The Day We Stopped Pretending

⚡ The Spark
The Day We Stopped Pretending

I’m a huge fan of anecdotal evidence. 

Sure it won’t stand up in a court of law, but we’re not trying to win legal cases. We’re trying

It’s one reason why I like to supplement economic data with earnings calls.

And sometimes… Random tweet threads.

See, a lot of the time things happen quietly in the background, away from public view.

If you get into debt trouble, you don’t go shouting about it in the streets to see if anyone will lend you money.

You quietly ask trusted friends or family members first.

If they can’t help, you spread the net a little wider, perhaps as far as acquaintances, even work colleagues if things are desperate.

All quiet & furtive. A little ashamed. Hoping word doesn’t get out…

That’s not unique to personal debt problems.

The same applies within businesses too…

It should surprise nobody that anyone with a big fat levered property portfolio is likely suffering after the massive swing away from insanely low interest rates we’ve seen over the past 18 months or so.

But where are the bodies? The blood in the streets?

Enter the anecdote:

(read whole thread)

See, a load of these guys will be in the same boat. Quietly bleeding out in the corner.

That’s one of the benefits of property portfolios (and private equity):

Tangent: I watched this happen first hand in Spain, during the years after the 2008 bubble popped.

Banks simply wouldn’t mark the properties to market. I would sit in their offices reading through enormous lists of overvalued, repossessed homes.

All of those values were on the balance sheet. None of them were real.

Until one day,they were… But only a select few. Once the bank decided to shift some inventory, they’d allocate the loss and drop the price, which would often sett the new price floor for every similar property in the development.

The same can happen in any market. New public information resets the price.

In the case of these portfolios, it could be that deal is revealed by an insider, or a public agreement closes and losses are crystallised.

Either way, it becomes common knowledge

When there’s a new price. A new benchmark for everyone to compare to….

That’s the day that everyone stops pretending.

Annoyingly, nobody knows exactly when that day will be…

🧠 The Big Brain
BoJ Tweaks Yield Curve Control, Yen Weakens

Wait, that wasn’t supposed to happen… right? 

If the Bank of Japan is getting more hawkish, surely the yen should strengthen…

If we lived in a world of absolutes and black and whites, then yes.

But we don’t. ESPECIALLY when it comes to the Bank of Japan…

See, the BoJ didn’t really do much. They said that the 1% 10 year yield cap is no longer a red line (they even used a red line on a chart to illustrate)

But they’ll still be nimbly intervening around that 1% level to keep things orderly.

At the same time, the central bank drastically upgraded their 2024 inflation forecasts, whilst doing nothing to really tighten policy.

So what’s actually going on, and is the yen set to weaken even further?

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💡 The Lightbulb
Listen To The Legends

Two of the best to ever play the game: Paul Tudor Jones & Stan Druckenmiller

Chatting here at the Robin Hood / JPM conference

A fascinating 30 minute conversation. Covering fiscal recklessness & how US exceptionalism could be negatively impacted if (when?) the bill ever comes due.

Old Stan also mentions anecdotal evidence of softening just starting to come through too. All the best people LOVE anecdotal evidence.

Well worth a watch.

Remember, even though they’re legends, they can’t predict the future any better than the rest of us.

The value is in listening to how they think about things.