BowTiedWombat

Musings on markets and life | Institutional investor | Building something of my own 🤫 | Inspired by @BowTiedBull

Not investment advice

[BowTiedWombat @BowTiedWombat]

Inflation is tricky investment environment

Most assets struggle in high/rising inflation regimes, and those that do well often offer modest returns

Let's explore this challenge starting with why most assets struggle in this environment

🧵

[BowTiedWombat @BowTiedWombat]

Nominals have a higher interest rate bc their principal is exposed to inflation

The additional interest is called breakeven inflation (BEI)

Nominal Yield = Real Yield + BEI

BEI is the inflation required by the market to breakeven with a nominal

https://t.co/pzLPYQWqbD

6/

[BowTiedWombat @BowTiedWombat]

@BowTiedBull Consultant class continues to get hammered

Surprised the RE shoe hasn’t dropped. Sparse deal flow for a while

Private credit is soaking up the banking layoffs. Particularly if you have CRE experience. People are gearing up for the asset backed financing frenzy that’s coming up

[BowTiedWombat @BowTiedWombat]

Institutional $ in crypto means more flash crashes, not less

Unregulated ability to manipulate the market

Bid it up. Wipe out the levered players
Bid it up. Profit. Rinse repeat

Wall Street’s dream

[BowTiedWombat @BowTiedWombat]

@BowTiedBoardGam Love me some Catan

My fav house rule is called Futures Contracts:
-Always 2 for 1
-I give you 1 resource now for 2 in the future
-I get the 2 automatically whenever you get them (almost as if I draw them instead of you)

Adds another layer of strategy to the game

[BowTiedWombat @BowTiedWombat]

@BowTiedFox But it’s genetics… they say while siping a Diet Coke waiting for the elevator to go up one floor

[BowTiedWombat @BowTiedWombat]

@BowTiedFox If I can’t trust you in the little things, how can I trust you in the big things?

Developing simple habits can transform behavior. It’s a self-reinforcing feedback loop

Be intentional with which loop you are in because it works both ways

[BowTiedWombat @BowTiedWombat]

@BowTiedWebReapr It is rather flexible. Creating custom components was relatively straightforward. They are still working out some details, but it’s getting better and has worked for what I need

[BowTiedWombat @BowTiedWombat]

@BowTiedWebReapr Yeah that is the one I integrated into my next.js project. I stuck the admin ui behind a protected route since I already have auth built into it

[BowTiedWombat @BowTiedWombat]

@BowTiedMaker Details matter

[BowTiedWombat @BowTiedWombat]

@Thomas_Salamus_ Dogs are displaced by first kids. Very natural

They are pack animals. The alpha needs to show them the order. If they pull, turn around and go home. 5 feet from door… done. Inch out, they will get it

Add aggressive, deep affection first thing in the morning to counter balance

[BowTiedWombat @BowTiedWombat]

@Cernovich Fake is out. Real is in

Trump is a cult, a cult personality

Democrats made him larger than life and are now trying to take it back

[BowTiedWombat @BowTiedWombat]

@Bowtiedplayer 😂😂😂 she got me

Marry up

[BowTiedWombat @BowTiedWombat]

Guys down bad

Me: It’s lame that you don’t even care if the chiefs win as long as Kelce plays well

Wife: You mean like you every Sunday with your fantasy team?

💀

[BowTiedWombat @BowTiedWombat]

Read: we finally figured out how to make money from Bitcoin

But it’s about time the street said it out loud

[Watcher.Guru @WatcherGuru]

JUST IN: BlackRock says #Bitcoin "creates global internet value that allows assets to move at low cost and in near real-time across borders."

[BowTiedWombat @BowTiedWombat]

@JuanSanchez0x0 The history lesson did get people talking about it, which is ironic, and Biden followed it up with a beautiful contrast

But mocking a world leader for being well informed… If only we had such criteria for our fearless leaders 🤦‍♂️

[BowTiedWombat @BowTiedWombat]

You are going to run into a supply problem as long as you have a growing population because all real estate is already owned

So someone has to sell and the buyer has to increase density

Since all homes are priced based on the last transaction, you are going to constantly be bumping up against this issue (bc once density starts happening people price land or homes accordingly and that further prices out those not already in)

The deficit makes it worse as it deteriorates the value of the money outsiders have to buy the new home

[BowTiedWombat @BowTiedWombat]

@BowTiedMaker Does the client like it? If yes, done. It’s not that complicated

The bells and whistles are usually there to hide a lack of talent

“But you can’t do a real x that fast” lol
No, you can’t

[BowTiedWombat @BowTiedWombat]

You are ignoring the real, human element in all of this

1) Deficits don’t increase the real equity of anything. You can add some 0s to the end of every USD number and nothing changes

2) The debt spiral will happen if people think it will happen. The same way money only has value if people think it does. If people believe that the debt they purchase will be monetized, why would they buy it to begin with? The market can impose discipline by not believing what you are saying and in not believing it they are creating the conditions for the spiral to exist

3) Increased deficits transfer real wealth intergenerationally. Real assets are owned, and the next generation must accumulate an ever increasing amount of wealth to acquire them. Ask any 20 year old trying to buy a house right now, and they will understand this

You can be correct mechanistically and wrong at the same time

[BowTiedWombat @BowTiedWombat]

Bit of a tangent from the market neutral/cash plus point (agree there): I was curious how much did you push on the effect of change in cash rate vs the level in affecting excess returns in this analysis and if it made a difference? Perhaps by testing excess returns by transition between states as well as during states?

We’ve seen more of a relationship between risk premiums and change in cash than between premiums and level of cash rates. Prices adjust when cash rates deviate from expectation, and once they “level out,” risk premiums normalize

Theoretically, if rates were stable at current levels, businesses and consumers would adjust around the new normal and excess returns would also normalize

We saw something that fit with that intuition in our analysis, but it seems to run against what this paper found