Another J-Hole Day is upon us. J Pow on the docket for 10am. For as anticipated as Powell is, your time is likely better spent reading Howard Marks' latest memo titled ' Mr. Market Miscalculates'. I've talked about Mr. Market back on January 23, 2024 and covered Marks' last memo here.
So what's in Marks' latest memo? Well, the starting point is the nod to Ben Graham's Mr. Market and the fact that market prices can diverge from underlying fundamentals because humans are emotional.
Graham himself would say: “The intelligent investor shouldn’t ignore Mr.Market entirely. Instead, you should do business with him - but only to the extent that it serves your interests." Benjamin Graham. Or as Charles Ellis said:
“Ben Graham and Warren Buffett have talked about a charming, seductive manic-depressive gentleman named Mr. Market. Every day he shows up on your doorstep offering to do business with you, When he's manic, he'll offer to buy your stocks or sell you his for absurdly inflated prices. When he's depressed, his prices go ridiculously low. The mistake most people make is answering the door just because Mr. Market knocks. You don't have to let him in. Why should you buy just because he's excited? Why should you sell just because he's down in the dumps? A long-term investor shouldn't care about market prices.” Charles D. Ellis
Anyway, back to Marks' he starts by discussing the recent events from Covid to the recent volatility associated the unwind of the Yen funded carry trade. He poses the question that if reality changes very little (i.e. if fundamentals of the economy don't change that quickly) why investor sentiment shifts so quickly. Marks' points to cognitive dissonance as a driver of market reactions as well as investors tendency to view all news in the lens of their particular mood or bias. Psychology vs. rules. Marks' notes how there are no immutable rules in the markets. Reminding me of the words of John C. Bogle:
" The laws of probability don't apply to our financial markets. For in speculation-driven financial markets there is no reason whatsoever to expect that just because an event has never happened before, it can't happen in the future."
Ultimately I think the message in Marks' message is broadly that investors win, speculators lose. Who are investors? Those who understand that in the long-run what the investor earns is what the business earns. As Keynes said: Investment = forecasting a business enterprise whereas Speculation = forecasting the market. Speculation is focusing on short-term trading, pieces of paper, not a focus on business. Remember that when the market overreacts to somebody like Powell talking.
As for markets yesterday, manufacturing flash PMI's stunk, services PMI's were ok and we had rising jobless claims and rising home prices. On that news we had stocks down, yields up. We head into Powell with the 2Y at 4.02% and the 10Y at 3.87%.
XTOD: I love this @GSpier story about the design of Berkshire Hathaway's website and annual report.
https://pbs.twimg.com/media/GVdFV9YWQAAXUOx?format=png&name=900x900
XTOD: Physical AI is here. At Robust AI we have developed the foundations for physical robots that do real work in real installations, and we have deployed them in both factories and warehouses. One key is to make them aware of humans so that they play nice, another is zero integration needs because they understand the world. https://aimresearch.co/ai-startups/physical-ai-the-next-breakthrough-led-by-these-startups
XTOD: The astounding efficiency of the human brain and the way babies and toddlers can learn: GPT3 took 1.3 million kWh to train. Converted to calories and assuming 2k calories/day, that's 1,500 years. think about what kids learn in 10! From discussion with @TerranMott this morning
XTOD: Ronald Reagan used to say that a Trivial Pursuit game designed for economists would have 100 questions and 3,000 answers.
XTOD: “Genius has the fewest moving parts.”
https://x.com/kejca/status/1826004932111294616
https://x.com/rodneyabrooks/status/1826417194668097982
https://x.com/patrick_oshag/status/1826637920037691637
https://x.com/rachelbovard/status/1826665351775408318
https://x.com/FoundersPodcast/status/1826640394194747886
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