“this substack is moving from theoretical to practical”. Awesome! And glad you’ll still keep writing on some of the theory as per your reply to Antoine above.
interesting idea - but might take time to unravel is proved correct (USD 3TR on the sidelines in PE...there are still fees to be earn there i guess) - your day one subs like me will most probably regret the old format of long term macro thinking which is what is missing in the research world. I would suggest you actually continue the same format/research AND add an additional option for the short PE trade.. what do u think ?
Yes - going back to the formula I had when running money... macro, industry stuff when I see it - but then a regular portfolio update at the end of the month. The big difference will be looking closer at markets and individual stocks - which I have avoided doing as I wanted mind space to think big picture stuff... And if you have anything you would like me to look at - just drop me a line! I still plan on being interesting!
With respect to where bond yields are headed, I think folks still need patience for the lag effects to kick in. The US 10 yr T has barely been over 4% consistently for even a few mos. It's been only a year that rates have been somewhat high. There is no way a world economy built from 2009-mid 2022 on ZERO rates can take a 4% 10 yr T for long, let alone a 5% 10 yr T. This is going to wreck the economy soon, slow inflation, and drive yields down. And this whole "new era of inflation" narrative will go up in smoke.
Remember, something in 2020 & 2021 happened that had never happened EVER in world history. in the USA people were told NOT to go to work for 2 years! They were sent large checks in the mail, unemployment checks were doubled for TWO YEARS, corporations got massive hand outs, people did not have to make mortgage, rent or student loan payments for two years. When you tell people to stay at home and not go out and create goods & services, but send people money to maintain demand, demand outstrips supply.
This iinflation surge is all going to be short lived beecause it is only because of the pandemic. Where many think this is some "new inflation era" due to many narratives out there. USA real GDP was 2.2% from 1870-2000. It's been 1.3% since 2000. How do we get this "secular cycle of higher rates" with much slower GDP growth and worse demographics coming???
Politicians only care about getting reelected - not about economic theory... and the votes are in getting wages up - and that is inflationary. As my work on fertility tried to point out, higher wages could lead to a changing dynamics in fertility as well, if average workers feel secure, and have enough money to pay for more kids...
Russel, Fantastic idea - I have followed your work for a long time, the good times and not the very good times. If you ever great a fund again, I would be the FIRST person to invest in it.
One question, can PE firms style drift into more inflationary assets like say buying oil and gas companies or high dividend payers and get out of technology to blunt the impact? Does the underlying leverage mean that won’t work?
Higher interest rates, and more aggressive policing of tax makes me think even in "inflationary" assets, PE is going to struggle. Also, you have to remember most PE money is rolled over from old funds... if they struggle, then asset raising should go into reverse.
Very difficult to understand politics. whilst it appears that capitalism is struggling and that Labour/workers have the upper hand suspect this is not what the Western Governments want. Queues of young people who cannot afford to buy a house and have to beg to find an ever increasing rental property does not make for happy campers. Agree that Real Estate will struggle with ever increasing rates and regulations and probably the robber barrons in the PE world , although in truth they have all banked vast amounts , it will be their clients who get cleaned out. IMO this is about your call on inflation. We need to get it back to circa 2 % rapido .
Not sure what do want to say regarding Labour vs Capital...
Very difficult to understand politics. whilst it appears that capitalism is struggling and that Labour/workers have the upper hand suspect this is not what the Western Governments want. Queues of young people who cannot afford to buy a house and have to beg to find an ever increasing rental
Well governments need to do something about housing... In China they basically just mandated a bear market, but in the West higher interest rates are the only way to make it happen
I like the idea of your thesis. I’d be weary of the PE tactics though. Those that are well funded will treat the market as an Equity Grab opportunity to takeover solid companies.
“this substack is moving from theoretical to practical”. Awesome! And glad you’ll still keep writing on some of the theory as per your reply to Antoine above.
interesting idea - but might take time to unravel is proved correct (USD 3TR on the sidelines in PE...there are still fees to be earn there i guess) - your day one subs like me will most probably regret the old format of long term macro thinking which is what is missing in the research world. I would suggest you actually continue the same format/research AND add an additional option for the short PE trade.. what do u think ?
Yes - going back to the formula I had when running money... macro, industry stuff when I see it - but then a regular portfolio update at the end of the month. The big difference will be looking closer at markets and individual stocks - which I have avoided doing as I wanted mind space to think big picture stuff... And if you have anything you would like me to look at - just drop me a line! I still plan on being interesting!
With respect to where bond yields are headed, I think folks still need patience for the lag effects to kick in. The US 10 yr T has barely been over 4% consistently for even a few mos. It's been only a year that rates have been somewhat high. There is no way a world economy built from 2009-mid 2022 on ZERO rates can take a 4% 10 yr T for long, let alone a 5% 10 yr T. This is going to wreck the economy soon, slow inflation, and drive yields down. And this whole "new era of inflation" narrative will go up in smoke.
Remember, something in 2020 & 2021 happened that had never happened EVER in world history. in the USA people were told NOT to go to work for 2 years! They were sent large checks in the mail, unemployment checks were doubled for TWO YEARS, corporations got massive hand outs, people did not have to make mortgage, rent or student loan payments for two years. When you tell people to stay at home and not go out and create goods & services, but send people money to maintain demand, demand outstrips supply.
This iinflation surge is all going to be short lived beecause it is only because of the pandemic. Where many think this is some "new inflation era" due to many narratives out there. USA real GDP was 2.2% from 1870-2000. It's been 1.3% since 2000. How do we get this "secular cycle of higher rates" with much slower GDP growth and worse demographics coming???
Politicians only care about getting reelected - not about economic theory... and the votes are in getting wages up - and that is inflationary. As my work on fertility tried to point out, higher wages could lead to a changing dynamics in fertility as well, if average workers feel secure, and have enough money to pay for more kids...
I disagree. The 40 year bond bull market ended in late 2020/early 21 when interest rates bottomed.
Inflation and rates will remain high for at least the next decade or two.
I think so too - but politics is what changes this... when the next Reagan comes along, remember to get mega long!
Russel, Fantastic idea - I have followed your work for a long time, the good times and not the very good times. If you ever great a fund again, I would be the FIRST person to invest in it.
Thank you!
One question, can PE firms style drift into more inflationary assets like say buying oil and gas companies or high dividend payers and get out of technology to blunt the impact? Does the underlying leverage mean that won’t work?
Higher interest rates, and more aggressive policing of tax makes me think even in "inflationary" assets, PE is going to struggle. Also, you have to remember most PE money is rolled over from old funds... if they struggle, then asset raising should go into reverse.
The ginea pigs are thanking you...master.
Easily the most cryptic reply I have ever had. I think its a criticism, but I am not sure.
Very difficult to understand politics. whilst it appears that capitalism is struggling and that Labour/workers have the upper hand suspect this is not what the Western Governments want. Queues of young people who cannot afford to buy a house and have to beg to find an ever increasing rental property does not make for happy campers. Agree that Real Estate will struggle with ever increasing rates and regulations and probably the robber barrons in the PE world , although in truth they have all banked vast amounts , it will be their clients who get cleaned out. IMO this is about your call on inflation. We need to get it back to circa 2 % rapido .
Not sure what do want to say regarding Labour vs Capital...
Very difficult to understand politics. whilst it appears that capitalism is struggling and that Labour/workers have the upper hand suspect this is not what the Western Governments want. Queues of young people who cannot afford to buy a house and have to beg to find an ever increasing rental
Well governments need to do something about housing... In China they basically just mandated a bear market, but in the West higher interest rates are the only way to make it happen
I wonder though when REITS become a buy. At least they are marked to market. At some point the price will be attractive.
Not while they trade above book value...
Aligned management and accurate asset valuations would help!
A shirt! tie next?
Actually wearing pants too....
Think this theme is fascinating Russell and that you are really on to something here. Best of luck!!
Thank you!
KKR Sees ‘Constructive’ Private Equity Environment https://www.bloomberg.com/news/videos/2023-10-04/kkr-sees-constructuve-private-equity-environment-video
🤔🤔
I bet you talk to any private equity guy and they will be like "yeah the cowboys next door are in trouble - but we are fine!"
Indeed, anyone that isn’t SoftBank can say that.
I like the idea of your thesis. I’d be weary of the PE tactics though. Those that are well funded will treat the market as an Equity Grab opportunity to takeover solid companies.
Economics don't work anymore