Predictable – OWTW – ValueWalk Premium

Predictable – OWTW

Long-term readers are by now familiar with our investing philosophy and “market bias.”

We are long-term investors first and foremost. We shun what’s expensive and gravitate towards what’s cheap. In recent years, that meant backing up the truck on everything energy, particularly oil and gas and coal, and resisting the seductive siren call of “growth stocks.”

Q3 2022 hedge fund letters, conferences and more

With that in mind, the following quote from CEO of private equity giant Apollo struck a chord with us (h/t/ to @TheTranscript_):

We have an entire generation of investors, investment analysts who have really grown up just seeing the market go in one direction […] And they are also discovering that most, if not all, of last decade’s investment acumen, was really nothing other than market beta.

To be frank, you didn’t have to be a genius to see this coming. Take a generation of investors with an inability to understand a P&L statement in search of “the next big thing” and bamboozled by narratives, arm them with a Robinhood account, lock them in their homes, give them “stimulus” checks, and see what happens.

Predictable. But what is also predictable is how this all ends. Just make sure you’re not in the way when the party ends and the vomiting starts in earnest.

🛢️ What if?

As we write this, over in the US, the Strategic Petroleum Reserve (or SPR for short) just dropped to the lowest level in nearly four decades (h/t @charliebilello).

This makes Kuppy’s latest piece in his “Fed is Fuct” series opus all the more thought provoking. Here’s an excerpt:

Now, what if oil didn’t go to $300 due to OPEC?? What if oil went there because our President has joined an end-of-days economic suicide cult, with a bizarre carbon obsession?? The oil price spike would be the same, yet the cause would be different. In this self-inflicted scenario, would the Fed chase oil higher and continue raising interest rates to fight inflation?? Or would the Fed bail out the economy?? Every investor needs to answer this question and answer it correctly as the range of outcomes is too extreme if you get it wrong. If the causes of the oil spikes are different, will the responses be different??

I think we’re about to play out this experiment in real time over the next few months as the SPR releases end, right as China re-opens. The investment choices in front of you are quite different in terms of how you answer this key question. Sure, you’re going to ride oil into the supernova, but when you switch investment horses, which one do you choose??

Something worth pondering…

🤷 All Things Transitory…

Feels like a lifetime ago, when — back in February 2020 — we started warning that lockdowns will bring about inflation and shortages. Fast forward to today, and this pesky stuff is now part of our daily lives. We recently set up a dedicated inflation channel in our Insider private forum, where members can share their own experiences with all things “transitory”.

Insider member Sean reports on “paperflation” this week:

My sister in the UK just told me this: Ream of A4 paper at Tesco…used to be £2.50.. now £4.75!

A 90% increase? Ouch! If — like us — you’re wondering what does this mean for businesses, another member, Sam, has an answer:

I publish a local magazine, we have had three price increases for printing it over the past year due to the increase in the cost of paper. We had to raise our advertising rates by 10% but any benefit to us from doing this has long been wiped out.

And finally, bad news for all the pub goers from Insider member JP:

Was in London over the weekend and TBH quite shocked to find average pints in average pubs were all around 7 quid!

🤥 She Really Said That!

For a moment, we debated including this under the humour section, but it’s actually more grotesque than funny…

Yes, she really said that!

Lagarde told host Ryan Tubridy that the combination of a “very speedy recovery” from the pandemic and “the energy crisis caused by Mr Putin” had plunged Europe into the current crisis.

She added that it had come “pretty much from nowhere”.

We’re reminded of a piece we highlighted in Insider Newsletter more than a year ago:

Christine Lagarde has distanced the European Central Bank from the move towards tighter monetary policy by many other central banks, promising not to “overreact to [the] transitory supply shocks” driving inflation higher.

The ECB president said policies to shift countries towards a low-carbon economy could fuel further price pressures, as shown by the recent surge in gas prices. But she said that in the eurozone there were still “no signs that this increase in inflation is becoming broad-based”.

As we said at the time:

In seeing a future of “transient” or “benign” inflation the actions of central banks today create a future of “systemically high” inflation.

And here we are a year later, with official inflation in Europe just crossing the 10% mark.


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