Markets (and more) Musings

What’s the risk that the FED next move would be a rate increase? I just listened to The Compound and Friends podcast and someone mentioned this. I do not think is a far-fetched idea, considering that we had three months of increasing CPI above 3%. Do you remember all those lagging items inside the CPI that should have brought it down? I am still waiting 😉 That theory made sense and yet…

I obviously have no clue where rates would go. That’s why I run the portfolio I run. But I sense there are some groups, like commercial real estate investors, that were keeping their asses tight waiting for some rate cuts to relieve their agony and they might not come at all. We might finally see the pain we were promised…a year ago? but then does this mean we will see the rate cuts after that?

The only sure thing, IMO, is that lads that are spending a lot today, would do so even more with lower rates. Imagine the rush to refinance mortgages signed at 7/8%: sure that extra income would go…well, if it is not spent, it will find its home into the S&P500 which is basically the same thing from an econ POV?

There is no uniformity in the economy (has ever been?). People that are doing fine spend. People who are not doing so fine complain because they benchmark themselves against people who are doing fine. Politics is not helping (has even been?): take the student debt example. Cancelling student debt is only going to exacerbate the same issue: it will create moral hazard and universities will jack up prices even more. Unproductive degrees will be pursued again in the spirit of “Who are you to tell me I cannot seek this future for myself?”. At the same time, no one would go to work in those factories that are currently re-shored (would the FactoryGuy fictional character on TikTok ever work? A profile that celebrates the virtues of a decent paid, stress-free job? No. Mainly because the US economy is not structured for non-entrepreneur types. Taking a factory job is like selling an option: best case you get your salary, worst case they fire you with no social safety net. No rich American would accept to fund such a program out of their taxes, even if it would create a better economic environment for everyone). Inflation on top of inflation.

Meanwhile, oil is up again: bad for US but worse for Europe. Climate transition is going to be expensive and stopping investments in oil TODAY is only going to help those guys you do not want to help: Russia and the Saudis. And since we are here, war is inflationary as well: you spend money to make non-productive assets that destroy productive assets. Again, the solution for war is not thinking it will miraculously go away if you stop producing ammos and go around with a peace banner. Not so curiously, the no-war, no-oil, no-nuclear lads overlap really well: I guess is called stupidity. If you add to these that climate change is already turning agricultural commodities more expensive…guess where these “non-core” inflation items would point in the future?

Europe is in a bad place because it has to deal with and pay for a war with Russia because Russia is attacking the idea of Europe itself. Unfortunately, cutting rates in the hope of resuscitating its economy will sink EUR against USD and guess in which currency commodities are priced?

The price of gold is at all-time highs as well, and if you ask me, for an obvious reason: it is the only reserve currency non-US-aligned Central Banks can use. The idea of CNY as a reserve currency was bs from day one (I think Odd Lots did a great episode on this last year): China would have to switch from excess savings to deficits and other Central Banks should start to consider CNY bonds as ‘safe’ assets. CNY bonds, and also gold to a certain extent, are not even that liquid. Sure, when you are a massive gold buyer, price is there; but when you turn into a massive seller, and the possible buyer’s phone shows “Russia Central Bank” as the caller, guess who’s going to play hard?

My thinking is definitely clouded by two magnificent posts I read recently: one from Fallacy Alarm on why we are a depressed and cynical society (goes back to the financial nihilism theory) and the other from Noah Smith on the risk of a World War.

(I write about hedges and perfect portfolios, if that war happens…I’m fucked. I live in a country as a foreigner and my main property sits in another country where I am a foreigner too. These things do not end well. We do not even have the same passports as a family).

Maybe they are both right AND wrong. There is a section of society that’s parting like the ’20s and another super cynic part.

“Capitalism cannot work for everyone” is both right and wrong. It works for everyone because everyone enjoys a better life in absolute terms. It doesn’t because you do not care how well you are but how well you are compared to your neighbour. The great authoritarian regimes’ idea was to ban social media, so Russian and Chinese lads think they are living their best life (they are not) while here we are all pessimists because someone is earning more than us.

Full Swing is a crazy show.

But it reflects our society well. Why do golfers have to eat what they kill, earn money by winning tournaments, when they can take a guaranteed check from some Arabs? Playing a game for a living is not enough, going around in private jets is not enough, you want the guarantee of that life for you and possibly your kids. Without the grind. All of this in a situation where no one gives a fuck about golf (take this article from Bloomberg as exhibit #1). I guess looking at the president of PGA living his best life while doing jack shit is not helping (and for this matter, many “no-profit” sports league presidents do the same. I am looking at you FIFA. The World Baseball Federation owns a beautiful villa with a lake view in Lausanne and every time I pass in front of it I can only think REALLY?!?).

It reminded me of this great bit from Bill Burr:

Monevator re-posted a 3-part mini-series written by a guy who went FIRE like…a century ago 🙂 While I do not agree with the LeanFIRE concept at all, the five points included in the second part of the interview resonate well with my life.

Live centrally and in a small place

By “live centrally” the author means “live within walking (or cycling) distance from work, libraries, and shopping areas“. Cannot agree more. When I was in London, I could walk to my office and the whole family loved the area (and not only the family, if you consider the weekend pilgrimage many Londoners make to Broadway and Columbia markets plus the infinite number of series and movies shoot there). Same for our location in Zurich: can walk to the office, to the lake and to many restaurants and bars. In my building lives a Welsh guy who moved from London to Zurich same time as us; in London, he was living 700m from us…bit of a coincidence but also a sign that there are a lot of like-minded people who value these block vibes.

Cannot recall if it was Dror Poleg or Scott Galloway who, after Covid, started to tinker around the idea of “15-minute cities”: it is a great concept. In Zurich, you have to live within walking distance from the school, which means all the other parents live within walking distance from you. If you nail the right area, with the right vibe for you, it is amazing. Last weekend we were having a bbq with a family originally from Boston: 6 months ago we did not know each other, now we are planning holidays together (which we cannot do because we already have plans with the “London families” we met there). You can build a strong community because it exists a set of values that is borderless…basically what every far-right movement in every bloody country is trying to suppress.

I do not delve much into the “live in a small place” bit cause we are talking about Europe and some of the most expensive cities in Europe. Obviously you live in a small place.

Don’t own a car

One of the advantages of the previous point is that no ones need a car anymore. Not even with multiple kids. Two weeks ago my wife had to bring my daughter to the hospital: Uber was faster and cheaper. The ride cost CHF 12, the parking fee alone would have cost me as much. Just calculate how many rides a year you can take ONLY by saving on the car insurance cost ALONE. Now add the fact that you do not have to eat your stomach every year you receive the updated car insurance bill.

One of the main reasons I decided to leave London was that air travel became an unbearable mess. We wanted to live close to London City Airport and after Covid that place looked like it was run by the sloths of Zootopia. Here we can jump on a train and go everywhere. A train that has a cool kids’ section. A train that conveniently brings you to the airport in Milan in case you want to avoid the crazy costs of Zurich’s flights.

Around me, owning a car is the new smoking. It is more common to not have one than otherwise.

Stay healthy and fit

Even the “work 80 hours/week” type guys understand this now, so not too much to say. Shouldn’t be that controversial at this point. If your life revolves around places that are just a few minutes apart, you can exchange the commuting time for exercise time. There is a double benefit here cause you will feel better and you will also spend less money on doctors, drugs and so on; he says that a lot of problems are lifestyle-related and I agree.

Follow the 30-day rule

“Mostly own things you have used within the past 30 days.” Having done a moving every year and a half for the last 10+ years, I might be biased here. But this is not frugal-bs. This type of framework will help you to realise you do not need as many things as you thought. I feel bad when I go to other parents’ places and I see piles and piles of kids’ games; then I look at my daughter and realise she doesn’t care.

Again, it is not about the money. It is about space: yours and later, others, when you inevitably would throw away those purchases. I had to buy a microphone because we (I am doing it with other lads) might launch a podcast and I didn’t hesitate for the price, I hesitated about adding another widget to the house. It became mentally painful for me (this is not sane either, probably). One day, I’ll onboard my wife as well in this journey but today, today is not the day (I use a lot of her stuff though: hats, sunglasses, hoodies, jackets, tote bags).

Avoid regular bills

This is another thing that is common knowledge by now (the burn concept from Scott Galloway).

Then sure, go figure out what’s a regular bill when you have kiddos. What’s an appropriate budget for their activities? My feeling is that the only solution to the puzzle is to set a bare minimum saving rate, apply the above four points and then throw the rest to the kids. I don’t know, I live in Zurich: a 3-month class of whatever costs CHF 500…

What I am reading now:

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