JD Straight Up: 11Nov24 - Roaring Twenties

Roaring Twenties

Drulard Family Capital Fund

Fortnightly Macro View

JD Straight Up:

S&P 500 at 6001 – up 3% from 5836 two weeks ago - all-time high

VIX at 15 – down 21% from 19 two weeks ago

10yr Treasury yielding 4.31% (up 2% from 4.23% two weeks ago)

Agg (US Aggregate Bond Index) at 98.28 – flat from 99.48 two weeks ago

Gold at 2626 per oz (down 5% from 2754 two weeks ago)

Crude Oil (WTI) at 68 per barrel (flat from 68 two weeks ago) - natural gas spiked 27% Bitcoin at 87,149 (up 27% from 68,563 two weeks ago)

JPM shares at 239 (up 6% from 225 two weeks ago) - market cap 674bn

Deutsche Bank shares at 17.19 (flat from 17.17 two weeks ago)

Truist shares at 46.44 (up 6% from 43.91 two weeks ago)

Blackstone shares at 183.16 (up 9% from 168.79 two weeks ago) - all time high

Magnificent 7 Index at 324 (up 7% from 303 two weeks ago)

US unemployment: at 221,000 in latest claims – down 3% from 227,000 two weeks ago

EUR at 1.07 USD (down 1% from 1.08 two weeks ago)

GBP at 1.29 USD (down 1% from 1.30 two weeks ago)

Macro Environment

US election is dominated by republican party with Trump winning presidency and all key swing states with control of electoral and popular results and control of senate achieved and house expected.  Administrative platform changes include widespread and aggressive use of tariffs, control of immigration, tax cuts, deregulation, and drives to make the federal government more efficient.  Markets experienced post-election euphoric rally in tech, financial and crypto.  China moved to inject stimulus for its economy.  Wars persist in Ukraine and Gaza with tension between Israel and Iran simmering.

Macro View

It looks like 2.0 of the roaring twenties with an upgraded Gatsbyesque style of decadence and one-upmanship.  Heard at the F1 cocktail lounge: "my bay boat is now a 60 Azimut".  Stock tips from the shoeshine boy now come in the form of the barber explaining how Dogecoin provides more leverage than Bitcoin.  The consumer economy and the envy society continue to drive consumption well beyond what earnings produce.  Leverage is readily had at all levels of society and fully engaged.  All of this is facilitated by an easy money policy and a comfort with leverage at the consumer, corporate and country level beyond what any of us have seen in generations.  You need to go back to the last roaring twenties (1920-1929) and the envy society that drove margin lending and mass speculation.  That twenties came after WWI and the Spanish flu where it made sense to celebrate being alive.  When the margin and speculation met with changing regulation and exceeded its natural peak, a crash and depression ensued. 

Relevance

The Fed and the federal government over the last two administrations have been hugely accommodative with monetary policy.  This easy money has changed the dynamic of everything.  Home buying, commercial property, auto buying, marine, transportation, tech, energy.  People were starting to believe that cars and boats were appreciating assets.  They were actually starting to believe that all assets were appreciating assets so you might as well buy the biggest and most expensive to generate the greatest cash return.  Speculation on not only digital assets, but on watches and art reinforces this idea.  Go out and buy things as their value will increase and if you arent buying then you are falling behind everyone else who is.  If you lack the cash on hand or your job does not leave you enough disposable income, then just ask for some leverage.  There are financial and non-financial institutions all over the place that are desperate to fund you and put their money to work.  Their message: this is the boom time and we are going to have a single party in full control of executive, legislative and judicial branches of government so it will rain money.  Hurry up and get yours however you have to and get fully stuck in as this is a generational opportunity to move ahead.

We didnt just emerge from WWI, but not so long ago we had the GFC and concern that our financial system might collapse.  We also had the pandemic that equates to the Spanish flu though without the equivalent per capita losses.  Nonetheless, it is enough to instill in people the desire to spend, acquire and speculate as they recognize they could have been one of the 7m casualties of covid.

We are also getting into the period of rationalization where AI is changing everything, deficits dont matter, growth covers all sins, and everyone deserves to be rich.  When the chorus of 'this time is different' gets loud enough, dont forget to duck.

Head Scratchers

1. Charts: 

Bitcoin Bonanza - from 17k to 87k in two years

S&P 500 - from 750 after GFC to 6000 now

2. Mythic Lore: "business cycles are over"; "this time is different"; "growth resolves leverage"

   
   

Drulard Family Capital Fund

Drulard Family Charitable Fund

www.drulardfund.com

#4 - 11Nov24