Tyler here with this week’s Macro Musings.
As always, if you come across something cool during the week, shoot me an email at email@example.com and I’ll share it with the group.
Quick announcement: If you’re wondering why emerging markets have been getting taken to the woodshed lately, then sign up for the Macro Intelligence Report this weekend. Our September issue will cover China’s economic (quasi)-deleveraging, including everything from its impact on commodities and precious metals, to currencies, and the housing bubbles in places like Canada and Australia. If you need some short ideas you’ll definitely want to take a look at this report.
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Recent Articles/Videos —
The ONE Thing…China’s slowdown and the rough road ahead for EM — Alex lays out the case for why this downtrend in emerging markets is only the beginning.
Howard Marks On Market Edges — Marks speaks all about the high yield “junk bond” market back in the 70’s.
Joel Greenblatt On Big Picture Thinking — As Greenblatt explains, he was only average at valuation work. His real edge came from putting information into context and pinpointing what matters.
Article I’m reading —
In last month’s MIR, Alex explained why traditional accounting metrics and old-school valuation techniques cannot properly value long-term compounders like Amazon and the other dominant tech companies of today.
Bloggers at the CFA Institute have a similar take:
One argument we’ve been making for a long time is that these companies have made substantial investments in valuable intangible assets, but accounting rules require that these investments be expensed rather than capitalized. This depresses current earnings and book value and thereby inflates P/E and P/B ratios.
If you want to understand why the tech giants have expensive stock prices relative to earnings this article will help — Franchise Quality Score: A Metric for Intangibles.
Video I’m watching —
Logan Paul vs KSI — Two huge youtube personalities set up a boxing event at the Manchester Arena last month. The event was sold as a pay-per-view on youtube for $10 and it ended up being the largest live event in internet history. At peak the youtube stream had over 800,000 paid viewers.
I bring this up because I think this is a trend worth paying attention to. The fact that two vloggers, neither of them actual boxers, can get this much watch time is incredible. Professional boxers who train their entire life dream for this kind of audience.
It’s a clear sign that media, sports, and entertainment as we know it is changing in a big way. I haven’t quite figured out what this means from an investment standpoint, but I’m starting to visualize an entertainment future dominated by youtube personalities and esports. I’m sure the conventional sports organizations are taking careful notes.
Chart I’m looking at —
The EURUSD has a mixed outlook. The divergences earlier in the year have more or less corrected and positioning is now a headwind for the greenback. In response to this we have reduced our long dollar holdings until greater clarity develops.
Podcast I’m listening to —
Bear Vs. Pig Hammer Trader — SEC Filings, Volume Forecasting and Due Diligence — Bear vs. Pig is a new podcast I stumbled upon last week. It primarily focuses on the micro cap penny stock space which isn’t really my niche, but I still found the content interesting. In this particular episode, “Hammer Trader” explains how he makes sense of this crazy rumor driven area of the market. I think a lot of his analytical techniques can be carried over to other areas of the market as well. His style combines quantitative and qualitative analysis so there’s something for everyone in this 50 minute show.
Book I’m reading —
The Leangains Method: The Art of Getting Ripped. Researched, Practiced, Perfected — This has nothing to do with finance but definitely check this out if you are into health and fitness. The Leangains Method started out as a collection of blog posts over 8 years ago. It has now been refined and distilled down into this book.
Martin Berkhan, the author, has a no-nonsense approach to diet and exercise. He was one of the pioneers of intermittent fasting at a time when 6-meals a day was the conventional advice. The diet and training regimens are simple, minimalist in nature with no frills. I’ve gotten a lot of results out of little time investment with this approach.
Quote I’m pondering —
Economics tried to model itself on Newtonian physics. It sought to establish universally and timelessly valid laws that govern reality. But economics is a social science and there is a fundamental difference between the natural and social sciences. Social phenomena have thinking participants who base their decisions on imperfect knowledge. That is what economic theory has tried to ignore. ~ George Soros
That’s it for this week’s Macro Musings.