Category: Blog

I have just finished Among Others by Jo Walton. It won both the Nebula and Hugo awards in 2012.

I loved the vague magic as a lens through which Mori could process grief and loss, trauma, and change. Her sense of agency resulting from her ability to see faeries and to do magic allowed her to feel powerful when she was at the mercy of strangers and the state.

I am glad the problems with her mother were not clearly delineated.

I do not understand the one fleeting reference to her father making a drunk pass at her. . . His character is a bit of a mystery. Is he weak? Is he controlled? Is he just pathetic?

Overall, I enjoyed it despite the fantasy elements, which I normally loathe. There were passages that were so beautifully written that I want to reread them. But I do not feel a need to reread this one. . . I think the references to Sci-Fi classics and other literature was bordering on gratuitous, although I did laugh at the “Heinlein is fascist” argument.

. . . . .

After ruminating on this for another 16 hours, I feel like I can really connect with Mori’s longing for the valleys and the homes of her cherished relatives in Wales once she is removed to the new life. I can understand the longing for a place and time that does not exist any longer in the way you recall it.

In my case, I miss the spaces between the things – I miss the time to hang out between class and practice, the time after youth group where you could driver around and your parents would not know you did not come straight home. I miss the physical spaces as well – the forests and lake front areas and the playing fields edged by woods and blackberries. Most of the physical locations have long since changed and been developed. The spring above TOTV has long since dried up and the creek at the bottom of the ravine no longer flows year-round.

I think it is possible that my places – the magic of my youth – were no more real than the magic of Mori’s faeries. And maybe magic is the best way to describe that type of memory. It feels like magic, even now that I am old and far removed from that place.

Walton conjures up something bittersweet and universal in this. It is a beautiful piece of writing and is a far more honest tale in the telling than most stories told of one’s life. We all try to make our memories make sense and one thing logically follow another. But that is not how they exist in our brains. That’s how it is for me at least. The memories get bound up together and scrambled and reorganized into these impressionist ideas and images that are “true” but were never “real” in the way that I remember them. The feelings are real. They were forged in the moment the thing happened. And while I may not precisely remember why I felt that thing, I know the feeling is the truth of it. And that is enough for me.

I do long for the forests of my youth where they were alive with possibilities of real danger and they felt like a home to me.

Some people are so poor that money is all that they have.

Homebuilders, Biotech, HyperGrowth, China – All are on sale right now. We may not yet be at bottom, but we cannot be too far away from it.

If the fed can get inflation under control without real mortgage rates above 6%, I think there is a soft landing and a quick recovery after a mild recession. If inflation spirals beyond that, I think it could get ugly.

However, listen to people gripe about the cost of gasoline, groceries, housing, rent, and cars – I have to think that people will begin buying less by choice and out of necessity. If inventories grow ( see here), then I think inflation will slow and the main concern will be the reduction of the Fed’s balance sheet too fast – causing recession.

But more pain could come and the market could be messy in the next few months with all of the uncertainty from Ukraine/Russia, supply chain issues, slow growth in China, inflation in the US and other Western countries. . .

For now, I will watch for a bottom in homebuilders, biotech and growth stocks. And I will deploy money AFTER the bottom has formed.

Russian GDP per capita (PPP) is about 29,485 (2021). Ukraine’s GDP per capita is 13,943. [All numbers from wikipedia].

So. . . why is it that Russian soldiers are shocked at the lifestyle they see everywhere in Ukraine?? See here. And here.

Wealth inequality and kleptocracy.

As the war in Ukraine grinds on, and inflation ravages the United States as it emerges from the COVID-19 pandemic, markets have become volatile. Growth names and tech stocks were hit hardest over the last few months, and Chinese stocks remain down. Energy emerged as a winning sector as a result of the tension with Iran, Russia, and OPEC’s refusal to pump more oil in the midst of the current crisis and the West’s increased sanctions on Russia.

However, the main movers in the market remain Fed policy, and it’s increasingly hawkish rhetoric. Inflation has jumped significantly. Anecdotal evidence points to massive inflation that is not captured in the official numbers (All Item CPI increased to 7.9% according to BLS data). I have seen gas prices above $5 in LA county for more than a week now. Groceries are costing $45 to $50 per bag for me, as opposed to the $25 in the beginning of the pandemic. And, perhaps most significantly, rents and mortgage rates are increasing (this is significant because housing costs make up the greatest percentage of Americans’ spending ~33% of monthly budget).

In this environment, I believe it is useful to look at 1974, when inflation began to spiral out of control and how the stock market reacted to an environment similar to the current one, but also distinct in several ways. From 1973 to 1974, inflation jumped from 6.8% to 11%. The Viet Nam war was ending, and the fall of Saigon was still a year in the future. Nixon was being impeached. The United States had recently abandoned the Gold Standard in 1971, and OPEC began the embargo of countries that had supported Israel in the Yom Kippur War.

Given the unique situation in 1973, it would be difficult to compare it to the present moment. But, it may be sufficient to observe the similarities in themes: there is tumult in geopolitics, energy markets, faltering belief in democracy and U.S. power/hegemony. Perhaps most similar, there is unrestrained inflation happening now, for the first time since the period of 1973 to 1982. While I do not believe we are headed back to 15% mortgages, I do believe that inflationary pressure is not transient, and it will last for at least the next 12 months.

Assuming that the Fed is behind the markets is now orthodoxy. See here, here, and here. . . So, we will likely be in a rising interest rate environment for the foreseeable future, and it may take the Fed some time to impact market rates.

This is an obvious consequence (to me at least) of the massive increase in money supply by 20x. More money in the system has to lead to inflation eventually, and it probably would have happened sooner, had it not been for the pandemic, the slowdown in the global economies as a result, and the Russian invasion of Ukraine.

Essentially, I believe that we are in a similar position to 1973, and given that, it is worth looking at what happened in the equities markets during that difficult period. On January 2, 1973, the S&P reached an all time high of 119.87. It would not beat that level until eight years later in 1980. Here is a chart of the S&P from January 1973 through 1980.

That low in September 1974? That low is 62.34, which is nearly a 50% loss from the high. Yikes!

From the recent ATH of 4,766, the S&P is only down 300 points to 4,463. However, growth stocks (I will use the NASDAQ as proxy) are substantially off from 16,000+ to 12,800. As a quick note, Chinese stocks (using FXI as proxy), have also reached new lows last week, and then bounced heavily on the news that the Chinese government would “stabilize” its markets and the belief that the Chinese government may hedge on its support for Russia.

Conclusion

I think it is clear that there remain substantial down-side risks in this current market. I am bullish on the long-term prospects of both the United States and Asia. I like the potential for upside in the Chinese stocks presently, and I remain committed to the growth story of SaaS stocks in the US markets.

I remain broadly diversified in US equities in 50% of available funds, and I committed to SaaS and hyper growth companies using 25% of funds. I will use the price fluctuations to commit my remaining cash allocated to this thesis and to rebalance that portfolio. For the remaining funds (which are in a tax advantaged account), I will begin to buy into China related funds and try to be opportunistic as markets swing to oversold conditions.

I think some caution is warranted, as many markets remain “falling knives”. I must remember that there is no need to catch the exact bottom, and that I have always been better served by waiting for the bottom to form and the reversal to begin before committing the bulk of funds to the market. I already made the mistake of committing some money to the Chinese thesis too soon. In the long run, this will likely be a win, but it was an unnecessary risk, especially considering the volatility that will likely come, and that which was observed this last week.

Finally, if the war in Ukraine becomes a stalemate, and Russia just pounds the infrastructure and people with bombs, what are the consequences? What is the economic fallout from Ukraine’s potential inability to plant grain on commodity markets? On geopolitics? What are the consequences for China depending on their ability to sit on the fence? What if they lean one way or another? What are the consequences for Europe and the US?

Strange times. . .