Tyler here with this week’s Macro Musings.
As always, if you come across something cool during the week, shoot Alex an email at firstname.lastname@example.org and I’ll share it with the group.
Recent Articles/Videos —
Market Overview — Is this just a short-term bounce? Or is the bull back in play?
Disney — A fundamental overview of one of the largest positions in our portfolio.
PTJ — Jack Schwager reveals how Paul Tudor Jones first learned risk management.
Going Pro — Tyler discusses the different ways to break into the investment industry.
Articles I’m reading —
Eric Lonergan, author of the excellent blog Philosophy of Money, put out a great piece this week on Modern Monetary Theory (MMT). This line of economic thought continues to gain traction amongst policymakers. There’s a high likelihood it’ll be put into effect following the next economic downturn and this will have huge macro implications. So it’s important to stay abreast on developments in this space. Here’s the link and an excerpt.
MMT has also achieved far more than a reorientation of focus. I think one of its greatest achievements is pedagogic. Stephanie Kelton is a prime example. Much of macroeconomics makes fundamentally simple concepts – such as the relationship of real interest rates to consumption spending – impenetrably complicated. As a result, a great deal of macroeconomic modeling produces a loss of insight and introduces a fresh bias: over-confidence due to complex formalization. MMT achieves the opposite – it makes complex matters, banking, fiscal policy, money creation, far easier to understand than any other approach I am aware of. And in most cases, the explanations are rigorous and accurate. It should not be surprising that MMT has a band of activists – economists like Stephanie Kelton have made macroeconomic problems which are of critical political importance highly accessible, while simultaneously revealing the snake oil peddled by much of the political class. There is a lesson here for everyone.
And Jesse Stine (author of the book Insider Buy Superstocks) shared a Gdoc this week with a list of great monthly charts from around the world showing a wide range of markets/stocks that are deeply oversold and up against their lower Bollinger Bands. Looks like there’s lots of slack in the market for a big bounce. Here’s the link.
Chart I’m looking at —
I’m constantly monitoring and tweeting out the chart of SHY/HYG on tradingview which tracks the direction of credit spreads. As this spread trends higher it becomes more costly for corporations to service their debts. Wider spreads also equals tightening liquidity conditions. That’s not a good thing for risk assets which is why we usually see stock market weakness when credit spreads widen out.
It’s concerning to see this spread on the highs for the year. It’s unlike the February panic because price has been holding above resistance and stabilizing. So unless this spread fails back into the range, I expect a risk-off stance from market participants into the end of the year. If it becomes a false breakout stocks can retest the highs of the year again.
Podcast I’m listening to —
Howard Lindzon came on Patrick O’Shaugnessy’s pod recently so I quickly downloaded and took a listen while at the gym last week. (Link here)
I’ve always thought of Howard as the “Stocktwits guy” but he’s done so much more than that over his venture capital career. I had no idea Howard was an early stage investor in one of the most popular stress balls of all time….
He also attempted to put CNBC on youtube in 2006 during the early moments of online video. The show, called Wallstrip never made it past 2008 but Howard already made his exit to CBS by 2007.
All of the old Wallstrip episodes are still up on youtube. If you want a few laughs check them out. (Link here) They are highly entertaining and nostalgic. Online content from a decade ago has a certain kind of silliness and wackiness that you just don’t see anymore.
Book I’m reading —
I’ve been on a fiction kick recently which has led me back to rereading The Name Of The Wind by Patrick Rothfuss. It’s a fantasy novel which feels like a darker, more mature version of Harry Potter.
But for me the actual narrative isn’t the best part, it’s the author’s prose. The writing is so clear and finely crafted that the words seemingly absorb into your mind without any comprehension effort at all. My hope is that by reading Pat’s stuff I can pick up a sliver of his writing skill. The guy is an amazing writer.
Trade I’m considering —
Gold has been a tricky trade since summer. We keep going back and forth on whether or not it will continue to downtrend or finally breakout and retrace some of the down move it had in the beginning of the year. But after yesterday’s sign-of-strength reversal I think it can finally move higher.
All gold needs to do is close above the highs of October 26th.
Once it does that the extreme short spec position will likely work itself off entirely and fuel a sharp rally.
Quote I’m pondering —
Survive and advance. ~ Jim Valvano
When the markets become incredibly tough and painful it’s not the traders job to make money. It’s simply to survive and stay in the game until the fat pitches show up again.
That’s it for this week’s Macro Musings.