Sun Tzu, generally considered a reliable source on Good War Ideas, said something along the lines of, “You’ve got to know your enemy in order to beat him, because some dudes hate being kicked in the junk and others seem to enjoy it.” The difficulty we’ve had defeating ISIS suggests that, maybe, we don’t really understand who and what the fuck they are. Everything we hear is filtered through politicians and pundits, each with their own agenda (“You know what ISIS is afraid of? Me, Donald Goddamned Trump!”). Fortunately, it turns out that finding out what ISIS wants is like finding out what a vegan eats: They’ll tell you. Which is to say that ISIS has a magazine.No, really. It’s an actual glossy, full-color magazine called Dabiq, complete with feature articles and photo spreads. So, in the interest of understanding just what makes these violent lunatics tick, I read through 700-plus pages of this oddly well-put-together propaganda and learned …
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Cent #1) “Anyone familiar with asset markets know that it is expectations that move prices” – George Soros
Cent #2) Every action has a consequence, and each consequence has another consequence (“Second-Order Effect”)
Expectations of long term interest rates post fed hike (if any), are not necessarily the same and not necessarily linear toexpectations of long term interest rates pre fed hike.
Cent #1+ Cent #2 = 4 , 8 or potentially 16 Cents
The actual action of an interest rate hike (if any) can create “expectation feedback loop”, in turn, a desire by market participants for higher yields on their investments dollars, this potential shift in expectations is not priced in anywhere in the markets, not in stocks, high yield bonds or real estate, the market is pricing in a small hike, but not a shift in expectations post hike.
Considering the prices stocks, bonds and real estate are trading at, and considering that underlying earnings, rents, cash flows are far from depressed, a small move from lets say 4% cash flow yield to “new demand” of 5% cash flow yield on some assets, (as result of new expectations) can create a 20% decline that could cascade into something more serious. if buyers decide to only step away, that alone is enough to create a decline of that magnitude in some markets.
This is not a prediction, in complex systems no one can predict, but one can and should look for places of vulnerability in the assets they own, and whether or not there is any margin of safety in them, now is a perfect time to do so.
This exercise of demanding margin of safety is necessary for long term survival, you can be plenty wrong if you have enough margin of safety, and if you don’t, a few errors can and will take you out.
ETF.com: Why is what happens to commodity prices—particularly oil—crucial to fixed income?
Gundlach: That’s been the case for decades. Oil is an incredibly important commodity. And oil correlates pretty highly to directions in interest rates. That’s because oil is a centerpiece-type commodity for inflation. Bonds care a lot about inflation. For government bonds, inflation is the most important thing. And oil is a harbinger of inflation. It’s not surprising that collapsing oil prices lead to a downgrade of inflation expectations, which leads to, on the margin, further support for bonds.
What’s been curious in the last month is that oil prices have been on a wild ride, and commodity prices generally have been on a wild ride. And yet for the month of August, the bond market was down in terms of total return, which is strange given the tremendous collapse that occurred in the commodity complex. If you’re going to take 20 percent out of the oil market price, under conventional wisdom, you’d’ve expected interest rates to fall substantially, not just 15 basis points or so, as we saw.
But again, go back to the Rosetta Stone. Why did this happen? Because oil collapsing meant the Fed was less likely to tighten. The more you analyze the markets, the more you realize the message has been crystal clear now, for nearly two years. The long bond wants the Fed to tighten. And I know that a lot of people have a hard time with that notion, but it’s difficult to look at the market data objectively and come to a different conclusion. People are far too committed to the idea that interest rates are about to explode higher. That’s been the wrong idea for years. And we’ve jumped to the wrong conclusion that the Fed tightening is somehow a disaster for long-term bonds. It’s exactly the opposite.
The EM Drive actually works and would dramatically speed up space travel, scientists have confirmed
Interplanetary travel could be a step closer after scientists confirmed that an electromagnetic propulsion drive, which is fast enough to get to the Moon in four hours, actually works.The EM Drive was developed by the British inventor Roger Shawyer nearly 15 years ago but was ridiculed at the time as being scientifically impossible.
It produces thrust by using solar power to generate multiple microwaves that move back and forth in an enclosed chamber. This means that until something fails or wears down, theoretically the engine could keep running forever without the need for rocket fuel.