US debt ($31T) does not assume payments for future liabilities.
Present value of US debt including future liabilities close to $200T.
Fiscal Gap: how much you would have to raise taxes today to guarantee seniors the benefits promised to them in the future.
Currently 7.7% of GDP.
So, to pay for all future entitlements one would either have to
- Raise all taxes by 40% today, forever, or
- Cut all spending by 36% today, forever
Borrowing from the future = crowding out private investment.
Entitlements are c. 70% of total budget. Will have to cut them.
Just entitlements + interest expenses will be 100% of taxes by 2040 (excludes defense, govt operations, etc.)
There are many more shoes to drop as the Fed stays tight.
Every time you have a significant asset bubble, economic trouble lays ahead.
“Biggest, broadest asset bubble ever” >> then jack rates 500bps.
Expect to see many more bankruptcies. Asset markets and economy.
e.g. corporate profits to sink 20-30%.
e.g. CRE office space is a problem
e.g. credit tightening next 6-9 months, esp. given balance sheets are impaired by low yielding treasuries.
Then real losses e.g. credit cards, real estate, etc.
No change to forecast of “hard landing”
$5T monetary + $5T fiscal put in during Covid
= giant stock of liquidity ($2.5T excess demand deposits, etc.), working it off
TGA drained account ($0.7T), plan to recapitalize
etc.
Will reverse from liquidity to draught. “Pushing out” doesn’t change probability it will happen.
Since landing has taken so long, will likely result in higher-for-longer rates and inflation, and higher P(recession)
“There’s always stuff to do.”
AI is real…could be as transformative as the internet…
History has proved if you have very good, sustainable earnings in a recession, the stocks do just fine.
AIs have dominated long portfolio for past 6 months.
Short on 6-18 month expectations, “never had a down year but not sure I’ve ever made money in shorts”
“In 1999, shorted 12 stocks at $200 million. Lost $600 million on them. Every single one of them eventually went bankrupt.”
“If AI is real (secular), you don’t have 10-month moves.”
Top coders are 7-8x more productive than they were 1 year ago.
Does not see same promise as China bulls.
“7-8 years ago energy was superb, but then XJP did his thing. He has proved he is not a capitalist or monopolist…there is only room for one monopolist in China which is XJP.”
Japan has been the biggest value trap in history.
In 2023 breadth of rally has been tremendous.
- Solving deflation (getting nominal growth)
- Into shareholder value
- Monetary policy = inflation rising but still pushing it (JP two years ago)
“Track record is a much knowing when not to play.”
“This is the most complicated, non-roadmap, un-analyzable situation (economic confidence) I’ve ever seen. I don’t see a fat pitch.”
…
“Think some REALLY fat pitches will emerge in the next 8-24 months. Want to be ready for them.”