H/T a reader
In EM, you didn’t do bottom-up until you understood the top-down and be comfortable with the nation, etc.
Hard to find hedge funds that do 2 out of 3 (macro, quant, fundamental) but Passport does all three.
“Price is a liar.” – Price is nothing other than the equilibrium of liquidity. It’s where people agree.
[drizzle]What’s separating price from a big move in one direction or another is just liquidity.
1994 – the web browser. The really exciting thing happened from something that had never happened before.
In 2003, nobody had mentioned China. It was hidden. That shows you how stupid markets really are.
I’ve been good at discovering things that are going to be different. Track record of getting ahead of trends.
2004 – Greenspan didn’t want a recession. Preventing price discovery. Oil blew through previous $40 ceiling.
2002 – combo of Greenspan cutting rates and china demand – building a case for being long EM, commodities, no part of S&P.
When you’re right, and there’s no consensus, it can be hard to raise money. “No one else is saying that.”
Started w/ $800k in 2000. $3mln in 2001; $6mln in 2002; $12mln Q1 2003; $50mln from seed fund.
“The power of a sustained move that markets haven’t discounted before, don’t fully understand is pretty extraordinary.”
There was no model on Wall Street that imagined housing prices going down.
2011-2012: New period. End of China’s growth as industrialist. Stimulus no longer effective. Wanted no part of EM/commods, long US.
Do not imagine you know where we are in 2019. Although the world is slow, it’s more dynamic than ever. Information is fast.
The internet – pace of information distribution – not in the fed model, not in past data. & it’s accelerating.
Don’t associate GDP growth w/ change. GDP tracks what’s physically moving around. The most valuable stuff is now moving for free.
If you do something more efficient, you’re hurting GDP. Your margins go up. No accident that S&P margins are at all-time highs.
I think we have low global growth the way we measure it through GDP. Fixed income will do ok.
The multiple for leading equities will rise. I will not be caught short equities at 20-25x. I’m done in EM.
Stronger USD – unilateral QE for 5 years. A lot of people borrowed in USD; now covering their shorts. Foreign revenues – hasn’t been that high.
Favor quality & liquidity, innovation & governance win – things that favor the US. Qualities you want in risky time with low growth.
Barriers to competition are falling down. Those who change will win. Most IP is worthless.
Longs – things that aren’t hurt by stronger dollar. Shorts – are hurt by stronger dollar (EM companies borrowed in USD, commodities).
The most important things don’t revert to the mean, they diverge from the mean.
How does the fed control demographics in their model? I don’t know, but they’re very different than they ever were.
Type of China’s growth for massive nation won’t ever happen again. India won’t come close.
10yr bond yield conforms well with demographics – the baby boom. It’s only getting worse from here.
Globalization, demographics, free information – all ways of accomplishing more with the same or less – deflationary – actually progress.
Consumers are what matter in China and more and more so around the world.
Very high correlation between S&P vs EM, DXY.
US QE prompted everyone else. Irony – by not doing concerted coordinated QE, unilateral QE – USD goes up. $4T borrowed USD gets painful.
Consumer change, technological change – ex: Nutrition. More information on nutrition causes changes. More nuanced than GDP growth.
The question now is who can create change? US does that better than anybody. “This place” (Silicon Valley) does it best in US.
Many large caps are not expensive, but lookout for foreign revenues hurting earnings.
Internet bubble = internet infrastructure bubble. Investors had to build before benefits. No benefit directly after building.
Cisco at 70x earnings – tangible, the building blocks. Internet as a person – invest enormous amounts before getting a return. Internet now 21.
The next ten years will be nonlinear. Discovering genius. Genome sequencing. EM not the agents of change, but benefits of change.
Smart beta – quants packaging factors and trading them on a market neutral levered basis – getting traction among academics, a bad idea.
