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Vincent Deluard

lines on the record: 109
first: 2022-06-23
most recent: 2022-06-23
sittings or episodes: 1
sources: podcast

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“But it's not going to fall very fast. And part of the reason it's not going to fall fast is because last summer was disinflationary. All prices went down last summer. So your base effects are going to work against you in the next for the June, July, and September, October CPI is what I call the plateau of death. Kind of worries me because right now your CPI is a tug of war between your supply chain plus COVID plus energy where you do have disinflation because of base effect and then you kind of structural basket wages, rents, services where you still have positive month over month momentum. What worries me is that in the immediate term in the next two to three months, the disinflation coming from your energy plus supply chain plus COVID is going to slow. So inflation is going to remain uncomfortably high throughout the summer. I think by September, October, we're above 7.5, which I think is going to be.”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“Before that, Chile, before that, so I think you could see kind of some snowballing of inflation. I think that the last interview we did was called inflation is inflationary, and I believe that. That being said, all RSQL, let's say we don't have any new microshock, I cannot agree that inflation is going to fall.”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“Thank you. I think it's in the The second Wall Street movie, there's this scene when the The young aspiring trader asked the Goldman Sachs partner, you know, what's your number, the number where you call it quits? And his answer is higher. That's kind of my answer on inflation. I think it's still higher than consensus. I do think all else equal, and that's a big if because I think that's, by the way, one of property of the inflationary age is you get this kind of non-linear reaction that you get more unexpected events like, for example, I don't think Russia would invade Ukraine if there was not an inflation problem. And we don't know what the next macro shock is going to happen, whether it's a revolution in Egypt or major political instability in emerging markets. I mean, you see the political swings we see, for example, Colombia yesterday, Peru.”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“Vincent, what is your, let's say, over the next year outlook on what U.S. inflation will be, whether it's PC or CPI? I just want to throw a few forecasts at you, which is with the Fed's economic projections that they recently released, they think in 2023, PCE inflation will be down to 2.6% and this year it will be 5.2%. You posted a chart which shows that the forward inflation CPI swap for next year, 2023, will be something around 4.5%. Where are you? If we had to draw the Vincent Delaward forward curve of inflation, what would that look like? Because that's what I want to bet on, given that you've been so right.”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“I don't know if it's a good time to do a chamath quote. I don't know if this is ever a good time to quote chamoth, but I'm going to go with it. I don't know where he got that number, but it struck me. I think it was two years ago. He mentioned that, you know, 50 cents of every dollar that's raised in VC cable ends up being spent on AWS servers, Facebook ads, Google AdWords. So I think some of their, and I don't know how I got the numbers, I don't even know whether you can measure that truly. But I think he's touching at least an important concept that a lot of the money that was raised for IPOs, for VC, for SPACs, ended up being spent on the big tech companies. And that's a transmission, that's a contagion channel from the segment of the market that's imploding.”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“I mean, people just can't even tell, say what they're doing, like entire department, like product managers. I can't tell you how many, you know, Facebook product managers I've met. To this day, I still don't understand what they do. And most of them were hired in the past, you know, one to two years. And it's not the same profile, you know, early Google employee, it meant something. Like if you got, you know, if you got a job at Google at the time the IPO'd, like you were probably really, really smart and went through a gruesome process. It's not the same kind of employee that have joined these big tech firms in the past two years. So they will have room to cut. They will face some challenges, but, you know, of course, of course, they will survive. I think they will suffer a bit from this kind of spack VC bubble burst.”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“And then, I mean, the thing I would say about the big tech also is There are some headwinds coming for them in terms of supply chain for Apple. It's a huge problem. They rely on China, the zero COVID. I mean, plenty of challenges rising input costs, but they do have they come from a very strong place. They have a lot of cash. They have new monopoly power. They also have these extremely bloated workforces. I mean, one thing that really struck me in Silicon Valley in the past three, four years, just the insane amount of hiring that's been going on. I mean, just”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“For Apple, I think it's a fit of all the big tech stocks probably the lowest duration one. For a bunch of reasons one, the high cash on the balance sheet. So cash has the duration of zero, right? So this really good chunk of the market cap that has the zero duration. Apple pays a dividend. Apple has a large buyback. So a buyback, you can think of it as the way a zero coupon bond has a higher duration than a high coupon bond, right? Because a high coupon bond gives you your money back every six months. Apple does that in a way with a buyback and the dividend. And it was somewhat less overvalued than some of the big tech names. So I would think it's, that's why it's holding up because Apple is not a long duration stock, as you point out. So I would think the duration of Apple is probably that of the market makes sense. It's dropped about by the same amount as the overall market.”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“Okay, that makes a lot of sense. Now, what about the SP 5, the Apple, Google, Facebook, stuff like that? Because I always hear people say, oh, Apple is like a 70-year bond. It's like a 70-year bond. But if it really was like a 70-year bond, Apple would be down way, way more because TLT, ETF, which has 20 to 30-year treasury bonds, is down, I don't know, 35% probably more than that peak to trough. So an apple's down only 25%. So if it really was a 70-year bond, it would be down, you know, at least 40% on the duration and probably more. And then as well, it would be down because of the risk premium going up. So why is Apple sort of the generals of the market, the Googles, the Facebooks? Not Facebooks, but the Googles and the Apples. Why have they proven resilient and what's your outlook on them?”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“So, um, no, I would think it's mostly kind of traditional economy stuff. Like, you know, cable companies, not particularly good business operating in not very well run, very competitive industries, very low margin. And now they're getting hit with rising costs, which by and large they can't do much about. You know, it's like, okay, well, your electricity bill goes up. What do you do? I mean, you kind of have to pay at this point. Wages are going up. I mean, you need your workers. So, no, it's not energy and it's not mostly tech. It's just kind of mediocre old economy, like industrial communication, this type of stuff. Basically. Know SP 495, meaning you take out the Fang and the big techs, and that's”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“You make a good point, and that's something that's quite positive for the US. One reason that Junks Prize in the US not rising as fast in Europe is because a lot of the junk issuers wear the shell companies, which now in a complete reversal, if you look at the Bloomberg Barclays reports, the spreads X energy used to be, oh, don't worry, it's just the energy sector, but the rest of the economy is fine, right? Now, your X energy is actually higher than the index, meaning that energy companies get to board low cost because they are making more profits than God in the words of Joe Biden.”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“But that does not work when you have wages going up 8%. So DoorDash, Uber, Lyft, their labor costs must be going up. And by the way, they've been pretending that as if they don't have employees, as if they're independent contractors, which they're clearly not. Yeah, it's a crazy world. So, okay, so these stocks will continue to go down, Vincent. zombie companies in the Russell will continue to go down. Can you tell me what are the zombie companies? Because like four years ago, the archetypal zombie company was an energy company, but now that energy company has paid off all of its debt and is kind of doing pretty well. So what is the modern day zombie company now in June 20th, 2022?”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“I think the stock market is telling you no, and I think the way you summarize it was brilliant. Yeah, it's a different kind of innovation, right? I mean, the combustion engine is truly. The kind of innovation from the post war period. You had this broad-based effect on the economy that lasted for decades. I would put in there, but if you look at a lot of the innovation, as you mentioned, it's, you know, I'll pay a guy to fetch me a sandwich or even just I do believe Amazon is fantastic, but like, you know, a truck bring me a toothbrush at, you know, 2 a.m. in the morning is not more and more economic and more efficient economic organization than before. I mean, in some way, a lot of the Silicon Valley was just that. It was predicated on cheap capital and cheap labor and arbitraging that.”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“Yes, and I really want to hone in on the point you made about productivity because you and me, you know, the giant sort of grim reaper huge tractors that folks use to collect tons of wheat from the ground in a matter of minutes, that is obviously way more productive than you and me sort of toiling in the fields and picking the wheat and the corn by ourselves. That is a huge increase in productivity. But DoorDash, you ordering something over DoorDash and then me picking it up and delivering it to you, that's not more productive than you picking up yourself. It's just that you're paying me to do it. So it's just, it's fundamentally non-productive. And these businesses were born and thrived in an area during an era of low cost of capital. And the cost of capital is raising, can they survive in an area of a higher cost of capital?”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“A disciplinary effect, oh, you know, some kid in the valley is going to come up with an app, he's going to take my profit. So he created some price discipline as we see now that this was really just a bubble and a way some investor money, I think this discipline of traditional economy company is going to go away as well. So again, removing that accommodation, I think in the first round effect is going to be sorry, inflationary.”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“But the point is so that there were two deflationary assets, there was the loss, so effectively they were selling you a dollar for 95 cents. So they were giving you a five cents subsidy, which if you've taken an Uber lately, you've seen that this is being removed very rapidly. Or if you go on Airbnb, like the prices now are probably higher than hotels. So there's that reflection there. And then I think on a psychological level, there's also the For all the economy companies, there was a fear of being disrupted that kind of.”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“And the way to think of it is that it's again a subsidy in the investor class, the consumer class. And I think that's one of the reasons prices have remained so low. So there was the actual dollar loss, which we're plotting here. And this is all your millennial lifestyle company, you know, the DoorDash, the Ubers, the Lyft, the WeWork, the SmileDirect, the Carvana, the Zelo, the Lemonade, the Blue Apron, like all these companies that were going to disrupt everything. They would grow into it.”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“Yes, yes, yes, yes. And I think it speaks to the, I mean, the way I think of it is always we have a macroeconomic lens for me and the question of inflation. Again, I see this whole 2020, 2021. IPO spec bubble as a Hoping for productivity miracle. Basically, we had I mean, I never really believed in it, but like the view that COVID was going to be productivity positive, that we were at the, what was the term, the exponential age. Disruption was going to happen at a faster and faster rate. And now we are going to finance companies that would disrupt everything the way we eat, the way we work, the way we drive, the way we and so forth That hasn't happened. I mean, what we've seen by and large is a good old fashioned bubble where people bought assets thinking they bought a story and the story never turned out.”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“The ones that the IPOs that did price and the spec that did merge by and large didn't work. I mean, if you compare, if you look at the performance on the... Renaissance IPO ETFs, or just to look at the horrible majority of these things, yes, like it's down like. Not 20, like 80, 90.”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“Been suppressed for 10, 15 years. I mean, if you look at chapter seven, chapter 11 filing in the US, there's almost none. And the line's been going down for 10 years. I mean, we suppressed bankruptcy. And it's not, the structure of the economy hasn't changed. It's not like every, the quality of management has increased in the past 20 years. I mean, it's just that we had abnormal liquidity, abnormally low rates, abnormally low spreads, and that has kept a lot of uneconomic supply, which I would argue is at least in the short term, inflationary, because you're going to have to remove, we kept a lot of production alive, if anything, if investors were subsidizing consumers for 10 years because of the Fed policies. And as we unwind that, the first effect, I would think, is going to be inflationary.”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“About 20% of the Russell 2000 index, which is in this position. And again, that's looking back at the past year when we had record low interest expense and record high nominal GDP growth. So you only had 20% of the rest of 2000, could not make any money in these circumstances. If you look at junk bond yields, I mean, when I on average last year was about 4%, today is closer to eight. So you can't make the numbers work at four. What's going to happen when it moves to eight, especially if your top line starts to fall? Yeah, I think this is the next two to drop is going to be this problem that we had with corporate leverage, the fact that I would assume the high yield market is going to remain closed, or at least whatever prices will be at prices that these companies cannot afford. So we will see the bankruptcy cycle.”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“By a handful of very large tech companies whose profitability is somewhat overstated because of the stock-based compensation thing we're talking about, because of low rates, because of artificial stimulus in the economy, you pull that away and you have a picture that is a lot less healthy. So, the way I look at it is I try to measure the amount of the zombie companies. So, zombie companies are companies whose operating expense, which means the most generous profits, the most, you know, you don't look at depreciation, you don't look at tax. You just focus on the easiest metric is not enough to cover your interest expense. And then I added also.”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“So, on the speculative stuff, I mean, selling exhaustion at some point, which by the way, I don't think we are there yet. I think there's still a lot of speculative money that is invested, but it is deflating fast. I mean, you look at some of the names you mentioned, most of them are down like 80 to 90 percent. So if you think about the share of the market cap that is occupied, it's fallen a lot. I don't think we downloaded the process, but I think we've written them down quite a bit already. So you want to focus on the emerging risk, not the one that's behind you. To me, the main risk is corporate profits. I think that will be the focus for the next quarter. And we're not coming from a very good place. Overall, we have high profits, high margin, but in large part that is...”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“Down will be the companies that are highly indebted in the Russell 2000 that can't afford their interest rate expense. Tell us about what sort of companies these are and why do you think that the sort of baton in this bear market will be passed from like, let's say, the ARC stocks to these sort of Russell junkie companies?”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“Well, yeah, because it's an average, right? So you take a lot of cases and you average a line, and there were some fairly benign bear markets in it. So I don't think inflation is benign here. I mean, we have 8.5% inflation. It's being somewhat flattered by prior inflationary bear markets where we didn't have that big of an inflation problem. And also, I would argue that big of a stock market bubble. For example, you get the bear market from the 70s there when valuations were very low to start with. In the 70s, yeah, we had two or three bear markets. So that was bad, but each of them was not huge in itself.”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“Although looking at this chart, it's definitely not a bullish chart by any means, but it seems like the downside to some degree is capped. The most that the green line, inflation and recession is down is 25%. And we're at 20% now. So maybe according to this chart, if this chart is accurate, then like selling a 15% out of the money put spread would be a good trade. I'm not saying it is to be clear. But do you think it's possible that this chart is not bearish enough?”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“There I classified the prior 12 bear markets based on whether they were inflationary or recessionary or either or non or both. And you can see that for now we're tracking the inflationary ones, which makes sense, which are more brutal than the recessionary one. And the lines, whether there's just inflation or inflation and a recession, doesn't change all that much, at least at the beginning. So for now, again, the classification that matters is, is this going to be inflationary where market? My answer is yes. If it is inflationary bear market, that means it lasts more than Six months now and 20%.”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“Negative, we see probably some of the market stress that we haven't seen yet. We haven't seen major hedge funds blowing up. We haven't seen investors pull money, if anything, we've seen a lot of deep buying, especially in certain actively managed ETS. This is the next shooter up and you have typically bad seasonality in September, October. So you can see this perfect storm.”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“What I can see is a profit recession. That's really what I was talking about is a profit recession. That is the first true drop. I think before we see it in the economy, we'll see it in profits. And then if and when we'll see when it happens, but what happens if companies will get squeezed and because they are getting squeezed, they may announce big layoffs and then eventually that may be recessionary. But to me, that's more of a story for end of 2023, maybe 2024. And again, the biggest driver for market is going to be how quickly the disinflation process takes place. The market still expects it to happen very, very quickly. And my expectation is I won't. The issue for me is going to come in September, October, when we still have inflation, let's say 7.5% would be my guess by September, October. We see profits.”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“Been inflation in one. I'm not on the recession call. I don't spend a lot of time thinking about it. I think there's already a lot of economists that do that and to some extent it's kind of to me it's wasted time. I mean, we'll know a recession two quarters in a rear, the NBR will tell us when it happens, but it doesn't strike me as that relevant.”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“Yes, save one man to save five. So he makes the choice, he loses six men and keeps going. It's the exact opposite of what we think of when we think of Caribbean Sila. There was a right choice. And I think the much greater peril is inflation, not recession. If anything, a recession would be at some point would be bullish for asset prices, which I think is what we're seeing earlier in May when we had this little bounce in the S&P 500 at the same time, but also all the recession talks like, oh, okay, hopefully the recession will kill the inflation and then we can look at a world in which the Fed starts easing again, kind of like the 2018 playbook, basically. And this is a very reassuring narrative for markets because it's something that we've been accustomed to for 20 years and it's also something that would make us think like, okay, this is almost over. We don't 20%, but eventually this will normalize. On the other hand, inflation is much more devastating to asset prices. If you look at the history of prior bear markets, the nastier ones have”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so it's funny you mentioned Kiribati and Sila because in common language we think of it as oh two equally bad options and I think this is how the market has been thinking about inflation and recession right just like And in the story, in the Odysseus, it's the exact opposite. Odysseus has a choice to make if he goes by the whirlpool, he will lose his ship and all his men. I think that's Caribbees, I think. And then if he goes next to the six headed monster, he will lose only six men. So it's kind of like one of these moral dilemma. There is a right.”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“Right. So up until now, the drawdown in equity markets have been a hike in the discount rate, the rate at which future cash flows are discounted. But you think the next shoe to drop is going to be the cash flows themselves in terms of profits. And by the way, that discount rate is composed of the risk-free rate, which is treasuries, which is going up. That's spiked tremendous amount because of inflation, as well as risk premium, which is sort of the odds that the market is assigning because it needs a certain amount of protection. You said recession that we sort of have a perfect storm of higher oil prices, higher dollar. That's recession. How are you thinking about the odds that the economy is going to continue to be in inflation or continue to be in recession? And then also you sort of compare it to the Silla and Charybdis, where Odysseus has to choose, does he go to the world poll or does he go to the six-headed monster? Which is which?”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“Companies are underearning and yada yada disappointment. I mean, the combo of, I don't think a single example of positive earnings growth when you had at the same time a dollar shock, meaning the dollar is stronger, interest rates are higher, oil prices are higher. This is your classical recessionary combo or at least profit recessionary combo. So that's to me that part needs to be played out.”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“Your top line is going to slow, but your cost. I mean, the cost of everything is going up. The cost of financing is going up very rapidly. We had the biggest interest rate shock in four years, two years ago from zero to three in six months. We have very rapid wage growth. We have soaring energy costs. And then it's across pretty much every single commodity. So the squeeze on margin is going to be real. at the time when the top line is going to slow, we are going to start seeing in earnings i would think q3 q4 which is the exact opposite of the consensus things i mean for now we think earnings reacts the end of the year like we'll see six seven eight percent earnings growth q3 q4 to me that is a scenario for the second down leg of this bear market now we have the discount rate effect that the next down leg will be oh”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“Now it's been somewhat hidden because the economy has been so strong. I mean, despite all the recession talk and the University of Michigan sentiment data, you know, we're still looking at double digit nominal growth in the economy, probably 8, 9% inflation, 2%, 3% growth. So when the top line is growing that fast, even though costs are rising because of the building operating leverage, earnings are okay, like for Q2, I think we had four or five percent earnings growth, which in the grand scheme of things is okay. But think of it, you know, you have the economy is growing by 15% nominally or 12, and the bottom line is growing by 4. So what's going to happen next is, I mean, even I, who I would say, I am somewhat bullish on the economy compared to consensus. I acknowledge it is going too slow. So you get the operating leverage is going to start working the other around.”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“So we're very sensitive, probably more sensitive now than we were four years ago. And also the nature of convexity of asset prices, the closer you go to the zero, the closer it's asymptotic, right? I mean, if you discount something at a zero cash flow goes to infinity, right? So we have a lot of interest rate sensitivity built in because rates were so low. It's not the same thing going from zero to two than it is going from 8 to 10 in terms of the effect on the asset crisis if you look at the derivative first derivative it's much steeper around the zero lower boundary so that's that's where we've been it's been mostly uh discount rate risk premier as you pointed i think the next story is going to be earnings”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“For now, it's a discount rate channel, but I think it's going to move very rapidly to the margin channel. But yeah, it's the discount rate channel. I mean, to me, one of the most interesting development in the past month, it's not so much the route in the equity market. I kind of expected that, but it's the rise of real yields. If you look at the yield on the 10-year tips, it's positive for the first time since COVID. And it used to be minus 1%. It's probably around 0.5%. So you get 150 basis point increase in real yield. So TIPS means inflation adjusted yield, positive. So that has to be fed, you know, the way discount rates work, right? You have your risk-free rates, you have your inflation adjustments, you have your credits, right? So these building blocks, and they're all expanding at the same time. We have a very duration heavy economy.”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“The other thing I'll mention is I think cats have a more immediate effect on demand or the real economy than hikes, and that's because of the embedded option, the real estate market, and also for corporations. So you own a home rates go down, you refinance. So immediately you get this cash flow effect, or you pay less on your mortgage payment. What if rates go up, well, you don't do anything, right? You just wait and see. So it's only until your mortgage recess that you get the effect on your personal finance. Same thing with corporation, right? I mean, if freight go up and you don't have a liquidity problem and you have a lot of cash, well, it really doesn't matter, right? While conversely when rates go down, you see these huge refinancing boom, massive issuance. So I think the economy is more.”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“So, and this is where the bulk of workers is, right? The big tech companies have been so much hiring. We haven't even started the process. So yes, eventually it will work. But my concern about the way the market's been trading is this. The speed of this inflation process is something that would be unprecedented by history, the view that after like two or three rate hikes suddenly just going to roll over and it's going to roll over and fall below 2% very rapidly. So rapidly that we can contemplate rate cuts by February or March of 2023, which is what the Eurodollar curve tells you. This is unprecedented in history. I mean, I don't think we've ever had close to double inflation and then we're back on track 12 months after.”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“And that will have an impact locally, I would think. If you're talking like house prices in the Bay Area or second houses in Tahoe, I see that if you're talking crypto prices, I see that. If you're talking about the general price level, though This is still a relatively small segment of the economy. I don't think it's going to change a needle for thinking about the oil market. That's not going to change the fact that we have this kind of supply and demand imbalance in the oil market. It's going to take a very, very long time. And I think we're just starting. I mean, you see in the valley, I mean, yes, some small companies have announced layoffs like, you know, 20% across the board, cuts. But that's kind of the weaker, the big tech name still. I think there may be a couple hiring freeze, but we are very early in that process.”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“I know it's a good point. And I think you're going to start to see that in where I am in the Bay Area already. You're going to see that in real estate prices Clearly, there was this Almost like a perpetual motion machine, right? Where the big tech companies would pay half of their salaries in stock, stock market would go up in large part because money was flowing into passive vehicles. We're just buying the biggest stocks in the index. And then these employees were making huge comp packages which they would then use to buy other assets including tech stocks, crypto, real estate. And then that was also quite good for the tech companies because they could print stocks. So if you look at a free cash flow at their free cash flow, it was amazing. Well, it was amazing because they paid the employee in stock, not cash. So I think all that is indeed unraveling.”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“Monetary policy has become less efficient than it was. when the main tool was the deposit rates and we had a much more direct impact on the economy.”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“Or how many assets will be bought by the Zuckerberg family office? So we're deflating asset prices, but it's very hard that the wealth effect is a very improper tool to target inflation. And it's very unfortunate that we've come to realize so much on the wealth effect and means that, you know, if we are trying, which is my understanding of what the Fed is doing when it says, you know, financing conditions are too easy, what they really mean in stock prices are too high, do you think the stock market to control inflation is a very indirect way and it's going to make that this inflationary process very, very slow the same way that trying to inflate an asset price bubble in order to inflate real economy prices took more than 15 years and maybe, I mean, I think inflation came for reasons that had nothing to do with that. So the Fed's reliance on the wealth effect, which is effectively, has become, it's only tool, means that monetary”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“the low end, which may or may not keep with inflation, but still it's all going to consumption and then the squeeze is happening for the asset earning class. But again, if the value of Facebook goes down by 50% the way it has the consumption of Mark Zuckerberg is not going to move. It's just going, what's going to change in how many companies Facebook can acquire using its stock as a currency.”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“A duty to preserve asset prices because if asset prices are high, then rich people have money. And when rich people have money, they spend and eventually that will help them achieve the inflation objective, meaning at the time it was too low, right? And we saw that did not work, right? I mean, we've done a decade of wealth effect and precisely playing along the scenario described that you give Bill Gates more money, that doesn't change all that much, right? Because, you know, his propensity to consume is very, very, very low. So if he gets more money, he will buy more assets. So by doing 10 years of wealth effect, we've inflated asset prices, not real economy prices because by and large the money was going to folks who were buyers of assets. Now today we have the exact opposite phenomenon, which is why it's going to be very hard to get some real disinflation because we have this very high income growth.”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“Like I said, wage growth is faster for low-income, hourly position than it is for, you know. The HR manager at a Fortune 100 company. So, yes, and I think that also speaks to the folly of monetary policy in the past decade, I think it was 2009, there was a Ben Bernanke wealth effect speech, right? If you want to take a date for when did all this start, I would maybe put it there or the bait out of LTCM in the 1980, but that kind of fed put idea, the idea that the Fed had a...”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“The product managers at big companies which are probably getting squeezed right now. So it is happening behind the surface. Another thing I point about inflation and inequalities is inflation were the lowest in the US in 1979 after the growing inflation. So there can be a scenario where inflation is actually helping with inequalities and in large part is because inflation rights on the value of assets so it makes it easier for people who work to acquire houses stocks bonds and and you know this is a welcome trend i mean we've come from four years of wealth concentration where you know margins have gone up uh asset prices have gone up and by and large wages have stagnated so this is unfolding and taking the other direction”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“Supported by the data. If you look at the Atlanta Fed, it publishes studies of wages in real time by income level, by education level, by racial group, by type of work. And you'll see that the fastest growth is for lack of a better word, weaker categories. Hourly workers are wages are rising more for hourly than non-hourly, rising more for the low educated than the highly educated, rising more for non-white versus white, low income versus high income. This is where the squeeze is. I mean, we have a very tight labor market. in general, but it's tighter for jobs like truck drivers or waiters or nurses than it is for financial analysts or, you know.”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT
“So on the low income side, I think the argument is really about food and gas, right? It's because the poor you are, the higher the proportion of your income goes to food and gas, which have been going up. So I don't deny that this is the case. However... There is this almost kind of sentimental, it's almost like a mantra, oh, disproportionately affecting the insert, you know, victim group here that is not necessarily”
2022-06-23 · Forward Guidance · A Profit Recession Is Coming, An End To Inflation Is Not | Vincent Deluard · IDENTIFIED FROM THE TRANSCRIPT