New all-time highs on the S&P as tech/nasdaq stocks lead the way. The S&P PMI's exceeded expectations and showed service sector expansion. IBM beat and Tesla missed and DuPont shares were ugly. Yields were higher after a 5Y Note auction that tailed 2bps. The 2Y is ~4.38% and the 10Y is ~4.17%
I recently wrote about the "cruel irony of investing" and Ben Graham's ideas around the difference in investing on the basis of projection vs. protection here, and that might sound like a call to avoid optimism...it's not. I recently enjoyed a post by Joachim Klement titled When Optimism Becomes a Dirty Word . In the article Klement fleshes out an argument that pessimism and doom and gloom hold back societies by decreasing entrepreneurship and productivity over time, he might be right.
Simon Sinek is definitely an optimist. He defines optimism as "the undying belief that the future is bright" while also providing that it is not blind positivity or ignoring difficult circumstances.
I don't find optimism incongruent with concepts like "margin of safety". In fact I think it's quite congruent with the wisdom of Graham and his protege Warren Buffett. In Buffett's words, "In order to succeed, you must first survive." For anyone who is familiar with the basics of compounding, you have a growth rate on the bottom and an exponent. While you can get really large outcome by having a high growth rate, for those who study the best compounders they find that it's the exponent that matters the most. That exponent is time and you can't enjoy compounding if you or your portfolio aren't around.
Author Morgan Housel likes to say "save like a pessimist, invest like an optimist" meaning you can only be an optimist in the long run if you can survive all the short-run setbacks. Housel has also recently written about Optimism it's worth a read. In a talk Housel gave when discussing optimism and his first book, The Psychology of Money, Housel provided:
Real optimists don’t believe that everything will be great. That’s complacency. Optimism is a belief that the odds of a good outcome are in your favor over time, even when there will be setbacks along the way.
,,,,But the most powerful and important book should be called “Shut Up And Wait.” It’s just one page with a long-term chart of economic growth. Physicist Albert Bartlett put it: “The greatest shortcoming of the human race is our inability to understand the exponential function.”
One thing that can risk interrupting compounding unnecessarily and not allowing you to achieve the long-term optimism is excessive leverage. "It pushes routine risks into something capable of producing ruin." We've talked about leverage recently...go back to January 10th post on Howard Mark's "Easy Money" memo.
On the day ahead it's the Q4 GDP Advance, Durable Goods, Jobless Claims, 7Y Note auction. ECB expected to hold, we’ll see how hard they push back against rate cuts priced in.
XTOD: I'm finding the idea that the US experienced a series of small, sector-specific recessions in 2022-2023 more and more compelling. If so, that would lower the odds of the economy generally losing momentum now.
XTOD: "Profit: While we continue to execute on innovations to reduce the cost of manufacturing and operations, over time, we expect our hardware-related profits to be accompanied by an acceleration of AI, software and fleet-based profits." - TSLA
XTOD: Sobering chart on commercial real estate and the Fed's tightening cycle. This time is different! https://imf.org/en/Blogs/Articles/2024/01/17/us-commercial-real-estate-remains-a-risk-despite-investor-hopes-for-soft-landing
XTOD: Berkshire Hathaway spikes to record highs on news of the upcoming release of ChatBRK which will be “trained” on Buffett and Munger letters and interviews. Berkshire will also change the URL of its website to brk dot ai and will unveil a new nft logo.
https://x.com/tdgraff/status/1750140708172787803?s=20
https://x.com/zerohedge/status/1750265973079253352?s=20
https://x.com/DavidBeckworth/status/1750254790569828746?s=20
https://x.com/rationalwalk/status/1750192664253722756?s=20
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