and was often lauded for his vision & generosity, misappropriated client funds to gamble them on crypto market, where he would keep all the gains for himself, but stick clients with the losses. This is about as greedy and unethical as one can be.

Markets are slowly learning that companies that grew rapidly by losing money, often only grew fast because they were putting false price signals into the marketplace - i.e. that their product was lower cost than it really was. It gave them an unsustainable "competitive advantage" If I produce widgets for $1 and sell them for $1.20, and you produce widgets for $1.10 and sell them for $0.90, you will grow fast - nay, "disruptively" - and take market share off me, even though you are a less efficient company. The low $0.90 price is a false price signal.

This is a pretty good update/summary on where the Ukraine war is currently at IMO. Agree with most, except I think it's wrong to say Russia is not yet willing to negotiate. They have made it quite clear on numerous occasions they are "ready to talk".

Russia made steady advances for first 6mths of war, but had a relatively small commitment of troops relative to the "total war" approach taken by Ukraine. The more territory you take, the more spread out/thinner your forces & logistics lines become.

The easiest thing to do as an investor is to buy what you and everyone else perceives to be a great company with great prospects at a full/expensive price. Anyone can do that (and almost everyone does); it requires no skill; and it tends to underperform in the long term. Why does everyone nevertheless do it? (1) It feels safer to own good companies, and those everyone agrees have good prospects; (2) most of the time, such stocks will outperform in the short to medium term, which seems to validate/reinforce the wisdom of owning such stocks.

PS further to this, my prediction is that 3Q22 earnings in the US (ex ponzi tech) will generally be "better than expected". Lots of stocks will likely enjoy temporary rallies post results. Markets and financial conditions haven't tightened enough yet to induce a recession.

https://twitter.com/LT3000Lyall/status/1581095325086859264

Ultimately, however, markets will need to decline enough to induce a meaningful recession - one that weakens employment markets enough to eventually slows inflation. Monetary policy will achieve that. The downturn in markets will drive a recession, not the other way around.

United Healthcare- now a US$500bn company- continues to grow revenue by double-digit rates and guides for sustainable EPS growth of 15% pa. If something doesn't eventually break runaway US healthcare costs (already 20% of GDP), it will eventually lead to a fiscal/economic crisis. Healthcare costs continue to rise at a rate much faster than GDP/inflation. If this does not change, healthcare will comprise a larger and larger share of GDP over time, leading to a destruction of productivity growth, elevated inflation, and outsized fiscal unsustainability.

Musk is getting a lot of flack for this position, but it is in fact the only rational/sensible position an informed observer can take if one seeks a long term resolution to the conflict, and one that reduces the risk of it escalating to nuclear war. Let's scrutinize these points:

https://twitter.com/elonmusk/status/1576969255031296000

Firstly, if elections are redone under UN supervision, most likely elections will favour staying with Ukraine. This would bloodlessly regain all lost territory in current conflict for Ukraine. MW, Russia would agree to this if they got Crimea recognized as part of the bargain.

Over the past week, UK has announced tax cuts coupled with spending increases/energy subsidies - i.e. fiscal stimulus at a time where the deficit is already 5% of GDP; while BOE has reverted to QE - i.e. deficit monetization - to control rising gilt yields when CPI is 10% y/y.🧵 This is a point of monumental importance. The trillion dollar (pound?) question is whether UK has a similar experience to Japan, where large deficits and BOJ printing/yield control have succeeded in controlling yields & haven't been inflationary, or more akin to EM/FM experiences

Some interesting & fast developments in recent days:
*Russia passing various laws allowing for large scale mobilization/conscription/martial law etc. Prima facie plans for major escalation.
*Russia saying plans (sham) referendums in Donbass & Kherson etc to annex territories.🧵 However, there have also been recent reports Russia is coming under greater pressure from allies/quasi-allies to end the war, including China, India, and Turkey. Erdogan recently said Putin wants to end the war quickly and a "significant step" was coming.

bbc.com/news/world-eur…

The below (from WSJ) is conventional wisdom, but it is false. Higher rates & tighter liquidity impact stock prices not by reducing investors *willingness* to pay more due to DCF models, but their *ability* to pay more. Asset prices are not simply a matter of opinion. Overall asset prices are determined by the interaction of aggregate demand and supply in the capital market as a whole. If you drain liquidity from the system, there is simply less system cash chasing the same assets as before, and hence the *ability* to pay more declines.

Many investors seemingly struggle to understand that you can have a liquidity-induced bear market that is not accompanied by a consumer recession. Everyone keeps saying markets are falling due to recession fears, but there is no necessity of a recession for markets to fall. The reason people think that way is that all the prior downturns we have had over the past 20yrs were demand driven and associated with a recession. The present downturn is more akin to the 1970s. GDP (esp nominal) grew strongly during the 1970s but markets were a total disaster.

Jumia (JMIA US) is trying to convince investors its gross profit is high and rising, rather than low and falling, by excluding fulfillment expenses from "gross profit".

Seems to have worked - the stock rose as much as 42% post results. That's a lot of accumulated losses. As a reward or their efforts, they have a amassed a biz that generates US$2.5m in quarterly gross profit at greater than *negative* 100% operating margins.

Not the sort of financial statements that gets me excited, but I guess I'm old hat.

This is pretty good analysis IMO. The primary motivation for Russia's invasion of Ukrainian appears to be to secure a land bridge to Crimea - either through annexing Donbas or establishing "independent" pro-Ru republics that would allow overland transit.

*Sevastopol navel base is highly militarily strategic for Russia, allowing year-round ice-free & direct access to Mediterranean.
*Crimea was transferred to Uk as an admin convenience in USSR era & is mostly ethnically Russian, and not considered legitimately Ukrainian by Russia.

Don't mean to single out Gavin, but it's a widely held perception that market moves are simply a matter of investor expectations; ie "pricing in" hikes. In fact, liquidity impacts market prices by changing the demand and supply balance of capital. Expectations are extraneous.

https://twitter.com/GavinSBaker/status/1536431038192304128

Expectations are a microeconomic phenomenon that only affect the relative pricing of individual securities. Aggregate asset pricing is determined by the demand and supply of capital. As capital becomes more scarce and the carry cost of borrowing rises, asset prices will fall.