David Neuhauser of hedge fund Livermore Partners on CNBC discusses that slowing big tech performance a tell-tale sign of things to come.
Q3 2021 hedge fund letters, conferences and more
To Partners and Friends,
2021 is nearing its end and it sure has been an eventful one.. And later today, the FED meets to determine if tighter monetary policy needs to occur sooner than planned. Given the fact inflation has not been transitory and is in fact, a macro sustainable force. That said, and given where sketchy corporations and Governments sit with bloated debt on their balance sheets, tightening monetary policy too quickly can lead to financial instability and perhaps a black swan event.
This would occur given the years of loose monetary policy, mispricing of risk assets, and misallocation of capital that has now spanned almost a decade.
All the while, depressed productivity growth continues to tighten manufacturing output (along with increased input costs) that are now being passed along to the consumer. Which remarkably, is still in a good position due to the wealth effect and massive Government stimulus brought on by COVID. The key question will be just how long individuals can continue to fund a higher cost lifestyle if their standard of living expense increases even further and inflation remains stubbornly high.
Today, US debt is 106 percent of GDP. The last time this occurred was 1946 and was only reduced through both economic growth and inflation as a result of WWII. Although in our world today, growth is running at below trend than post wartime, and with that, we've already had over $6 Trillion of stimulus feeding the liquidity bubble.
US Treasuries are yielding negative real income after inflation and will continue to do so even if the FED slowly tapers bond buying and gently raises rates. Therefore, it will be very difficult for inflation to get under control without a heavy-handed approach. We don't see this occurring so the FED is in fact, handcuffed. This is the tail risk of capital markets today and if a major policy error has indeed manifested, we could witness some very negative repercussions as inflation is sustained, becomes even more elevated, and eventually tips the global economy into recession.
This is the concern of the markets today and why we own hard assets as a strong hedge.
On that somber note, below is our recent interview on CNBC. Discussing why select tech companies may continue their recent down draft and why we own commodities as our investment theme.
Livermore Partners: Slowing Big Tech Performance A 'Telltale Sign Of Things To Come'
Warmest regards,
David Neuhauser
CIO
Livermore Partners
